The TRID Improvement Act of 2017 was recently introduced by Congressman French Hill to modify disclosures as well as provide clarification and regulatory relief to consumers and financial institutions. To understand the Act more thoroughly, The MReport reached out to Richard Horn, former CFPB attorney who led the rule integrating the mortgage disclosures under the Truth in Lending Act and the Real Estate Settlement Procedures Act (TRID).
According to Horn, if the bill passes, the amendment would require the forms to disclose the actual filed or promulgated premiums with the simultaneous issuance discount applied to the lender’s policy. But only the lender requires the purchase of the lender's policy, not the owner’s policy. CFPB requires the TRID form to disclose the owner’s policy with the word “optional” next to it, to clarify for consumers that the lender does not require it.
“In light of this optionality, the CFPB’s TRID rule requires lenders to disclose to consumers what it would cost to purchase only a lender’s policy as the cost of the lender’s policy, and how much extra it would cost the consumer to purchase an owner’s policy as the cost of the owner’s policy,” Horn said.
To prevent surprises at the closing table, it is essential to make it clear to consumers how much they’re required to pay for title insurance if they don’t opt to purchase an owners policy. Horn said that this method of disclosure also has the effect of showing consumers that it would only cost a marginal amount more to buy an owner’s policy. However, TRID forms also disclose the same total for both premiums—the difference is how the total is split between the policies.
“I know why the title insurance industry wants this legislation, and I sympathize with their desire for the TRID forms to show the actual premiums they’re required to charge under state law,” Horn said. “But there could be concerns about consumers complaining when the cost of the lender’s policy increases substantially after they decide not to purchase an owner’s policy.”
Horn said that some title insurance companies could also prefer the current method of disclosure if consumers begin deciding not to purchase an owner’s policy because of the substantial price disclosed next to the word “optional.” Quoting a lower price can be helpful when wanting a consumer to purchase something, but a concern is that the legislation changes a method of disclosure of a substantial cost of a mortgage loan without conducting any government study of it would affect consumer understanding—the end goal of disclosures in the first place.
“One thing I’ve learned from working on the design of the TRID disclosures is that it’s nearly impossible for a bunch of lawyers or industry professionals to know how actual consumers will interact with information on a disclosure,” Horn said. “Consumer testing on this issue would be useful.”
However, that’s not to say Congress shouldn’t work on legislation on this issue. According to Horn, Congress could require the CFPB to study the effect further or address a technical problem with the CFPB’s method of disclosure when a seller pays for the owner’s policy.
Horn hopes that if this legislation passes, the title insurance industry would stop giving consumers their own settlement statement in addition to the TRID forms, which adds to the paperwork at closing, causes consumer confusion from receiving duplicative disclosures, and causes lender and investor concerns about liability in the event of discrepancies between the two disclosures.
“TRID’s method of disclosure of title insurance premiums was one of the major reasons for the title industry’s use of the separate settlement statement, so hopefully this legislation solves this problem for the industry. If it doesn’t, Congress should work on amending the bill to address the other reasons for the title industry’s use of the separate settlement statement.”