We omitted the Homeowners Insurance Statement on page 3 of the LE under Other Considerations. Would this be violation of understating APR? We do list HOI in the prepaid section on CD.

Unless you somehow otherwise informed them according to 1026.4(d):

Official Interpretation
4(d) Insurance and Debt Cancellation and Debt Suspension Coverage
1. General. Section 1026.4(d) permits insurance premiums and charges and debt cancellation and debt suspension charges to be excluded from the finance charge. The required disclosures must be made in writing, except as provided in §1026.4(d)(4).

1026.4(d)(2) says there should be a disclosure included allowing the consumer to pick the insurance company of their choice. We do usually see this on the LE, 1026.37(m)(3), however my team member pointed out that 1026.4(d)(2) does not require this statement to be on the LE. There is a statement of hazard or property insurance included in our promissory note and our mortgage. Will this be considered disclosure to the borrower and exclude HOI from being a finance charge?

OK - Let's step through this:

Official Interpretation
1026.4(d) Insurance and Debt Cancellation and Debt Suspension Coverage
1. General. Section 1026.4(d) permits insurance premiums and charges and debt cancellation and debt suspension charges to be excluded from the finance charge. The required disclosures must be made in writing, except as provided in §1026.4(d)(4). The rules on location of insurance and debt cancellation and debt suspension disclosures for closed-end transactions are in §1026.17(a).

1026.17(a) Form of disclosures. Except for the disclosures required by § 1026.19(e), (f), and (g):

(1) The creditor shall make the disclosures required by this subpart clearly and conspicuously in writing, in a form that the consumer may keep.[/b] The disclosures required by this subpart may be provided to the consumer in electronic form, subject to compliance with the consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.).

So, then you get to 1026.37(m):

37(m)(3) Homeowner’s insurance.
1. Optional disclosure. Section 1026.37(m)(3) provides that creditors may, but are not required to, disclose a statement of whether homeowner’s insurance is required on the property and whether the consumer may choose the insurance provider, labeled “Homeowner’s Insurance.”

2. Relation to the finance charge. Section 1026.4(d)(2) describes the conditions under which a creditor may exclude premiums for homeowner’s insurance from the finance charge. For transactions subject to § 1026.19(e), a creditor satisfies § 1026.4(d)(2)(i) by disclosing the statement described in § 1026.37(m)(3).

The bureau did not contemplate that a lender would use a separate disclosure after incorporating this disclosure into the Loan Estimate. From the original preamble:

"The Bureau believes, as stated in the proposal, that combining the optional disclosure regarding homeowner’s insurance premiums with the other disclosures on the Loan Estimate may avoid information overload and therefore promote the informed use of credit, consistent with the purposes of TILA."

IMHO - Even if you choose to provide a separate disclosure, which goes against what the Bureau indicates, including any such statement in the note and mortgage does not meet the clearly and conspicuously requirement.

Do you believe by not including the Homeowners Insurance on the LE that the premium must be included in the finance charge or risk under stating the APR? Even if consumer purchases their own policy and is other wise disclosed either orally or on the note or mortgage?

That is pretty much what the regulation indicates, does it not?.

Does the regulation state it must be on the Loan Estimate? Is it not optional to be on the LE?

It is an optional disclosure because a lender is always free to treat the premiums as a finance charge, it is really up to the lender. If the lender wants to exclude the premium, then the lender has to make the disclosure.

I already provided the view of the CFPB regarding disclosing this separately and not including it on the LE. Plus, you already said that you did not disclosure it clearly and conspicuously.