When completing the GFE: We are not requiring the borrower to pay any insurance premiums at closing nor are we escrowing for any insurance premiums. Our loan processor has shown the entire 12 month premium as $3,000 POC on the GFE. I told her that since the customer was not incurring any expense during the settlement process nor are we escrowing this amount, that it should not be on the GFE at all. The borrower is paying the premiums out of pocket on their own. Is this correct? Thanks in advance for your thought.

The RE Taxes and the insurance both should be shown as POC.

Here's the text of a recent FDIC bulletin concerning the taxes:

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.

Here's the text to an earlier bulletin concerning hazard insurance:

Bulletin Number: CHIRO-04-2001

Real Estate Settlement Procedures

We have been identifying Real Estate Settlement Procedures (RESPA) violations during many of our recent compliance examinations. As a result, this is the first of a series of bulletins where we will address RESPA related topics. Several violations identified during examinations concern the preparation of the good faith estimate (GFE) and HUD-1 or HUD-1A (hereafter, both referred to as HUD-1).

Numerous violations concern the lack of disclosure of hazard insurance premiums on GFEs and HUD-1s in a second lien and/or refinance transaction where adequate hazard insurance is already in place and the lender does not require additional insurance. In these situations, if the financial institution requires hazard insurance to be in place, then hazard insurance must be disclosed on both the GFE and HUD-1 as paid outside of closing (P.O.C.).

Part 3500.7(c) of RESPA requires that the GFE list an estimate of each charge “that the borrower will normally pay or incur at or before settlement.” Items paid for in advance of closing, such as hazard insurance in the case of a refinance or a second lien transaction, must therefore be listed on the GFE and identified as paid outside of closing (P.O.C.).

Similarly, the instructions for completion of the HUD-1 contained in Appendix A to RESPA requires, in part, all charges imposed upon the borrower and the seller by the financial institution, whether to be paid at settlement or outside settlement shall be disclosed. As with the GFE, the premium for hazard insurance shall be included on the HUD-1 but marked P.O.C. You should remember that when used, P.O.C. should be placed in the appropriate lines next to the identified item. As well, the amount of the fees and the person to whom they are paid should be disclosed. The fees paid outside of closing are not to be included in the numeric columns and not included in the totals on the HUD-1.

Another violation often identified regarding the HUD-1 is the identification of the third party provider to whom fees are paid and the amount of fees paid to that provider. Keep in mind that the third party provider ultimately receiving the fee, as well as only the amount actually being paid to that person should be disclosed. If a lender performs actual settlement services in addition to those provided by the third-party vendors, RESPA rules and regulations permit the lender to charge the borrower for those services plus those provided by the third-party vendor. However, such portion of fees retained by the bank must be allocated and disclosed separately from the fees paid to third-party providers on the HUD-1.

Because many questions have been received from FDIC-supervised financial institutions about the proper completion of the GFE and HUD-1 forms an FIL was distributed in July 2000. You can refer to FIL-45-2000 dated July 12, 2000, and entitled “Guidance on Completing HUD-1, HUD-1A and Good Faith Estimate Forms for Home Mortgage Loans” for more guidance. The following link will take you directly to that FIL in the FDIC website: http://www.fdic.gov/news/news/financial/2000/fil0045.html
If you have any questions concerning this information please contact us by e-mail at scans@fdic.gov or call us at 312-382-6926.

Thank you sooooo much Dan!

Dan, can you give me a site address or link for the CHIRO-14-2005 bulletin? I haven't been able to locate it. Thanks.

Those are bulletins issued by the FDIC's Chicago Regional Office (CHIRO). They are not on-line.

Does it applicable to California too?

They are FDIC guidance letters issued by the Chicago Regional Office. They should apply nation wide, but they are the opinions/practices/guidance of the Chicago RO.

Thanks.