Application premium vs. Issued policy premium

Posted By: Ninky

Application premium vs. Issued policy premium - 03/11/16 10:38 PM

We are new to escrow due to Biggert Waters. We have closed two flood escrow loans and in both transactions new policies were issued. Borrower paid premium on application before closing. When we received the issued policy, in both instances, the premiums are $40-$50 lower than the borrower paid on the application. This throws the escrows off. Is this standard procedure, or do the application premium and the issued policy premium in most transactions match? We have our procedures in place, but this was unexpected and is requiring a revised CD to the borrower. Do most lenders wait until receipt of the issued policy to close? That can cause significant delays. Or was this just a fluke?
Posted By: David Dickinson

Re: Application premium vs. Issued policy premium - 03/11/16 11:09 PM

Most lenders do not wait until the policy is issued to close. Most policies arrive weeks after closing. I've never heard of the premium issue you mention. It will be interesting to see what others have to say.

Have you contacted the agent(s) to see why this is?
Posted By: Dan Persfull

Re: Application premium vs. Issued policy premium - 03/14/16 07:25 PM

I agree with David. Check with the agent. This $40-50 could be a one time application fee charged by the agent.
Posted By: Ninky

Re: Application premium vs. Issued policy premium - 03/14/16 08:52 PM

Yes. She said she did not know why it was issued at a lesser premium. (Possible error on the agent's part?) She did confirm that the refund was sent to the borrower. Would we get hit with an escrow violation for "over escrowing" if we did not make the CD correction and kept the set up for escrows with the higher (by $4) escrow cushion and monthly payment?
Posted By: David Dickinson

Re: Application premium vs. Issued policy premium - 03/14/16 09:51 PM

No. This premium change occurred after the escrow account was established. You set up the escrow account based on the best info. You do not need to make mid-year changes. At the end of the year, you do an analysis and the surplus (if any) will be adjusted at that time.
Posted By: Ninky

Re: Application premium vs. Issued policy premium - 03/15/16 08:23 PM

Unfortunately, we received the issued policy after the CD had been provided to the customer. The coverage was confirmed, but no one noticed the variance in the premium until after closing. We sent a corrected CD and provided the small refund to the borrower. The good thing was that the initial escrow disclosure had not been sent, so we were able to provide an accurate initial Escrow Discl. Did we overcomplicate this? Should we have just left it alone until, as you mentioned, year end analysis to identify any overage?
Posted By: David Dickinson

Re: Application premium vs. Issued policy premium - 03/15/16 08:32 PM

I would have left it alone and adjusted it later, but I think it's okay that you took care of it now.