This is Part 3 of the ongoing “Are we completing our GFEs correctly?” series.
“Are we completing our Good Faith Estimates (GFEs) correctly?” This is how I started out my last two blogs (posted on 11/17/2011 and 12/29/2011) and if you read them, you discovered that most credit unions are not completing the GFEs correctly…so we continue today with more common mistakes.
Today’s common mistake: Block 11 – Homeowner’s Insurance
Block 11 on page 2 of the GFE must include any insurance (other than title insurance) that the lender requires as a condition of the loan. For whatever reason, credit unions frequently do not complete this block. Appendix C to the Real Estate Settlement Procedures Act (RESPA) provides detailed instructions on completing the GFE, including how to complete Bock 11. Specifically the instructions state:
The loan originator must estimate in this block the total amount of the premiums for any hazard insurance policy and other similar insurance, such as fire or flood insurance that must be purchased at or before settlement to meet the loan originator’s requirements. The loan originator must also separately indicate the nature of each type of insurance required along with the charges. To the extent a loan originator requires that such insurance be part of an escrow account, the amount of the initial escrow deposit must be included in Block 9 (Initial deposit for your escrow account).
So in laymen’s terms this means that if you require homeowner’s or flood insurance, you must include an estimate of the insurance premiums in Block 11. The only exception to the rule is for transactions that are a refinance and the borrower already has insurance. In these cases you may complete Block 11 with “$0.” For further information and to see the detailed instructions on completing the GFE, visit this link.
Stay tuned for more GFE common mistakes!