Academic journal article ABA Banking Journal

Compliance Mailbox

Academic journal article ABA Banking Journal

Compliance Mailbox

Article excerpt

A CLARIFICATION ON RESPA Bankers have been asking what section of the Real Estate Settlement Procedures Act (RESPA) regulation mandates that hazard insurance be recorded on the Good Faith Estimate (GFE) and the HUD-1/HUD-1A for subordinated credit such as home equity Loans.

Let's back up a minute. The first calls asking this question were received at the ABA Compliance Center some months ago and were concentrated in one state. At that time, the answer we gave was that since hazard insurance was required by the bank and banks were being criticized by one of the banking regulators, it would be prudent to place it on the GFE and HUD-1 as "POC"--Paid Out of Closing.

Recently there have been more calls from surprised bankers asking the same question. Although there still appears to be nothing specific in the regulation in regard to this question, there is correspondence that suggests that it has not been generally addressed by the regulators.

The first correspondence, dated Jan. 31, 1997, is addressed to the Department of Housing and Urban Development. It asked why banks had to show the insurance premium on the GFE and HUD 1 if the bank did not escrow or collect the premiums. HUD, in its response of April 14, 1997, stated that because the coverage is a required item it should be included in both the GFE and HUD-1 as POC. In that instance, no mention was found on the subject of second mortgages.

On June 30, 1999, a regulator responded to a state banker's association request to verify the opinion of a regional office supporting the requirement for identification of insurance premiums for second mortgages on GFEs and HUD-1s. The regulator stated that the agency was in full support of the regional office, and further stated that the agency has no authority to issue interpretations of RESPA. Such authority is reserved for HUD. (For more detail, see FDIC Financial Institution Letter 103-99).

On July 20, 1999, a regulator informed its regional directors of the Guidance for Assessing Compliance with Disclosure of Hazard Insurance Premiums under the Real Estate Settlement Procedures Act (RESPA). The correspondence states that if the lender does not require insurance, it will not have to be listed on the GFE and the HUD-1/HUD1A. …

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