Attorney opinion letters: Do they help?

One of the perpetual questions in high-cost California is whether homeownership can be made more affordable and accessible.

Reducing settlement costs is one way. More lenders are accepting or at least contemplating attorney opinion letters instead of title insurance.

The savings can be big.

Last month, I wrote about AOL savings of $2,891 on a $995,000 sales price ($780,000 loan amount) compared with a title insurance policy.

Mortgage giants Fannie Mae and Freddie Mac are looking at ways to lower closing costs and make homeownership more accessible for low- to moderate-income and minority homebuyers.

In mid-december, Fannie Mae expanded its AOL guidelines to include most HOA communities. Previously, AOLS were limited to single-family homes without an HOA. So far, Freddie Mac hasn’t said if it’s also going to expand its AOL guidelines to HOA properties.

AOLS also are allowed on FHA transactions.

The Department of Veterans Affairs does not require a lender making a VA loan or the Veteran-borrower to obtain title insurance or an attorney opinion letter. Its handbook requires only that a title to a property meet its standards. Neither title insurance nor AOLS are required.

And though they aren’t required by the VA, anyone buying or selling should get some type of title search done. In my experience, lenders always vet the title records. Ultimately, the lender, not the VA, could end up having to deal with a title defect.

Others in the industry have not leaped into AOLS — yet.

I polled several of my wholesale mortgage lenders and found the only lender not accepting AOLS was Rocket Mortgage, which was the largest volume lender in the U.S. in 2022.

Two of our bigger banks also do not accept AOLS.

Bank of America told me it’s