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38-711: Federal regulations require that unless its use is specifically exempted, either the HUD-1 or the HUD-1A, as appropriate, must be used for all mortgage transactions that are subject to the Real Estate Settlement Procedures Act . Prior to October 3, 2015, the form was used in closed-end consumer credit transactions that were secured by real property or cooperative units. But as of that date, the TILA/RESPA integrated disclosure (TRID) rule issued by

76-596: A British Dependent Territory , which avoided the risks and uncertainties often experienced by international businesses operating in politically unstable and unaccountable jurisdictions. Bermuda's captives are predominantly owned by large US corporations. The Cayman Islands is the second largest licensing jurisdiction in terms of the number of captives licensed. Vermont , in the United States, is second in terms of insurance company assets but third in terms of captives licensed. Healthcare corporations prefer Bermuda, due to

114-443: A direct choice of reinsurance . It also provides a tax benefit, since insurance premiums are a deductible business expense while directly held reserves are not. When a company creates a captive they are indirectly able to evaluate the risks of subsidiaries, write policies, set premiums and ultimately either return unused funds in the form of profits, or invest them for future claim payouts. Captive insurance companies sometimes insure

152-624: A domiciles for new formations. Meanwhile, Montana , Delaware , Tennessee , and Utah have been the fastest growing US domiciles. In 2013, Texas began allowing captives. Captives can cover lines of business, such as workers' compensation , that have relatively predictable claim rates. They can access the reinsurance market to lay off (transfer) risks that they do not wish to accept: this may include product liability , general and professional liability and directors' and officers' liability . Vehicle insurance , both property damage and third party liability of corporate fleets and vehicles,

190-416: A fee for services connected with a federally related mortgage except for services actually performed. Permissible Compensation It is the responsibility of the lender to monitor third party fees in relationship to the services rendered to ensure no illegal kickbacks or referral fees are made . Upon receipt of a qualified written request, a mortgage servicer is required to take certain steps, each of which

228-485: A lender or broker is required to provide the consumer with the standard Good Faith Estimate (GFE) form. A Good Faith Estimate of settlement costs is a three-page document that shows estimates for the costs that the borrower will likely incur at settlement and related loan information. It is designed to allow borrowers to shop for a mortgage loan by comparing settlement costs and loan terms. These costs include, but are not limited to: The bank or mortgage broker must provide

266-523: A real estate agent or an attorney to protect their interests at closing. Captive insurance Captive insurance is an alternative to self-insurance in which insured parties establish a licensed insurance company for their own use and benefit. The company focuses its service on the specific risks of the insureds and is incentivized to price the insurance near cost, since it has no separate investors. A captive insurance company helps its sponsors establish regular cash flow for their risks and offers them

304-423: A result, Regulation Z now houses the integrated forms, timing, and related disclosure requirements for most closed-end consumer mortgage loans. RESPA was created because various companies associated with the buying and selling of real estate , such as lenders, real estate agents , construction companies and title insurance companies were often engaging in providing undisclosed kickbacks to each other, inflating

342-516: Is also quite commonly covered. Captives may be licensed to write some lines of business directly. In other cases, such as workers' compensation in the US, for example, the business must initially be written by another insurer, under its insurance licence, which then reinsures it (lays it off) to the captive. The original insurer retains a fee, usually somewhere between 5% and 15%, to provide this service. Premiums paid to captives are tax deductible, provided

380-547: Is called a heterogeneous captive. Captives are licensed by many jurisdictions . The captive's primary jurisdiction is known as its domicile . The captives are then regulated by local insurance authority agencies, which require that captives have enough money to pay claims as well as maintain a minimum surplus. Most captive insurers are based " offshore ", in places such as Gibraltar , Mauritius , Belize , Bermuda , The Cayman Islands , Ireland , Guernsey , Luxembourg , Barbados , Malta , The Bahamas , Singapore , Anguilla ,

418-445: Is generally the function of a senior insurance or corporate lawyer; they don’t price policies, which is done by an actuary or underwriter; and they don’t purport to be responsible for state or federal tax issues, which is what a tax lawyer does. Other captive management firms provide a full turnkey service to include all aspects of forming and managing a captive insurer on an ongoing basis, which would include professionals that understand

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456-512: Is home to more captive insurers than any other US state, with nearly 900 licensed captive companies as of August 2009. In past years, Anguilla was a fast growing offshore domicile which ended in 2013. More recently, Anguilla along with other offshore domiciles have seen few new formations and many liquidations and transfers. As with the BVI, ever changing applications of the regulations and the departures of well regarded regulators have ended Anguilla as

494-421: Is subject to certain deadlines. The servicer must acknowledge receipt of the request within 5 business days. The servicer then has 30 business days (from the request) to take action on the request. The servicer has to either provide a written notification that the error has been corrected, or provide a written explanation as to why the servicer believes the account is correct. Either way, the servicer has to provide

532-548: The British Virgin Islands , Qatar Financial Centre and Dubai International Financial Centre . Bermuda is the world's leading offshore captive domicile. The onshore regulatory burden and the cost of operating either a US-based or Lloyd's-based captive in the early 1960s drove Reiss to seek out a jurisdiction that would allow his captive concept to flourish. After much investigation, he chose Bermuda, due to its geographical location, clean reputation and status as

570-603: The Consumer Financial Protection Bureau established a specific HUD-1/HUD-1A exemption. The TRID rule mandates the use of a Closing Disclosure form instead. The use of the HUD-1 or HUD-1A is also exempted for open-end lines of credit (home-equity plans) covered by the Truth in Lending Act and Regulation Z. A HUD-1 or HUD-1A Settlement Statement is prepared by a creditor or, more typically, by

608-957: The Internal Revenue Code . Over 75% of the world’s captives are associated with the United States because these insurance arrangements are encouraged under the Internal Revenue Code. Because captives are sophisticated tax structures (having been the subject of dozens of cases and rulings by the IRS, the Tax Court and various appellate courts over the past 70 years) captive owners often engage tax professionals in addition to captive managers that simply provide administrative services. Over 90 percent of Fortune 1000 companies and many successful middle market businesses have captives. Over half of all property and casualty premiums that are written, are written through captives. Under

646-471: The "open architecture" system currently in place, where a customer can choose to use any service provider for each service, to one where the services are bundled, but where the real estate agent or lender must pay directly for all other costs. Under this system, lenders, who have more buying power, would more aggressively seek the lowest price for real estate settlement services. While both the HUD-1 and HUD-1A serve to disclose all fees, costs and charges to both

684-567: The GFE no later than three business days after the lender or mortgage broker received an application, or information sufficient to complete and application, the application. A person may not give or receive a fee or anything of value for a referral of mortgage loan settlement business. This includes an agreement or understanding related to a federally related mortgage. Fees paid for mortgage-related services must be disclosed. Additionally, no person may give or receive any portion, split, or percentage of

722-412: The US tax code, a Section 831(b) or "small" property/casualty captive, also known as a "micro-captive" is used by midsize companies looking for cost-effective ways to transfer risk. Captive experts say an 831(b) introduces middle market companies to alternative risk transfer and its benefits, providing this class of insurance buyers a valuable cost-saving tool long utilized by Fortune 1000 companies. During

760-884: The United States or its constituent jurisdictions is a stub . You can help Misplaced Pages by expanding it . Real Estate Settlement Procedures Act The Real Estate Settlement Procedures Act (RESPA) was a law passed by the United States Congress in 1974 and codified as Title 12, Chapter 27 of the United States Code , 12 U.S.C.   §§ 2601 – 2617 . The main objective was to protect homeowners by assisting them in becoming better educated while shopping for real estate services, and eliminating kickbacks and referral fees which add unnecessary costs to settlement services. RESPA requires lenders and others involved in mortgage lending to provide borrowers with pertinent and timely disclosures regarding

798-448: The buyer and seller involved in a real estate transaction, it is not uncommon to find mistakes on the HUD. Both buyer and seller should know how to properly read a HUD before closing a transaction and at settlement is not the ideal time to discover unnecessary charges and/or exorbitant fees as the transaction is about to be closed. Buyers or sellers can hire an experienced professional such as

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836-408: The captive mines. Reiss continued to use the term: the policyholder owns the insurance company i.e. the insurer is captive to the policyholder. If the captive insures its own parent and affiliates, it is called a pure captive. If it insures just one type of industry (e.g. energy industries), it is called a homogeneous captive. A captive insurance company can also insure a group of diverse companies; this

874-453: The company is the creator and beneficiary. Within that category the most common are single-parent or “pure”, group and association. The second category is sponsored in which the captive is owned and controlled by another company that allows other companies to “rent” insurance. This category includes Protected Cell Captive Insurers and Rental Captives. The term "captive" was coined by the "father of captive insurance", Frederic M. Reiss, while he

912-449: The costs of real estate transactions and obscuring price competition by facilitating bait-and-switch tactics. For example, a lender advertising a home loan might have advertised the loan with a 5% interest rate, but then when one applies for the loan one is told that one must use the lender's affiliated title insurance company and pay $ 5,000 for the service, whereas the normal rate is $ 1,000. The title company would then have paid $ 4,000 to

950-486: The early 2010s The Section 831(b) captive or "small" property and casualty captive insurance became a popular choice for middle market companies. This also led to a proliferation of captive insurance as an illegal tax shelter , whereby clients paid premiums up to the statutory deduction limit to entities that did not actually pool risk. The IRS took notice of these transactions and took a series of enforcement actions against them. Not listed above by Business Insurance News

988-521: The ease of claim payment provided by the regulatory environment. Luxembourg is the largest captive reinsurance domicile in the EU. A recent trend has various states in the United States revising their regulations to be more attractive to captive insurance companies. For example, Oregon has removed premium taxes from captives, instead charging a $ 5,000 annual fee. In the United States, Vermont

1026-499: The fee they charge. One of the core elements of the debate is the fact that customers overwhelmingly go with the default service providers associated with a lender or a real estate agent, even though they sign documents explicitly stating that they can choose to use any service provider. There have been various proposals to modify the Real Estate Settlement Procedures Act. One proposal is to change

1064-592: The first captive management company, International Risk Management Limited (IRML), in Bermuda in 1962 to provide the administration of his client's captives (this is now part of the Aon Corporation ). Most captive management is usually outsourced to a captive manager located in the jurisdiction that holds the primary license for the captive. In the US, most captive managers are small administrative services providers. They don’t draft insurance policies, which

1102-402: The insurance, tax, and legal aspects of a captive. The middle market is the area of growth for captive managers because more than 90% of Fortune 500 companies already do captives, according to Capstone Associated Services Ltd., a comprehensive manager of small captive insurers with over 140 captives formed for the middle market in the last 15+ years. Captive insurance companies are creatures of

1140-532: The lender. This was made illegal, in order to make prices for the services clear so as to allow price competition by consumer demand and to thereby drive down prices. RESPA outlines requirements that lenders must follow when providing mortgages that are secured by federally related mortgage loans. This includes home purchase loans, refinancing, lender approved assumptions, property improvement loans, equity lines of credit, and reverse mortgages. Under RESPA, lending institutions must: For closed-end reverse mortgages,

1178-523: The name and telephone number of a person with whom the borrower can discuss the matter. The servicer cannot provide information to any credit agency regarding any overdue payment during the 60-day period. If the servicer fails to comply with the "qualified written request", the borrower is entitled to actual damages, up to $ 2,000 of additional damages if there is a pattern of noncompliance, costs and attorneys fees. Critics say that kickbacks still occur. For example, lenders often provide captive insurance to

HUD-1 Settlement Statement - Misplaced Pages Continue

1216-501: The nature and costs of a real estate settlement process. RESPA was also designed to prohibit potentially abusive practices such as kickbacks and referral fees, the practice of dual tracking, and imposes limitations on the use of escrow accounts. RESPA was enacted in 1974 and was originally administered by the Department of Housing and Urban Development (HUD) . In 2011, the Consumer Financial Protection Bureau (CFPB) , created under

1254-710: The provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act , assumed the enforcement and rulemaking authority over RESPA. On December 31, 2013, the CFPB published final rules implementing provisions of the Dodd-Frank Act, which direct the CFPB to publish a single, integrated disclosure for mortgage transactions, which included mortgage disclosure requirements under the Truth in Lending Act (TILA) and sections 4 and 5 of RESPA. As

1292-404: The risks of the group's customers. This is an alternative form of risk management that is becoming a more practical and popular means through which companies can protect themselves financially while having more control over how they are insured. There are many variations of how captives can be set up, which can be broken into two categories. The first category is known as non-sponsored in which

1330-449: The settlement agent who conducts the closing on the creditor's behalf. The settlement agent must permit the borrower to inspect the HUD-1 or HUD-1A settlement statement, completed to set forth those items that are known to the settlement agent at the time of inspection, during the business day immediately preceding settlement. Items related only to the seller's transaction may be omitted from the HUD-1. This article relating to law in

1368-600: The terms of the policy (including the premium amount) are reasonable. A captive cannot arbitrarily set the premium amount simply to generate a deduction for the parent. In most situations, the captive carrier should be able to demonstrate its premium generating process (underwriting). In the European Union, a new set of regulatory requirements ( Solvency II ) is planned with additional restrictions and responsibilities for captives and reinsurance companies. Some European captives ask for simplified regulation. Reiss created

1406-422: The title insurance companies they work with, which critics say is essentially a kickback mechanism. Others counter that economically the transaction is a zero sum game, where if the kickback were forbidden, a lender would simply charge higher prices. To which others counter that the intended goal of the legislation is transparency, which it would provide if the lender must absorb the cost of the hidden kickback into

1444-566: Was bringing his concept into practice for his first client, the Youngstown Sheet & Tube Company , in Ohio in the 1950s. The company had a series of mining operations, and its management referred to the mines whose output was put solely to the corporation's use as captive mines. When Reiss helped the company incorporate its own insurance subsidiaries, they were called captive insurance companies because they wrote insurance exclusively for

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