In recent years, the housing market has undergone significant challenges, prompting a need to curtail expenses for prospective homebuyers. The challenge of affordability looms large, and stakeholders are diligently seeking solutions to make the homeownership process more affordable and accessible from their vantage point.
According to Bankrate, the average closing costs in 2021 in the U.S. came to $6,905, including prepaid property taxes. However, certain areas, like Washington, D.C., pay an average of $29,888 in closing costs. That’s a lot of extra money to come up with at closing, especially if you just managed to come up with your required down payment.
In response to the need to reduce these costs, title insurance alternatives have been gaining momentum. In this blog, we will provide a recap of the latest developments surrounding these alternatives as they continue to surface and evolve.
What Alternatives Currently Exist?
Attorney Opinion Letters
An Attorney Opinion Letter (AOL) is a document drawn up by an attorney who specializes in real estate law and serves as a third-party opinion regarding the title to a specific piece of real property.
Real estate transactions once relied solely on a legal opinion by an attorney or special lawyer, known as a conveyancer, about ownership for real estate transactions. Due to some of the protection limitations that the conveyancer could provide, a court decision in 1868 led to the creation of title insurance.
Fast forward to today, AOLs have gained renewed attention in recent years following the government-sponsored enterprises (GSEs) efforts to make housing more affordable.
Several companies have begun providing AOLs, including
- Voxtur Analytics Corp
- SingleSource Property Solutions
- United Wholesale Mortgage
- iTitleTransfer LLC
Title Insurance Alternatives – A Timeline
With the recent surge in discussions about alternatives to title insurance, there’s been a wealth of information to absorb. Below, we’ve laid out the most recent developments in title insurance alternatives.
The Federal Housing Finance Agency (FHFA) announced Fannie Mae and Freddie Mac would submit Equitable Housing Finance Plans to FHFA by the end of the year.
As part of a broader set of issues, the presidential administration, in conjunction with the Federal Housing Administration (FHA), has worked with Government-Sponsored Enterprises (GSEs) to create equitable housing finance plans that look at the scope of all things on homebuying. Part of that process has been pointed out, saving costs in the closing process – which is where all of the conversations on alternatives and other cost savings approaches have stemmed from.
While preparing its Equitable Housing Finance Plan, Fannie Mae updated the Selling
Guide to allow for the use of an attorney title opinion letter in lieu of a title insurance policy
for certain transactions. It is believed the “limited circumstances” referenced in their update would be for certain refinances.
This announcement aligns their guidance with the guidance Freddie Mac issued in May 2020.
Not too long after Fannie Mae’s announcement, iTitleTransfer announced that it had developed an Attorney Opinion Letter Closing Platform that satisfies Fannie Mae’s requirements.
SingleSource announced the launch of the SingleSource Attorney Conclusion of Title (ACT) through a collaboration with Voxtur. The legal letters are GSE-approved and under the authority of the state Supreme Court in which the property is located.
United Wholesale Mortgage announced a product that will allow brokers to bypass their need for title insurance, called TRAC.
Voxtur announced Voxtur AOLs are now available on VA direct and VA-backed home loans. The announcement came shortly after updates were made to the VA Lenders Handbook from the Department of Veterans Affairs, which announced it would accept AOLs as an alternative to title insurance.
Reports started to surface that Fannie Mae was considering a Pilot Program that would grant certain lenders a waiver on title. This pilot program came on the heels of Fannie Mae’s April 2022 announcement that it would accept attorney opinion letters in lieu of standard title insurance for certain loans.
May was a big month for advocacy in our industry. At the ALTA Advocacy Summit, over 200 title professionals across the country came to Capitol Hill to express concerns about title insurance alternatives.
At the Congressional meeting, several members of Congress express concerns to FHFA Director Sandra Thompson about the reported Fannie Mae title waiver pilot and unregulated title insurance alternatives during the hearing.
Fannie Mae decided not to pursue its Title Waiver pilot program and the pilot will not be submitted to the FHFA for review or consideration. While this is the outcome that many title professionals had hoped for, Fannie Mae and Freddie Mac are still accepting certain attorney opinion letters (AOLs) in lieu of a title insurance policy “in limited circumstances.”
How Can Title Professionals Stay Involved?
Continue to Stay Informed and Ask Questions
Stay informed by regularly reading industry publications and attending webinars, workshops, and conferences related to title insurance alternatives. These events often feature experts and thought leaders who share insights and updates.
If you haven’t already, you can join the Title Action Network (TAN). This is ALTA’s free, organization focused on promoting the value of the title insurance industry. By joining, you’ll receive action alerts for relevant state and federal issues and brief advocacy updates on issues, including title insurance alternatives.
Reach out to Legislators
If we’ve learned anything from the public outreach regarding Fannie Mae’s pilot program, is that our voices matters. It’s important to reach out to legislators on concerns and advocate for policies that protect the interests of both professionals and consumers. Your active engagement can make a significant difference in shaping the future of our industry.
As many title professionals applaud the discontinuation of Fannie Mae’s pilot program, other title insurance alternatives are subject to further development and refinement as the endeavor to reduce closing expenses persists. It’s important to stay well-informed about recent developments and be prepared for the potential future impact of these alternatives.