CFPB Proposed Rule - Your Comments Are Important

The Consumer Financial Protection Bureau's ("CFPB") proposed rule supplementing the new Loan Estimate and Closing Disclosure requires lenders to describe owner's title insurance as "optional" on the Loan Estimate when owner's title insurance will be paid for by the buyer. Whenever the cost of owner's title insurance is included on the Loan Estimate, it will be considered a buyer's expense, adjusted as a seller debit and buyer credit on the Closing Disclosure for transactions in which the seller pays for title insurance, as under the current rule. This unfortunate description of owner's title insurance coverage will potentially sway purchasers from negotiating for or purchasing owner's title insurance.

Investment in real property without the protection afforded by owner's title insurance is hazardous on multiple levels. First, certain problematic title scenarios may be covered and resolved with a claim on an owner's policy only. Second, the typical additional cost for an owner's policy issued together with a loan policy is nominal since the owner's policy is issued at original rates and the simultaneous loan policy is issued at simultaneous rates instead of original rates. Consequently, the purchase of an owner's policy at the same time as the purchase of a loan policy is a bargain. By labeling owner's coverage as "optional", the consumer may be discouraged from taking advantage of a valuable bargain and fail to sufficiently protect a precious investment. Finally, title insurance protects property owners while serving the public purpose of protecting and encouraging investment in real estate. If a property buyer declines owner's coverage and an existing title defect goes undiscovered, the buyer's only recourse for compensation for the resulting loss, other than an action against the seller, will be an action against the closing agent. The closing agent may not be adequately equipped or insured to make the property owner whole. When an owner's title insurance policy is issued, the underwriter is armed with mandatory reserves to resolve the title defect.

Consider the hazards of underplaying the importance of owner's title insurance. By labeling owner's title insurance as "optional" the Loan Estimate is guiding the consumer down a dangerous path. Please share your concerns on this matter with the CFPB. Public commentary on the proposed rule is being accepted by the CFPB until November 6th. More information and a link to provide comments to the CFPB can be found at http://www.thefund.com/Member/Resources/Consumer-Financial-Protection-Bureau.aspx.