I would like to revisit this issue. As I was writing up my guidance on whether the owner's title policy premium paid to an affiliate should be counted in the Section 32 points and fees calculation I became less sure of my answer. As I see it §1026.32(b)(1)(i) and §1026.32(b)(1)(iii) would be the applicable sections of Reg. Z to address this question. I think it is clear per 32(b)(1)(i) optional owner's title insurance would not be included as points and fees because the definition of finance charge in §1026.4(a) excludes optional fees.
My concern is with §1026.32(b)(1)(iii). It simply says that all items listed in §1026.4(c)(7) (other than amounts for future payment of taxes) would be included unless, among other things, the charge is not paid to an affiliate of the creditor. It does not say anything about the fee being considered a finance charge, although 4(c)(7) lists real estate related fees that are excluded from the finance charge definition. Among those fees is title insurance and of course in my scenario it is paid to an affiliate.
Am I being overly conservative with that interpretation?