In my review of a refinance home loan, I noticed that the homeowners insurance was not listed on the HUD. We do not require a borrower to purchase Homeowners insurance from us, but we do require that they have it. Does this mean, since the required insurance was not disclosed, that the premium should be added into the finance charge, and how do I determine if it would be a refundable violation? Any thoughts would be appreciated.

I ran into this the other day where the annual insurance and taxes both were not disclosed on the HUD as POC. It was however disclosed on the GFE. We simply prepared a new HUD and sent it with one of our "we goofed" letters to the borrower. As long as you disclosed in your TIL documents that they can obtain the hazard insurance from "anyone", then I don't feel you have TIL refundable error.

In my opinion I think all you would need to do is send a corrected HUD 1 to your customer. I think you may be getting confused with credit life, and accident & health insurance which must be disclosed properly in order to avoid having to treat the premium as a finace charge. Homeowners insurance does not fall into that category

Why doesn't undisclosed homeowners insurance fall under the category of undisclosed insurance. I really need help understanding this part of the act.

Non-disclosure of the homeowner's insurance is debatable as a violation. HUD staff is of the opinion that it should be disclosed if required and many other industry members believe that disclosing once is enough. As for restitution, RESPA doesn't require any remedy for violations of disclosures on the GFE or the HUD-1, so don't worry about paying anything back. The worst that can happen is a slap on the hand.

Whether and how you disclose certain fees on the HUD-1 does not affect the status of those fees as finance charges for purposes of Reg Z except for security interest fees. Those must be itemized to be exempted from the Reg Z finance charge definitions and the itemization usually occurs on the HUD-1. Insurance is a different matter.

Also, don't confuse hazard insurance (not a finance charge unless sold by bank) with credit insurance. Types of required credit insurance are always finance charges. Optional credit insurance sales are exempted only if properly disclosed to the customer.

Thanks for your assistance.

Both homeowners insurance and credit insurance have to be disclosed in order to not have to treat the premiums as finance charges. However, with homeowners insurance, all you have to disclose is the fact that the coverage can be obtained from anyone the customer choices. Unless the customer buys the insurance from or through you,which in your case you said they didn't, you don't have to disclose the amount of the premium to be able to exclude it from the finance charge. Credit insurance is different in the fact that disclosing the amount of the premium is one of the 3 conditions that must be met in order to be able to exclude it from the finance charge. That's my understanding of Reg Z section 226.4 (d).

Correct. But to go back to the RESPA/TIL concerns, the disclosures made about insurance are Reg Z disclosures. Compliance with Reg Z disclosure procedures determines whether the cost of insurance is a finance charge.

RESPA is a different matter. Where, whether and how the fees are disclosed on the HUD-1 goes only to whether there is a RESPA violation but does not affect the status of the insurance as a finance charge -- as long as the Reg Z disclosures were correct.