Can we charge you more if you choose to use a title company that we don’t own?

Our parent company owns a bank and a title company. We do not require use of our title company. Recently our bank rolled out a new loan product that involves some complicated disclosures and processes. Our title company has handled several of them and has gotten a handle on how to do them correctly. When another title company is used, our title company ends up having to intensively review the docs the other company sends, plus our title company still has to prepare customized docs required for closing and send them to the other title co, and later review the work. The manager of the title company has decided she’ll need to pass on an extra $850 fee for these reviews. This is designed to compensate our parent’s title co for this (presumably, otherwise uncompensated) work. The net effect of this is that if you use any title company other than ours, you pay an extra $900 for no discernible benefit to the borrower. Is this compliant? The title co suggests adding $850 to the standard fees for this product, and simply waiving it when our title co is used. I feel that this has the effect on the borrower of forcing them to use our title co.
I assume you’ll ask: Why not simply require them to use our title co? I don’t know. Let’s assume that has been discussed and is off the table.

Wny not provide clear instructions to the other title companies? What kind of mortgage product can be that different from the mainstream in the country?

Agree with Kathleen. Pardon the vernacular but what the heck is so different about your new loan product that it involves such complicated disclosures and processes that require intensive reviews, preparation of customized docs followed by re-reviews? All kinds of bells and whistles are going off in my head next to the flashing Section 8 light.

That reminds me of the "option mortgages" of the early 2000's. If the loan products are that complicated, sooner or later, the bank is going to take a beating from the regulator.

Title companies are not dummies (well, not all), I agree with KB & TR. That product would keep me up at night.

OP: I hear you well on the alternative suggestions and warnings. I do appreciate it. Does anyone have a response to the question asked?

For all intents and purposes, it forces your customer to use your title company. I wouldn't want to try to explain this situation to the compliance examiner. I wouldn't touch this with a ten foot pole in my bank.

I think it forces them to use your title company.

Question asked:
Sure you can charge whatever you choose to.
But...and this is a big but...the posters here have all opined that doing so is not a wise choice and have given you various reasons why.

One other point to consider. You're either going to have to pad all your original GFEs just in case the borrower elects to go with someone else OR face a cure situation on all loans where borrowers opt for a different title company because $850 will likely put you over the 10% tolerance. I wouldn't want to be the one having to explain either of these to an examiner.

eta: Upon further thought, it occurred to me that this $850 would be part of the Block 1 origination fee, not the title fee in Block 4 because the work your title company would do falls under origination charge as outlined on p.27 of the FAQ.

Possibly, if your bank has designed a product so complicated that only one title company can understand it, then your bank should be picking up the fee.

Which is what they'll be doing if they don't put it on all their GFEs because the cure for a Block 1 violation is 100% of the overage.