2022 Winter News & Updates
Attorney Opinion Letter versus Title Insurance.
Attorney Opinion Letters (AOLs) have been the focus and at the forefront of the American Land Title Association (ALTA) recently. Freddie and Fannie are now accepting AOLs in lieu of title insurance to insure their loans in some limited situations. However, the use of alternative products such as AOLs increase lender risk. Lenders that are considering the use of attorney opinion letters (AOLs) should know and understand the risks taken on by not obtaining title insurance. Attorney opinions, in providing more limited coverage of risks, represent a shifting of risk to the lender, not an elimination of the risk and not the coverage of risk that title insurance provides.
What coverage does a title policy provide that an AOL does not?
- Undisclosed federal, state and municipal tax, sewer and undisclosed mechanics, child and spousal support liens.
- Improper execution of documents.
- Validity, enforceability and priority of the mortgage/DOT.
- Survey, marketability and access.
- Financial reserves, mandated statutorily for future claims risks.
- Underwriting service for assurance of clear ownership.
- Fraud, forgery, incapacity, and mis-indexed items and HOA liens.
- Defense coverage, including attorney fees and costs.
The coverages provided by a title insurance policy for a lender are not only valuable, but crucial to providing the assurances a lender needs to protect its secured collateral position.
It provides protection, assurance and peace of mind.
As we head into the last month of 2022, we look to those professionals who attempt to predict what the next year will bring. The following are some of those predictions for the 2023 residential real estate market.
Top Residential Real Estate Predictions for 2023:
According to a recent article published by Bankrate, the following are the things to expect in the residential real estate market in 2023:
- Continued inflation, overall higher interest rates, a potential recession, and geopolitical tensions will force 30-year and 15-year mortgage rates up throughout 2023 and will bring the two rates closer together. Dennis Shirshikov, a strategist at Awning.com foresees the 30-year and 15-year benchmark mortgage loans averaging 8.75 percent and 8.25 percent, respectively, across 2023.
- The slowdown in home sales will continue into 2023. Existing home sales in 2023 will slow, likely hovering in the 4.5 million range, with new-home sales at around 600,000
- Listings will likely stay on the market longer, possibly approaching 30 days or more in 2023 as the market continues to cool.
- Due to low inventory, home prices will not necessarily drop in 2023, and are predicted to remain flat.
- Greg McBride, chief financial analyst for Bankrate, says “affordability issues and economic worries will depress home buyer demand, and inventory of homes available for sale will remain limited. So it’ll continue to be more of a balanced market than tilting one way or the other.” Johnson, on the other hand, anticipates sellers holding fewer cards.
- Buyer’s or Seller’s Market? “It will be a buyer’s market next year, as many reluctant sellers – those waiting for the market to turn around – will likely capitulate, adding to more housing supply,” McBride says.
- “If inflation pressures ease and we see a meaningful pullback in mortgage rates next year, this will ease some of the strain on buyers – but only a bit,” explains McBride.
More housing predictions for 2023:
NAR Chief Economist Lawrence Yun recently gave his predictions for the residential and commercial real estate markets. With respect to the residential market and confirming that if/when we enter into another recession, it will not look like the one in 2008:
- Housing inventory is about a quarter of what it was in 2008;
- Distressed property sales are almost non-existent, at just 2%, and nowhere near the 30% mark seen during the housing crash.
- Short sales are almost impossible because of the significant price appreciation of the last two years.
In 2023, Yun expects home sales to decline by 7%, while the national median home price will increase by 1%. He also projects a strong rebound for housing in 2024, with a 10% jump in home sales and a 5% increase in the national median home price.
The bottom line on the 2023 housing market predictions: Most pros are in consensus: something of a transitional year, characterized by uncertainty.
Moving right into 2024 predictions:
For the first time, Fannie Mae has released an outlook for 2023-2024 in Fannie Mae’s Research and Insights Blog:
- Predicting a downturn of 0.6% in 2023, but predicting improvement moving into 2024.
- Projecting total sales of 5.25 million housing units, up 18.6% from 2023’s forecast, as they expect a “pullback” in mortgage rates amid a broader economic recovery while new home sales will help ongoing inventory levels.
- Expecting 4.42 million units sold. Home sales will hit the bottom of the trough during the second quarter of 2023—at a selling pace of 4.27 million annualized units—as the full effects of higher mortgage rates and the projected recession take hold.
- Lowering 2023 home sales to $1.71 trillion from $1.74 trillion.
- Forecasting total existing home sales will be 3.90 million in 2023 before rebounding in 2024 to a pace of 4.60 million.
Recession in 2023? What to expect:
It is very possible that we will be pushed into a recession. However, experts say the housing market and the larger economy are markedly different from the 2008 financial crisis, when the housing bubble burst. There are a few primary factors which will allow us to fare better if and when we go into another recession:
- In 2008, there was a glut of housing inventory. Overbuilding had taken place – too much home construction relative to household formations,” said Robert Dietz, chief economist for the National Association of Homebuilders
- Millennials are going to continue aging into their prime home buying years. Household formation has been outpacing new building for many years now.
There are major differences/improvements in lending standards today compared to the lead-up to the financial crisis:
- The passing of the consumer protection legislation known as the Dodd Frank Act, named after former lawmakers and bill sponsors Sen. Christopher J. Dodd (D-Conn.), and Rep. Barney Frank (D-Mass.) changed a lot of the lending standards;
- Credit restrictions increased;
- Verification of income and assets and employment were established.
- Conforming loans require rigorous documentation requirements.
- Unemployment differs sharply from the early 2000s financial crisis.
- U.S. still experienced growth in the third quarter of this year.
Remote Closing Options: Is 2023 the year RON will become a “household” name?
Even with the use of online closing options during COVID, remote online notarization (RON) closings are still not commonplace in the sales and loan closing arenas. With its convenience, ease and expedient service, one wonders as to the reason more consumers, lenders and realtors are not taking advantage of this option.
According to the American Land Title Association’s (ALTA’s) latest 2022 Digital Closing Survey of 390 title professionals, companies offering RON expect these types of closings to increase in 2023:
- 62% of companies offering RON believe this offering will increase over the next year, while a third reported they don’t anticipate any change.
- 75% of residential transactions closed via RON were for cash and seller-side only deals. This percentage was nearly the same as results from the 2021 survey.
- 64% of companies utilize one RON platform. This is a significant change as more than 50% in the 2021 survey indicated they used two or more vendors.
- 65% of customers have a positive perception of RON closings. This is up from 60% of customers who had a positive perception of RON closings the prior year.
- 78% of those surveyed said they are training a team of experts versus training their entire staff to support RON closings. This is up from the 2021 survey, in which 64% indicated they trained a team of experts.
- 87% of companies that offer RON have one to five RON notaries on staff, compared to 59% in 2020.
42 states have now enacted laws allowing permanent access to remote online notarization. The Securing and Enabling Commerce Using Remote and Electronic (SECURE) Notarization Act (H.R. 3962) was passed by the U.S. House of Representatives earlier this year. A bipartisan companion bill has been introduced in the Senate, but has not been brought up for a vote. The bill would permit immediate nationwide use of RON, create national minimum standards for its use and provide certainty for the interstate recognition of RON.
SVP, Corporate Counsel