Home Buyers: Please Be Aware of the Owners Policy on the GFE

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 itmy 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!

About Rhonda Porter

Rhonda Porter is an NMLS Licensed Mortgage Originator MLO121324 for homes located in Washington state. Her blog, The Mortgage Porter, is nationally recognized for sharing relevant information to consumers about mortgages.

She has been originating mortgages since 2000 at Mortgage Master Service Corporation #40445 Consumer NMLS Website: http://www.nmlsconsumeraccess.org/TuringTestPage.aspx?ReturnUrl=/EntityDetails.aspx/COMPANY/40445
NMLS ID 40445. Equal Housing Opportunity.

You can follow Rhonda on @mortgageporter, Facebook and/or Google+

Comments

  1. Thanks for pointing that out, Rhonda.

    While it was not on the GFE, it IS on the copy of the Title Insurance that the buyer gets. I do have to explain to buyers that they will get something that shows a cost of “owner’s title” but that is the seller’s charge. So we are used to buyer’s needing to be told the difference between “owner’s title and “lender’s” title. and who pays for what.

    Every state is different, and in some places there is only one all inclusive policy, and not two separate ones.

    The GFE and RESPA etc are National, so they need to do a one size fits all and we have to modify as needed on our end via cover letter.

    By the time escrow is opened, we know all of the numbers for sure. So as long as a GFE is done at time of application, there really shouldn’t be a problem keeping within 90%. Most times they are pretty exact from my day one estimates. I have no problem guaranteeing that except for homeowner’s insurance. That is where the buyer’s type of policy can vary from what is needed to what they might like to add as riders.

    • There can be a decent range betweent title companies and insurance coverages…the only way the mortgage originator is “off the hook” for having to quote the owners title policy is if the borrower happens to select (or the agent or seller selects) a company not on their LO’s “preferred provider” list (in which case, their is no 10% tolerance–the title or escrow fee can be double and it’s the buyer’s burden).

      And what you define as application may be different than what HUD considers. If I provide a Good Faith Estimate, HUD “presumes” I have an application.

      • HUD RESPA FAQs state that if some charges are typically paid by the seller, they do not have to disclosed on the GFE with exception to the owners title policy–very odd. I’m not sure why they’re making a stance on the owners policy unless they’re trying to get buyers to get more involved? I really can’t see any other reason.

  2. At least they backed off of requiring lenders to quote excise (transfer) tax in block #8 of the GFE. Reason is that Washington State statutes actually spell out that it’s the obligation of the seller to pay it.

    (a) The taxes imposed are due at the time the sale occurs, are the obligation of the seller, and, in most instances, are collected by the county upon presentation of the documents of sale for recording in the public records.

    WAC 458-61A-100

    In the event a loan originator does end up filing in Block #8, escrow will charge the buyer, then show it as a seller credit on page 1 of the HUD.

    • Wendy Holtmann says:

      I think this may still be a conflicting issue —-

      We posed this very question directly to HUD (does excise have to be disclosed to buyer or not) and sent them the WAC you disclose above. Our response direct from HUD was as follows:

      The excise tax will be required to be disclosed on the GFE. See:

      RCW 82.45.070
      Tax is lien on property — Enforcement.

      The tax herein provided for and any interest or penalties thereon shall be a specific lien upon each piece of real property sold from the time of sale until the tax shall have been paid, which lien may be enforced in the manner prescribed for the foreclosure of mortgages.

      The property is encumbered and the remedy is not exclusive to the seller for non-payment.

      • Wow Wendy! This is part of the issue–when I read the FAQs from RESPA here’s what I’m reading:

        Seller paid items #2
        Q: Are charges to the seller listed on the GFE?
        A: RESPA requires that only the borrower receive a GFE. The GFE is defined as an estimate of settlement charges a borrower is likely to incur in connection with the settlement. Charges that typically would not be charged to the borrower, but would be charged to another party—such as the seller—do not have to be included on the GFE. If the borrower typically would incur charges for title services and lender’s and owner’s title insurance, the GFE instructions make it clear that those charges are required to be listed regardless of whether, for example, the contract requires the seller to pay for the service. If there is a question about whether the borrower or seller is to pay for a particular settlement service, the charge for that service should be disclosed on the GFE.

        HUD 1 1200 Series #6:
        Q: If it is required by state or local law for a seller to pay a portion of the total charge for transfer taxes, on what line should the seller‘s charge be listed on the HUD-1?
        A: If it is required by state law for a seller to pay a portion of the total charge for transfer taxes and therefore not on the GFE, the seller‘s charge should be listed as a charge in the seller’s column in Lines 1204 and 1205 on the HUD-1, and the total charges for transfer taxes should be itemized to the left of those columns, as indicated in the following example:

        • Wendy Holtmann says:

          Exactly…I posed the question to our management because of what I read in the FAQ’s which you note here. Our management then contacted HUD and we rec’d his response last Friday, the 15th. Personally, I was shocked with his response. We continue to dig deeper into the issue because some of our offices are having problems with lenders who adamantly state it doesn’t need to be disclosed and therefore aren’t or haven’t disclosed it yet we feel obligated to disclose according to the information we’ve rec’d from HUD. A bit of a confusing mess if I don’t say so myself.

          • GFE 2010 may cause me to require botox…boxes of advil and bottles of wine. YIKES! I’m going to see if we can get the same answer from HUD too.

          • I’m waiting for the umpteenth FAQ update for this one! Very surprising but in a twisted way, makes sense for all lenders to consistently show excise/transfer taxes. It will be way to confusing for lenders to distinguish which states need to have it quoted for the GFE. Consumers need to compare apples to apples when looking at competing GFE figures.

            For the same reasons, APR should be the next target for consistency. Some lenders include our escrow fee in the calculation while others don’t. Consumers will typically just focus on the APR % rather than the components that create it.

            Excise liens are extremely rare and will usually involve transfers between family members. I guess the excise form needs to state Buyer Beware along with all the perjury language given that the buyer or buyer’s representative signs it along with the seller.

          • Rob mentioned:> “……. Some lenders include our escrow fee in the calculation while others don’t. Consumers will typically just focus on the APR % rather than the components that create it.”

            I got a kick out of that Rob.

            One lender in the morning shows x figure as being APR effective and 10 minutes later another lender excludes the very same fee as APR effective. There is very little consistency other than being consistently inconsistent.

          • LOL Borrowers are confused enough by the time I’m finished explaining the TIL at signing and they rarely have the original quote to compare against the final (I don’t go there…).

          • Our company factors the escrow fee into the APR…we error on the side of the higher APR rate and I have no idea how many transactions I may have lost due to someone only eyeballing the APR and not paying attention to the GFE closing costs… hard to say how our new GFE (and all the “preGFE” forms floating around by LO’s) will impact mortgage rate shoppers.

      • Wendy, I just received a different answer from a HUD rep who stated that if it’s not a fee typically paid for by the seller (excise/transfer tax) it does not have to be on the 2010 GFE UNLESS we have a copy of the purchase and sales agreement stating the tax will be paid for by the buyer.

        HUD may need to do an updated FAQ….it’s been a few weeks since they’ve reissued one so I think they’re due ;)

        • Wendy Holtmann says:

          Wow…isn’t it great? Our government at work and the right hand doesn’t know what the left hand is doing – everyone has an opinion on the matter and yet they expect us to follow the rules and they don’t even know how to give? BTW, there was an updated FAQ on 1/28/10 – I didn’t see anything that addressed excise/transfer tax issues other than tolerance issues. See page 39, questions 13, 14 and 15 – those are nice and contradictory. Ya just gotta wonder ~ :)

          • Bottom line, everyone needs to check with their compliance department… and double check w/HUD’s info to make sure it makes sense…I’ve heard of some big mortgage companies not believing the owners title policy… ya need to cya! :)

  3. Wendy, based on that reasoning from HUD, we should be disclosing utility bills too on the 2010 GFE. :( The only way I could see excise tax being paid as a lien (vs with a purchase transaction) is if it’s determined more excise is due after the transaction… for example, transactions between individuals between individuals where they’re wrongly using exemptions.

    I wonder if all States lien excise tax? If everything is being done on a national basis (how closing costs are treated on the GFE) then this is really to accomodate big banks that loan everywhere and is not focusing on the consumer. Most of us aren’t looking to buy a house in Washington State and/or Washington DC at the same time.

    I would love to hear from other mortgage folks on whether or not they’re showing excise tax on the GFE if buyers do not pay for it in their area.

  4. Hey, great discussion…

    Nothing to add, except thanks!

    Slogging my way through the first 2010 GFE: it’s like driving though a blinding snowstorm….

    Go slow, keep both hands on the wheel, say a prayer from time to time.

    And good lord, when will we be done with the notion that APR is a decent guide to choosing a loan originator or a mortgage. What a travesty.

  5. I have to admit, title is not my thing. Any ideas what the best way to describe all this to the borrower? Had a closing today with the last old GFE…now on to the new….and its freakin me out!!!!

    • I let the borrower know that this is a seller paid cost (in our area) and this document requires us to disclose it even though they do not pay for it. I also point out on the loan application (page 3) where the owners policy is shown as a credit.

    • Best of luck with the new one Kenny. I’m pretty confident that most if not all lenders are including the owners policy in block 5. However, entering excise tax is still hit or miss with the lenders we work with. During a presentation yesterday regarding changes on the new HUD 1, a prominent loan officer shared that he lost a loan to another lender that didn’t disclose excise tax in block 8 (1.78% of sales price in Seattle area).

      When asked why he elected to show a cost only associated with sellers in WA State, he explained that the investor he corresponds with demands that excise is included. Apparently the buyer couldn’t be convinced that the tax would ultimately end up being credited back by the seller.

      • Wendy Holtmann says:

        This is the exact issue that the title company I work for has been talking about with loan officers and real estate agents in our area. We are trying to educate everyone that they be sure to inform borrowers so they are comparing apples with apples. In all reality they shouldn’t be seeing a HUGE cost difference – and if they are, there should be an obvious reason (like the excise tax). We are sharing with our customers that if the borrowers won’t take the LO word for it have them give me (their escrow officer) a call and I’ll help to educate the customer as well. I’m sure an answer will have to come from HUD sooner or later – the SAME answer – so these types of issues can be avoided in the future. Everyone needs to start hammering the issue with HUD I guess and force them to make a uniform decision that is clear to all.

        • Great points Wendy, HUD needs to straighten this out for everyone. It’s a great gesture to help loan professionals convince their borrowers how these costs will ultimately be credited back but I fear they will look at us as “the closer” rather than a 3rd party industry expert.

          Unfortunately, all the public debate regarding the housing mess has caused trust to be at an all-time low for borrowers.

  6. Rhonda, in Massachusetts where I practice, the buyer pays for just about everything including both lender’s and owner’s title insurance, most recording and title exam fees. The seller pays for transfer taxes and some mortgage discharge related fees (and of course the entire realtor commission).

    So clearly what HUD was attempting to do was come up with a uniform national form, for better or worse.

    Hey, here in Massachusetts only attorneys are allowed to perform real estate closings! How’s that for a monopoly!

    Richard D. Vetstein

    • Richard, I agree HUD has made a national form, but they do allow us not to factor in cost the seller traditionally pays with EXCEPTION to the owners title policy. Not sure why they excepted that.

  7. Here in NM the Seller typically, well always pays for the Title Insurance. But as an Originator-if you fail to disclose this on the GFE, we have to make the cure to the Buyer. So the buyer is getting a check cut to them for a service that was never paid by them. This doesn’t make sense. If the title insureance was not disclosed and its a seller cost, why the cure?

    • Ellen, HUD revised the RESPA FAQs on 4/2/10 but did not address this issue. It makes no sense to me that mortgage originators would be held liable for quoting a fee their borrowers do not pay.

      With the last FAQ they cleared up excise tax (when the sellers pay) but are being stubborn with the owners policy.

      I wish HUD would adopt the same guidelines as they have for excise/transfer tax.

  8. We are a buyer in washington state attempting to purchase a forclosed home (which we happened to be renting at the time). Our offer was accepted by the bank (m&t bank based in NY) and we went to our lender to sign papers and were told that the bank was refusing to pay the excise tax and the owners title policy and since it wasn’t disclosed to us before when we made the offer, we are having to come up with almost 3300$ of extra cash to cover the costs or raise our interest rate to cover it. Is this legal? Just because the bank is in NY and we are in WA, they don’t have to play by WA state rules?
    Thanks for any info as our lender seemed just as confused as we were.

    • Katie, Do you have a real estate agent? Look at your purchase and sale agreement where these items are addressed as to who pays.

      I’m just a title guy so you’ll want a real estate expert to guide you on this!

    • Katie,
      Rob has a good point. In WA state, it is not required to have excise tax disclosed on the GFE since it’s a seller cost… it’s possible that in NY, it is required to be disclosed.

      The owners title policy (although typically a sellers cost) is currently required to be disclosed by the loan officer on the GFE–there are certain tolerance levels depending on if you selected the title company from the lenders “written list” or if you did not (as this post refers to). If the LO provided a written list with the GFE and you selected a different title company, they may not be liable for the fee. It’s completely messed up, in my opinion.

      Bottom line, I’m hearing of banks playing a lot of games in the 9th hour with foreclosures. What does your RE agent say? For $3300, is it worth contacting an attorney?

  9. To Rob and Katie,

    More important than looking in the contract (where we know what it says) is to look at the Bank Counter Addendum to the offer, assuming the bank was in fact the owner at time of sale. The Counter Addendum can sometimes be up to 6-7 pages long, and most often supersedes the language in the contract as written at time of offer, and changes the who pays what parameters in many cases.

    So you will find one set of who pays instructions in the original contract, and a completely different set of instructions in the bank counter addendum.

    Also, not sure if Katie bought it AT foreclosure at the Courthouse steps, and if that is the case…there are completely different rules for who pays what when you buy AT foreclosure vs pre-foreclosure or post-foreclosure. Most people lump those three completely different scenarios together as if they are one…but pre-foreclosure, at foreclosure, and post foreclosure all come with completely different rules with regard to costs, and who does or does not pay them.

  10. chris gummerson says:

    Can anyone tell me why the MLDS does not show a seller credit? On the GFE it shows the borrower has to bring in a specific amount, but the MLDS shows a much higher amount to be brought in, which is not including the SELLER CREDIT. Please help, need to explain to homeowner!!!

    • Chris, what are you referring to with the MLDS? I’m guessing “mortgage loan disclosure statement” but I’m not sure so it’s hard to respond.

      The GFE no longer shows a specific amount that the borrower needs to bring in–there is no place for “funds for closing” or “seller credits”.

      I use page 3 of the loan application to review seller credits and funds for closing to a home owner. We also have “work sheets” aka “rate inquiry” forms that show these details for our clients.

Trackbacks

  1. [...] Mortgage Insurance Premiums, VA and USDA Funding Fees (which go on Block 3 of the GFE) and the Owners Title Insurance Policies for purchases (Block 5).   Also watch for excise tax if you need to disclose that in  your [...]

  2. [...] if the CFPB is reading this post, I’d be a happy camper if they discontinued having the owners title policy (typically paid for by the seller in Washington state) being quoted on the GFE only to be credited [...]

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