Fannie Mae Guidelines: Title Insurer Requirements

What Title Insurer Requirements Mean for Your Loan

When you buy a home, your lender requires title insurance to protect against ownership disputes, liens, or other title defects. Fannie Mae sets strict standards for which title insurance companies can issue these policies.

Your lender cannot just pick any title company. The insurer must hold proper licenses in your state and meet the lender's internal approval criteria. This might include having strong financial ratings from agencies like A.M. Best, maintaining adequate cash reserves, or demonstrating a good track record of paying claims.

Say you're buying a home in Texas. The title company handling your closing must be licensed by the Texas Department of Insurance to write title policies. If they're a small local company, your lender will evaluate their financial stability before accepting their coverage.

How Lenders Evaluate Title Insurance Companies

Lenders use several factors to approve title insurers beyond basic licensing requirements. They look at credit ratings from agencies like Standard & Poor's or Moody's. They review the company's financial statements to ensure adequate reserves for paying claims.

The lender also examines the insurer's claims-paying history. A company that frequently disputes valid claims or takes too long to resolve issues might not make the lender's approved list.

Some lenders maintain relationships with only a handful of major title insurers like First American, Old Republic, or Fidelity National. Others work with regional companies that meet their standards.

Special Rules for Reinsured Title Companies

Many smaller title companies purchase reinsurance from larger insurers to back their policies. This arrangement can help them meet lender requirements, but Fannie Mae has specific rules.

Both the primary title company and the reinsuring company must be licensed in your state. The reinsurer cannot just be licensed somewhere else and provide coverage across state lines.

The companies must execute Form 858 (Assumption of Liability Endorsement) or an equivalent document. This endorsement guarantees that the reinsurer will cover 100% of any claims and provides 90 days' written notice if the reinsurance agreement terminates.

Consider a small title company in Colorado that uses reinsurance from a national carrier. Both companies need Colorado licenses, and the reinsurance agreement must include the required endorsement attached to your specific title policy.

Required Documentation and Endorsements

Your title company must provide specific documentation to satisfy Fannie Mae requirements. For standard title insurance, this means a properly executed policy showing clear title to the property.

When reinsurance is involved, the title company must attach Form 858 or an equivalent endorsement to your individual policy. This endorsement cannot be a general agreement between the companies - it must be specific to your mortgage.

The endorsement must state that the reinsurer provides 100% coverage of the primary insurer's obligations. It must also include the 90-day termination notice provision to protect your lender if the reinsurance arrangement ends.

Why These Requirements Exist

Fannie Mae requires these standards because title insurance protects the massive secondary mortgage market. When your lender sells your loan to Fannie Mae, the title insurance transfers with it.

A financially weak title company could leave Fannie Mae exposed to losses from title defects. By requiring strong, licensed insurers, Fannie Mae protects both itself and the broader mortgage system.

The reinsurance rules prevent shell companies from offering title insurance without adequate backing. Without these requirements, a small company could issue policies beyond its financial capacity, leaving claims unpaid if problems arise.

The 90-day notice requirement ensures that if a reinsurance agreement terminates, there's time to arrange alternative coverage before the protection disappears.

Common Issues and Complications

Some borrowers run into problems when their preferred title company doesn't meet their lender's standards. This often happens with small, local companies that lack strong financial ratings or adequate reserves.

If your real estate agent recommends a specific title company, check with your lender early in the process. Switching title companies late in the transaction can delay closing while new title work is completed.

In some states, attorneys handle closings instead of title companies. The same financial strength requirements apply to attorney-issued title insurance policies.

Reinsurance arrangements can create confusion about which company actually stands behind your policy. Make sure you understand whether your title company uses reinsurance and that all required endorsements are properly attached to your policy.

Some title companies may claim they can provide coverage in your state when they're not properly licensed. Always verify licensing with your state's insurance department if you have concerns.

Iowa's Special Status

Iowa operates differently from other states through Iowa Title Guaranty, a state-run program that provides title coverage. Fannie Mae specifically recognizes this program as acceptable for Iowa properties.

If you're buying in Iowa, you can use either Iowa Title Guaranty or a traditional title insurance company that meets the standard requirements. The state program often costs less than private title insurance.

References

For the official guidelines, see B7-2-02: Title Insurer Requirements in the Fannie Mae Selling Guide.