Homeowners Insurance is not only an essential support for you as a homeowner, it is also an unavoidable part of a mortgaging process. You are required to have homeowners insurance on the property you are mortgaging, no mortgage will close without it. The lenders’ concern is obvious - your property is the collateral of their expenses, they are not ready to give it all up to rain or fire.
Talking about rain, water, and particularly flooding. Surprisingly enough, it was not until Hurricane Katrina struck, that the whole nation woke up to realize that regular insurance policies did not cover damage from floodwaters (nor hurricanes, nor earthquakes). Too many were unaware that the circumstances required a special federal flood (hurricane, earthquake) insurance policy in addition to their regular one. Moreover, certain carriers did (and some still do) take advantage of this unawareness to avoid payment by claiming the damage was due to flooding even when it was not. Nowadays, flood-related insurance can be required in certain areas, along with a regular policy, to close a mortgage. Generally, your broker should be able to provide you with this information, but you can also do some research yourself. The official on-line resource is the page of the U.S. Department of Homeland Security. You can find out if you are in a risk zone for flooding and the degree of the risk, as it determines the necessity of the insurance. Because there are policies that cover water damage from hurricanes but not from floods, make sure you understand the subtle differences that can disallow one type of damage while allowing for something similar. Check out other risks of your area - it will help you decide what kind of insurance you will want for your property because the main purpose of any insurance is to compensate for losses, not just meet a paper requirement at closing. Read the rest of this article »
I have always been wondering why we have two different disclosures (TIL and GFE) to serve one and the same purpose… Why can’t it be just one form with all a borrower has to know? The funniest thing, though, is the fact that both The Department of Housing and Urban Development (HUD - the author of the GFE/HUD1 duo) and the Board of Governors of the Federal Reserve System (the creator of the Truth in Lending document) recommended jointly to the Congress, among other quite sensible things, I am citing:
Combining and simplifying RESPA and TILA disclosures that are provided to consumers; and requiring information about the loan originator’s role and any requirements for escrow accounts and private mortgage insurance.
The depressing part here is that the report is dated July 17, 1998. The forms have not been combined, only the GFE and HUD-1 have been modified yet to become mandatory in 2010. The Truth in Lending disclosure is still in the queue. The recent activity of the Federal Reserve Board indicates that the problem is not ignored. The Press Release dated July 23, 2009 informs that The Federal Reserve Board proposed “significant changes to Regulation Z (Truth in Lending) intended to improve the disclosures consumers receive in connection with closed-end mortgages and home-equity lines of credit (HELOCs)“.
… the key word being “closed-end”. Read the rest of this article »
The recently introduced new Good Faith Estimate (GFE) form triggered certain changes in the settlement documentation chain. Its long-time associate the Housing & Urban Development Settlement Statement (HUD-1) form has undergone a makeover, too. The guidelines for the usage of both documents went into effect on January 16, 2009, but they will become mandatory only on January 1, 2010.
Unlike the GFE that provides only the estimation of the settlement costs, the HUD-1 describes the real deal. The new HUD-1 form has clear references to the corresponding items in the GFE and a special section, where you can compare the GFE promises and their HUD-1 implementations. The Statement itemizes all charges imposed both on you as a borrower and the seller for the real estate transaction. It gives each party a complete list of their incoming and outgoing funds. Fees associated with the transaction but paid prior to closing are also included. They are normally marked “POC” for Paid Outside of Closing. RESPA states you should be given a copy of the HUD-1 at least one business day prior to settlement. In real life, however, entries may still be coming in a few hours before closing. The form is filled out by the settlement agent who will conduct the settlement, so make sure you have the name, address, and telephone number of this agent if you wish to inspect the form prior to closing. Have the agent go through the details with you and do not hesitate to ask about any suspicious increase (or decrease) from the estimate, about any charge you do not understand. Do not feel shy to find out exactly what you are paying for.
Before January 1, 2010 you may still be provided with old GFE and HUD-1 forms. These forms bear their old issues, incomprehensibility being one of them. If the potential lender only cared to offer you the old standard forms, you may give the whole deal a second thought. Note, if the GFE presented to you is a new standard, the following HUD-1 must also be new. The old GFE couples with the old HUD-1 only.
