HUD had dramatically revised the Good Faith Estimate to a uniform document with summary of fees. If you compare a GFE issued prior to 2010, one big difference is that buyers will not see a charge for the owners title policy–why? Because they generally do not pay for the owners title policy–the seller does! Please don’t ask me why this is on the new GFE and why, if it’s not charged in our market LO’s must disclose it…I don’t have an answer…and don’t have the answer for why mortgage originators are held to the 10% tolerance when quoting this fee when it has nothing to do with mortgage origination.
The fee for an owners title insurance policy is much more than that of a buyer’s policy. Typically the Seller pays for the owners policy and the buyer pays for the lenders policy which has a reduced rate (simultaneous issue). There are also various coverages available with an owners policy and the coverage that is required should be specified in the purchase and sales agreement.
Here’s an example of title fees for the owners (seller) and lenders (buyer) policies based on a $500,000 sales price (FYI LO’s: the owners policy is based on the sales price not the loan amount) and a loan amount of $400,000. Examples below do not include sales tax.
FEES BELOW NOT SHOWN ON GFE PRE-2010
Homeowners Policy (1998 ALTA): $1,192
2006 Standard Owners Policy: $1,053
Extended Coverage Owners Policy: $1,937 (not commonly requested)
ALWAYS SHOWN ON GFE (because the buyer pays for it)
Lenders Policy (simultaneous issue): $647
So with a purchase price of $500,000 and a loan amount of $400,000; I would disclose $647 plus tax for my estimated title insurance fee for the borrower on my GFE–both now and before 2010. Now I need to add over $1000 to this scenario on my good faith estimate even though the buyer isn’t paying for it…my closing costs on a purchase appear $1000 higher!
And to add insult to injury, the title owners policy is included in HUD’s 10% tolerance bucket of charges.
The Talon Group offers this tip to mortgage originators quoting an owners title insurance rate (when you don’t know what the specified coverage will be on the purchase and sales agreement):
Lenders should quote the 1998 ALTA Homeowner’s Policy rather than the less costly Standard Owner’s Policy in block 5 of the GFE. The local Purchase and Sale Agreement defaults to the Homeowner’s Policy because of it’s superior title coverage. There is as much as a 12.5% difference in price between the two policies.
The lender’s policy (and escrow/settlement charges) are included in Block 4 of the Good Faith Estimate and the owners policy is included on Block 5.
According to HUD’s RESPA FAQ’s last updated December 30, 2009:
Q&A #3 page 27:
If the borrower requests an enhanced owner’s title insurance policy or an endorsement to an owner’s title insurance policy after the loan originator issues the GFE, the loan originator may choose to treat such a request by the borrower as a changed circumstance. The loan originator may then choose to provide a revised GFE to the borrower to disclose the increased charges. If the increased charges do not exceed tolerances, the loan originator may opt not to issue a revised GFE.
I take this as saying that if the borrower decides they want more expensive coverage after I have issued a GFE and I do not re-disclose the cost difference and it exceeds the 10% tolerance, I just paid for the difference…even though it’s a seller cost!
With a purchase transaction, if the borrower accepts the title insurance company as selected by the real estate agent or seller (assuming the company is not on my “list of providers”), then there is no tolerance as HUD views this as the borrower selecting the service provider (same is true with escrow companies). Regardless, even quoting from my preferred provider, the fees on my good faith estimate look $1000 higher based on this scenario.
At least until consumers and mortgage originators are accustomed to using the new GFE (and unless HUD makes additional changes) this is going to take some getting used to!
For the record, this post all of my posts are my interpretation and my opinions–this is not a substitute for your legal staff or your compliance department!