Annmarie Bonanno
Staff Editor, Delaware Journal of Corporate Law, Volume 50
The Proposal for Title Insurance Alternatives
The Federal Housing Finance Agency, (“FHFA”), has recently called for a waiver of the requirement for title insurance in connection with certain refinance transactions, allowing alternatives to a policy of title insurance. The alternatives include the use of an Attorney Opinion Letter, (“AOL”),[1] and the FHFA’s proposed Title Acceptance Pilot program, (the “Pilot”).[2] The reasoning behind these proposed measures is an effort to reduce the cost of homeownership for many Americans.[3]
Attorney Opinion Letters
In 2022, FHFA introduced the option for lenders to utilize an AOL in lieu of title insurance.[4] The up-front cost for an AOL is generally less than the cost of a title insurance policy, but the risk to the borrower is higher.[5] An AOL can provide the same kind of assurance that an initial abstract of title provides: confirmation of ownership, notice of liens or claims on a property that need to be resolved, or a guarantee that title to a property is clear, but the similarity ends there. While an AOL is created using the same research done by title agents, a title company will also provide a policy of insurance. An attorney who provides an Opinion Letter would not assume the risk for anything beyond his or her research and review of the property records.[6] If a property owner relies on an AOL and later suffers a loss, the owner would need to prove that the loss was caused by the attorney’s negligence in order to recover.[7]
The issue of an attorney’s negligence in providing such an opinion has been addressed by courts in the past. Watson v. Muirhead is said to be the defining case that created the need for title insurance.[8] This case was decided by the Supreme Court of Pennsylvania in 1868, on a matter arising during the purchase of ground rents in Philadelphia.[9] At the time, attorneys would act as conveyancers, search title records, confirm that a property was clear of encumbrances, prepare deeds, and issue opinion letters on the sufficiency of title.[10] In determining whether Muirhead was liable for negligence, the court reasoned that “to hold him responsible would be to establish a rule, the direct effect of which would be to deter all prudent and responsible men from pursuing a vocation environed with such perils.”[11] Essentially, no one would want to be responsible for conveyancing if they would be liable for every mistake, even those not amounting to negligence. As a result of this case, the Pennsylvania legislature passed an act allowing for the incorporation of title insurance companies in 1874, and the first title insurance company, Real Estate Title Insurance Company of Philadelphia, issued the first title insurance policy in 1876.[12]
When purchasing a new home today, a title insurance company will research the title to your property, remove any existing liens, correct any mistakes in the public record, and issue a policy assuming the risk that someone else has a valid claim to your property. Title companies also issue lender’s policies, which cover the lender’s interest when a mortgage is placed on the property. A typical title policy will cover risks that appear in the public record, in addition to many risks that do not appear in the record, such as fraud and forgery, which could include the possibility of a total failure of title.[13]
FHFA Title Acceptance Pilot
In the 2024 State of the Union Address, President Biden stated that his administration would be “eliminating title insurance on federally backed mortgages,” adding, “[w]hen you refinance your home, you can save $1,000 or more as a consequence.”[14] Following up on President Biden’s statements, FHFA Director Sandra Thompson released a statement on the proposed Title Acceptance Pilot.[15] The Pilot will remove the requirement for lender’s title insurance for certain refinance transactions when a loan is sold to the Federal National Mortgage Association, (“Fannie Mae”), or the Federal Home Loan Mortgage Corporation, (“Freddie Mac”). Thompson emphasizes that homeowners are not covered under a lender’s title insurance policy, and that the Pilot will not impact a borrower’s title risk.[16] According to FHFA, the waiver of the title insurance requirement for a mortgage is limited to (a) refinance transactions; (b) when the loan-to-value ratio is less than 80%; (c) the lender warrants to Fannie Mae and Freddie Mac that the new mortgage is a valid first lien; and (d) the property is free and clear of any other liens or encumbrances.[17]
As described by the Former President and FHFA, the Pilot program sounds like a cost-saving measure that will benefit low-income and first-time homebuyers.[18] However, according to the requirements of the program, it’s not likely to benefit many borrowers in those groups. The Pilot will only be offered for refinance transactions, so first-time homebuyers won’t qualify. Another requirement is that the refinance has a loan-to-value ratio of less than 80%.[19] With lenders requiring only a 10% or even a 3% down payment for some mortgages, a low-income homeowner taking advantage of this option won’t reach the 80% loan-to-value requirement for several years. Consequently, this program will not benefit as many low-income homeowners as it appears to promise.
The FHFA claims that because the Pilot program is only available for lender’s title insurance policies, the borrower’s title risk will not be affected.[20] A lender’s title insurance policy is issued for the benefit of the lender, but it covers many issues that can arise during a refinance transaction that could easily affect a borrower.[21] Prior mortgages are paid off in connection with most refinances, making them a target for wire fraud and cyberattacks. The increase in these dangers over the past several years could be reason alone to have title insurance on every transaction.[22]
American Land Title Association, (“ALTA”), CEO Diane Tomb referred to the Pilot program as “[b]ad politics, bad process and bad policy.”[23] She argued that the program “offers a false promise of savings for homeowners while exposing consumers, lenders and taxpayers to greater financial risk.”[24] Fourteen Attorneys General and the Bipartisan Congressional Real Estate Caucus agree. Both groups wrote to FHFA urging them to stop moving forward with the Pilot program, at least until public input is obtained and the program can be thoroughly vetted.[25] These letters emphasize the importance of title insurance, and point out that the Pilot program will likely create more financial consequences for American homeowners in the future.[26]
The Future of the Title Acceptance Pilot Program
With the change in presidential administration, Sandra Thompson has resigned as FHFA Director, and Bill Pulte has been nominated as the new Director. Pulte has expressed the need to lower housing costs in the United States, but at the time of this writing, he has not made any statement on plans for the Pilot program.[27] The FHFA has not indicated any reduction in its effort to move forward with this initiative, and it intends to start the program on a trial basis for eighteen months, beginning this year.[28] After 2026, the Pilot program will be evaluated to determine if the program can be implemented further.[29]
Advances in technology have created an increased risk of fraudulent conveyances, identity theft and impersonation.[30] Removing title agents from lenders’ transactions would create an even greater risk to American homeowners. Those who are calling for the reduction and elimination of title insurance, even if only in certain transactions, will potentially be creating more risk for the homeowners they want to help.[31] In considering these proposed plans, we should be reminded of Watson v. Muirhead and the reason that title insurance was created in the first place.[32]
About the Author
Annmarie is a third-year student in the Evening Division at Widener University Delaware Law School. She is a Staff Editor for Volume 50 of the Delaware Journal of Corporate Law, and incoming Lead Articles Editor for Volume 51. Annmarie is a Senior Commercial Real Estate Paralegal, working full-time while in law school, and is President of Delaware Law School’s Real Estate Student Association. After graduation, Annmarie hopes to practice Commercial Real Estate Law in Delaware and Pennsylvania.
[1] Fannie Mae Selling Guide Announcement (SEL-2022-03), Fed. Nat’l Mortg. Ass’n, (Apr. 6, 2022), https://singlefamily.fanniemae.com/media/31151/display.
[2] Director Sandra Thompson’s Statement on Title Acceptance Pilot, Fed. Hous. Fin. Agency (Mar. 7, 2024), https://www.fhfa.gov/news/statement/director-sandra-thompsons-statement-on-title-acceptance-pilot.
[3] See Biden White House, President Biden’s State of the Union Address, YouTube (Mar. 7, 2024), https://www.youtube.com/live/nFVUPAEF-sw?si=LRUkBKPu0vyirKmD.
[4] Fannie Mae, supra note 1.
[5] Justin L. Early & Sterling Scott Willis, Title Insurance or Title Opinion Letters?, eReport. Fall/Winter 2024 https://www.americanbar.org/content/dam/aba/publications/rpte_ereport/issues/rpte-ereport-2024-fall-winter.pdf.
[6] See 11 John L. McCormack, Thompson on Real Property§ 93.01 (Thomas ed. 2025).
[7] Id.
[8] Id.
[9] See Watson v. Muirhead, 57 Pa. 161 (1868).
[10] Id.
[11] Id. at 168.
[12] Philadelphia Fact: The Birthplace of Title Insurance, Am. Land Title Ass’n (Mar.10, 2015), https://www.alta.org/news-and-publications/news/20150310-Philadelphia-Fact-The-Birthplace-of-Title-Insurance.
[13] McCormack, supra note 6.
[14] See Biden White House, supra note 3.
[15] Director Sandra Thompson’s Statement, supra note 2.
[16] Id.
[17] Title Acceptance Pilot FAQs, Fed. Hous. Fin. Agency (Mar. 7, 2024), https://www.fhfa.gov/sites/default/files/2024-03/Title-Acceptance-Pilot-FAQs.pdf.
[18] See Director Sandra Thompson’s Statement, supra note 2; see Biden White House, supra note 3.
[19] Director Sandra Thompson’s Statement, supra note 2.
[20] Id.
[21] See ALTA Loan Policy, Am. Land Title Ass’n (July 30, 2021), https://www.alta.org/policies-and-standards/policy-forms (choose “2021 ALTA Policy Forms Collection – Base Forms” from dropdown; then choose “ALTA Loan Policy”).
[22] Title Companies Help Mitigate Risk of Wire Fraud, Am. Land Title Ass’n (Feb. 27, 2025), https://www.alta.org/news-and-publications/news/20250227-Title-Companies-Help-Mitigate-Risk-of-Wire-Fraud-ALTA-Cybercrime-Study-Shows.
[23] Jeremy Yohe, ‘Bad Politics, Bad Process, Bad Policy’ Title Waiver Pilot Pushes Fannie Mae into Insurance Business, 103 Title News Apr. 2024 (2024), https://www.alta.org/news-and-publications/titlenews-magazine/2024/april_2024.pdf.
[24] Id.
[25] Letter from Jonathan Skrmetti, et al, Tenn. Att’y Gen., to Sandra Thompson, Dir. of Fed. Hous. Fin. Agency (July 22, 2024), https://www.tn.gov/content/dam/tn/attorneygeneral/documents/pr/2024/pr24-58-letter.pdf.
[26] Id.
[27] Todd Spangler, Bill Pulte’s Nomination to Head FHFA Moves Forward, Lansing State J. (Mar. 7, 2025, 7:02 AM), https://www.lansingstatejournal.com/story/news/politics/2025/03/07/bill-pulte-fhfa-nomination/81904557007/.
[28] Fannie Mae’s 2025 Plans Include Launching Title Waiver Pilot, Expanding AOLs, Cal. Land Title Ass’n (Jan. 20, 2025), https://www.clta.org/news/691631/Fannie-Maes-2025-Plans-Include-Launching-Title-Waiver-Pilot-Expanding-AOLs.htm.
[29] Id.
[30] Katherine Clarke, A Scammer Tried to Seize Graceland. Is This $137.5 Million L.A. Mansion Next?,Wall St. J. (Sept. 27, 2024, 7:00 PM), https://www.wsj.com/us-news/a-scammer-tried-to-seize-graceland-is-this-137-5-million-l-a-mansion-next-a33d57a1.
[31] Correa, Alford, Mann, Pettersen Launch Bipartisan Real Estate Caucus, CorreaHouse.gov (May 7, 2024), https://correa.house.gov/news/press-releases/correa-alford-mann-pettersen-launch-bipartisan-real-estate-caucus.
[32] See Watson v. Muirhead, 57 Pa. 161, 167 (1868).
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