There has been some confusion among our members as to how to disclose discounted premiums on the Integrated Mortgage Disclosure forms. In a situation where there is a discounted premium, the discounted premium should be disclosed in lieu of disclosing the full amount and the applicable discount separately. This practice reflects CFPB’s stated goal that the integrated mortgage disclosure forms to disclose the amount that the consumer will pay for the settlement service.
Similarly, the discounted rate should also be used to calculate the owner’s title policy premium. Discounted rates, when known, for re-issue rates, military discounts, etc. should be included in the policy premium amount disclosed to provide more accurate closing costs.
It is important to note, however, that in a situation where there is a simultaneous issue discount, a different approach should be used. The rule specifically addresses disclosure of simultaneous issuance prices and should be followed when there is a simultaneous issue scenario. When owner’s and lender’s policies are simultaneously issued, the full, undiscounted rate should be disclosed on the Loan Estimate. (Comment 37(f)(2)-4). However, on the Closing Disclosure form, the discounted simultaneous issuance price should be disclosed. (Comment 38(g)(4)-2).
The CFPB believes the use of the discounted premiums on the integrated mortgage disclosure forms provides consumers more accurate closing cost information.
On the disclosures, any reference to a cost associated with title insurance must be proceeded by: “Title – [description of fee]”.
As a reminder, the loan policy should be disclosed on the “Services you can shop for category.” The loan policy should be calculated as the full premium without any adjustment that might be made for the simultaneous purchase of an owner’s title insurance policy and whether the buyer or seller is paying. The enhanced policy or endorsements can be used if the creditor knows that these products will be purchased.
Meanwhile, disclosure of the owner’s policy is a bit more complicated. The owner’s policy should be disclosed in the “Other” category and should be calculated by adding the simultaneous issuance premium to the full owner’s title insurance premium, and then deducting the full premium for the lender’s coverage. The owner’s policy must be listed as “optional” on the Loan Estimate and Closing Disclosure.
Problems with this Method of Disclosure
ALTA, the California Land Title Association and others warned the CFPB that this method of disclosing the title insurance premiums would produce consumer confusion, as the amounts disclosed on the Loan Estimate would not correlate to the title insurance rates quoted by title insurance agents in accordance with state law or the common practice in a particular geographic area.
As ALTA’s Integrated Mortgage Disclosures Task Force reviewed the rule, they discovered that this method of disclosing title premiums created two problems. First, in areas where it is common for the seller to buy the owners’ policy, the “cash to close” disclosed on both forms will be incorrect. In most states (either by regulation or rate filing) the owners’ policy is priced as the full-priced policy in a simultaneous issue situation. Thus, the disclosure will not show the consumer getting the full benefit of negotiating with the seller to purchase the owners’ policy. Second, to comply with state rate filings and regulations, title and settlement agents may need to issue a separate title fee disclosure alongside the Closing Disclosure. Most states require companies only charge rates in accordance with the rate filing. Agents may want to issue a separate disclosure to show to consumers and regulators that they charged the correct rate amounts despite what the disclosures show.
In its final rule, the CFPB said this method of disclosure can help consumers “determine if the additional cost for insurance to protect themselves from losses that result from a title defect and to provide a legal defense from challenges to their legal ownership of the property they are acquiring would be appropriate.”
The Bureau did modify its final rule to permit the disclosure of an “enhanced” owner’s title insurance policy premium when the creditor knows that an “enhanced” owner’s title insurance policy is required by the real estate sales contract.
The Bureau stated in the final rule that it intends to address issues surrounding title insurance, including the differing technical manners in which title insurance premiums are calculated, as part of updates to the special information booklet prescribed by RESPA. The Bureau plans to revise the booklet prior to the effective date of this final rule. The Bureau also indicated it may provide additional guidance to consumers about the nature of title insurance, its potential benefits and costs and the manner in which premiums are calculated.
ALTA will continue to work with the Bureau to find a solution to these problems. ALTA does not expect the Bureau to reverse their policy decision on the disclosure of title fees because they considered some of these issues when ALTA and the California Land Title Association originally brought them up during the public comment period. However, ALTA believes there may be some guidance the CFPB can provide to offer clarity on how the simultaneous issue may be disclosed.