President Donald Trump on Thursday signed an executive order aimed at reduced housing costs, which could save some mortgage borrowers thousands of dollars, but the final text is narrower than an earlier draft that had circulated in recent weeks.
Keefe, Bruyette & Woods (KBW) analysts said that the order was “more positive than some expectations, especially for mortgage insurers,” and that they see it as “fairly benign for both mortgage and title insurers.”
The order directs Fannie Mae and Freddie Mac to create a pilot program that uses automated valuation models (AVMs) to estimate current market value and identify borrowers eligible for cancellation of mortgage insurance, after equity and other requirements are met.
A draft order reviewed by HousingWire earlier this week would have applied the pilot to all mortgages purchased by the government-sponsored enterprises (GSEs). Industry estimates suggested that approach could affect roughly 40% of borrowers with mark-to-market loan-to-value (LTV) ratios below 80% who might qualify for mortgage insurance (MI) cancellation.
The version Trump signed limits the pilot to “mortgages made after the establishment of the pilot program,” sharply reducing its reach for existing borrowers.
“Private MI is designed to be temporary, and the system already works much the way the order envisions, because when MI is cancelled, a borrower’s monthly payment goes down,” Seth Appleton, president of U.S. Mortgage Insurers, said in a statement. “This is why we supported Director [Bill] Pulte’s recent action aligning the GSEs’ policies to allow mortgage servicers to proactively contact current mortgagors who may qualify for MI cancellation through home price appreciation.”
Under the Homeowners Protection Act of 1998, MI cancels automatically when scheduled amortization brings the LTV ratio below 78%. Borrowers also may request cancellation based on a new appraisal if their LTV is below 75% for loans with two to five years of seasoning, or below 80% for loans with more than five years of seasoning. Mortgage insurance allows borrowers who cannot, or choose not to, make large down payments, but it adds a monthly cost.
Appleton said a pilot on new loans can still test tools that might eventually accelerate cancellation where home price appreciation supports it while preserving the role of MI in helping borrowers buy earlier.
Expanding title pilot
The order also moves to expand a 2024 pilot that uses alternatives to lender’s title policies in certain low-risk refinances with LTVs below 80% in select areas. The directive contemplates allowing use on loans above 80% LTV, removing geographic limits and certifying additional title assessment providers.
Fannie Mae has integrated attorney opinion letters into its selling guide, and it has launched a title acceptance program that relies on internal data and analytics to waive lender title insurance on eligible loans. Lenders have delivered about 8,000 loans backed by AOLs and another 22,000 through title acceptance, with Fannie reporting zero title defects. Over the past 18 months or so, Fannie estimates these initiatives have saved borrowers about $25 million, or roughly $500 to $1,500 per loan.
Freddie Mac’s comparable “lender title assessment” option allows originators to perform title exams and cure defects without buying a traditional policy or an AOL. Freddie said borrowers save an average of $600 to $650 per transaction, with savings ranging from $400 to $1,700 depending on state rate structures. Launched about a year ago, the program has supported a little more than $3 billion of volume.
The order signals continued interest in alternatives to traditional lender’s title policies, particularly on streamlined refinances. How far these alternatives extend into higher-LTV loans and more markets will depend on how the Federal Housing Finance Agency (FHFA) chooses to implement the directive.
American Land Title Association (ALTA) CEO Chris Morton said the focus on affordability is “critical” but warned that any changes must maintain protections for homeowners.
“Fraud is unaffordable, and the threats facing homeowners are growing,” Morton said in a statement. “Research shows that seller impersonation fraud attempts have more than doubled in two years, and fraud and forgery claims associated with mortgage refinances average nearly $207,000. Now more than ever, we need to ensure that efforts to lower housing costs do not shift significant financial risks onto American families or the broader housing finance system.”
KBW analysts said they expect the earnings impact to title insurers to be limited. Refinances account for around 7% of current title premiums, and that share will likely be lower by 2027 if interest rates remain elevated.
Reducing refi costs
The order also goes after refinance costs directly. It calls for waiving appraisals, income reverification and other documentation requirements on certain limited cash-out refinances that reduce the borrower’s monthly payment, and for reducing or eliminating loan-level price adjustments (LLPAs) and other fees on these loans.
“We’re talking about reforms that could cut refinancing costs by nearly $2,400 on an illustrative $500,000 loan, as well as a new pilot that would proactively cancel mortgage insurance once appropriate equity thresholds have been met. That’s real money,” Brendan McKay, chief advocacy officer at the Broker Action Coalition (BAC), said in a statement.
“It also means more Americans could take advantage of lower interest rates when they arrive. FHFA now has the opportunity to turn this executive order into one of the most significant reductions in mortgage costs in years.”
In the current rate environment, however, refinance activity remains limited. Marty Green, a principal at Polunsky Beitel Green, said applying loan-level pricing relief only to refis constrains the benefit.
“Nevertheless, market participants hope that the administration considers expanding this program to temporarily suspend these cost add-ons for purchase transactions to boost affordability for those purchasing a home in today’s rate environment,” Green said in a statement.
On the EO in general, SimplyPMG CEO Jason Madiedo said most of the EO is “a long play,” with people likely to notice the benefit of the mortgage insurance piece years from now.
“The title insurance piece is real, but it’s aimed at the wrong part of the problem. Nobody refinances to save $800 on title. People refinance for one of two reasons: to lower a payment, which is rate-driven, or to pull cash out,” Madiedo said. “If the goal was to move the needle on refinancing, the lever was the loan-level price adjustment on cash-out, which FHFA also sets. Removing that would have made a far bigger difference than the closing cost.”
Creighton Oswald, managing partner at Agility 360 Advisory, said the administration “should get credit for trying to break the production logjam we have, but this EO is focused on the plumbing inside of housing finance and the problem right now is rates and affordability.”
“With rates above 7%, and staying higher for longer, I don’t see these proposed changes moving volume in a meaningful way anytime soon,” Oswald said.
