Is this what the CFPB intended?
South Carolina closing attorneys are in the throes of their first closings under the new CFPB rules. Title insurance company offices are fielding all kinds of unusual questions as everyone works through their first few sets of documents. And our collective eyes are having difficulty adjusting to the appearance of title insurance rates on the new Closing Disclosure.
Under the filed rates of the title companies in South Carolina, we have a simultaneous issue rate of $100 for a second policy in a transaction. Typically, the owner’s liability amount and premium are higher, so the simultaneous issue rate of $100 is the charge for the loan policy.
The South Carolina Department of Insurance (SCDOI) requires us to disclose the true cost of an owner’s policy over the cost of the loan policy. We have been accustomed to referring to this charge as the “difference plus $100” because we take the difference in the full cost of both policies and add the $100 simultaneous issue fee to arrive at the number the SCDOI requires.
Let’s look at an example:
In a purchase transaction, the sales price is $455,000, and the loan amount is $409,500. The full premium for the ALTA Homeowner’s policy is $1,290.60, and the full premium for the loan policy is $981.00. In the past, the title and software companies’ rate calculators would have shown:
|ALTA Homeowner’s policy rate:||$1,290.60||(full premium)|
|Loan Policy (standard rate):||100.00||(simultaneous issue fee)|
For the SCDOI required disclosure, we would have shown:
|ALTA Homeowner’s policy rate:||$409.60||(difference plus $100)|
|Loan Policy (standard rate):||981.00||(full premium amount)|
The total of the two calculations was always consistent.
Now, the CFPB requires that the total cost of the loan policy be disclosed and any simultaneous issue discounts must be shown against the owner’s policy. That’s ok with our South Carolina eyes because we can use our “difference plus $100” calculation to reach the same result.
The problem occurs where there is a reissue credit. While the CFPB never specifically addressed how to handle a reissue credit, the agency was clear that the loan policy premium had to be reflected in full. So most of the title and software companies have decided to take the reissue credit from the owner’s policy premium as well.
In our example, let’s assume that there was a prior ALTA Homeowner’s policy in the amount of $315,000. The reissue credit would be $468.90 (half the full premium for $315,000), so the new total cost would be $921.70 ($1,390.60 – $468.20), and this is where the problem becomes more challenging:
|ALTA Homeowner’s policy rate:||$ -59.30||($409.60 minus the credit of $468.90)|
|Loan Policy (standard rate):||981.00||(simultaneous issue fee)|
The total is the same (and correct in our collective view), but notice the negative number as the cost of the owner’s policy.
We have decided in our office to think about it this way. The Closing Disclosure is not a replacement for the HUD-1, and it is not a closing statement. It is simply what it is entitled, a closing disclosure that the CFPB requires for the consumer borrower.
We are going to have to prepare other documents (closing statements, disbursement analyses) that will allow us to properly disburse and to completely disclose each disbursement as required by the SCDOI, not to mention the South Carolina Supreme Court! And our eyes are just going to have to adjust to those negative numbers!
Thanks to Cris Garrick, the IT guru in our office who figured this out and convinced me it’s correct!