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The Federal Housing Finance Agency, Fannie Mae and Freddie Mac are taking steps to ensure that everyone has access to affordable housing — especially low- and moderate-income families. Certain components of these initiatives, however, inadvertently introduce a level of potentially ruinous financial risk to the very borrowers they are trying to help.

 
Specifically, the plan by the government- sponsored enterprises to let homebuyers choose between title policies and attorney opinion letters (AOLs) is, in certain circumstances, a recipe for injecting new hazards into the homebuying process. (Freddie Mac started accepting attorney opinion letters in lieu of title insurance, in limited situations, in May 2020, while Fannie Mae followed suit in April 2022.)
 
The reason to allow these letters to be used is well intentioned. Title policies can add more than $1,000 (and even a few thousand dollars) to the cost of a mortgage, which is significant for individuals with limited means. But the costs of inadequate title protection, in addition to errors in the conveyance, could be much greater, totaling hundreds of thousands of dollars while putting ownership in peril.
 
The fact of the matter is this: The level of protection from an attorney opinion letter does not meet the protection standards of a title policy. It also introduces new risks for lenders.
 

Comparing outcomes

What are the differences in costs between title policies and attorney opinion letters? For a home in the $250,000 range, such as a condominium or townhouse being purchased by a first-time, lower-income buyer, the costs for owner’s and lender’s policies, along with all-inclusive settlement fees, is approximately $1,400 from a national title agent. Attorney opinion letters are priced about the same.
 
A common price from a national title company for a $250,000 refinance is about $850, which encompasses title search and settlement services, as well as a lender’s policy and closing protection. An AOL and settlement services from an attorney will often cost more.
 

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