Good afternoon —

Nearly a year after announcing that it would begin accepting attorney opinion letters (AOLs) in lieu of title insurance in limited circumstances, Fannie Mae is yet again making waves in the title insurance industry.

According to a report from PoliticoPro, the government sponsored entity (GSE) is looking at piloting a program that would bypass traditional title insurance and AOLs altogether. The program would grant certain mortgage lenders a waiver on title insurance requirements for loans sold to Fannie Mae and will be rolled out this spring, according to Politico.

Fannie Mae, which currently backs almost $4.1 trillion in U.S. residential real estate mortgages, would not confirm nor deny the rumors.

“We know that closing costs continue to be a barrier for homebuyers – especially among underserved populations and first-time homebuyers,” a Fannie Mae spokesperson wrote in an email. “We continue to research options that would lead to cost reductions in a safe and sound manner and help borrowers save money as part of our Equitable Housing Finance Plan. As we’re still in the research phase, we don’t currently have any additional details to share at this time.”

While unconfirmed, the potential pilot set off alarm bells at ALTA.

“We are extremely concerned about the reported Fannie Mae pilot program to waive title insurance requirements for certain transactions. It appears Fannie Mae is moving beyond its charter and mission directly into the title insurance business. It should raise significant alarm bells,” the trade group wrote in an email to HousingWire. “If the 2008 financial crisis taught us anything, it is that shortcuts to well-established processes pose great risks to our sound, dependable, and trustworthy real estate system, homeowners, and taxpayers. FHFA should halt this activity.”

Industry experts also expressed concerns over how this could impact lenders.

“If there is a problem, Fannie will most likely simply avail themselves of their rights under typical repurchase agreements and send the deal back to where it came from,” Howard Turk, the founder and managing director of Turk & Co, wrote in an email. “The real question is to Lenders who do these deals. For them — they have to determine whether or not they are feeling lucky. Title insurance is there for a very good reason. Going without it involves an assessment of risk.”

I will continue to follow this story and keep you up to date as it develops.

Until next week,

Brooklee Han

Real Estate and Title Industry Reporter