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#1906924 - 03/19/14 09:46 PM Force placed hazard insurance vs blanket policy
Everest Offline
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Joined: Jan 2012
Posts: 301
Looking at using a company blanket policy to cover lapsed hazard insurance policies on loans being serviced. If I am interpretting the Jan 14 regulation requirements correctly, there are no requirements that state you must use force placed insurance vs a blanket policy - correct?
Also, would the 45 day and 15 day letters still need to be provided to the customer even though they will not be assessed any cost?

Thanks.

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Mortgage Servicing Rules
#1906926 - 03/19/14 09:47 PM Re: Force placed hazard insurance vs blanket policy Everest
Everest Offline
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I guess I should also have stated that this does not include loans set up with escrow accounts as those will still have to comply with the requirements of the reg. Thanks.

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#1910167 - 03/31/14 08:14 PM Re: Force placed hazard insurance vs blanket policy Everest
midwestriver Offline
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I have not seen anything saying you must use force placed ins instead of a blanket policy. However, a blanket policy is much more expensive and we would have to continue opening or "processing" our insurance mail to look for cancellations that are not covered under blanket. And we would still have to open all our insurance mail and track for flood.

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#1913235 - 04/09/14 09:21 PM Re: Force placed hazard insurance vs blanket policy Everest
SomeBankGuy Offline
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Posts: 78
Skigirl,
If you are not charging the borrower, directly or indirectly, for the blanket policy, it is not considered force-placed insurance under RESPA. See below:

The Bureau has concluded that when a servicer purchases force-placed insurance but does not charge a borrower for such insurance, the servicer does not ‘‘obtain’’ force-placed insurance within the meaning of section 6(k)(1)(A) of RESPA. Preamble to RESPA Servicing Final Rule (78 FR 10765 – 2/14/13)

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#1988939 - 01/15/15 04:15 PM Re: Force placed hazard insurance vs blanket policy Everest
regwhy Offline
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bump

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#1988943 - 01/15/15 04:22 PM Re: Force placed hazard insurance vs blanket policy Everest
rlcarey Online
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Bump what? Is there an outstanding question??
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#2007564 - 04/10/15 11:18 PM Re: Force placed hazard insurance vs blanket policy Everest
Lakeminded Offline
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Joined: Mar 2014
Posts: 76
Washington
Mr. Carey, I have a follow up question to several threads on this topic. We have auditor's that have indicated the insurance we've purchased under our blanket policy to cover a non escrowed borrower's failure to purchase/renew insurance, does not meet the definition of Force Place Insurance and therefore the premium cannot be passed on to the borrower as of 1/14. They also stated it must benefit the borrower and then qualified that insurance that only pays off the loan balance (our blanket policy) does not benefit the borrower.

1024.37(a) defines FPI. I understand the policy needs to be issued for and on behalf of our borrower. But where does it say in Reg. X that the Force Placed Insurance needs to benefit the borrower, and by what standards are we considering something a benefit? They also indicated this was something the FDIC was focusing on right now. This is the first I'd heard that blanket policies don't meet the FPI definition.
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#2007565 - 04/11/15 02:37 PM Re: Force placed hazard insurance vs blanket policy Everest
rlcarey Online
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You can use a blanket policy under two conditions. One, you are a small servicer and two, the policy is cheaper than it would have been to maintain their current policy.

If you are meeting those two conditions, then I have no idea what your auditors may be talking about. They specifically talk about collateral protection insurance in the preamble and collateral protection insurance never "benefits the borrower".

The FDIC is focusing on this issue regarding the force placement of flood insurance as that has to be a policy that specifically names the borrower as an insured. For other hazard insurance, they are all wet. I think they are mixing their apples with their oranges.

Show them the following from the preamble to the final regulations:

For example, the Bureau understands that small servicers often obtain force-placed insurance in the form of collateral protection policies. The charges passed through to borrowers for such coverage, if any, may be less expensive than the costs of either maintaining a borrower’s hazard insurance coverage or purchasing an individual force-placed insurance policy. At the same time, requiring such servicers to continue the borrower’s hazard insurance in force, which may require advancing funds to the borrower’s escrow, could cause these servicers to incur incremental expenses which, because of their size, would be burdensome for them. Because of this difference in practices, the Bureau believes it is appropriate to reduce the restrictions applicable to small servicers with respect to borrowers that have escrow accounts. Accordingly, the Bureau has exempted small servicers from the restriction in §1024.17(k)(5)(i) and 1024.17(k)(5)(ii)(B), so long any forceplaced insurance that is purchased by the small servicer is less costly to a borrower than the amount that would be required to be disbursed to maintain the borrower’s hazard insurance coverage. The Bureau believes this partial exemption sets an appropriate balance of effectuating consumer protections for borrowers with escrow accounts and considerations that may be unique to small servicers.
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#2007691 - 04/13/15 06:17 PM Re: Force placed hazard insurance vs blanket policy Everest
Lakeminded Offline
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Washington
To clarify and request additional guidance - I read the preamble to RESPA (12 CFR Part 1024[Docket No. CFPB-2012-0034]RIN 3170-AA14 2012 Real Estate Settlement Procedures Act (Regulation X)Mortgage Servicing Proposal) I could see any discussion surrounding collateral protection in the force place sections.

I'm less certain of either position. In the loans that the auditors are citing - we aren't escrowing. So I believe the small servicer exception doesn't apply. Secondly the premium may or may not be cheaper. The auditors keep referring to the fact that a blanket policy doesn't meet the definition of force placed (not flood) insurance. I plan to go back to them now and say we need federal interpretation/narrative that supports this position, but any other thoughts would be helpful.
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#2008598 - 04/16/15 07:39 PM Re: Force placed hazard insurance vs blanket policy Everest
midwestriver Offline
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Posts: 37
blanket impairment is terrible coverage and does not protect the borrower the way traditional force placed insurance does. This is why the examiners have a problem with it. One examiner I just spoke with indicated as servicer's try to skirt the FP insurance requirements and purchase an inexpensive impairment policy, they are not protecting their customers. From this, I believe there will be a formal opinion prohibiting servicer's from using blanket impairment. Here's why:

Lets suppose a large tree falls through the living room of a borrowers house causing $25,000 in damage. Under a normal FP insurance policy, the bank, files a claim, receives the insurance proceeds and works with the borrower to have the repairs made. No problem, borrower stays in his home, stays current on their loan because the damage is repaired.

No under the same circumstance, if the bank had a blanket mortgage impairment policy, it will only pay if the bank has forceclosed AND sold the property for a loss. So the bank in this case would have to tell the borrower, "sorry, our policy only covers us after we have foreclosed and sold the house for a loss so if you cannot come up with the money to repair your roof and continue making payments on your loan, we will foreclose on you".

Frankly, I have seen other lenders duped into buying blanket mortgage impairment coverage without understanding it, only to be burned later.

On the other point, it would be highly problematic for a bank to try to pass on any charge directly to the borrower for the cost of the impairment policy.
Last edited by midwestriver; 04/16/15 07:41 PM.
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#2008600 - 04/16/15 07:42 PM Re: Force placed hazard insurance vs blanket policy Everest
midwestriver Offline
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and to an earlier point, blanket mortgage insurance (whether it is impairment or not) is NOT FP insurance, it is a completely different creature so no FP rules would apply....

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#2008604 - 04/16/15 07:45 PM Re: Force placed hazard insurance vs blanket policy Everest
Kathleen O. Blanchard Offline

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Blanket coverage is not terrible as long as the bank realizes it is for risk management purposes for the bank and does not substitute for force placed coverage covering the customer and the bank.

This is nothing new. Force placed rules have been around since the mid 90s and the requirement to cover the customer has always been there; blanket coverage has been around a long time.

Banks need to know the rules and what they are buying.
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#2008608 - 04/16/15 07:52 PM Re: Force placed hazard insurance vs blanket policy Everest
Lakeminded Offline
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Washington
Currently I see both sides of this argument, though there is nothing that says I'm required to purchase a full value homeowner's insurance policy versus insuring our loan balance. My concerns are two sided (we have this very ex). A $5,000 loan balance on $179,000.00 property, customer is struggling and has no hazard policy in force. So we either purchase a inexpensive policy to cover our loan balance or purchase a very expensive full coverage policy, which will definitely send the customer into further default because they are unable to pay the new monthly PII. The risk of loosing their collateral is going to happen either way. Either through payment default or potential hazard.
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#2008612 - 04/16/15 07:57 PM Re: Force placed hazard insurance vs blanket policy Everest
Lakeminded Offline
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Washington
Kathleen, when you say the requirement to cover the customer, what are you referring to? Value, loan amount, previously insured coverage?

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#2008623 - 04/16/15 08:11 PM Re: Force placed hazard insurance vs blanket policy Everest
midwestriver Offline
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lakeminded - you are referring to a situation that exists only with FP insurance: what coverage amount to purchase when you force place. You have two choices- unpaid principle balance UPB or replacement cost coverage (RCV)

Most of my peers use UPB. You need to be consistent in what you do for all ofyour borrowers. You cannot buy coverage for RCV on some and UPB on others.

The earlier messages were comparing blanket vs. FP insurance......

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#2008625 - 04/16/15 08:17 PM Re: Force placed hazard insurance vs blanket policy Everest
Lakeminded Offline
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Posts: 76
Washington
Thanks midwestriver, auditors are reviewing and they believe we should be insuring the last (lapsed) insurance coverage amount on our non escrow accounts. Historically, we have always purchased insurance for the loan balance and I've typed numerous searches for any directive/guidance that would provide clarification either way - I can only find best practices of other institutions. Troubling...
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#2008688 - 04/17/15 12:28 PM Re: Force placed hazard insurance vs blanket policy Everest
rlcarey Online
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Your auditors are nuts. There is no requirement anywhere that says you have to buy insurance for the customer, period. If you do, you can buy it for any amount of your choosing. Have the auditors provide you the citations to back up their claims. Don't let them send you on the wild goose chase.

And for a $5,000 loan, why worry about force placing at all - just let it go uninsured.
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#2030399 - 07/29/15 01:25 PM Re: Force placed hazard insurance vs blanket policy Everest
bcompliance Offline
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Joined: Sep 2014
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We currently have a few escrow customers who do not have hazard insurance on their property (cannot afford to pay for it from what I have been told). We have a blanket policy that protects the bank, so we do not force place when this happens. My question is, what is our obligation as far as escrowing for these accounts? Should we just escrow for the real estate taxes and not for the insurance (or lack there of)?
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#2030678 - 07/30/15 12:20 PM Re: Force placed hazard insurance vs blanket policy Everest
rlcarey Online
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rlcarey
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Galveston, TX
Well, you don't enforce hazard insurance requirements on "some" borrowers. Sounds like I would first be more concerned with fair lending issues.

As far as your escrow question, if you are not requiring them to any longer maintain and pay for hazard insurance, for what would you be escrowing???

Someone may also want to read your blanket policy very carefully and make sure it will actually cover you. Many blanket policies only cover gaps in insurance or honest tracking mistakes and not based on the fact that the bank is knowingly allowing the customer not to maintain insurance.
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#2030680 - 07/30/15 12:30 PM Re: Force placed hazard insurance vs blanket policy Everest
bcompliance Offline
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Thanks for the reply-I feel I have only scratched the surface of the potential fair lending issues here. Would you suggest force placing insurance on these customers?

Management made a decision not to track insurance because of the blanket policy a while before I got here, and I did not think this was the best idea.
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#2030731 - 07/30/15 02:44 PM Re: Force placed hazard insurance vs blanket policy Everest
John Burnett Offline
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Management should ask for and carefully review an analysis of the coverage that policy affords the bank, and the analysis should be prepared by a disinterested party well-versed in such insurance.
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