The nation’s largest wholesale mortgage lender moves to capitalize on rule changes by mortgage giants Fannie Mae and Freddie Mac aimed at helping borrowers save on their closing costs.

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A move by mortgage giants Fannie Mae and Freddie Mac to help borrowers save on their closing costs by allowing lenders to forgo title insurance in some situations just got a major boost, with United Wholesale Mortgage launching a program to capitalize on the new rules.

UWM, the nation’s largest wholesale mortgage lender, announced at an industry conference over the weekend that its new TRAC (title review and closing) tool will provide a “streamlined experience, plus significant savings for the borrower by removing the need for lender title policy, and reducing title and closing fees.”

In April, Fannie Mae updated its Selling Guide to allow lenders the option to use an attorney opinion letter in lieu of traditional title insurance. Freddie Mac made a similar update to its Selling Guide in June, telling lenders that it will accept an attorney’s opinion of title instead of a title insurance policy in some situations.

Mat Ishbia

Mat Ishbia

In a press release, UWM CEO Mat Ishbia called TRAC an “exclusive tool” that’s “entirely new to the industry.”

But in August, two proptech companies — SingleSource Property Solutions and Voxtur — launched an “Attorney Conclusion of Title” product that’s designed with Fannie and Freddie’s new guidelines in mind. SingleSource claims that depending on the borrower’s location, the new product can save consumers 20 percent to 70 percent compared to the cost of traditional title insurance.

“Although the concept of using legal opinions to confirm the marketability of title has been around for as long as property transfers have been documented, ACT is a new iteration that makes these opinions scalable, affordable, and widely available – and [Fannie and Freddie] approved,” the companies said at the time.

On its website, UWM says its new TRAC process helps mortgage brokers get title documents ready in an average of three to five days. Although not available in Iowa, TRAC is “currently available in most states, with new states being added weekly,” the company said.

“UWM will review title and closing docs, check to make sure your title is clear, then help facilitate the closing process (including reviewing title and closing documents), making it incredibly simple for you and your borrowers,” the company said.

While UWM promises “significant savings” for borrowers thanks to a cheaper title review process, some of those savings will be offset by loan level price adjustments of 30 basis points for purchase loans and 20 basis points for refinancing.

Even though Fannie and Freddie have opened the door for lenders to rely on an attorney’s opinion of title instead of title insurance in many situations, they’ve also imposed some conditions that could limit their use by first-time homebuyers.

Lenders will still need title insurance when making loans backed by condos, co-ops or manufactured homes, for example.

But for those who can take advantage of the new rules, the burden of getting to the closing table could be getting a little lighter — a burden that’s especially heavy for minority borrowers.

“Title insurance is a significant part of the borrower’s cash-to-close,” Freddie Mac officials noted in publishing a federally mandated Equitable Housing Plan in June. “The policy premium is usually the largest closing cost, and these costs are disproportionately felt by Black and Latino borrowers.”

Freddie Mac said it planned to work with the industry to roll out lower-cost title solutions next year to help lenders originate 5,000 mortgages backed by those solutions next year.

“We believe more common use of attorney opinions could lead to savings for some borrowers,” Fannie Mae officials said in their own Equitable Housing Plan, which details ways the mortgage giant intends to “knock down barriers within mortgage, rental, and ownership processes that unnecessarily challenge consumers, especially those that disproportionally burden Black families.”

The American Land Title Association (ALTA), a trade association representing title insurers, has lodged objections to Fannie and Freddie’s policy shift with its federal regulator, the Federal Housing Finance Agency.

In a Sept. 6 letter to FHFA Director Sandra Thompson, ALTA warned that “there are many areas” in which the protection provided by attorney opinion letters “is well below what a standard title policy provides and will expose the homebuyer to additional risks.” For example, ALTA said, attorney opinion letters don’t protect “against fraud or forgery related to the property rights purchased by the buyer,” which represent “one of the largest sources of claims” paid by title insurers.

“We believe it runs counter to FHFA’s mission and the intent of the Equitable Housing Finance Plans to encourage homebuyers, especially lower-income and first-time buyers, to secure their property rights with alternative products that provide inadequate protection,” ALTA CEO Diane Tomb told Thompson. “We do not believe these products will provide any costs savings and, based on the marketing we have seen, might actually cost more than traditional title insurance. However, even if it should generate some cost savings at closing, consumers will pay more in the long run by taking on additional risk and losing the legal defense obligation of the title company in a title dispute. This tradeoff would be catastrophic for those forced into this arrangement.”

The Consumer Financial Protection Bureau notes that lender’s title insurance policies only cover claims that affect the lender’s loan. If homebuyers want to protect their equity in the event of a title problem, the bureau advises them that “you may want to purchase an owner’s title insurance policy.”

Editor’s note: This story has been updated to note objections that the American Land Title Association has raised concerning attorney opinion letters with the Federal Housing Finance Agency.

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