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:
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).
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.
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.