Skip to content
BOL Conferences
Page 1 of 2 1 2
Thread Options
#2015827 - 05/22/15 08:33 PM Forced Placed coverage short by premium amount
HRH Okie Banker Offline
Power Poster
Joined: Jan 2003
Posts: 3,070
Oklahoma
We have a forced placed flood policy that was put into place to cover the principal balance. When forcing flood insurance must you figure in the premium amount for which you are advancing on the loan for payment?
_________________________
Just working here until I get my letter from Hogwarts.

Return to Top
Flood Compliance
#2015829 - 05/22/15 08:38 PM Re: Forced Placed coverage short by premium amount HRH Okie Banker
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,226
Galveston, TX
Hmmm -

Flood insurance policy $100,000

Current principal balance of the loan $102,000

Must have lesser of insurance available, principal balance of the loan, insurable value of the property.

You be the judge smile
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#2015845 - 05/22/15 09:30 PM Re: Forced Placed coverage short by premium amount HRH Okie Banker
HRH Okie Banker Offline
Power Poster
Joined: Jan 2003
Posts: 3,070
Oklahoma
Well carp. Thank you.
_________________________
Just working here until I get my letter from Hogwarts.

Return to Top
#2015944 - 05/26/15 03:34 PM Re: Forced Placed coverage short by premium amount HRH Okie Banker
David Dickinson Offline
10K Club
David Dickinson
Joined: Nov 2000
Posts: 18,762
Central City, NE
If I understand the OP's question, what they are saying is this:
Current principal balance of loan $100,000
Flood insurance premium $2,000
If we force place and add the premium to the loan amount, the principal balance will be $102,000.
So do we need $100,000 or $102,000 of flood insurance?

When you do the "lesser of 3 test", the current loan balance is $100,000, and if that's the lowest of the 3, some say go with $100,000 (I'm in the camp). Some say, if you'll add the premium to the balance, then you need to go with $102,000.
_________________________
David Dickinson
http://www.bankerscompliance.com

Return to Top
#2015950 - 05/26/15 03:45 PM Re: Forced Placed coverage short by premium amount David Dickinson
Ski Offline
Platinum Poster
Joined: May 2003
Posts: 639
South Louisiana
Just finished FDIC Compliance Exam. Examiners wrote up force-placed flood short by amount of force-placed premium added to loan.

They said you need to find out how much the premium would be, then add that to the current loan amount. Then validate that the premium quoted would cover the current loan amount plus the force-placed premium.

Just sayin'.

Return to Top
#2015956 - 05/26/15 03:48 PM Re: Forced Placed coverage short by premium amount HRH Okie Banker
Kathleen O. Blanchard Offline

10K Club
Kathleen O. Blanchard
Joined: Dec 2000
Posts: 21,293
I agree with going with the principal plus the premium. The bank just loaned more money by financing the insurance premium
_________________________
Kathleen O. Blanchard, CRCM "Kaybee"
HMDA/CRA Training/Consulting/Mapping
The HMDA Academy
www.kaybeescomplianceinsights.com

Return to Top
#2015968 - 05/26/15 04:14 PM Re: Forced Placed coverage short by premium amount HRH Okie Banker
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,226
Galveston, TX
David - You are in the wrong camp when it comes to the regulators in my neck of the woods.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#2015970 - 05/26/15 04:18 PM Re: Forced Placed coverage short by premium amount HRH Okie Banker
LillyNY Offline
Junior Member
Joined: Aug 2012
Posts: 48
Central NY
At a bank I previously worked at where we added force-placed flood insurance premiums to the loan balance, we were sited by the OCC because our flood coverage amount was short by the amount of the flood insurance premium.

Return to Top
#2015975 - 05/26/15 04:26 PM Re: Forced Placed coverage short by premium amount HRH Okie Banker
David Dickinson Offline
10K Club
David Dickinson
Joined: Nov 2000
Posts: 18,762
Central City, NE
Randy: I understand and don't push my "camp". The other side of the coin is AT THE TIME OF CALCULATION, what is the loan balance? If you go with "what WILL the loan balance be?" then when does it stop?

Let's say Flood premium on $100,000 = $2000, so you buy insurance for $102,000. BUT the premium on $102,000 is higher than $2,000 (let's say it's $2,100), so now your insurance is $100 shy of what's needed.
_________________________
David Dickinson
http://www.bankerscompliance.com

Return to Top
#2016089 - 05/26/15 09:19 PM Re: Forced Placed coverage short by premium amount HRH Okie Banker
Kathleen O. Blanchard Offline

10K Club
Kathleen O. Blanchard
Joined: Dec 2000
Posts: 21,293
Personally, I think due diligence is needed by the bank to determine how much the insurance will cost to make a sufficient advance. If the cost is off by a small amount, charge the customer outside of the loan. If the customer cannot pay even a small amount, then you have a problem loan on your hands and a whole other set of issues.
_________________________
Kathleen O. Blanchard, CRCM "Kaybee"
HMDA/CRA Training/Consulting/Mapping
The HMDA Academy
www.kaybeescomplianceinsights.com

Return to Top
#2016094 - 05/26/15 09:28 PM Re: Forced Placed coverage short by premium amount HRH Okie Banker
Andy_Z Offline
10K Club
Andy_Z
Joined: Oct 2000
Posts: 27,748
On the Net
I've heard both and see it as a catch-22, adding on and adding on. If this were not really for the benefit of FEMA I think the CFPB would cite it as a UDAAP issue unfair to the consumer.
_________________________
AndyZ CRCM
My opinions are not necessarily my employers.
R+R-R=R+R
Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell

Return to Top
#2016098 - 05/26/15 09:36 PM Re: Forced Placed coverage short by premium amount HRH Okie Banker
Kathleen O. Blanchard Offline

10K Club
Kathleen O. Blanchard
Joined: Dec 2000
Posts: 21,293
I think adding the premium to the loan is a bad idea. The loan just keeps growing. In commercial lending, we issued a bill and chased them down for it. If not paid, we started collection action, etc.

For a consumer it is a bad idea, but if the bank is going to do this, they have to do it correctly and make sure that the required coverage is in place.

_________________________
Kathleen O. Blanchard, CRCM "Kaybee"
HMDA/CRA Training/Consulting/Mapping
The HMDA Academy
www.kaybeescomplianceinsights.com

Return to Top
#2016290 - 05/27/15 05:57 PM Re: Forced Placed coverage short by premium amount Andy_Z
Phill2000 Offline
Junior Member
Joined: Feb 2013
Posts: 32
My two cents - I agree with David and Randy. Another point that was not raised from a UDAAP perspective is what happens if we tell the customer to get $102,000 in required coverage ($100,000 principal balance + $2,000 force placed premium) and the customer purchases their own coverage? Now we're in a situation where we're requiring more than the minimum requirement, which could be viewed as unfair and/or deceptive (IMO).

Return to Top
#2016302 - 05/27/15 06:12 PM Re: Forced Placed coverage short by premium amount HRH Okie Banker
Dani York, CRCM Offline
Power Poster
Dani York, CRCM
Joined: Apr 2005
Posts: 3,663
TN
The easy solution: Require the insurable value of the structure.

The structure would not be over-insured. The borrower would have the maximum coverage available in the event of a flood loss. The bank would not have the dilemma of whether or not to include the premium in the policy amount.

The Act does not say you can only require the minimum. It just says you have to have at least the minimum of the 3 (insurable value, total balances of all liens, NFIP maximum).
_________________________
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.

Return to Top
#2016437 - 05/27/15 10:01 PM Re: Forced Placed coverage short by premium amount Dani York, CRCM
Kathleen O. Blanchard Offline

10K Club
Kathleen O. Blanchard
Joined: Dec 2000
Posts: 21,293
Originally Posted By Dani York, CRCM
The easy solution: Require the insurable value of the structure.

The structure would not be over-insured. The borrower would have the maximum coverage available in the event of a flood loss. The bank would not have the dilemma of whether or not to include the premium in the policy amount.

The Act does not say you can only require the minimum. It just says you have to have at least the minimum of the 3 (insurable value, total balances of all liens, NFIP maximum).


And the bank would be covering the real risk, at the same time!
_________________________
Kathleen O. Blanchard, CRCM "Kaybee"
HMDA/CRA Training/Consulting/Mapping
The HMDA Academy
www.kaybeescomplianceinsights.com

Return to Top
#2035503 - 08/25/15 07:52 PM Re: Forced Placed coverage short by premium amount Kathleen O. Blanchard
Ski Offline
Platinum Poster
Joined: May 2003
Posts: 639
South Louisiana
The Flood Matter Expert of the Dallas Region states that "the bank must obtain flood insurance in an amount required by 339.3(a).

The calculation is the lesser of:

a) The total outstanding loan balance (which will include any flood insurance premiums added to the loan)."


Can anyone show me where it states this in 339.3(a) please?

Return to Top
#2035515 - 08/25/15 08:50 PM Re: Forced Placed coverage short by premium amount HRH Okie Banker
David Dickinson Offline
10K Club
David Dickinson
Joined: Nov 2000
Posts: 18,762
Central City, NE
Here's what 339.3(a) states:

§339.3 Requirement to purchase flood insurance where available.
(a) In general. An FDIC-supervised institution 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. The amount of insurance must be at least equal to the lesser of the outstanding principal balance of the designated loan or the maximum limit of coverage available for the particular type of property under the Act. Flood insurance coverage under the Act is limited to the overall value of the property securing the designated loan minus the value of the land on which the property is located.

http://www.ecfr.gov/cgi-bin/text-idx?SID...13&rgn=div8
_________________________
David Dickinson
http://www.bankerscompliance.com

Return to Top
#2035518 - 08/25/15 09:02 PM Re: Forced Placed coverage short by premium amount David Dickinson
Ski Offline
Platinum Poster
Joined: May 2003
Posts: 639
South Louisiana
I guess I meant "can anyone show me where in 339.3(a) it states:

The total outstanding loan balance (which will include any flood insurance premiums added to the loan).

The flood insurance premium is only added to the loan AFTER it is purchased, so how can it be in the outstanding loan balance on which you figure the premium?

Seems incongruous to me.

Return to Top
#2035520 - 08/25/15 09:12 PM Re: Forced Placed coverage short by premium amount HRH Okie Banker
David Dickinson Offline
10K Club
David Dickinson
Joined: Nov 2000
Posts: 18,762
Central City, NE
That's why I quoted the reg in my last post. It DOESN'T say that.
_________________________
David Dickinson
http://www.bankerscompliance.com

Return to Top
#2035529 - 08/25/15 09:29 PM Re: Forced Placed coverage short by premium amount David Dickinson
Ski Offline
Platinum Poster
Joined: May 2003
Posts: 639
South Louisiana
Thanks so much! That's what I thought. I've been doing this for over 36 years and I thought maybe I missed something!

That's OK. I'm training my replacement and in 18 months "Good night Irene!". (or maybe sooner)

Return to Top
#2035558 - 08/26/15 02:20 AM Re: Forced Placed coverage short by premium amount HRH Okie Banker
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,226
Galveston, TX
So the regulators come in and say give me a trail balance of all of your loans in a SFHA and the amount of insurance they have. What do you expect them to say when you have a loan with a principal loan balance of $51,000 and flood insurance coverage of $50,000? No, it doesn't say it directly. But I think "at least equal to the lesser of the outstanding principal balance" pretty much says it all. Banks have been cited by the regulators for this in my area.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#2035759 - 08/26/15 05:50 PM Re: Forced Placed coverage short by premium amount HRH Okie Banker
David Dickinson Offline
10K Club
David Dickinson
Joined: Nov 2000
Posts: 18,762
Central City, NE
Like a lot of things, it would require some documentation to demonstrate how the proper amount of flood insurance amount was calculated. I don't think it's that hard to explain.

If you purchased $51,000 of insurance and then the borrower was past due, had fees, etc. that led to a higher loan balance, would the amount of flood insurance be too low again?
_________________________
David Dickinson
http://www.bankerscompliance.com

Return to Top
#2035840 - 08/26/15 08:38 PM Re: Forced Placed coverage short by premium amount HRH Okie Banker
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,226
Galveston, TX
Not unless you plan on capitalizing interest or fees. It references the principal balance. If you are holding the insurance in a separate no interest earning bucket, like other fees then it would not be an issue or if you established an escrow account. If you are going to be adding it to the principal balance, then I think it is. If they are adding it to the principal balance, they better be re-amortizing the loan otherwise after a number of years these people are going to have a huge balloon payment due at maturity and now you are looking at a UDAAP potential (or class action lawsuit like others of which I am aware). So you add money to the loan and re-amortize the payment, sounds like an increase to me which is actually a MIRE event. How far you want to take this is up to each bank, but I suggest they cover the entire new principal balance if they are adding the premiums to the principal balance.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#2045276 - 10/20/15 08:31 PM Re: Forced Placed coverage short by premium amount HRH Okie Banker
mant Offline
New Poster
Joined: Oct 2015
Posts: 1
Something I found in Federal Register /Vol. 76, No. 200 /Monday, October 17, 2011

Any policy that is obtained by a lender or its servicer, the premium of which is charged to the borrower pursuant to a contractual right, should be equivalent in coverage and exclusions to an NFIP policy and cover the interests of both the borrower and the lender.

Question #62 relates to when a borrower may be charged, but it also seems to address how much coverage should be in place. Can I request that the guru’s consider if this is something that might need to be considered when determining force placed insurance coverage amounts? It seems like if the Bank purchased coverage to “…cover the interests of both the borrower and the lender”, it would likely purchase coverage up to the full insurable amount – or maybe the maximum amount available for the property.

Return to Top
#2045298 - 10/20/15 09:53 PM Re: Forced Placed coverage short by premium amount HRH Okie Banker
Jade'sFire Offline
Gold Star
Jade'sFire
Joined: Apr 2012
Posts: 369
Yaven IV
I have this same concern. As far as I know it is perfectly legal to purchase force placed coverage for the lesser of the RCV, loan amount, or max available, but if you have a 10k loan on a house worth 300k and you force place 10k....is that really a benefit to the customer. I know some banks allow this and some banks have a policy to always insure at the RCV of the building.
I just keep going back to UDAAP.
_________________________
"It's time for the Jedi to end."
Luke Skywalker

Return to Top
Page 1 of 2 1 2