UWM can quickly scale new loans without title insurance

Meet industry visionaries Pete Flint, Spencer Rascoff, Ryan Serhant and more at Inman Connect New York, January 24-26. Buy your ticket to the future by joining the brightest people in real estate at this must-attend event. Register here.

The CEO of the country’s largest wholesale mortgage lender says he can quickly expand his latest offering — a mortgage that doesn’t require lender title insurance — even as a title-industry trade group railed against the practice as “irresponsible.”

United Wholesale Mortgage (UWM) announced its new Title Review and Closing (TRAC) tool at an industry conference over the weekend to capitalize on rule changes from mortgage giants Fannie Mae and Freddie Mac aimed at helping borrowers get their save closing costs.

The rule changes give lenders the ability to use an attorney’s opinion instead of traditional title insurance on many types of loans, and UWM CEO Mat Ishbia sees an opportunity to steal business from competitors by saving consumers an average of $1,000 per loan.

UWM is hiring and training attorneys to prepare in-house attorney opinions to meet expected strong demand for TRAC, Ishbia told Inman on Wednesday.

Mat Ischbia

“I’m the largest lender in America, we can handle the scale of each and every loan when it counts,” Ishbia said of UWM’s ability to offer TRAC as an alternative to the lender’s title insurance. “We can handle the volume. We will continue to hire lawyers. We have several attorneys…licensed in every state. We have all the rules, all the processes, but we have everything under control and we’re really excited about that because it’s going to have an impact on consumers.”

On average, UWM expects that TRAC will save consumers approximately $1,000 in savings compared to the cost of obtaining title insurance from the lender, and savings of up to $2,000 in some states where title insurance costs are higher could be $3,000.

In August, proptech companies SingleSource Property Solutions and Voxtur launched an Attorney Conclusion of Title (ACT) product, also designed with Fannie and Freddie’s new guidelines in mind. SingleSource claims the new product will save consumers 20 to 70 percent compared to the cost of traditional property insurance, depending on the borrower’s location.

Ishbia said UWM decided it could offer its legal opinions “significantly cheaper” by hiring its own lawyers.

“We’re not like some little guy who doesn’t know what we’re doing,” Ishbia said of UWM’s ability to take on such initiatives. “It’s not that I don’t know you, 50 lawyers here and all these different risk people and everything. Like, we’re in the weeds on this one. We do what is right for consumers.”

UWM, which went public as part of a SPAC merger in 2020, is in an all-out battle for market share with rivals like Rocket Mortgage.

Last year, UWM introduced Appraisal Direct, a new internal appraisal feature that gives mortgage brokers the ability to bypass appraisal management companies. UWM also equipped the brokers with BOLT, an automated document recognition and processing system the company developed in-house to provide initial approvals to qualified borrowers in 15 minutes.

Then in June, UWM announced an “aggressive pricing strategy,” Game On, which UWM hopes will be “the final push we believe retail loan officers need to convert into a loan officer brokerage shop or open their own brokerage shop.” ‘ Ishbia said at the time.

That same month, UWM announced a new service for mortgage brokers, Boost, which serves as a marketplace for them to buy leads, keep in touch with past clients, connect with real estate agents and opt-in to live call broadcasts.

Homeowners’ insurance trade group warns

But UWM’s latest innovation, TRAC, has sparked the ire of the title insurance industry‘s trade group, the American Land Title Association (ALTA).

ALTA objected to Fannie and Freddie’s change of course with its federal regulator, the Federal Housing Finance Agency (FHFA), in a Sept. 6 letter to FHFA Director Sandra Thompson.

The letter warns that “there are many areas” where the protection provided by attorney opinions “falls well below what a standard title policy offers and will expose the homebuyer to additional risks.”

In a statement to Inman, ALTA’s Diane Tomb said that title insurance policies can insure against lien impairment by diversion of funds and similar risks, and that lenders without title insurance coverage assume these financial risks.

Diane’s grave

“It’s irresponsible for lenders to introduce alternatives to title insurance that increase risk,” Tomb said. “The market moved away from attorney opinions decades ago because they don’t provide the protection that is most important to both lenders and homeowners.”

Tomb said attorney opinions and other alternatives to traditional title insurance do not defend against property disputes that are challenged in court, and title insurers are backed by statutory financial reserves to cover future risks of damage.

“During the last financial crisis, we unfortunately experienced several systemic financial problems caused by shortcuts to established processes,” Tomb said. “If this crisis has taught us anything, it is that underwriting standards and risk protection should be strong and well tested. Strong underwriting protects lenders and consumers alike – and title insurance is an important part of that due diligence.”

SingleSource, which has not responded to a request for comment on this story, says on its website that its Attorney Conclusion of Title product is also “backed by special transaction insurance issued to AM Best A rated airlines at full value.” of the loan for the term of the loan.”

Ishbia largely dismissed concerns that attorney opinions carry increased risk compared to lender title insurance.

“It’s a complete joke, so I don’t even know how to answer that,” Ishbia said. “If my business was disrupted by someone doing a better job and offering a cheaper, better, faster, simpler product, I’d probably come up with a lot of stuff too, right? The reality is it’s better for consumers.”

The Consumer Financial Protection Bureau notes that lender’s title insurance policies only cover claims involving the lender’s loan. If homebuyers want to protect their equity in the event of a property issue, the bureau advises that “you may want to take out an owner’s property insurance policy.”

While Fannie and Freddie have opened the door for lenders to rely on a lawyer’s title report rather than title insurance, the mortgage giants will not accept a lawyer’s report on condo, co-operative or manufactured home ownership.

Ishbia envisions a day when borrowers can take out any mortgage without having to pay for the lender’s title insurance. According to UWM, the new TRAC process helps mortgage brokers complete title documents in an average of three to five days.

“I don’t know anyone who says, ‘Hey, give me the more expensive, chunky version,'” Ishbia said. “In our view, there is no additional risk [in substituting an attorney’s opinion of title for a lender’s title policy], and you can still get an owner title policy. I see no real need for it. But if people want it, they can do it too. But this is a significantly better product. And I hope that title insurance companies innovate themselves so they can make things better too.”

Ishbia advised borrowers and real estate agents interested in exploring the savings they could make by not taking out the lender’s title insurance to speak with a mortgage agent. FindAMortgageBroker.com, powered by UWM, connects borrowers and brokers with independent mortgage brokers in their area.

Get Inman’s Extra Credit newsletter straight to your inbox. A weekly round-up of the most important news in the world of mortgages and closures, delivered every Wednesday. Click here to login.

Email Matt Carter

Comments are closed.