Disclosing Flood Insurance on Loan Estimate and Closing Disclosure

Flooded living room

According to US federal laws, anybody who wants financial assistance from a recognized financial institution must adhere to some rules such as the TILA-RESPA Integrated Disclosures. These are a set of rules also known as “Know Before You Owe” meant to streamline mortgage financing and home loans in the US. In the recent CFPB session held on  April 12th , some questions were raised.

One of the most crucial questions asked during the webinar session was how to disclose flood insurance on loan estimate and closing disclosure.

How to disclose flood insurance

Where flood insurance is listed

The first clarification is that flood insurance is listed under homeowner insurance as the respondent put it. According to the section1026 (b) (8) of the rule, home insurance encompasses all the insurance premiums that cover damage or loss of property that has been indicated in close relation with a given credit transaction. This means that flood insurance is covered by the integrated disclosure rules that govern home insurance.

How flood insurance should be disclosed

According to the correspondent, flood insurance is well covered under the Regulation Z of the rules. This further reveals that it is in the same pool with other casualty insurances. Flood insurance should be disclosed in the form of estimated taxes or insurance in the Projected Payments table indicated under the homeowner insurance category. The home insurance box is thoroughly checked to ensure it conforms to the procedures and also to check whether it is Escrowed appropriately. The escrow amount and any other amount in the Projected Payments table should also include the amount Escrowed from the flood insurance.

Any prepaid amount from the flood insurance should be well disclosed in the section F of the homeowner insurance category. This is according to the terms stipulated in Under the Prepaid and Other Costs sections. The disclosure for prepaid amount will also include the amounts derived from the homeowner insurance premiums.

In case any of the flood insurance premiums is listed under Escrow, it should be disclosed in Homeowners Insurance category in section G. This is done by simply going to Escrow section and then Other Costs.

It is now clear that the flood insurance must be disclosed in the Projected Payments row according to TILA-RESPA Disclosure regulations. It is indicated in the Estimated Escrow row depending on the relevancy. Apart from premiums and any other charges that result from property damage, flood insurance can also be included with premiums or charges that occur due to loss of usability of a given property resulting from a credit transaction.

People get confused

However, many people still get confused when they are filling out the form. This is because they don’t know where to categorize flood insurance. Some say that CFPB did not clearly stipulate what flood insurance will be referred to when listed under the homeowner insurance category.

Also, people claim they are still left in the dark because CFPB is starving them with a lot of information regarding disclosing flood insurance. For instance, it does not indicate how one can disclose the number of months garnered in the Escrows section or the prepaid terms. The information does not tell us if flood insurance disclosure is different from that of hazard insurance.

The bottom line is that CFPB should expound more on flood insurance to get rid of confusions that usually occur when filling the form.

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