My question is in regards to Respa Section 3500.7(a). My bank is regulated by the FDIC. I am wondering how to properly disclose taxes and insurance on the GFE and HUD for refinanced and home equity loans where these fees are not impounded. As of now we do show these fees as a monthly amount on our Hud and GFE, is the monthly amount ok or do these fees need to be an annual amount.

Hope this makes sense.

Thanks

Division of Supervision and Consumer Protection, 500 West Monroe, Suite 3500, Chicago, IL 60661 312-382-7500

Bulletin Number: CHIRO-14-2005

Disclosure of Real Estate Taxes under the Real Estate Settlement Procedures Act (RESPA)

FDIC-Chicago has received recent guidance concerning RESPA and the disclosure of real estate taxes on the good faith estimate (GFE) and HUD 1/1A settlement statement (HUD). This guidance reflects a change from our previous interpretation regarding disclosure of the real estate taxes.

For RESPA applicable loans, those banks that require a borrower to pay real estate (RE) taxes as a condition of a loan, must disclose those amounts on the GFE and HUD, whether paid at closing or not. The charges paid outside of closing should be listed as “POC”.

To determine whether a bank requires RE taxes to be paid as a condition of the loan, look to the loan documents as the source for the requirement of real estate taxes – if a bank is requiring borrowers to pay taxes and get insurance, the costs have to be disclosed. In most cases, the loan documents do require the borrower to pay real estate taxes and keep the collateral insured. Where the loan documents include these requirements, the lender can declare the borrower in default and foreclose if the borrower fails to make these payments.

We encourage FDIC-supervised institutions to review these requirements with appropriate bank personnel in conjunction with the bank’s practices and policies for compliance with RESPA.

If you have any questions concerning this information, please contact us by e-mail at scans@fdic.gov or call us at the Chicago Regional Office Banker Hotline, (312) 382-6926.

The following is not a part of the SCANS bulletin.

Hazard Insurance and Taxes:
Any time a lender requires hazard insurance or real estate taxes to be paid, it must be disclosed on the settlement statement regardless of whether a loan is a purchase money transaction, home equity loan, home improvement loan or a refinance. If the fees are not collected at closing, they should be disclosed as P.O.C. In virtually every case, the bank will require real estate taxes and hazard insurance to be current in order to lend the borrower money. Because of this, every HUD-1 or HUD-1A should disclose the premium and term (usually 1 year) of hazard insurance and real estate taxes. If the amount is not collected at closing it should be listed as P.O.C.

1. Purchase Loans:
a) Taxes. Identify the proration of taxes on lines 211 and 511. If the bank is escrowing for the next year, show the reserves on line 1004 as well.
b) Hazard Insurance. Identify the hazard and flood insurance premiums required at closing as P.O.C. Also identify the term and to whom the premiums are paid on lines 903 and 904, respectively. If the bank is escrowing for the next year also show these reserves on lines 1001 and 1006, respectively.

2. Non-Purchase Loans (refinance, home equity, home improvement):
a) Taxes.
i) If the bank is not escrowing for taxes, identify the fee and term on lines 808-811 as P.O.C.
ii) If the bank is escrowing for taxes, identify the fees on line 1004.

b) Hazard Insurance.
i) If the bank is not escrowing for insurance, identify the premiums, term and to whom paid on line 903 and 904 (flood) as P.O.C.
ii) If the bank is escrowing for hazard insurance, identify the fees on line 1001 (hazard) and 1006 (flood).