In a selling guide announcement released last week, Fannie Mae announced that it would be accepting written opinion letters from an attorney in lieu of a title insurance policy “in limited circumstances.”
According to the announcement, lenders “must ensure the loan is covered by either a title policy issued by an acceptable insurer (including any required endorsements) or a title opinion letter issued by an attorney.”
For an attorney opinion letter (AOL) to be approved by Fannie Mae, it must come from an attorney who is properly licensed and has malpractice insurance covering title opinions “in an amount commonly prevailing in the jurisdiction.” In addition, letters must be addressed to the lender and all successors-in-interest, be commonly accepted in the property’s jurisdiction, provide gap coverage for the duration between closing and recordation, and include certain other information. The AOL must also list “all other liens and the states in which they are subordinate,” and “state the title condition of the property is acceptable and the mortgage constitutes a lien of the required priority on a fee simple estate in the property.”
If a lender receives an AOL in lieu of a title insurance policy, the lender must report Special Feature Code 155 when delivering the loan.
In response to a request for comment on this announcement, the American Land Title Association wrote in an email: “We currently are reviewing this announcement, and, as always, continue to engage with the GSEs and our lender partners on the vital role our industry’s products and services play in a well-functioning housing finance market that serves the needs of a broad array of American homebuyers.”
Fannie Mae did not return a request for comment.
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So far, at least one company Voxtur Analytics has responded to this announcement by releasing a product that it says will be a “fully compliant alternative” to title insurance. According to Voxtur’s annoucement, the AOL product provides lenders with an attorney’s title opinion letter backed by transactional liability insurance “that follows the loan into the secondary market.”
Voxtur said that the product will be offered in select states before being rolled out nationwide. The company also claims that in some markets, the savings generated by using Voxtur’s AOL product instead of a traditional title insurance policy, could save consumers up to an “entire mortgage payment.”
“Fannie Mae has identified closing costs as a barrier to homeownership,” Jim Albertelli, the CEO of Voxtur said in a statement.
This is not the first time a firm has attempted to create an alternative to title insurance. In 2003, Radian attempted to launch a title insurance alternative called Radian Lien Protection Policy. However, after a California judge ruled that this product was title insurance, the mortgage and real estate services provider decided to change tactics and purchased its own title insurance underwriter.