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#1735025 - 08/24/12 08:07 PM Force-placed flood insurance issue in Dallas reg.
Ski Offline
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Don't shoot the messenger!

Attended a quarterly compliance meeting yesterday in Baton Rouge, La. sponsored by First National Bankers Bank.

Several people discussed that during recent (since early July 2012) FDIC compliance exams (exam teams out of Dallas regional office), they have been cited or threatened with being cited for the following:

Examiners looked at the force-placed Master policy and it was noted that the Bank was the only beneficiary listed. Although the customer was shown to also be a beneficiary, the FDIC stated that the customer can be the only beneficiary listed. The FDIC stated that their regional legal dept. out of Dallas stated that banks must either have the insurance company issuing the Master Policy (in all these cases, Lloyd's of London) to delete the Bank and only list the customer OR the Bank must get a new insuance company whose master flood policy does not state the Bank as beneficiary.

Don't know what's happening with all this, but I did speak to a compliance officer at a Bank near me who went through this with a July 2012 exam. She gave me the whole story and said that the examiner was very understanding but firm in that he was just doing what he was told by Dallas.

What next?

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Flood Compliance
#1735044 - 08/24/12 08:20 PM Re: Force-placed flood insurance issue in Dallas reg. Ski
WI Banker Offline
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Interesting. I've actually been working with our force place company to try to figure out why the rates on the Lloyd's of London policies are so inexpensive. One of the things I have been questioning is the situation you presented, but so far I haven't gotten a solid answer. I will be interested to find out what others have to say.

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#1735063 - 08/24/12 08:38 PM Re: Force-placed flood insurance issue in Dallas reg. Ski
Dani York, CRCM Offline
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Do you happen to know if those banks were using the same vendor, or if multiple vendors are selling the Lloyds policies this way?

My guess is that most (if not all) of the banks referenced are using the same large vendor (which is probably the same one we use). eek
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#1735080 - 08/24/12 09:11 PM Re: Force-placed flood insurance issue in Dallas reg. Dani York, CRCM
Ski Offline
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I just PM'd you some info.

Dave

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#1735104 - 08/24/12 10:04 PM Re: Force-placed flood insurance issue in Dallas reg. Ski
rlcarey Online
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I am not surprised. I have warned a number of banks that I didn't think these LofL master policies were up to snuff and met the specific requirements.
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#1735225 - 08/27/12 12:41 PM Re: Force-placed flood insurance issue in Dallas reg. rlcarey
Dan Persfull Offline
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Originally Posted By: rlcarey
I am not surprised. I have warned a number of banks that I didn't think these LofL master policies were up to snuff and met the specific requirements.


I agree 100%. The flood insurance force placement rules require you to purchase a policy on behalf of the borrower, not the bank. The policy should be issued in the borrower's name with the bank listed as the mortgagee or loss payee.

If you search the threads for blanket policies you will find that in just about everyone of them the poster was advised that in most cases these policies did not meet NFIP requirements and that the poster should discuss the details with their examiners before proceeding with such a policy.

I have to agree with the Dallas Region on this one.
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#1735263 - 08/27/12 01:37 PM Re: Force-placed flood insurance issue in Dallas reg. Ski
Dani York, CRCM Offline
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But what about this memo from FEMA regarding private flood policies?

http://www.aba.com/aba/documents/ABIA/3.7.12_FEMA_PositionOnPrivateFloodInsuranc.pdf

Particularly the statement:

"These elements are not meant to be exclusive and if a lender is satisfied that a private policy adequately protects his security for a loan despite not containing some of these elements or differing from them, it is within his authority to accept the private policy."
Last edited by Dani York; 08/27/12 01:49 PM.
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I can't herd the cats anymore, so I just set up the electric fences and let them fry when they stray out of bounds.

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#1735281 - 08/27/12 02:04 PM Re: Force-placed flood insurance issue in Dallas reg. Ski
Dan Persfull Offline
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How does that change the fact the regulation requires you to purchase the policy on behalf of the borrower?

IMO that statement gives the lender a little more lead way in accepting a private policy loss coverage but it does not in any way affect the lender's requirement to purchase the insurance on behalf of the borrower and not the bank's behalf.
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#1735293 - 08/27/12 02:22 PM Re: Force-placed flood insurance issue in Dallas reg. Dan Persfull
RUKiddingMe Offline
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As the insured, wouldn't that give the borrower the ability to cancel the FP policy?

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#1735298 - 08/27/12 02:31 PM Re: Force-placed flood insurance issue in Dallas reg. Ski
Dan Persfull Offline
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The bank purchased the policy on behalf of the borrower naming them as the insured and the bank as the loss payee. The borrower may be the insured but they are not the owner of the policy.
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#1735315 - 08/27/12 02:58 PM Re: Force-placed flood insurance issue in Dallas reg. Ski
Dani York, CRCM Offline
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Thanks Dan. I've never liked the private policies, but that's what management wanted to use. In light of the original post, we are now in a review and assess mode. I appreciate your thoughts on the subject.
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#1742008 - 09/19/12 01:46 AM Re: Force-placed flood insurance issue in Dallas reg. Ski
Dani York, CRCM Offline
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Just wanted to bring this back to FDIC regulated banks' attention. I'm at the Tn Bankers Compliance Conference this week. The Assistant Regional Director in Dallas presented this issue this morning. He did state that they are talking with the vendors to help work this out. Based on his comments and on my area examiners' comments, it was my understanding that they are approaching it from a "letting the banks know, let's get it corrected" and not so much of a "gotcha, now I'm going to fine you." Has anyone in the Dallas region had this issue cited as a violation and/or been fined?
Last edited by Dani York; 09/19/12 01:46 AM.
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I can't herd the cats anymore, so I just set up the electric fences and let them fry when they stray out of bounds.

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#1742922 - 09/21/12 02:10 PM Re: Force-placed flood insurance issue in Dallas reg. Ski
Rdy2Retire Offline
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I was at the same TBA Conference as Dani and came back to my bank and looked at our force placed policies. We have just switched providers. Our previous provider listed our bank as the "Name Insured" and listed the borrower's name and address under "Location of Property Insured". The new provider lists the borrower as "Insured Borrower" and our bank as "Insured Mortgagee". Is the way the new provider lists the mortgagee information correct or should it just state "Mortgagee" instead of "Insured Mortgagee"? Thank you.

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#1743834 - 09/25/12 04:25 PM Re: Force-placed flood insurance issue in Dallas reg. Dani York, CRCM
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We are in the Dallas region and were just cited for this. We were using a Lloyd's policy. I suggested that a FIL might be in order, but there is no plans for such. We were not given a penalty. We were asked to take corrective action within 60 days.

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#1817704 - 05/28/13 02:05 PM Re: Force-placed flood insurance issue in Dallas reg. Ski
midwestriver Offline
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"The new provider lists the borrower as "Insured Borrower" and our bank as "Insured Mortgagee"

can anyone let me know which carrier updated their policy to read this? We are running into the same issue.........

Thanks!

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#1817783 - 05/28/13 04:42 PM Re: Force-placed flood insurance issue in Dallas reg. Ski
JSS Offline
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When this issue appeared last year we brought this to the attention of our vender who uses Lloyd's London to underwrite our force placed master flood policy. They knew of no such problem and thought this was a misunderstanding by the FDIC examiner. However our vender did agree to contact the FDIC legal department out of Dallas on our behalf. As it turned out the FDIC stood by their finding and said the Lloyd’s policy was non compliant because we, not the property owner was listed as the sole beneficiary. Subsequent discussions including led to a solution. Lloyd’s agreed (for a fee) to amend our master flood policy by adding what they call the “Owners Interest Coverage Endorsement” which among other things extends the flood insurance provided to us to include coverage for the owner’s insurable interest. This isn’t a direct answer to your question, but thought it may be of help in finding a an alternative solution.

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#1817789 - 05/28/13 04:49 PM Re: Force-placed flood insurance issue in Dallas reg. Ski
Kathleen O. Blanchard Offline

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I had this issue over 10 years ago and addressed it with our master policy (Lloyds), when the OCC noted it at a bank I had just joined in NJ. At previous banks we always made sure our master policy covered the bank AND the borrower. The individual forced placed policies were handled more or less as add ons to the master.
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#1817927 - 05/28/13 08:30 PM Re: Force-placed flood insurance issue in Dallas reg. Ski
midwestriver Offline
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Thanks. Our master policy does cover the bank and the borrower. Based on what people have run into with this, would this suffice with FDIC?

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#1817935 - 05/28/13 08:34 PM Re: Force-placed flood insurance issue in Dallas reg. Ski
Kathleen O. Blanchard Offline

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Generally it revolves around the fact that the force placed insurance is to be coverage to protect the borrower in the case of flood insurance, so that the government can limit emergency flood expenditures. The bank of course wants to be covered for risk purposes, but for flood must make sure that the borrower is covered.

If your borrower would be reimbursed for covered losses, it should be fine.
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#1818166 - 05/29/13 03:45 PM Re: Force-placed flood insurance issue in Dallas reg. Ski
midwestriver Offline
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Thanks. I figured if the borrower is protected and can file a flood claim, that is what the examiners would be looking for.

the master policy's I have seen cover both borrower and bank even though the actual insurance certificate added under the master policy lists the bank as named insured then goes on to list the borrower name and covered property location.

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#1818463 - 05/30/13 09:27 AM Re: Force-placed flood insurance issue in Dallas reg. Ski
rlcarey Online
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bank even though the actual insurance certificate added under the master policy lists the bank as named insured then goes on to list the borrower name and covered property location.

Those are the ones that have been criticized in the past. The borrower has to be a named insured, not just listed on the policy.
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#2024620 - 07/01/15 09:51 PM Re: Force-placed flood insurance issue in Dallas reg. Ski
HuntFish Offline
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undecided
Old wound, new salt...........how did anyone get Lloyds to change language on insurance certificate to indicate that the borrower was insured? We have the Master Policy that states the language that has been mentioned in above posts, but, according to examiner, that is not enough. The borrower must be shown as insured on the policy/certificate.

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