Approving Attorney Opinion Letters In Lieu of Title Insurance Is Trending, But Use With Caution

In 2022, Equitable Housing Finance Plans were approved by the Federal Housing Finance Agency (FHFA) which allowed for government-backed entities like Freddie Mac and Fannie Mae to accept, in limited circumstances, AOLs as an alternative to title insurance for a mortgage transaction. Discussion of AOLs for the purpose of this article will solely be focused on their use in lieu of title insurance; the proposed objective of approving the use of AOLs in lieu of title insurance; the risks associated with this practice; and the stance taken by reputable title underwriters with regard to real estate transactions that accept this practice.

The Proposed Objective of Approving the Use of AOLs In Lieu of Title Insurance

Freddie Mac and Fannie Mae were created by Congress to provide more liquidity, stability and affordability in the mortgage market. The seeming objective of the FHFA endorsing plans for entities like Freddie Mac and Fannie Mae to accept AOLs (in limited circumstances) in lieu of title insurance was to provide a reduction of closing costs and more opportunities to obtain loans for low-income and first-time homebuyers. In a 2024 publication released by Fannie Mae, it claimed that borrowers in refinancing transactions saved on average over $1,000 when utilizing an AOL instead of title insurance. Additionally, Fannie Mae claimed to have purchased over 10,000 loans with AOLs since 2009 and stated that no losses from title claims on such loans were sustained. However, despite these positive figures, critics have suggested that the costs associated with this practice outweigh the intended benefits.