ALTA Discusses Calculating Simultaneous Issue Rates on New Integrated Mortgage Disclosures With CFPB
|April 15, 2014|
ALTA met with staff at the Consumer Financial Protection Bureau on Tuesday to discuss methods for calculating title insurance premiums under the new integrated mortgage disclosure rules when both an owner and loan policy will be issued simultaneously.
A new five-page Closing Disclosure will replace the HUD-1 and final Truth-in-Lending (TIL) disclosure, while a three-page Loan Estimate will replace the GFE and early TIL. The new disclosures must be implemented by Aug. 1 2015. The new forms do not apply to commercial transactions, home-equity lines of credit, reverse mortgages, or mortgages secured by a mobile home or by a dwelling that is not attached to land.
The rule requires the loan policy to be disclosed on the Loan Estimate and Closing Disclosure at its full stand-alone price regardless of whether the buyer (or seller) will be buying a simultaneously issued owners policy. Additionally, the owners’ policy would be disclosed as the incremental price increase for the simultaneously issued policy. The Bureau’s analysis of how to disclose cost of title insurance policies when issued simultaneously can be found on page 855 of the final rule.
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 (formerly the RESPA 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.
If you have any questions please contact please contact Steve Gottheim, ALTA’s legislative and regulatory counsel, at firstname.lastname@example.org or 202-261-2943.