Unregulated Alternatives to Title Insurance Protection

Analysis from First American Chief Economist Mark Fleming finds that fees for title insurance and settlement services are well below other costs charged to borrowers over the life of the mortgage loan. According to research published by Fannie Mae in December 2022, "differences in title and settlement costs across borrower race and ethnicity groups (once accounting for geography), were not economically meaningful."

There are a number of online resources that can help homebuyers navigate the process. The American Land Title Association, alongside our real estate industry partners, are committed to making transactions easier for everyone through consumer education efforts.

If Fannie Mae were to expand attorney opinion letters beyond the small number it issued over the last year, it would inevitably obtain more mortgages that have a title problem. Without insurance, more title defects will go unnoticed until after a home closing, and Fannie Mae would end up with riskier mortgages in its portfolio as a result, according to Ike Brannon, a former senior economist for the U.S. Treasury.

U.S. Reps. Andrew Garbarino (R-N.Y.) and Vicente Gonzalez (D-Texas) introduced a bipartisan bill that requires title insurance issued by a state licensed and regulated title insurance company on all loans purchased by Fannie Mae and Freddie Mac. The Protecting America’s Property Rights Act (HR. 5837) is a companion bill to S. 2687, introduced by Sen. John Kennedy (R-La.) and cosponsored by Sen. Katie Britt (R-Ala.). 

If Fannie Mae chooses to expand attorney opinion letters, it will necessarily be the recipient of more mortgages that have a title problem. Andrew Hanson, an Associate professor and interim department head of the Stuart Handler Department of Real Estate at the University of Illinois, Chicago, writes that without insurance as part of the transaction, more title defects will go unnoticed until after a home closing, pushing riskier mortgages into the Fannie Mae portfolio.

The title insurance industry — alongside our industry partners — has made it a priority to help more Americans benefit from homeownership by making the process more affordable and accessible.

The American Land Title Association (ALTA) is celebrating a huge win in its ongoing war against title insurance alternatives. Fannie Mae is no longer considering a pilot program that would bypass traditional title insurance by granting certain mortgage lenders a waiver on title insurance requirements for loans sold to Fannie, according to an announcement earlier this month.

Since March, ALTA has raised concerns about a reported pilot program being considered by Fannie Mae that would waive title insurance requirements on certain loans it purchases. Last week, ALTA confirmed that Fannie Mae is no longer pursuing the title waiver pilot program it had under development. This pilot will not be submitted to the Federal Housing Finance Agency (FHFA) for review or consideration.

In a misguided attempt to lower costs for some homebuyers, Fannie Mae is reportedly considering a new program that could prove to be harmful to homeowners in California and across the country, according to Lisa Steele, a member of ALTA's Board of Governors and chief operating officer of Mother Lode Holding Co.

In a misguided attempt to lower costs for some homebuyers, Fannie Mae is reportedly considering a new program that could prove to be harmful to homeowners in Ohio and across the country, according to Jeffrey Gammell, president of the Ohio Land Title Association and CEO of M&M Title Co.

ALTA submitted a letter in response to a proposed rule by the Federal Housing Finance Agency (FHFA) that would formalize many of the agency’s existing practices and programs regarding fair housing and fair lending oversight of its regulated entities. In the letter, ALTA took the opportunity to thank FHFA for increasing public engagement, but wrote that it was disheartening to see Fannie Mae use the Equitable Housing Finance Plans to explore going beyond its charter and into the primary market via a reported title waiver proposal.

Real estate investors will need to consider the pros and cons of accepting potential unknown financial risks by using an attorney opinion letter. Will Fannie Mae's pilot program prove to have savings in the long run, or will an insurance-related product still be the choice by default?

April is National Fair Housing Month. Liberty Bank and Connecticut Attorneys Title Insurance Co. have partnered, not only this month, but all year long, to create stronger communities and to break down barriers to homeownership.

HousingWire Editor in Chief Sarah Wheeler talks with reporter Brooklee Han about title insurance alternatives, including attorney opinion letters (AOLs) and how those are being received by the industry. During one part of the podcast, Han said, "The lenders definitely have to have a bit of an appetite for gambling, if they want to use this option or feel willing to accept an AOL in lieu of title insurance.”

Personal finance personality Dave Ramsey says when buying a home for the first time, there are many things to consider. "Always get title insurance. Always! If you're buying a piece of property that’s not a traditional subdivision-type lot, have a survey done."

Donnell Williams, president of the Black Real Estate Professionals Alliance and former president of the National Association of Real Estate Brokers (NAREB), says that while there is a critical need to continue to work on affordable homeownership solutions, unproven shortcuts like accepting unregulated attorney opinion letters in lieu of a title policy could ultimately expose both consumers and lenders to greater financial challenges. 

Reports of a new Fannie Mae pilot program would take us down a risky path, ALTA CEO Diane Tomb noted in a recent HousingWire column. As we witnessed with the recent bank failures, financial institutions that move beyond their mission and scope can introduce significant risk to consumers and taxpayers. Shortcuts to well-established processes do not end well — as the 2008 financial crisis demonstrated.

ALTA sent letters to members of the House Financial Services and Senate Banking committees to share concerns regarding Fannie Mae’s reported consideration of a pilot program that would provide a waiver from any title insurance requirements for certain loans the government sponsored entity (GSE) purchases.

The title insurance industry is often bemoaned for being antiquated and making minimal changes, but that has not been the case for the past 12 months. Nearly a year after announcing that it would begin accepting attorney opinion letters (AOLs) in lieu of title insurance in limited circumstances, Fannie Mae is yet again making waves in the title insurance industry.

The possibility of lowering upfront costs for borrowers by using title insurance alternatives, which are now more widely accepted by major secondary market participants, has become more of an option for lenders and borrowers, but there's more to consider than the initial price tag.

Fannie Mae is reportedly considering a pilot program that grants certain mortgage lenders a waiver on title insurance requirements for loans sold to Fannie Mae. This would be in place of traditional title insurance. ALTA and several members of Congress have raised concerns with Fannie Mae moving beyond its charter and the additional risk put on lenders, consumers and the economy. 

After the Federal Housing Finance Administration (FHFA) announced that attorney opinion letters (AOLs) would be accepted in place of traditional title insurance in April 2022, the industry change is leaving consumers, lenders, and title professionals with unanswered questions. The concern for the consumer is what drove Diane Tomb, CEO of the American Land Title Association (ALTA), to get involved in the conversation and dedicate her time and energy to educating homebuyers, lenders, and industry colleagues about the reality of AOLs. Listen to this episode of the Stavvy podcast, Finside Chats, to hear more.