Fannie Mae expands attorney opinion letter use

An influential government-related mortgage investor is expanding the use of a title insurance alternative for loans on condominium units and certain other properties, and they're getting new pushback.

The new authorization in a Fannie Mae selling guide update would allow use of the letters "in limited circumstances" in conjunction with both condo units and homeowner association communities with deed restrictions on what can be done with homes and land.

The expansion marks a new development in ongoing tension between efforts by Fannie to experiment with what providers of attorney opinion letters call a less expensive form of lien conflict protection and the American Land Title Association's warnings that the change may be insufficient for protecting borrowers from fraud.

"Fannie Mae's decision to expand the allowance for attorney opinion letters in lieu of title insurance to loans purchased on condominium units will expose additional consumers and lenders to unneeded risk," ALTA CEO Diane Tomb said in a statement.

Pushback from ALTA contributed to Fannie's decision earlier this year to scuttle a pilot program in which it would've waived title insurance requirements entirely on some loans.

However, Fannie has stuck with its policy to allow limited use of attorney opinion letters since opening the door to that practice in April 2022.

The expansion suggests that the government-sponsored enterprise hasn't given up on exploring ways attorney opinion letters might be used in some circumstances where the risk of title conflicts may be more minimal than others.

Some vendors have been offering services that include scoring loans based on their level of risk in this area as an aid in determining which option might be appropriate.