Our insurance vendor assures me we have no violation if our coverage amount is equal to the loan balance before we charge a forced place premium to the loan. To me, it's a constant violation because the coverage amount is less than the loan balance. Leaving aside for the moment the practice of adding FP to the loan balance, and the issues that causes, what are the thoughts on the deficiency? Would a regulator give this a pass?

No. Well, at least, not by the FDIC-Dallas region.

When forceplacing, you need to ask for enough insurance to cover the loan balance after you add the premium, otherwise you will get criticized by regulators. Tell your insurance vendor to do what they do best--writing insurance--and leave the bank's flood compliance program to you.

What Dani said ^^^

Okay a practical question.

Say you want to FP a $100K loan, and you know the premium on that is $2K. But you force place the 102K, but the premium is higher than the original $2k, hence still a deficiency. Does everyone just round their coverage up a little to account for the last bit of deficiency? Or do you check the premium again on the 102K...where does the circle end here...

Flood insurance is priced at a fixed rate per $100.00 of coverage bought. You end up making an educated estimate using the rate per $100.00 that your vendor charges.

In your example, if you know that 100m in coverage costs 2m in premium, then calculate an estimate of what 2m will cost you. Let's say that 2m costs you an additional $125.00. You would request 102200.00 in forceplaced coverage, which should be adequate to cover the new balance after adding the premium.

Thank you, Dani, that helps a lot.