The American Land Title Association (ALTA) has urged the Federal Reserve Board (FRB) to require the inclusion of a title insurance policy as it evaluates the ability-to-repay and qualified mortgage (QM) standard. Title XIV of the Dodd-Frank Wall Street Reform and Consumer Protection Act amends the Truth-In-Lending Act (TILA) to establish minimum underwriting standards to implement the statute's requirement that creditors determine that the consumer has a reasonable ability to repay the loan according to its terms.
“The ability-to-repay requirement is one of the pillars of Dodd-Frank’s effort to address the causes of the residential housing bubble,” said Anne Anastasi, president of the American Land Title Association (ALTA), in a letter to the Federal Reserve’s Board of Governors. “While this provision recognizes the value of examining the borrower’s financial history, the history of the legal title to the collateral also needs to be examined. Prudent underwriting of a borrower’s ability to repay would require that a creditor evaluate the title to the collateral to determine what outstanding debts will need to be satisfied before the creditor can obtain the first lien mortgage.”
A title search and examination backed by a title insurance policy is a crucial underwriting feature that ensures that the borrower will have the ability to repay the mortgage by verifying their ownership of collateral and identifying any liens superior to the creditor’s mortgage. The title insurance process provides information that a credit report does not and can identify other debt obligations that could affect the borrower's debt-to-income ratio.
“Not all debts are evidenced in a credit report,” Anastasi said. “Rather some debts are secured by placing a lien against the property that will only show up after a title search and examination. Unless satisfied at closing, these secured debts will become the obligation of the borrower when they take title to the collateral. Without this process, both the borrower and creditor will be at greater risk for having their title challenged and suffering a loss.”
