CFPB Indicates How to Disclose Title Insurance Premiums in Seller-Pay Scenarios

Since announcing the TILA-RESPA Integrated Disclosure rule in 2013, the Consumer Financial Protection Bureau has hosted a series of webinars to address frequently-asked questions regarding the new rule’s requirements. On May 26, the CFPB hosted its fifth TILA-RESPA Integrated Disclosures webinar. Click here to listen to a recording of the webinar and to download a copy of the presentation.

In this webinar, the CFPB addressed implementation challenges and questions, including a question that many ALTA members have been struggling to understand: how to disclose the owner’s and lender’s title insurance premiums on the Closing Disclosure form in a simultaneous issue scenario. Below is the text of the rule addressing how to disclose simultaneous issue rates:

Simultaneous Title Insurance Premium Rate in Purchase Transactions. The premium for an owner's title insurance policy for which a special rate may be available based on the simultaneous issuance of a lender's and an owner's policy is calculated and disclosed pursuant to § 1026.37(g)(4) as follows:

1. The title insurance premium for a lender's title policy is based on the full premium rate, consistent with § 1026.37(f)(2) or (f)(3).
2. The owner's title insurance premium is calculated by taking the full owner's title insurance premium, adding the simultaneous issuance premium for the lender's coverage, and then deducting the full premium for lender's coverage.” § 1026.37(g)(4)-2.

During the webinar, the bureau emphasized its rationale behind its mandated calculation method for disclosing title insurance premiums when there is a discounted title insurance premium. The CFPB realizes that its calculation method will render inaccurate disclosures of the lender’s and owner’s title insurance premiums on the disclosure forms. However, the bureau feared that by disclosing the discounted rate of the lender’s policy and showing the owner’s policy at the full premium, consumers would not understand the incremental cost of purchasing an owner’s title insurance policy. Additionally, if the consumer opted not to purchase an owner’s title insurance policy, the cost of the lender’s policy would then increase substantially, resulting in a higher cost to close than anticipated by the lender and the consumer. However, despite the inaccurate disclosures of the individual costs of the premiums, the sum of the premiums under the rule’s mandated calculation will equal the sum actually charged to the consumer when the consumer pays for both the owner’s and lender’s title insurance policies.

The CFPB recognized that in situations in which the seller pays for the owner’s title insurance policy on behalf of the buyer, the Cash to Close figure on the Loan Estimate and Closing Disclosure form will be inaccurate. In this webinar, the bureau addressed how to allocate the seller’s contribution for title insurance the when the seller has agreed to pay for the owner’s title insurance cost as part of the purchase and sale contract with the consumer. In a seller-pay situation, the bureau indicated that there are at least three ways in which the additional credit between the seller and the consumer may be disclosed on the Closing Disclosure:

1. The remaining credit could be applied to any other title insurance cost, including the lender’s title insurance cost. (See § 1026.38(f)&(g))
2. The remaining credit can be considered to be a general seller credit and disclosed as such in the Summaries of Transactions table on page 3 of the Closing Disclosure. (See § 1026.38(k)(2)(vii))
3. Use of a credit specifying the remaining amount for the owner’s title insurance cost in the Summaries of Transactions table on page 3 of the Closing Disclosure. (See § 1026.38(k)(2)(viii)). This credit could be disclosed as a “simultaneous issue credit” in the Summaries of Transactions.

The bureau stated that any one of these three methods for disclosing the remaining amount of the seller’s credit for the owner’s title insurance premium is permissible under the final rule. However, it is important to note that this presentation does not represent legal interpretation, guidance or advice of the bureau, and should not be used as a substitute for the rule. Only the rule and its Official Interpretations can provide complete and definitive information regarding requirements.

Comments

[Donna Gagnon]

In our state the seller always pays for the Owners Policy - is it necessary for me to show that fee on my borrowers GFE at all - or can I check seller obligated - then it will not appear - if I check seller credit it will appear in Section H with a seller credit under calculating cash to close.

For the Mgt Policy which the borrower pay's I can show full undiscounted rate of 970 - which shows in C and then $670 comes from the seller under seller credit right?

[Shannon]

Does disclosing the non-discounted premium apply to just purchase transactions, or would it be applicable on a refinance and/or construction loan?

Thank you.

[Su]

are we supposed to breakdown all the endorsements to the Mtgee policy on the CD Example 8.1, FL 9 & 7.0

[ALTA Blog]

Hello Su,

Thanks for the question. The rule does not address endorsement charges and only speaks to disclosing the policy premium, so there is no specific guidance as to how to disclose endorsements. For more on this topic, please refer to this blog post: http://blog.alta.org/2014/09/endorsement-fees-to-include-or-not-to-include.html

[Jennifer Schwartz]

Where is did the language for the simultaneous issue come from? Is there a specific CFPB document that states it is acceptable to use "simultaneous issue credit” on Page 3?

[ALTA Blog]

Hello Jennifer,

Language for the simultaneous issue come from this section of the rule: § 1026.38(k)(2)(viii). Here's a link to the rule: https://www.federalregister.gov/documents/2013/12/31/2013-28210/integrated-mortgage-disclosures-under-the-real-estate-settlement-procedures-act-regulation-x-and-the

[Josclyn Peterson]

Shouldn't the owners actual charge be what was "disclosed" to the Buyer? This is painting a very confusing picture for Sellers who agree to pay the Owners policy. It is actually a non truth when we are trying to provide Truth in Lending. If you look at a Buyers closing disclosure, the Owners policy is disclosed as the simultaneous rate but then the lender adds a portion of the Lenders policy to the Owners policy. When a Seller agrees to pay the Owners policy, they are actually being charged for a portion of the lenders policy and that is not what they are agreeing to.