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#2261867 - 10/29/21 09:50 PM Homeowners Insurance To Cure or Not To Cure
LostinRegLand Offline
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Ugh here asking another question.....

Reviewing a closed file yesterday and I come across a construction loan (we portfolio all of our loans and our construction loans are one time close) that showed Homeowners insurance paid before closing on the Closing Disclosure.

Moving onto the Loan Estimate I noted no Homeowner's Insurance quoted. We require HI on all loans and it should be a requirement to show on all purchases and Construction loans.

No documentation in the file as to why the fee was not disclosed. Spoke with the loan officer and they could tell me about why it was paid prior to closing but not why it was left off the Loan Estimate. Move onto the manager of the processing department and again was told why it was paid prior to closing but could not be told why it was left off of the Loan Estimate. Their only thought was that they knew the borrower would be paying for it out of their own pocket. Which maybe I am too conservative but I have required items to be shown even if we knew the customer would be paying for it.

As we require homeowners insurance on all loans and there was an expectation that it would be obtained at or before closing without having the estimate on the LE I do not believe that we met the best information reasonably available standard and we do not get to charge them under the unlimited tolerance section of the regulation (1026.19(e)(3)(iii)-1)

I am getting push back that as the borrower paid for it prior to closing it is no longer an issue and we shouldn't be talking about tolerances and cures. Also that people know they have to pay insurance so what is the big deal if we leave it off.......sigh. The borrower wasn't harmed so no cure required.

So what say you all cure or no cure. It is not a systemic issue and we have processes in place to ensure homeowner insurance is on disclosures as required. This was just a true error and not caught at the time of issuance.

I have already spent about an hour this morning discussing with the processing manager the need to clearly document files. That the documentation needs to allow any outsider picking up the file to figure out the story of what happened.
Last edited by LostinRegLand; 10/29/21 11:26 PM.
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TRID - TILA/RESPA Integrated Disclosures Rule
#2261909 - 11/01/21 05:49 PM Re: Homeowners Insurance To Cure or Not To Cure LostinRegLand
Inspector Offline
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It sounds like a violation of the good faith requirement, that part seems pretty straightforward. The push back you are getting isn't really relevant if you failed to meet the good faith requirement. It is required to be disclosed. It just becomes a question of whether you are going to fix the violation via the cure or just leave the violation which is a question only your institution can answer.

From what I have observed, regulators do recommend refunds for failing to meet the good faith standard. Hard to say if they would if it was truly a one off.
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#2261912 - 11/01/21 06:12 PM Re: Homeowners Insurance To Cure or Not To Cure Inspector
LostinRegLand Offline
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Thank you for your reply. I was frustrated on Friday and did not state my question well. I apologize. I am going to try again.....

During a recent review of a file, it was discovered that the homeowner's insurance was not disclosed on the Loan Estimate even though it was required. The borrower paid for the policy before closing but after the Loan Estimate was issued. The Closing Disclosure disclosed the fee in the Borrower-Paid Before Closing column.

I have read 1026.19(e)(3)(iii) and the related commentary, the Small Entity Compliance Guide, and the 2017 TILA-RESPA Rule: Detailed Summary of Changes and Clarifications which all state the best information reasonably available standard applies to property taxes, property insurance premiums (including homeowner’s insurance premiums), amounts placed in escrow, impound, reserve or similar accounts, prepaid interest, and third-party services not required by the creditor, so long as the charges (or omission of charges) were estimated based on the best information reasonably available.

We did not meet the best information reasonably available standard for this file but my question is now what? Does it convert to a 0% tolerance item and a cure will be required? Or a technical violation that we note, train on, and move on.

I noted in comment 3 of 1026.19(e)(3)(iii) the example explicitly states for property taxes or services not required by the creditor that the fee would be subject to 1026.16(e)(3)(i) 0% tolerance determination but the same type of example does not exist in comment 1s example of what happens when the standard is not met.

For example, if the creditor requires homeowner's insurance but fails to include a homeowner's insurance premium on the estimates provided pursuant to § 1026.19(e)(1)(i), then the creditor's failure to disclose does not comply with § 1026.19(e)(3)(iii).

Is it implied that it will now be under the 0% tolerance with a cure expected?

This is not a situation we see often and want to make sure we are applying the tolerance thresholds correctly.

I did search BOL threads prior to asking but couldn't find a similar question even though I am sure my search skills were not there on Friday.
Last edited by LostinRegLand; 11/01/21 06:44 PM.
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#2261937 - 11/01/21 08:55 PM Re: Homeowners Insurance To Cure or Not To Cure LostinRegLand
rlcarey Online
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IMHO - that is a extremely poorly written section by the CFPB and Comment 3 left a lot to be desired when it was included in TRID 2.0. Why they singled out property taxes and other charges not required by the creditor, I have no idea.

Basically, every charge is subject to .19(e)(3)(i), unless there is a carve out in section 19(e)(3)(ii) or 19(e)(3)(iii). If you do not meet the requirements of 19(e)(3)(ii) or 19(e)(3)(iii), then it reverts back to 19(e)(3)(i), which is zero percent tolerance.

But I think you can point to comment 3 and make a pretty solid argument that homeowner's insurance is not covered, otherwise why did they not mention it and/or state that property taxes was an example?

I would treat it as a uncorrectable TRID violation and make sure it does not happen in the future.
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#2261940 - 11/01/21 09:02 PM Re: Homeowners Insurance To Cure or Not To Cure LostinRegLand
raitchjay Offline
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Randy.....thanks for chiming in. I was reading that section earlier today and was thinking just that.....'wow.....this isn't very clear"....but i know i have been operating in the past as if this would be a non-disclosure violation, but not a cure situation. Nice to read that you see it that way too.
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#2261942 - 11/01/21 09:10 PM Re: Homeowners Insurance To Cure or Not To Cure LostinRegLand
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Alternatively, I think a pretty good argument could be made that property taxes and title insurance (from comments 2 and 3 respectively) are just the example that the CFPB chose to use to make the point for each of those sections that failure to disclose in good faith takes you back to zero percent tolerance. I agree that it is poorly written. I posed the question to the CFPB awhile back but still waiting for a response.
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#2261943 - 11/01/21 09:14 PM Re: Homeowners Insurance To Cure or Not To Cure LostinRegLand
raitchjay Offline
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Inspector....do you mean comments 1 and 3? Just curious, because 1 seems more appropriate to me....but perhaps i'm missing your point.
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#2261944 - 11/01/21 09:18 PM Re: Homeowners Insurance To Cure or Not To Cure LostinRegLand
raitchjay Offline
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I find it telling that comment 3 is labelled "3. Good faith requirement for property taxes or non-required services chosen by the consumer"......homeowner's insurance doesn't fit into either criteria mentioned.
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#2261945 - 11/01/21 09:21 PM Re: Homeowners Insurance To Cure or Not To Cure LostinRegLand
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I was referring to the below from comment 2. I said title insurance but the comment actually states settlement agent fee. My point was that it is only an example of a type of fee that would be relevant. So for comment 2 the CFPB chose settlement agent and for comment 3 they chose property taxes but there isn't really anything special about those fees that would give reason as to why only they would be considered under (e)(3)(i) if not in good faith but everything else that is disclosed the same way would stay under (e)(3)(iii).

It also just generally makes no sense for the regulation to state that the fees can change an unlimited amount if disclosed in "good faith" but then also conclude that it can change by an unlimited amount if not disclosed in "good faith." Not trying to imply that everything in a regulation must make sense.

For example, if the consumer informs the creditor that the consumer will choose a settlement agent not identified by the creditor on the written list provided under § 1026.19(e)(1)(vi)(C), and the creditor discloses an unreasonably low estimated settlement agent fee of $20 when the average prices for settlement agent fees in that area are $150, then the under-disclosure does not comply with § 1026.19(e)(3)(iii) and good faith is determined under § 1026.19(e)(3)(i).
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#2261948 - 11/01/21 09:27 PM Re: Homeowners Insurance To Cure or Not To Cure LostinRegLand
raitchjay Offline
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Yes.......very tough to understand what their intentions were, i agree. I'll just add this: since it is so poorly written, i would lean toward Randy's take simply to protect the bank....by that i mean, since it doesn't seem like a totally settled interpretation (at least not yet), i don't think i'd be volunteering my bank to pay a couple thousand dollars unless i was certain that that interpretation was in fact correct.
Last edited by raitchjay; 11/01/21 09:31 PM. Reason: add last comment
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#2261951 - 11/01/21 10:28 PM Re: Homeowners Insurance To Cure or Not To Cure LostinRegLand
rlcarey Online
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What worries me more than anything is Comment 1:

For example, if the creditor requires homeowner's insurance but fails to include a homeowner's insurance premium on the estimates provided pursuant to § 1026.19(e)(1)(i), then the creditor's failure to disclose does not comply with § 1026.19(e)(3)(iii).

I still think that gets back to zero tolerance.

Tough call.
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#2261963 - 11/02/21 01:56 PM Re: Homeowners Insurance To Cure or Not To Cure LostinRegLand
raitchjay Offline
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Randy, that's the reference to comment 1 that i made above......that sentence is indeed troublesome.
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#2261974 - 11/02/21 03:53 PM Re: Homeowners Insurance To Cure or Not To Cure LostinRegLand
Truffle Royale Offline

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Since when doesn't a bank require insurance on the mortgage collateral?
IMHO, that's the bottom line here.

Maybe it will help to remind those pushing back that TRID requires ALL THE COSTS OF GETTING THE HOME to show on the Loan Estimate. Period, no exceptions.

Insurance is a cost of getting the home so it must be on the LE. If it's paid outside of closing then you show it as such on the CD.

You missed it on the LE and the CD. It's a requirement of getting the loan. Randy nailed it. You are at zero tolerance for the bank's mistake. Cure for the whole amount and use it as a training tool.

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#2262088 - 11/03/21 11:46 PM Re: Homeowners Insurance To Cure or Not To Cure LostinRegLand
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I have a related and hopefully simple question, that I seem unable to keep straight when dealing with refinances:

1. On the LE: how much of the hazard insurance premium do you list on the LE in prepaids? We show 12 months, if we have no idea of what has actually been paid or when the next premium is due. Is that overly conservative?

2. On the CD: if there is no escrow account and we aren't requiring future premiums to be paid at closing, how much of the hazard insurance premium do you list as prepaids before closing? For example, if the annual premium is due in 45 days, do we show just the 45 days of coverage that was prepaid 10.5 months ago or the full annual premium that was paid?

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#2262089 - 11/04/21 11:15 AM Re: Homeowners Insurance To Cure or Not To Cure LostinRegLand
rlcarey Online
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Both of these transactions appear to be refinances. On a refinance, typically homeowner's insurance premiums are not disclosed on a Loan Estimate. A lender can assume that the borrower's property is already insured and the purchase of a new homeowner's policy is not going to be required. If later in the transaction you find out that is not true and a new policy is required to close the loan or you find that you are going to require a renewal premium that is currently due to be paid through closing, you would add it to the next disclosure issued.

Always disclosing a homeowner's insurance premium on a refinance is a throwback to the old GFE rules.
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#2262100 - 11/04/21 03:48 PM Re: Homeowners Insurance To Cure or Not To Cure LostinRegLand
CRL Offline
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Yes it is!!! And we were cited for it and I'll never forget! 😊

So just to be clear, as I somehow missed the memo... for a refinance, homeowners insurance is not required on the LE or CD, unless some of the premium will be paid at closing? So all the posts on this topic, about if missed on the LE, is ONLY for purchase transactions?

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#2262107 - 11/04/21 04:29 PM Re: Homeowners Insurance To Cure or Not To Cure LostinRegLand
raitchjay Offline
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Not Randy, but we only quote homeowner's insurance if a purchase OR if we know that the policy is lapsed. Basically, any time you are requiring the insurance and know that is not in place already.
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#2262108 - 11/04/21 04:33 PM Re: Homeowners Insurance To Cure or Not To Cure LostinRegLand
CRL Offline
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Wow. I'm going to make my processing staff happy. And I'll be embarrassed it only took me 6 years to figure out the change!

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#2262232 - 11/05/21 11:50 PM Re: Homeowners Insurance To Cure or Not To Cure LostinRegLand
LostinRegLand Offline
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Thank you all. I walked away from this file for the week after discussing it with my CEO. We made our decision on how to handle this file on Monday.

I am still working on a root cause analysis on how this happened to determine how to train. Trying to figure out what process was not followed that allowed this to happen and hoping we don't have more..........

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