From what I can gather there are two ways to force place flood insurance:

1. The Mortgage Portfolio Protection Program (MPPP) is designed for lenders to force place flood insurance with a limited amount of underwriting information. Forced place policies issued under MPPP program typically have considerably higher rates due to the lack of underwriting data.

2. Lenders may also force place flood insurance using the Standard NFIP Policy when sufficient underwriting information is available. In this case the rates are the same as if the borrower were to purchase the flood insurance outside of force placement.

Now lets apply some logic (probably a bad idea)...

If a lender has force placed flood insurance using a Standard NFIP policy and the loan comes up for renewal why wouldn’t the Standard Policy be sufficient? The policy is typically purchased by the lender on behalf of the borrower at no extra cost (i.e. not at the higher MPPP rate) and added to the principal balance of the loan. As Dave stated the policy is issued for a term of one year.

So, if the bank force placed a policy on 3/1/07 for a one year term to expire on 3/1/08 and the loan comes up for renewal on 6/1/07, the borrower has indicated to renew as is (remember the fee for the force placed policy is included in the renewal) you are saying that the policy currently paid in full (via loan proceeds) by the borrower is not sufficient for the renewal?

What more can they do? Why would you make your borrower cancel the current Standard policy only to have them repurchase the same exact Standard policy?

From the required borrower notice in Appendix 4 of the Mandatory Purchase Guidelines.

The community in which the property securing the loan is located participates in the National Flood Insurance Program (NFIP). Federal law will not allow us to make you the loan that you have applied for if you do not purchase flood insurance.

If the bank forced placed the insurance then the borrower has not purchased insurance. If the borrower purchases the insurance as required then the force placed policy would be canceled.

A renewal has to be requested/applied for by the borrower, and the renewal is a new loan agreement agreeing to to extend and/or change the terms of the loan.

Even under the MPPP guidelines you must allow the borrower to obtain insurance on their own, and only if they do not can you renew the MPPP policy.

20. Renewability

The MPPP policy is a one-year policy. Any renewal of that policy can occur only following the full notification process spelled out in addendum #2 that must take place between the lender (or its authorized representative) and the insured/mortgagor, when the insured/mortgagor has failed to provide evidence of obtaining a substitute flood insurance policy.


Until official guidance can be produced, I will stand by my opinion based on the cites I stated that a loan, any loan, can not be made/closed using a flood insurance policy force placed by the lender.

Dan, I completely agree with you on MPPP policies. Can't use them for any origination. However, my issue as stated in my previous post is when you force place using a "Standard Policy."

I also agree there is a lack of guidance on this subject.

I'm of the opinion that if the cost of the existing lender placed flood insurance is passed on to the borrower, then the borrower has essentially "purchased" flood insurance despite not initiating the purchase. The forced placed coverage is actually purchased "on their behalf". They are paying for it.

The following regulatory verbiage concerning the requirement to purchase flood insurance where available states:

(a) In general. A bank shall not make, increase, extend, or renew any designated loan unless the building or mobile home and any personal property securing the loan is covered by flood insurance for the term of the loan....

If there is an existing forced placed flood policy insuring the secured property at renewal, wouldn't the improved property be considered "covered by flood insurance"?

This does not serve as guidance on "renewing a loan" DURING the effective period of an existing forced placed policy. This only speaks to the renewability of the forced placed policy itself when it expires.

This is certainly an interesting scenario without any firm official guidance. I'm of the opinion that you could certainly go either way in the absense of official guidance on this scenario. Not recognizing the existing lender placed policy at renewal and forcing the borrower to purchase a new policy on their own would be to err on the side of caution. It's certainly the safest interpration. Nonetheless, I still don't see any prohibition on recognizing an existing lender placed policy still in effect as evidence of flood coverage when considering the renewal of a loan. If you do renew, I don't see where a violation has taken place.

-----Original Message-----
From: Dan Persfull
Sent: Friday, August 31, 2007 9:26 AM
To: 'asktheexpert@mapmodteam.com'
Subject: Closing a Renewal With Force Placed Coverage


From the required borrower notice in Appendix 4 of the Mandatory Purchase Guidelines.

The community in which the property securing the loan is located participates in the National Flood Insurance Program (NFIP). Federal law will not allow us to make you the loan that you have applied for if you do not purchase flood insurance.

From the Mandatory Purchase Guidelines, page 37:

By enacting 42 U.S.C. §4012a(e)(2), Congress intended lenders to have clear authority to force place; under certain circumstances, they are obligated to force place. The force placement of coverage is designed for use at any time during the term of a loan in uninsured and under-insured situations; it is not intended for use at loan origination. If a borrower refuses to obtain flood coverage as a condition of obtaining a loan, the loan is deficient and is not to be made.

Renewing a loan is a tripwire for flood insurance, including the mandatory notice to the borrower. It is also entering into a loan agreement to extend the terms of the original loan.

My question has to do with lender force placed flood insurance in force at the time the loan is renewed. As an example:

Lender force places flood insurance on the loan on 3/7/07 with an expiration date of 3/8/08. On 7/7/07 the loan comes due for renewal.

The lender sends the required Notice of Special Flood Hazards and Availability of Federal Disaster Relief Assistance and the borrower fails to obtain flood insurance on their own. May the lender close the renewal loan with the force place insurance policy in place, or must they refuse to close the renewal since the borrower has refused to obtain the flood insurance on their own?

Thank you,
Dan Persfull



I sent a duplicate email to my contact at the FDIC Chicago Regional Office. I will share the responses once received.

I earlier spoke with an agent from the NFIP for Region IX(Texas): National Flood Insurance Program Contacts.

The agent stated that an existing forced placed flood policy would be adequate and could serve as evidence of flood coverage at the time of renewal. He stated that renewing the loan with an existing lender placed flood coverage would be fine and that it's not necessary to cancel the existing flood coverage (lender placed) so that the borrower can purchase it on their own.

yes, but did you get it in writing???

if so, bronze it, frame it, copy it & republish it, etc., etc.

if not, he didn't really say it

-----Original Message-----
From: AsktheExpert [mailto:AsktheExpert@mapmodteam.com]
Sent: Tuesday, September 04, 2007 8:36 AM
To: Dan Persfull
Subject: Closing a Renewal With Force Placed Coverage (Customer Number-XXXX)


Thank you for your e-mail dated 2007-08-31 09:40:31.0 to AsktheExpert@mapmodteam.com.

Because of the nature of your e-mail, additional technical assistance/research is required to address your concerns thoroughly, and your e-mail has been forwarded to the National Flood Insurance Program's (NFIP) Bureau and Statistical Agent for a response. You will receive a reply directly from the NFIP Bureau as soon as possible. Please note that your customer number is XXXXX.

If your issue is urgent, please contact the NFIP Help Center at 1-866-395-7496.

I transcribed our conversation, so it's in writing .

They essentially forwarded your e-mail to the same folks I spoke with. If you click on the link I provided above, you'll see the following contact information for Region VI.

National Flood Insurance Program Contacts
Federal Emergency Management Agency
Telephone: (940) 898-5399

FEMA
Federal Regional Center
800 North Loop 288
Denton, TX 76201-3698

NFIP B&S Agent
Telephone: (281) 829-6880
Fax: (281) 829-6879

NFIP B&S Agent
15835 Park Ten Place
Suite 108
Houston, TX 77084

I called the number in bold above and spoke with a National Flood Insurance Program's (NFIP) Bureau and Statistical Agent who provided the guidance I posted earlier.

Doesn't look like your source wants to commit anything in writing:

-----Original Message-----
From: Expert-Support [mailto:Expert-Support@nfipstat.com]
Sent: Wednesday, September 05, 2007 9:02 AM
To: Dan Persfull
Subject: RE: Closing a Renewal With Force Placed Coverage (Customer Number-XXXXX)


Dear Mr. Persfull,



Regarding compliance, neither FEMA nor the NFIP promulgate or enforce flood insurance regulations on matters related to lender compliance. Under the Flood Disaster Protection Act and subsequent reforms, Congress places that responsibility with the federal lending regulators. You may wish to contact the representative(s) of the lending regulatory agency(s) responsible for auditing your organization for flood compliance for advisement on this matter.



FEMA does publish the booklet Mandatory Purchase of Flood Insurance Guidelines (http://www.fema.gov/business/nfip/mpurfi.shtm). The information in Guidelines was provided by the lending regulators (FEMA simply collects it and publishes it). Guidelines was last published in September 1999. Recently, representatives of all of the federal lending regulatory agencies met and a rewrite of Guidelines was completed. The revised edition will be available soon.



The FEMA web site has many resources for all audiences interested in the NFIP. Please see http://www.fema.gov/business/nfip/ and http://www.FLOODSMART.gov. If you have additional questions, please contact the NFIP Help Center toll-free at 1-866-395-7496.



Thank You,

The NFIP Help Center / KEB



I will post the response from the FDIC as soon as I get one.

-----Original Message-----
From: Dan Persfull
Sent: Wednesday, September 05, 2007 9:41 AM
To: 'Khan, Akhtar H.'
Subject: RE: Closing a Renewal With Force Placed Coverage (Customer Number-XXXXXX)


Hi Art,

Thank you for your quick reply. I understand we don't have to make the loan if we chose not to. My questions really pertains to can we make (renew) the loan when the flood insurance in place is flood insurance previously force placed by the financial institution and the borrower still refused to obtain flood insurance on their own for the renewal.

Thank you,
Dan

-----Original Message-----
From: Khan, Akhtar H.
Sent: Wednesday, September 05, 2007 9:35 AM
To: Dan Persfull
Cc: Hamilton, Judith P.
Subject: RE: Closing a Renewal With Force Placed Coverage (Customer Number-XXXXX)


Dan,

The answer to your question is that if the borrower is refusing to purchase mandatory flood insurance required by law, the bank does not have to make the loan. Dan, please call or email should you have any questions.

art

--------------------------------------------------------------------------------

From: Dan Persfull
Sent: Wednesday, September 05, 2007 9:12 AM
To: Khan, Akhtar H.
Cc: Hamilton, Judith P.
Subject: FW: Closing a Renewal With Force Placed Coverage (Customer Number-XXXXXX)

Art,

The following is the response I received from FEMA and the NFIP. They are deferring to the applicable regulatory agency, therefore I would appreciate a reply to the question as soon as possible.

Thank you,
Dan Persfull

-----Original Message-----
From: Dan Persfull
Sent: Wednesday, September 05, 2007 9:54 AM
To: 'Khan, Akhtar H.'
Subject: RE: Closing a Renewal With Force Placed Coverage (Customer Number-XXXXXX)


Art,

Thank you for your reply.

It has been my stance that the bank could not renew a loan using force placed flood insurance, just as they are prohibited from originating a loan using force placed flood insurance when the borrower refused to purchase flood insurance as a condition of the loan.

I was recently challenged on this opinion and we could find nothing definitive in the regulation or the mandatory guidelines. So I decided to seek help of the experts. Again thank you for your quick response.

Dan.

-----Original Message-----
From: Khan, Akhtar H.
Sent: Wednesday, September 05, 2007 9:48 AM
To: Dan Persfull
Subject: RE: Closing a Renewal With Force Placed Coverage (Customer Number-XXXXX)


Sorry for my confusion Dan. The bank may make (renew) the loan with forced flood insurance in place. I take it that the bank wants to accommodate the customer for business reasons. Please monitor the loan for flood insurance adequacy and renewal of flood insurance.



art

Negative. I didn't request nor did I seek for the agent's guidance in writing. I merely picked up the phone, dialed the number above, and spoke to the agent personally. I simply presented him with the renewal scenario verbally since the discussion was by phone and I didn't slant it in such a way that it would force a certain response. I simply asked, and the agent kindly responded with an answer which was good enough for me. Pretty simple and straight forward and now that it's all said and done, it appears that the agent's verbal response was no different than the written response provided to you by your source Art.

Nonetheless it was a good flood exercise for all because it was certainly an interesting scenario without any firm guidance.

Thanks for passing on the info Dan and Glutes. I love (that would be sarcasm) how FEMA defers everything.


After reading 6 emails, it looks like this is the answer. However, I would encourage everyone to print and save this one. Obviously, it's a gray area and one that not every examiner is going to agree with.

Thanks again for drilling to the bottom of this one.