A customer has requested to renew his loan before it matures. The loan officer pulled a new flood determination and it came back in a flood zone. Of course the borrower refuses to obtain flood insurance. A customer must obtain flood insurance before closing, but does that mean for renewals or only new loans?

His loan will mature in two weeks, but more than likely we will have to force placed insurance. Therefore, his loan will matured and then it will be up management on what to do.

A renewal is a triggering event, so you must get proof of adequate flood insurance coverage before you renew the loan.

Remember MIRE--Make, Increase, Renew, Extend--are the triggering events.

ETA--You cannot forceplace insurance just to close (renew) the loan.

As Dani says, you can't force place insurance to renew the loan. If the borrower refuses to obtain insurance then you must deny his renewal request and declare the loan in default.

Looks like the borrower will either get flood insurance, pay off the loan when it matures in 2 weeks, or let his credit go to [censored] when it goes into default. BTW - if he relents and obtains flood insurance and you renew the loan, due to his initial reaction, I would highly suggest you mandate the flood premiums be escrowed. If you do not I can assure you within 90 days you'll most likely receive a cancellation notice.

Dan, What if we have force placed flood insurance already in place on an existing loan and a triggering event occurs....can we continue on with the force placed policy or must we not honor a request to increase, renew or extend the loan.....

Thanks in advance....

Page 40 of the MPFIG:

"The force placement of coverage is designed for use at any time during the term of a loan in uninsured and underinsured situations; it is not intended for use at loan origination. If a borrower refuses to obtain flood insurance coverage as a condition of obtaining a loan, the loan is deficient and is not to be made."

I would interpret that very broadly. The question, why would you want to take any such action on a loan that is in default? Personally, I have no patience with such borrowers. They are not holding up their end of the contract.

While I agree with Randy, I do know that the Knoxville area FDIC office is ok with renewing if the forceplaced policy is currently in effect (ie you've had forceplaced insurance for 6 months already and the loan is coming up for renewal) and meets the requirements for adequate insurance (amount, zone, loss payee, address etc). The bank is still expected to give the notice.

Well, like I said, I would interpret it very broadly. The regulators may also, depending on your specific examination crew. But then again, I don't see it as an issue as the first question is: We have a loan in default, do we want to renew it in that condition? My answer is usually no, so it really never gets to the decision of whether or not the bank is meeting the flood insurance requirements. The borrower plays ball, pays off the loan, or we start foreclosure.

I've shared the following email exchange before but I would advise you to speak with you're examiners before relying on this opinion.


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.

t

________________________________________
From: Dan Persfull
Sent: Wednesday, September 05, 2007 9:41 AM
To: t
Subject: RE: Closing a Renewal With Force Placed Coverage (Customer Number-20358)

Hi t,

Thank you for your quick reply. I understand we don't have to make the loan if we choose not to. My question 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: t
Sent: Wednesday, September 05, 2007 9:35 AM
To: Dan Persfull
Cc:.
Subject: RE: Closing a Renewal With Force Placed Coverage (Customer Number-20358)
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.

t


________________________________________
From: Dan Persfull
Sent: Wednesday, September 05, 2007 9:12 AM
To: t
Cc: h
Subject: FW: Closing a Renewal With Force Placed Coverage (Customer Number-20358)

t,

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: 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-20358)
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 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

________________________________________
From: Dan Persfull
Sent: Friday, August 31, 2007 8:26 AM
To: asktheexpert@mapmodteam.com
Subject: Closing a Renewal With Force Placed Coverage (Customer Number-20358)

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

Continuing on with the flood renewal questions.... Customer has two Commercial Real Estate loans. The collateral is in a flood zone and we had flood insurance. Those two notes were paid off, and then a new Installment loan was made with the remaining balance AND with the same collateral.

They did not run a flood cert with the installment loan, nor do I find flood insurance in the file. The insurance policy hasn't expired, we just have a new type of loan with a new note number.

In your personal opinion, do we have a violation or are we covered?

Violation or not, you have a massive policy and procedure breakdown. How can a new loan be booked without a FHD, notice to borrower and proof of insurance being documented. You can pick among those things for your violations.

I agree. I THINK or ASSUME (that's always where you get in trouble) that the lender thought that since we already pulled a cert on that property, the policy had not expired, and the borrower had already signed and received the initial notice it was "ok".

I know - TRAINING TRAINING TRAINING.