The Escrow Institute of California (EIC), the professional trade association for the California licensed escrow settlement service providers, released a statement from President Nancy Silberberg in response to the Consumer Financial Protection Bureau (CFPB) Director Richard Cordray’s speech at the Brookings Institution on Jan. 13.
“EIC and its members join with ALTA in their support of the CFPB efforts to help guide consumers through the real estate transaction and especially the closing process, however we do remain concerned about the new Closing Disclosure,” Silberberg said. “It is imperative that consumers receive the most accurate information about their closing costs, including title insurance premiums and the service fees for the escrow/settlement agents they select. Historically in much of California, the seller pays for some form of title insurance coverage for the buyer, such as a homeowner’s policy of title insurance, and the buyer pays for the coverage required by their lender, called an ALTA lenders policy. Of course this is negotiable, but this is usually the case.”
The Consumer Financial Protection Bureau decided it wanted the mortgage disclosures to show the full amount for owner’s title insurance at all times and discount the owner’s policy when the buyer is receiving a simultaneous issue rate.
Through regulation or rate filing, title companies in about half the states offer discounts on the loan policy when an owner’s policy is simultaneously purchased. Despite the common practice, the rule prohibits settlement agents or lenders to disclose the discounted simultaneous issue price for the lender’s title insurance policy on the Loan Estimate and Closing Disclosure forms. Rather than disclosing actual costs of title insurance premiums, the rule requires consumers to make a complex calculation to determine their title insurance premium. Industry members have noted that this will result in inaccurate disclosures of title insurance rates in many states, including California.
“We join with our title industry colleagues and urge the CFPB to consider the additional work, time, effort and confusion on behalf of consumers who will have to see the current ‘Know Before You Owe’ forms with possibly different disclosures than those of the particular state where they are transacting business,” Silberberg said.
“EIC continues to be concerned for the California consumer where the common term for the settlement agent is ‘Escrow Agent’ under California law,” Silberberg continued. “The CFPB continues to label impounds for taxes and insurance ‘escrow’ accounts, when in reality they are ‘impound accounts.’ We have also raised the issue that in California many escrow/settlement providers are licensed, independent companies with no affiliation with title companies. Why would our valuable membership be lumped into the other important category of Title Insurance, when it is a distinctly separate function? We continue to support consumer education in regards to the real estate and home loan closing process and urge the CFPB to take the necessary steps to disclose accurate costs with proper, clear descriptions of the valuable professionals who provide these necessary services.”
Even lenders have been concerned about this issue. The Mortgage Bankers Association (MBA) brought up the issue in its comment letter to the CFPB.
“MBA has learned that the rule’s requirements on how to disclose title insurance rates causes both the borrowers Cash to Close and the seller’s proceeds figures to be incorrect in areas where sellers typically pay all or part of the title insurance for the buyer,” the MBA stated. “The rule requires the lender’s title insurance policy to be disclosed at the full, undiscounted rate and the owner’s policy at a computed, reduced rate, even when both policies are issued simultaneously.”
It noted that it has become aware that to address the problem and meet state requirements, title industry professionals are considering providing a “separate and contradictory” form to disclose insurance charges.
“MBA believes that not only will the provision of an additional and contradictory form be suboptimal, but also it will lead to consumer confusion contrary to the bureau’s goal of making closing costs transparent to the consumer,” the letter stated. “Moreover, since lenders are responsible for the Closing Disclosure, we are concerned that they may become the target of claims and even enforcement actions based on these contradictory disclosures.”
The MBA asked that the bureau revise the form, issue guidance indicating that the lender would not be liable for any supplementary form issued by the closing agent and/or the bureau preempt state rules that contradict the bureau’s approach.