A government-controlled mortgage lender has proposed a plan that could help Americans save as much as $1,000 on mortgage closing costs.
In a recent update to its selling guide, Fannie Mae announced it is expanding the use of "Attorney Opinion Letter" (AOL) in lieu of title insurance. This means homebuyers who are qualified to use AOLs will have access to a real estate attorney who can confirm there is no problem with a property's title. This option, which is cheaper than title insurance, will save homebuyers up to $1,000 on mortgage closing costs.
In the new update, Fannie Mae said it would now allow AOLs to be used on "loans secured by a unit in a condo project" and "loans secured by a property subject to restrictive agreements or restrictive covenants." Prior the the update, both transactions were ineligible for an AOL.
"Fannie Mae believes that AOLs can provide an acceptable level of protection to Fannie Mae at a much lower cost to the borrower than a traditional lender's title policy. In recent years, widespread digitization of real estate records and technological advances have improved the process of confirming marketable titles, but that has not translated to lower costs for borrowers," the lender wrote in an FAQ document on AOLs.
"Fannie Mae research shows that low-income and first-time homebuyers pay disproportionally more in closing costs. Since beginning to accept AOLs under the Selling Guide in April 2022, savings to borrowers have been significant. On average, homebuyers have saved more than $1,000 when an AOL was used instead of a traditional lender's title insurance policy," it continued.
Are AOLs Accepted in All Mortgage Applications?
Some transactions remain ineligible for AOLs, including co-op share loans, loans secured by a dwelling on a leasehold estate, loans secured by a manufactured home, HomeStyle Energy and HomeStyle Renovation loans, Texas Section 50(a)(6) loans, and loans executed using a power of attorney.
The changes come after the Biden administration ordered Fannie Mae and government-backed lender Freddie Mac to look into solutions aimed at bringing down housing costs, with a particular focus on closing fees.
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