Inside a Plan to Save Homeowners Hundreds of Dollars Closing Their Mortgages -WSJ

WASHINGTON—A government-controlled mortgage giant has a plan that could help more Americans save around $1,000 on closing a mortgage, the latest attempt to chip away at high costs that officials say discourage home buying. Fannie Mae last month said it would expand the types of mortgages it will purchase that rely on a cheaper alternative to title insurance, which is one of the biggest fixed costs tied to closing a mortgage.

The alternative, called an attorney-opinion letter, allows a real-estate attorney to essentially attest that there are no problems with a property’s title. The average borrower relying on such a letter has saved more than $1,000 compared with more traditional title insurance, Fannie said.

Attorney-opinion letters aren’t widely used outside of some Midwestern states such as Ohio and Indiana. Until late last year, Fannie only accepted the opinion letters with certain mortgages, and it said fewer than 10 lenders have sold it loans with an opinion letter since 2022. In mid-December, the mortgage-finance giant said it would accept the opinion letters on the majority of the single-family loans it buys from lenders. The Biden administration has directed Fannie and its smaller counterpart Freddie Mac to find ways to make housing more affordable, with particular attention to closing costs such as title insurance, which can run into the thousands of dollars on a property. Added competition in the title insurance space could over time bring down such costs, proponents say.

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The title-insurance industry has objected to Fannie’s moves, characterizing opinion letters as unregulated products that expose consumers and lenders to unneeded risk... Attorney-opinion letters were once widely used, but title insurance grew in popularity because there were limited options for recovering losses from the attorneys issuing opinion letters, according to a recent paper on title insurance commissioned by the Mortgage Bankers Association. The industry group doesn’t have a position on title insurance alternatives. Now, critics say that title insurance is overpriced, claims are rare and that digital access to public records makes it easier to confirm that a title is “clean.”

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