On June 9 the Consumer Financial Protection Bureau (CFPB) published a Factsheet on how to disclose title insurance on the Loan Estimate and Closing Disclosure, including when a negative owner’s title insurance cost disclosure is appropriate, and updated the TRID FAQs to include guidance on the total of payments disclosure, using the optional signature line on the Loan Estimate and Closing Disclosure, and the requirement to include seller information on the consumer’s disclosures if providing separate Closing Disclosures. This blog discusses the Factsheet, and sets forth the four questions added to the FAQ, along with brief answers.
Lenders typically require borrowers to purchase a lender’s title insurance policy in connection with a residential mortgage loan. The amount disclosed by the creditor on the Loan Estimate (LE) is the amount of the premium, and it is disclosed either under Services You Cannot Shop For or Services You Can Shop For on the Loan Cost Table, depending upon whether the borrower can or cannot shop for the policy. On the Closing Disclosure (CD), the cost is disclosed in the Loan Costs Table either under Services Borrower Did Not Shop For or Services Borrower Did Shop For.
In most cases, the creditor does not require the borrower to obtain owner’s title insurance. If the owner’s policy is not required but the borrower elects to purchase it, the cost of the owner’s title insurance is disclosed in Closing Cost Details in the Other Costs Table on the LE and the CD.
The disclosure becomes more complicated if the borrower purchases lender’s title insurance and owner’s title insurance from the same company and that company offers a different rate, called a “single” or “simultaneous” rate, for the purchase of the two policies than it would if each policy were purchased separately. In that case, the owner’s policy premium is disclosed in the Other Costs Table, and the simultaneous rate is disclosed as the lender’s policy premium in the Loan Costs Table. The CFPB has a formula for disclosing the required rates consistently in the event that the title company charges a simultaneous rate for the two policies. The formula is:
[(full owner’s policy premium) + (the simultaneous premium for the lender’s policy)] – (full lender’s policy premium). The use of this formula will provide the creditor with the amount to disclose as the owner’s policy premium on the LE and the CD. The premium disclosed for the lender’s title insurance policy is the full lender’s premium, not the discounted, or simultaneous, rate. The Factsheet provides the following example which demonstrates how to calculate the amount to be disclosed if there is a simultaneous rate.
|Full owner’s policy premium:||$2,568|
|Full lender’s policy premium||1,175|
|Simultaneous lender’s policy premium||200|
$2,568 + 200 = $2,768, – 1,175 = $1,593. So in this case the lender’s policy premium of $1,175 would be disclosed in the Loan Costs Table, and the owner’s policy premium of $1,593 would be disclosed in the Other Costs Table, for a total premium of $2,768.
This disclosure formula should be used even if the seller has agreed to pay the full cost of both the owner’s policy and the lender’s policy rather than the simultaneous rate. In that case, the difference between the amount paid by the seller and the amount disclosed for title policy premiums is treated as a seller’s credit, and may be disclosed in one of three ways:
- Shown as a credit towards the amount of the lender’s premium or any other title insurance costs for premiums or endorsements in the Loan Costs Table or Other Costs Table.
- Added to and shown in aggregate with other seller credits in the Summaries of Transactions tables as a general seller credit.
- Disclosed as a stand-alone seller credit on another blank line in the Summaries of Transactions tables.
In some states the full cost of the lender’s title insurance could exceed the cost of the lender’s and owner’s policies combined (as odd as that may sound). In that case, the formula will result in a negative number for the cost of the owner’s policy, and disclosure of the negative number will be correct.
It is also worth noting that many state insurance laws may require the title insurance company to disclose the premiums differently than the disclosure on the LE and the CD, by requiring that the simultaneous rate be disclosed for the lender’s title policy and the full amount be disclosed for the owner’s policy. In such cases, the owner’s title insurance and lender’s title insurance premiums listed on the TRID disclosures may be different from the title insurance rates quoted by title insurance agents in accordance with state law. Lenders must be prepared to explain this discrepancy to confused borrowers who inquire about it.
Updated TRID FAQs
Providing Closing Disclosures to Consumers:
If separate CD’s are provided to the seller and the consumer, does the TRID Rule require that seller-paid Loan Costs and Other Costs be disclosed on page 2 of the consumer’s CD?
Answer: Yes, even if separate CD’s are provided to the seller and the consumer.
Total of Payments Disclosure:
What is the Total of Payments Disclosure on the CD?
Answer: The Total of Payments disclosure is the total, expressed as a dollar amount, of principal, interest, mortgage insurance and loan costs that the consumer will have paid after making all payments related to the mortgage loan. The disclosure is the sum of the amounts paid through the end of the loan term and assumes that the consumer makes payments as scheduled and on time. The Total of Payments does not include payments that the seller or other party, such as the creditor, may agree to offset through a specific credit, because these amounts are not paid by the consumer. Note, though, that general credits (i.e., generalized payments from the creditor, seller, or other party to the consumer that do not pay for a particular fee) do not offset amounts for purposes of the Total of Payments calculation. More information on disclosing the Total of Payments is available in Section 3.6.1 of the TILA-RESPA Rule Guide to Forms, a link to which appears in the FAQ.
Does a creditor account for negative prepaid interest in the Total of Payments disclosure and calculation?
Answer: Yes. Prepaid interest is included in the calculation of interest for the purpose of disclosing the Total of Payments. In some cases, a loan may have a negative amount for prepaid interest, which is sometimes referred to as a prepaid interest credit. Negative prepaid interest can result if consummation occurs after interest begins accruing for periodic payments. If the consumer consummates a loan on October 4 and the first payment is due on November 1, then at consummation the creditor will typically credit the consumer for the preceding 3 days in October to offset some of the first scheduled periodic payment. That amount must be disclosed under Section 1026.38(g)(2) of Regulation Z as a negative number, and reduces the Total of Payments.
Optional Signature Line:
Can a creditor require a consumer to sign and return the LE or the CD?
Answer: It depends. While the TRID Rule does not require consumers to sign the LE or CD, it provides creditors the option to include a line for consumer signatures to acknowledge receipt. A creditor may include the signature line and require the consumer to sign the disclosure, but only if the consumer receives in a timely manner the disclosure in a form that they may keep.
If you have any questions about the foregoing, please contact Sherwin Root at 213.617.5465 or David Sands at 213.617.5536.