Title Products & Rates – How they’re disclosed under the new TRID rule

This video discusses how the charge for the lenders and owners title policy must be disclosed on the loan estimate and the closing disclosure.

Where is the discount applied on the Loan Estimate and Closing Disclosure?

Traditionally, when an owner’s title policy and a loan title policy are issued at the same time, insuring the same property, a discount is applied to the cost of the loan policy. In order to prevent an increase in the loan policy premium paid by the borrower in the event where borrower elected not to purchase an optional owners policy, the CFPB requires any simultaneous issued discount be applied to the owner’s policy premium and not the loan policy premium.

How is the discount disclosed?

The rule states any title insurance policy disclosed on the loan estimate and the closing disclosure must be disclosed by adding the simultaneous issue loan premium discount for the lenders title insurance coverage to the owner’s title insurance premium and then deduct the amount of a full premium rate for the lenders title insurance policy that would be charged in the transaction when the consumer declines the purchase of an owner’s policy.

Mathematically, it all works out if the borrower is paying for both the owners and lenders title policy. Because in the end, the borrower still plays the same.

What if the Seller pays for the Owners’ Title Policy?

In areas where the seller customarily pays for the owners’ title policy, the disclosure requirements on the loan estimate and closing disclosure end up costing the buyer more than they would customarily pay. Here’s why; if the seller agreed to pay for the owners title policy and the buyer agreed to pay for the lenders title policy, but the simultaneous issue discount being offered by the title company can only be applied to the owners title policy, then the seller realizes the benefit of the discount. Keeping in mind, the discount is only offered on the lenders title policy premium.

Here’s an example:

Sale price is $180,000, the buyer is obtaining a $162,000 loan towards the purchase of the property. The purchase and sale agreement states the seller has agreed to purchase an owners title policy for the benefit of the buyer. The full premiums for each policy are: owner’s policy premium $838, lenders policy premium, at full premium rate, $727. Remember, if the policies are issued simultaneously, the lenders policy would be less; it would be $360 which represents the charge for the lenders policy premium at the simultaneous issue rate. Keeping in mind the seller is the one who agreed per the sales agreement to pay the full premium amount for the owner’s title policy.

Here’s how it would compute:

Owners’ Title Premium   $838
Simultaneous Discount Off Loan Title Policy + $360
Full Loan Premium $727

Loan title policy charge on the loan estimate and the closing disclosure is $727 paid by the borrower. Owner’s title policy charge on the closing disclosure is $471, which represents the charge for the owner’s title policy less the simultaneous discount for the loan policy. $838 for the owner’s title premium plus $360 for the simultaneous discount off the loan title policy minus $727 for the full loan premium, the total is $471 paid by the seller. This means the seller needs to give the buyer a credit for $367, which represents the difference between the charge for the owners title policy less the simultaneous discount.

Full Loan Policy Premium   $727
Simultaneous Discount Off Loan Title Policy $360

$727 full loan policy premium minus $360 equals $367.

In order to reconcile the charges to comply with the new rule and follow the written mutual instructions of the principles to the transaction as agreed to in the purchase and sale agreement, a debit from the borrower to the seller will have to be shown on the third page of the closing disclosure in the summaries of transactions section.

We have it covered

Don’t worry, all of the company systems are being updated, customers can still obtain accurate fee quotes which would be in compliance with the regulations using our website. Settlement agents’ production systems will be programmed to ensure the charges are disclosed properly and the purchase agreement is followed.

8 Reasons Why Title Insurance is Worth the Cost [Video]

Owners title insurance

When the CFPB wrote the new rule, they didn’t see the need for the cost of the owner’s title policy to be disclosed on the loan estimate if the borrower is not going to pay for it. The new rule only requires the lender to disclose the cost of the owner’s title policy on the Loan Estimate if the borrower will be paying for the policy.

Unfortunately, if the borrower is paying for it, the charge must be labeled as optional on both the loan estimate and closing disclosure. This is a concern because telling a consumer owners title insurance is optional may dissuade home buyers from purchasing the same protection their lender receives. Title insurance is an insurance product like no other. And protects the homeowner for as long as they own their home.

Here are 8 more reasons why title insurance is worth the cost.

  1. Title Insurance protects the interests of property owners and lenders against legitimate or false title claims by previous owners or lien holders. In effect it insures the investment, unlocking its potential as a financial asset for the owner.
  2. We access, assemble, and analyze title information, in addition to handling the escrow and closing process.
  3. Title problems are discovered in more than one-third of residential real estate transactions. These “defects” must be resolved prior to closing. The most common problems are existing liens, unpaid mortgages, and recording errors of names, addresses, or legal descriptions.
  4. An Owner’s Title Insurance Policy protests the owner for as long as he or she has an interest in the property; and the premium is paid only once, at closing.
  5. Title Insurance is different from other forms of insurance because it insures against events that occured before the policy is issued, as opposed to insuring against events in the future, as health, property or life insurance do. Title Insurance is loss prevention insurance.
  6. We rely on a search of existing records to identify possible defects in order to resolve them prior to issuing a policy. We perform intensive and expensive work up-front to minimize claims. The better we do this, the lower our number of claims.
  7. Researching titles may be extremely labor-intensive since only about 15 percent of public records are computerized. The industry invests a substantial amount of time and expense to collect and evaluate title records. As a result, the industry’s claims are low compared to other lines of insurance.
  8. Dollar-for-dollar, Title Insurance may be the best investment a property owner can make to protect their interest.

Share the Value

The CFPB believes the consumer should make a decision to obtain Owner’s Title Insurance coverage based on available information. So talk the talk. Tell your customers about the value of Title Insurance. Share with them these eight values. Direct them to the American Land Title Association website where they can learn more about the importance of an Owner’s Title Policy.