Pricing exceptions are widespread in mortgage — and so are the regulatory risks

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Fannie Mae purchased 45 loans with AOLs in 2022

The GSE is still looking into pilot programs to reduce closing costs

Nearly 12 months have passed since Fannie Mae first announced it would in limited circumstances be accepting attorney opinion letters in lieu of title insurance. While there has been much discussion over the pros and cons of title insurance and AOLs, what has remained unclear for most of the past year is just how prevalent AOL usage is becoming.

According to Fannie Mae’s 2022 Equitable Housing Plan Performance report, released earlier this month, the government sponsored entity received its first deliveries of AOLs during the fourth quarter of 2022. In total, the GSE purchased 45 loans with AOLs out of a grand total of 1.151 million loans purchased throughout the year.

Fannie Mae estimates that homebuyers who used AOLs as opposed to a traditional title insurance policy saved an average of $1,034 compared to homebuyers in the same states who used traditional title policies.

In addition to further developing its AOL program, Fannie Mae is also in conversation with multiple lenders and providers regarding potential test-and-learn concepts aimed at reducing the cost of title insurance for borrowers. The GSE will finalize the pilot program opportunity parameters by the end of the third quarter of 2023, according to the report.

Since Fannie Mae’s announcement last April, the American Land Title Association has been an outspoken critic of AOLs. The trade group has also had some strong words to say about Fannie Mae’s proposed pilot programs.

“We will continue to share our concerns about Fannie Mae moving beyond its mission and into the business of title insurance. Fannie Mae was not chartered, nor is it licensed, regulated, or reserved for such purpose,” Diane Tomb, ALTA’s CEO wrote in an email. “Oversight of title insurance is the purview of state insurance regulators. The Federal Housing Finance Agency (FHFA) should instruct Fannie Mae to halt this activity, and any pilot programs of the enterprises should be subject to a robust and transparent public comment process as called for under the recently finalized Prior Approval for Enterprise Products Rule at a minimum.”

Despite the concern and ongoing discussions surrounding AOLs, many real estate industry observers believe the impact of Fannie Mae’s actions will be limited.

“The focus of these programs is clearly narrow (to help underrepresented minorities). Further, as Fannie Mae acknowledges, title insurance is a heavily regulated product and regulation is at the state level,” analysts at Keefe, Bruyette & Woods wrote in an email newsletter. “This makes it difficult to make meaningful disruptive changes.”

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