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#2151130 - 10/25/17 06:03 PM Loan in process, can't obtain hazard
mtngrrl Online
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mtngrrl
Joined: Mar 2011
Posts: 471
Northern California
We are located in Northern California, where the recent fires have impacted our community significantly. I've been asked how to handle mortgage loans in process where the collateral is still intact, but the borrower is having difficulty obtaining hazard insurance. While hazard is not a regulatory requirement, borrowers do sign an agreement to obtain and maintain insurance as a requirement of the loan. If we've already approved the loan, but now we learn that the borrower can't get insurance, do we just Adverse at that point?

We do have FDIC coming in next week for Safety and Soundness, and they've already signaled their interest in looking at what we're doing with regard to the fires, so we plan to discuss this issue with them as well, but I wanted some feedback from a regulatory compliance perspective.
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Lending Compliance
#2151144 - 10/25/17 06:33 PM Re: Loan in process, can't obtain hazard mtngrrl
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I can remember a similar situation back when hurricanes hit Hawaii. Insurance companies refused to write for more than 6 months. Our policy required a year. We obviously had to amend our policy to accept what actually was out there to get. But in this case they could get insurance.
You say your borrowers are having a hard time getting it. Does that mean they cannot get it at all? Or are agents too busy with claims to write new policies or what? I think that will factor significantly.
As to just Adversing out, I don't think examiners are going to accept you enforcing an impossible condition on the loan. Things change between application and origination and this is definitely one of those things. If no one can get insurance, does that mean your bank is no longer doing mortgages? Or that you're going to call others due?
This is a huge can of worms that I would be looking for guidance from my attorney and my EIC.

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#2151150 - 10/25/17 06:48 PM Re: Loan in process, can't obtain hazard mtngrrl
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I'm with a CU in Northern California, and for CUs the Administrative Code states that all loans secured by real property must have adequate hazard insurance for the term of the loan. Don't know if there is a similar requirement for Banks. If you are state-chartered bank, I would reach out to the DBO for guidance.

I agree with Truffle, the insurance companies and local agents are probably just trying to process all the claims associated with Sonoma, Napa, Solano, and Lake county fires.

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#2151154 - 10/25/17 06:58 PM Re: Loan in process, can't obtain hazard mtngrrl
mtngrrl Online
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mtngrrl
Joined: Mar 2011
Posts: 471
Northern California
I'm not sure if this has actually happened yet, or if it's a hypothetical. I can tell you that some properties in our area have had trouble getting insurance simply due to risk--I ran into this for my own property, and it took my insurance agent weeks to find an insurer that would cover me given my specific circumstances. So I think this is what they're worried about--there may be many more properties that run into this kind of issue. Not all, but certainly some that are up in the hills, lots of fuel for fire, further away from fire stations (some of the issues that affected my own property).

We will definitely be talking to FDIC next week to get their guidance.
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Be kind; everyone you meet is fighting a hard battle.
--all opinions are my own--

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