Is owner's title insurance required to be disclosed on refinances since it is available?

It is not needed for refinance transactions.

Well, that depends. In the States where it is possible for a borrower to purchase title insurance after they purchase the property and the lender is in possession of knowledge that the borrower will be purchasing title insurance, you would be required to include it in the LE. But without that knowledge, JWills is correct.

The current rule requires it on purchase transactions regardless of whether the consumer will be purchasing it but I don't see in the new rule that it is required on all purchases. I am assuming that they want you to quote it regardless on purchases but I can not find a reference to it.

We are assuming that as well terpsfan, I could not find a specific reference to it either.

This is my take on OTI (although not set in stone just yet).

Regulation Z – 1026.37(g) (4)

(4) Other. Under the subheading “Other,” an itemization of any other amounts in connection with the transaction that the consumer is likely to pay or has contracted with a person other than the creditor or loan originator to pay at closing and of which the creditor is aware at the time of issuing the Loan Estimate, a descriptive label of each such amount, and the subtotal of all such amounts.
(i) For any item that is a component of title insurance, the introductory description “Title –” shall appear at the beginning of the label for that item.
(ii) The parenthetical description “(optional)” shall appear at the end of the label for items disclosing any premiums paid for separate insurance, warranty, guarantee, or event-coverage products.

From the Commentary to .37(g) (4)

1. Owner’s title insurance policy rate. The amount disclosed for an owner’s title insurance premium pursuant to § 1026.37(g)(4) is based on a basic owner’s policy rate, and not on an “enhanced” title insurance policy premium, except that the creditor may instead disclose the premium for an “enhanced” policy when the “enhanced” title insurance policy is required by the real estate sales contract, if such requirement is known to the creditor when issuing the Loan Estimate. This amount should be disclosed as “Title – Owner’s Title Policy (optional),” or in any similar manner that includes the introductory description “Title –” at the beginning of the label for the item, the parenthetical description “(optional)” at the end of the label, and clearly indicates the amount of the premium disclosed pursuant to § 1026.37(g)(4) is for the owner’s title insurance coverage. See comment 37(f)(2)-4 for a discussion of the disclosure of the premium for lender’s title insurance coverage.

The statement that the consumer is likely to pay is IMO the catch all phrase to include OTI on the LE for purchase transactions. Because OTI is available for purchase transactions then the consumer is likely to pay, or contract to have the OTI paid for on their behalf.

In other words in a purchase transaction;
• we are aware that OTI is available and we know the consumer is likely to pay for it,
• or they are likely to contract for the seller to pay for it,
• or we have a copy of the purchase agreement that may or may not state how OTI will be purchased if at all.

Because of this “local” knowledge this section of Regulation Z does not IMO give or allow an exemption for not disclosing the OTI in a purchase transaction.

Further in support of this idea is found back in 1026.19, specifically comment 19(e)(3)(iii)-3 (I finally found a comment that is easy to remember how to cite) where it discusses the fact that if the property is in a jurisdiction where "consumers are customarily represented at closing by their own attorney, even though it is not a requirement, and the creditor fails to include a fee for the consumer's attorney, or includes an unreasonably low estimate for such fee, on the original estimates provided pursuant to § 1026.19(e)(1)(i), then the creditor's failure to disclose, or under-estimation, does not comply with § 1026.19(e)(3)(iii)."

It's a different fee, but the concept is the same, I think.

If you need any additional support - read the preamble to the regulation:

Based on these comments, in particular the comment by the State trade association
suggesting that owner’s title insurance be disclosed when required by the creditor, the Bureau
considered removing any requirement to disclose a non-required owner’s title insurance
premium on the Loan Estimate for purchase transactions rather than merely revising the
proposed notation associated with the owner’s title insurance premium. This, however, would
remove a sizeable cost from the Loan Estimate that a consumer may be likely to pay and thereby
reduce the accuracy of the Loan Estimate. Additionally, if not disclosed on the Loan Estimate,
the cost of an owner’s title insurance policy would not be subject to any tolerance level under
§ 1026.19(e)(3), making the consumer protections related to the tolerance levels in applicable to
a charge that frequently is a large dollar amount. Accordingly, the Bureau concludes that the
owner’s title insurance premium should be disclosed on the Loan Estimate in a purchase
transaction if a consumer is likely to pay for it, regardless of whether the policy is required by
the creditor.

Lovely. I really wish that one would go away unless you are aware of its anticipated purchase. I think I may have had 2 closings last year where they got it...both were on foreclosed properties, so very understandable (IMHO).

RR, I wish the same as you on owner's title insurance. It's usually not purchased on our loans, but we have to throw that estimate out there anyway. We generally finance all fees but will consider the owner's title insurance to be paid in cash, so it doesn't affect our numbers. I was hoping the integrated disclosure rule would allow us not to have to worry with this requirement, but oh well, we'll continue to disclose a cost to the borrower that will end up being taken off when we do the Closing Disclosure.

Ok I am still trying to figure out, what Tolerance bucket exactly does Owner's Title Insurance fall under?

If you allow shopping and they choose from your list, 10%. If they go off list there is not tolerance issue.

ETA: If you require a specific provider, 10%

If purchase of Owners Title Insurance is "optional", then there is no tolerance to abide by, correct?

right

As long as they do not purchase it.

I attended a webinar yesterday that said in states where OTI is customarily paid by the seller, it isn't required to be shown on the LE. They didn't offer a citation.

In my state, the seller pays the OTI, so do we have to disclose on the LE?

JJ, if it's optional, it shouldn't carry any tolerance concerns even if they do purchase it. We just have to show our due diligence on 'good faith' with the estimate.

The Loan Estimate only includes costs that will be paid by (or you believe are likely to be paid by) the consumer/borrower. You include the OTI in Section H if it is optional and you believe the borrower is likely to pay for it. If you know (Purchase agreement, statement of borrower, local custom, whatever credible source) that the borrower isn't paying for it, you don't include it on the LE.

But if it is obtained, it goes on the CloD, with the amount(s) in the appropriate (borrower/seller/other) column(s).

So John, you are saying that if it is local custom (it is specified on the sales contract, & 90% of the time the seller pays the OTI) then we do NOT have to disclose it on the LE?
In Texas, there is a simultaneous issue discount for LTI also. So if we do not disclose the OTI, would we disclose the LTI at the full premium, or with the simultaneous issue discount?
Sorry, this is the first I've heard of not disclosing OTI, & assumed we would have to since we do on the current GFE, even if it is known the seller will pay.

I would like to further clarify your above statement as well, John. Typically (99%) borrower's here do not purchase OTI. When you state 'if you know....that the borrower isn't paying for it, don't include it....

Does that apply if a borrower would typically pay for it, but says that are not getting it, or only if you know someone else will be paying it?

Taylor <3 -- The key regulatory language addressing your question is in 1026.37(g)(4):
Under the subheading "Other," an itemization of any other amounts in connection with the transaction that the consumer is likely to pay or has contracted with a person other than the creditor or loan originator to pay at closing and of which the creditor is aware at the time of issuing the Loan Estimate,... (emphasis added)

The Loan Estimate is all about your estimate for the consumer of what his/her costs for the transaction will be. Peppered throughout 1026.37(f) and (g) are words like "the consumer will pay" or the wording in bold in the quoted verbiage above.

If you're in a state (like Texas) that permits a deep discount for a simultaneously issued lender's policy when an owner's title policy is issued, but the lender's policy is required, the lender's policy must be disclosed with the undiscounted premium (see instructions in Comment 37(f)(2)-4. That's the case whether or not you disclose the optional OTI policy in Section H.

I'll add here that Randy Carey told me that Texas is issuing its own disclosure requirements relative to title insurance premiums, and they are likely not to be the same as those in Regulation Z. That will require you to provide a second disclosure with those Texas requirements.

RR Joker:
If the best information that you have at the time you deliver the Loan Estimate is that the borrower will not, or is not likely to, pay for a service that the bank does not require, such as an OTI policy, you don't include it on the LE. But if it's the custom in the area that the borrower would pay for it, you need to include it unless you know the borrower has opted not to do it or you know that it's not being paid for by the buyer/borrower (suggestion: document the source of that knowledge). The reason? You don't want a good faith cure. You cannot omit from Section H a service that you have reason to believe the borrower is likely to pay for because that would mean your omission would not be in good faith. For an example, see the discussion at the end of Comment 19(e)(3)(iii)-3 beginning with the words "But, for example,..."

Because of the way that 19(e)(3)(i) and 19(e)(3)(iii) and their commentary are written, an omission not in good faith of a service the consumer is likely to pay for will not comply with .19(e)(3)(iii), and will therefore be subject to .19(e)(3)(i), which allows no tolerance for increases.

There is a reason that you are to specifically label OTI as "optional" unless you are requiring it.

Maybe it's because this is such an about-face from the current rule regarding OTI, but I still don't get this.
From your quote above, John, the OTI is:
*in connection with the transaction; and
*the consumer has contracted via the OTP to have a person other than the creditor or loan originator pay at closing;
so how can it be left off the LE?

sorry if this is Friday brain but I'm just not getting this.

Truffle Royale:
You're misquoting it and misinterpreting it. As written, the contract reference is about things the borrower contracts to pay to a third party at closing. Example: an optional radon inspection or pest inspection.

Again, the overriding rule on the Loan Estimate is that it includes the costs the consumer/borrower will, or is likely to, pay if the loan is consummated.

And you are correct, it's different from the GFE, and OTI is a good example of something being done differently. On the GFE, you show your estimates of the discount for simultaneous issuance of LTI and OTI as the premiums are quoted -- with the discount applying to the lender's policy. But that practice makes the borrower who reads the OTI premium (full premium) think that he'll be paying the discounted premium for the lender's policy if he opts out of the OTI, and that's misleading and creates an 11th-hour surprise for the borrower. Or, as Randy suggests below, you're showing the full premium on both sides to avoid a cure, which inflates the borrower's perception of the total cost. At least that problem is eliminated with the CFPB's treatment of the disclosure.

Look at this another way.

In Texas, where they are deep discounts for simultaneous purchase, Banks were only left with one real option. Estimate the lender policy at the full non-discounted rate and also estimate the owners policy at the full owner's premium amount.

Thus, never coming close to providing a accurate estimate of closing costs.

A lender could not estimate the lender's policy at the discounted rate because if the applicant decided not to purchase an owners policy, you just blew your tolerance out of the window.

Everyone has to keep in mind that how title insurance works, how it is priced, who typically pays, and whether it is usually purchased by either the lender or the applicant varies widely throughout the nation.

Just because the old system may have worked well for you, there may be more for which it didn't work at all.

At least we all play by the same rules now.