How to Disclose Flood Insurance on Loan Estimate and Closing Disclosure

The Consumer Financial Protection Bureau (CFPB) held a webinar April 12 to address frequently asked questions about the TILA-RESPA Integrated Disclosures (TRID) rule. One of the questions addressed was how to show flood insurance premiums on the Loan Estimate and Closing Disclosure.

Click here to access the webinar recording. Click here to access recordings of the CFPB’s previous webinars on the integrated disclosures.

The CFPB staff stated that the term “homeowner’s insurance” as used under the rule includes flood insurance. Specifically, the CFPB staff stated that “homeowner’s insurance” under the rule means, “the amounts identified in § 1026.4(b)(8), which include premiums for insurance against losses or damage to property written in connection with the credit transaction. 

As such, flood insurance is treated under the rule, and more generally under Regulation Z, as other casualty insurance, such as homeowner’s insurance.” CFPB straff noted that flood insurance may be disclosed on the forms under the Estimated Taxes, Insurance and Assessments in the Projected Payments table in the Homeowner’s Insurance line.  Tthe box for Homeowner’s Insurance would be checked, and Yes or No would be indicted to state whether it is escrowed, according to the webinar.  In addition, in the Projected Payments table, the Escrow amount would include any amount escrowed for flood insurance.  

Under the Prepaids section in Other Costs, if there is any amount that is prepaid for flood insurance, it would be disclosed on the Homeowner’s Insurance line Section F along with any other prepaid amount for the homeowner’s insurance premium.  Under the Escrow section in Other Costs, if any flood insurance premiums are in escrow, they would be disclosed on the line for Homeowner’s Insurance in Section G.  

According to Richard Horn of Richard Horn Legal PLLC, the CFPB noted that the flood insurance payments would be reflected in the Escrow tables on page four of the Closing Disclosure, “but they did not explicitly state how it would be referred to (i.e., as Homeowner’s Insurance or Flood Insurance).”

“In addition, this answer does not address how to disclose the payee and the term in the Prepaids section or the amount of months collected in the Escrows section for Flood Insurance if this information is different from the hazard insurance policy,” Horn added.

Comments

[Bob Rohan]

Lumping flood with casualty on page one makes sense. It does not make sense in the Prepaids and Initial Escrow sections on page two. Curiously comment 37(g)(2)-1(iv) and (v) provides examples showing flood and homeowner's separately stated for Prepaids. Also, Comment 37(g)(3)-5 provides an example of separately itemized property taxes when different time periods apply. Same analogy should apply to flood and hazard when two different providers. I think the bureau is too hung up on the definition of "homeowner's insurance" in § 1026.4(b)(8).

[KG]

Hi,

I was just told that we have been doing the disclosures wrong that I have to lump the hazard insurance and the flood insurance together it doesn't make sense to me I know this blog is from April can someone tell me if this is correct

thank you,

[Tiffanee]

From what I am told by my compliance this is true. Flood should lump into Homeowners line in prepaids and reserves.

[Janet Anderson]

HFIAA did not allow for TRID nor TRID for HFIAA for Construction Perms when the flood escrow is not set up until the foundation is completed post closing. We disclosed the estimated flood premiums on page 4 of the CD and had to refund those amounts when the borrowers complained because the flood insurance and escrows are not set up at closing. We can't figure out how to be TRID compliant in this situation. Big problem - can't find guidance.

[Janet Anderson]

I did not get an answer to my previous post of 04/07/17 shown above and still very much need this information. I would appreciate any help you can give on this issue. Flood escrow not set up until after foundation is laid. How to disclose on LE and CD.

[ALTA Blog]

Hello Janet,

Sorry for missing your question the first time. Here's some guidance from ALTA's senior counsel, Steve Gottheim:

Under the interagency guidance, a construction to perm lender may require the borrower to either (1) acquire a flood insurance policy at the time of origination or (2) defer the purchase of flood insurance until a foundation slab has been poured or an elevation certificate has been issued. This is one of the decisions lenders need to make to determine how to complete the TRID disclosure. Either way, if flood insurance is going to be escrowed as required by HFIAA, it should be disclosed as part of the escrow table on the CD.

Hope this helps.