Fannie Mae allows limited use of title insurance alternative

Fannie Mae is now accepting a written opinion from an attorney in lieu of a title insurance policy “in limited circumstances,” according to a selling guide announcement published Wednesday.

Lenders “must ensure the loan is covered by either a title policy issued by an acceptable insurer (including any required endorsements) or a title opinion letter issued by an attorney,” according to Fannie.

Prior to the Great Recession, Radian attempted to launch a title insurance alternative that ran into opposition from an industry trade group. (Radian later entered the business by purchasing a title underwriter.)

“We are currently reviewing this announcement, and, as always, continue to engage with the GSEs and our lender partners on the important role our industry’s products and services play in a well-functioning housing finance market,” the American Land Title Association said in a statement, when asked about the insurance alternative Fannie is accepting.

At least one company, Voxtur Analytics, has responded to Fannie’s announcement by releasing a product that will be a “fully compliant alternative” to title insurance and steer clear of challenges other attempts in the past have run into.

To be approved by Fannie, an opinion letter must meet several pre-requisite conditions, including that the attorney be properly licensed and have malpractice insurance covering title opinions “in an amount commonly prevailing in the jurisdiction.”

Letters also must be addressed to the lender and all successors-in-interest, be commonly accepted in the property’s jurisdiction, provide gap coverage for the duration between closing and recordation, and include certain other information. In addition, the letter must list “all other liens and the states in which they are subordinate,” and “state the title condition of the property is acceptable and the mortgage constitutes a lien of the required priority on a fee simple estate in the property.”

Voxtur described its product as an “attorney’s opinion of title backed by transactional liability insurance that follows the loan into the secondary market and is issued by AM Best A-rated carriers.” That company will begin by offering the product in “select states,” but plans to eventually offer it nationally.

The title insurance alternative Voxtur is offering can save borrowers as much as one month’s mortgage payment in closing costs or more, according to the company.