Fannie Mae, a government-sponsored entity (GSE) that backs almost $9 trillion in U.S. residential real estate mortgages, is looking at a new program that would bypass traditional title insurance and attorney opinion letters (AOLs) altogether. This program would grant certain mortgage lenders a waiver on title insurance requirements for loans sold to Fannie Mae and is expected to be rolled out this spring, according to a report from PoliticoPro. While Fannie Mae has not confirmed or denied the rumors, the American Land Title Association (ALTA) has raised concerns over how this lack of coverage will impact homeowners in the event that they ever need to file a claim on the title of their home.
This move by Fannie Mae follows its announcement from nearly a year ago that it would begin accepting AOLs in limited circumstances. The introduction of AOLs frustrated ALTA, and now the organization is even more concerned about what this new program could mean, especially for lenders. Founder and CEO of Turk & Co and one of the first to launch First American in Canada in the 1980s, Howard Turk, shares similar concerns with ALTA.
On the other hand, proponents of Fannie Mae’s Equitable Housing Finance Plans highlight the disparity between title insurance premium revenue generated compared to how much title companies pay out in claims. During the first nine months of 2022, title insurers paid out just $438.7 million in claims, while collecting $17.6 billion in title premiums, says ALTA.
According to ALTA, the organization is actively pursuing initiatives to reduce closing costs and anticipates that advancements in technology and automation within the title industry will contribute to further cost reductions in the coming years. Steve Gottheim, ALTA’s general counsel, said in an interview with HousingWire last November that over the last 10 years, rates have gone down 6% across the industry, which is important for homeowners, and it’s because of the investment the industry has put into automation and using machine learning and AI to search title and come to a faster decision about the title. However, the introduction of Fannie Mae’s new program raises concerns about the future of the title insurance industry and how it will continue to adapt to changing times.
