CHLA voices support for attorney opinion letters to FHFA

The CHLA said it believes using AOLs in lieu of traditional title insurance for GSE-backed loans could improve affordability

The Community Home Lenders of America (CHLA) submitted a letter to the Federal Housing Finance Agency (FHFA) expressing its support for the use of attorney opinion letters (AOLs) on Wednesday.

In the letter addressed to FHFA Director Sandra Thompson, the CHLA says that it supports the use of AOLs in lieu of title insurance, “in conjunction with Enterprise mortgage loans, subject to reasonable standards.”

The letter cited mortgage rates and homeownership affordability challenges as reasons why the CHLA was asking Thompson and the FHFA to further explore AOLs.

“It’s a difficult environment for homebuyers with rates skyrocketing over the last year and a half,” Scott Olson, executive director of the CHLA, said. “In this sort of environment, we think the focus needs to be on ways to improve affordability. It has been a long-standing criticism of the title policies that the amount you pay seems like a lot of money in relation to what appear to be the claims.”

The letter notes that as of April 2022, selling guides for both Fannie Mae and Freddie Mac allow for the use of AOLs “in limited circumstances.” The CHLA also acknowledged that the GSEs have put requirements in place for when and how AOLs can be used, which the organization supports.

Olson added that the CHLA would like to see the conversation surrounding AOLs and their usage to increase, especially when they make sense in the place of title insurance, such as refinancing.  

“Because the CHLA believes use of an Attorney Opinion Letter holds great promise in reducing mortgage loan title costs, CHLA strongly encourages FHFA to make the potential use of this option a priority, and to dedicate the necessary staff resources to address any issues of concern,” the letter reads.

Despite the CHLA’s support of AOLs, Olson said it would be up to each lender to decide if it wanted to explore using AOLs on the title policies it issues.

“They are going to be responsible for these loans having clear titles, so they are going to have to do their own due diligence on this and feel comfortable with it,” Olson said. “We are not asking [to] supplant title insurance, we are asking to try to create this as an option.”

Since Fannie Mae’s announcement in April 2022, the American Land Title Association has been a vocal opponent to the use of AOLs. However, despite its concerns, Fannie Mae purchased 45 loans with AOLs in 2022.

The trade organization’s battle with the FHFA continued into 2023, when rumors circulated of a Fannie Mae pilot program that would have bypassed traditional title insurance by granting certain mortgage lenders a waiver on title insurance for loans sold to Fannie. The GSE announced in August that it was no longer considering the pilot program.

In the months since, federal lawmakers in both the Senate and the House of Representatives introduced new bills requiring title insurance on mortgages purchased by government-sponsored enterprises (GSEs).

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