Hazard Insurance Disclosure & RESPA
by Mary Beth Guard, BOL Guru
Question: Is it true that you are required to disclose hazard insurance on the HUD-1 or HUD-1A form in order to be in compliance with RESPA, even when you are not requiring the establishment and maintenance of an escrow account for payment of that insurance?
Answer: Yes. The Chicago Federal Reserve Bank put out a great explanation of how it works a couple of years ago. They said that on hazard insurance premiums, you should follow these four steps;
- Look to the legal obligation (generally the note) to determine whether hazard insurance is required or truly optional.
- If the note (or other legal obligation) is silent on hazard insurance and the insurance is truly optional, an annual premium would not be disclosed on the GFE or HUD-1.
- If the note (or other legal obligation) includes terms that require hazard insurance or that allow the creditor to force place the hazard insurance, the annual premium must be disclosed on the GFE and HUD-1.
The way you actually disclose it will depend upon whether your bank escrows these premiums:
If your bank escrows,
- Disclose the annual premium (if the premium cannot be determined, it must be disclosed as an estimate) on line 903 of the GFE and Section L line 903 of the HUD-1, and
- Disclose the escrow reserves on line 1001 of the HUD-1.
If your bank does not escrow,
- Disclose the annual premium (if the premium cannot be determined, it must be disclosed as an estimate) on line 903 of the GFE and Section L line 903 of the HUD-1.
- If no payment is required at closing, disclose the annual premium as "Paid Outside of Closing" (P.O.C.).
Note that the same analysis applies to disclosure of property taxes.
If your bank escrows,
- Disclose the annual amount of the taxes (if the amount cannot be determined, it must be disclosed as an estimate) on lines 808-811 (as needed) of the GFE and Section L lines 808-811 (as needed) of the HUD-1, and
- Disclose the escrow reserves on Section L lines 1003 and 1004 (as appropriate) of the HUD-1.
If your bank does not escrow,
- Disclose the annual amount on lines 808-811 (as needed) on the GFE and Section L lines 808811 of the HUD-1.
- If no payment of taxes is required at closing, the annual tax liability would be disclosed as "Paid Outside of Closing" (P.O.C.). If the amount cannot be determined, it must be disclosed as an estimate.
If taxes are assessed on a period other than 12 months,
- The creditor must estimate the annual amount, and
- The annual amount must be marked as an estimate.
The original version appeared in the June 2002 edition of the Oklahoma Bankers Association Compliance Informer.
First published on BankersOnline.com 10/14/02
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