As policymakers and industry groups continue searching for ways to reduce the cost of buying a home, First American Financial is making the case that one frequently criticized closing cost may be protecting far more than a single real estate transaction.
The company released a white paper this week arguing that efforts to waive or replace title insurance in the name of affordability do not eliminate risk from the housing finance system. Instead, First American contends, those risks are transferred to lenders, homeowners, investors, and ultimately taxpayers.
The report comes as the mortgage industry continues to examine ways to lower closing costs while adopting new technologies to streamline the lending process. Title insurance has increasingly become part of that conversation, with some policymakers and market participants proposing alternatives for certain transactions, particularly refinances.
In its 18-page report, How Title Insurance Protects the Critical Infrastructure Supporting the U.S. Real Estate Economy and the Property Rights of Homeowners, First American argues that title insurance serves a broader function than simply paying claims. According to the company, title professionals search public records, identify ownership issues, resolve title defects, and correct problems before loans close, helping preserve the integrity of the nation's property records system.
"Property records are one of the most important forms of economic infrastructure in the United States, yet they are often overlooked and widely misunderstood," said Paul Hurst, chief strategy officer at First American. "Unlike roads, bridges, or power grids, this infrastructure is maintained through a partnership between public recorders and private-sector title professionals."
The company argues that this "curative" work distinguishes title insurance from other forms of insurance by preventing many problems before they become claims. As a result, First American says low claims ratios should not be interpreted as evidence that title insurance provides little value.
Among the report's most significant findings is the company's estimate that eliminating title examination and curative work would expose the housing market to approximately $600 billion in annual title-related risk on average, with potential exposure exceeding $1 trillion during the highest-volume years.
The report also challenges the common assumption that refinance transactions present little or no title risk. First American points to issues such as fraud, ownership changes, legal description errors, undisclosed liens, and recording defects that can arise after a loan is originated and affect both borrowers and lenders.
According to the company's analysis, title losses also develop over much longer periods than many other insurance products. First American estimates it takes nearly six years, on average, for at least 80% of title claims to emerge, arguing that short-term claims data understates the long-term value of title examination and defect resolution.
The white paper also seeks to reframe the affordability debate surrounding title insurance.
Drawing on Fannie Mae research and its own analysis, First American says title insurance premiums account for roughly 42 basis points of a home's value and less than 1% of a borrower's total life-of-loan housing costs. The company argues that reducing or eliminating title insurance would have only a modest effect on affordability while increasing financial risk throughout the mortgage ecosystem.
The report also addresses artificial intelligence, another area receiving significant attention across mortgage lending. While First American says AI can improve search speed, workflow efficiency, and data processing, it argues that technology cannot replace the title examination, legal analysis, and defect-curing work required to establish clear ownership before closing.
Ultimately, the company concludes that weakening title insurance would not eliminate title risk but instead redistribute it to market participants less equipped to manage it.
"Reducing title protection shifts risk rather than eliminating it," the report concludes, arguing that continued investment in title examination and property record maintenance remains essential to protecting homeowners, lenders, and the broader real estate market.
*This article was primarily written by a human author. AI tools were used in a limited capacity for research assistance or light editing.
