How to Disclose Simultaneous Issue Rate for Know Before You Owe

Several ALTA members have reported that lenders are unsure how to calculate the owner’s title insurance premium when issued simultaneously with a lender’s policy under the CFPB’s Know Before You Owe (TILA-RESPA Integrated Disclosures) rule.

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.

ALTA has pointed out that in the majority of states the cost of a homebuyer’s title insurance premiums will be inaccurate on the Closing Disclosure due to the CFPB’s mandatory calculation method when where the lender’s and owner’s title insurance policies are simultaneously issued. Many state regulators require settlement agents to disclose the actual costs for each fee the homebuyer is responsible for paying. ALTA developed model Settlement Statements to help settlement agents disclose the accurate costs to homebuyers.

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 will be inaccurate. In a seller-pay situation, the bureau indicated in a webinar 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.

It is important to note that this information 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.

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. - See more at: http://blog.alta.org/page/2/#sthash.pTpnZLe8.dpuf

Comments

[Amy Niesen]

Please confirm one point. For CDF purposes, this seems to say that we are to calculate disclosure amounts using FULL OP premium amounts (i.e. no reissue credit considered). The rate calculators definitely take reissue credit into account and sometimes that pushes the amount disclosed for owners title insurance to a negative number. The lenders are questioning the negative numbers, obviously. Need some clarification on this point if we can get it, please.

[Bob Rohan]

What about the effect on the consumer when a second mortgage in the transaction requires a loan policy? Although it too would qualify for simultaneous rating, it must be rated without consideration of the discounted rate. There is no way to insert a credit on the second CD since there is no seller. This will impose a significant and unnecessary cost on those consumers. In Florida, a $100K second mortgage will cost the borrower an extra $475 in title insurance premium.

[ALTA Blog]

Hello Amy,

Thanks for the comment about the negative number being generated for the owner's policy during these circumstances. This is an area where the CFPB does not provide clear guidance on what to do. ALTA recommends talking with the lender to come up with the best solution.