The Alliance to Defend Affordable Homeownership is dedicated to spreading the American Dream of homeownership well beyond the wealthiest among us. We stand with the Biden Administration’s overall efforts to pursue our shared goal of increasing affordability in homeownership.
Unfortunately, one well-intentioned federal initiative purported to address affordability is pennywise and pound foolish. It will push the dream of owning a home even further out of reach. Fannie Mae and Freddie Mac are now accepting Attorney Opinion Letters or AOLs in lieu of title insurance under certain circumstances on loans they purchase. In theory, this could save money for lower-income homebuyers in the mortgage transaction. But in practice, it will not. What it will do is pile needless risk on lenders, homeowners, and Fannie Mae and Freddie Mac. They must end this experiment.
An attorney opinion letter is simply that – an opinion. In the absence of a title insurance backstop, lenders and property buyers will be left to fight over the consequences if the attorney’s opinion turns out to be incorrect. Title insurance protects against losses or damages from known and unknown title defects, including hidden risks that are not discoverable during a public records search. An AOL, on the other hand, only covers known risks. Importantly, attorneys are not liable for title defects that cannot be uncovered by a public records search, including forgery of a deed or other fraudulent activity. AOLs could also ultimately expose homeowners to significant attorneys’ fees when they are forced to defend their ownership rights.
In exchange for the promise of unproven savings at the front end, the AOL experiment jeopardizes the housing finance system and low- and moderate-income homeownership over the long haul. This kind of expanded risk is fundamentally antagonistic to our shared goal of increasing homeownership for underserved communities.
