As discussed here, owner's title insurance premium is subject to a 10% fee tolerance if charged by a title company identified or selected by the lender. To provide this figure (and all other title-related charges) on the Good Faith Estimate (GFE), it is assumed that the lender has already reached out and received that settlement providers' fees.
Which owner's policy is being issued?
Over the past 10 years, many title agents have made available the enhanced coverage policy. Title insurance companies like First American and Chicago Title will, for additional premium, protect the buyer from claims that the traditional ALTA policy did not (such as post-policy forgeries, neighbor encroachments, lack of actual, physical access, etc.). The additional premium charged varies from underwriter to underwriter.
So which type of policy will the lender be quoting? The point of the new RESPA change is to give the borrower an apples-to-apples comparison of fees. Will borrowers be comparing multiple GFE's with different types of coverages quoted? How will they know which coverage - standard or enhanced - is being quoted?
This from page 26 of the New RESPA Rule FAQs (Hat tip to the anonymous commenter below):
Q: If a borrower was quoted a basic owner‘s title insurance policy, but
requests an enhanced owner‘s title insurance policy or an endorsement to the owner‘s title insurance policy, should the loan originator issue a revised GFE?
A: 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.
Q: Should the loan originator quote the charge for a basic owner‘s title insurance policy or an enhanced owner‘s title insurance policy on the GFE?
A: The GFE is a disclosure of charges the borrower is likely to incur in connection with the settlement. The loan originator should quote the rate for a basic owner‘s title insurance policy. If the borrower chooses an enhanced owner‘s title insurance policy before the loan originator issues the GFE, the loan originator should quote the rate for an enhanced owner‘s title insurance policy.
There are a lot of "may's" and "should's" in the answers above, so we will be monitoring the situation once the new changes kick in. Will the lenders be quoting standard premiums? How will the type of policy quoted be communicated? As we work through these logistics, agents are well-advised to understand that there are two types of owner's title insurance policies with different costs, and to make sure the buyers are asking which policy is being quoted on the GFE before selecting a provider.
(Revised 12/29 at 3:45 PM to incorporate comments made below)
Tomorrow's brief post will be on the enforcement of the new changes.
