We operate under the process whereby all flood loans get a 45-day letter, whether the existing flood policy is force placed or not. Someone mentioned to me today that the 45-day letter is not technically required on existing force-placed flood insurance loans, although they strongly suggest doing the letter anyway. I'm not sure how I've gone so long not realizing this caveat. Is this truly the case?

When someone mentions something to you that you have never heard before without providing the regulatory citation to back it up, then go back and ask them for it.

It was our compliance auditor, so I'll double back with them. But, if we don't do MPPP policies, is this true?

Not that I am aware.

From the Federal Register from July 2015, it states that the final rule clarifies that the required 45-day notice must be sent following the date of lapse or insufficient coverage of the borrower’s policy. If we already have a force placed policy in place and are just renewing it, the policy shouldn’t lapse or become insufficient. Also with a force placed policy, it’s a policy the bank took out on behalf of the borrower- in the spirit if the reg, it really isn’t the borrower’s policy in question in this case. The Federal Register goes on to state that “With respect to the notification regarding the renewal of a force-placed flood insurance policy, some industry commenters requested additional guidance.” It goes on to say “The agencies may provide guidance in the future regarding notification in connection with the renewal of a force-placed flood insurance policy.”

Based on the FR, it sounds like the intention is that the renewal of force-placed policies doesn’t fall under the 45-day letter requirement. Thoughts?

Well, it is a policy the bank took out on behalf of the borrower, but it still is the borrower's policy. The borrower has to be the named insured and they have to get a copy of the policy. While you are going to renew the force placed policy without a gap in coverage, giving the borrower notice annually that they may purchase a policy directly and likely save themselves some money, is a bad thing? And they said that "may provide guidance in the future regarding notification in connection with the renewal of a force-placed flood insurance policy" in the future, but no where does it state that notification is not currently required. Most regulators are going to be expecting it, so in that case, what you are specifically going to point to that says it specifically is not required? I would not be wanting to be standing in front of them explaining directly to the regulators "their intentions".

We send the letter today, so no arguing here. I simply had someone mention that the letter wasn't required, so I went looking for support for that statement. In a way, it makes sense to me. And the Federal Register language certainly supports it. However, I certainly don't want to bear the brunt of the regulatory scrutiny for not sending the letter, so we send it. I was only looking for anyone who may know more on this.

As RL noted, it is expected by the intent of the Regulation and by the Regulatory agencies, because, essentially, you are force-placing "again" when the initial force-place policy is scheduled to expire. It may be prudent to require Escrow in this situation so that Flood can be collected going forward. The borrower should be continuously notified to purchase his/her own insurance as it is not an expected "status quo" to just continually force place, as it is commonly said that the borrower's own policy is less expensive.

If you go to our website and scroll down to the "Free Downloads", you can download an article called "FLOOD: Flood Insurance Force Placement Article" in our Lending Tools box. We discuss force placing standard policies vs. MPPP and how the 45 day letter differs for each.
https://www.bankerscompliance.com/resources/

Thanks David!

For what it's worth, the following is from an Outlook Live session transcript from October 2015, and someone from the FDIC specifically answers my question.

QUESTION 10 – IF A BORROWER’S FORCE-PLACED FLOOD INSURANCE IS ABOUT TO EXPIRE, WHAT PROCESS DOES THE LENDER NEED TO USE TO RENEW THE FORCE-PLACED FLOOD INSURANCE COVERAGE?

Alex Cheng:
So, the regulations covering force placement practices require the lender to notify the borrower if the lender, and I quote, “determines at any time during the term of the designated loan that the building or mobile home and any personal property securing the designated loan, is not covered by flood insurance, or is covered by flood insurance in an amount less than required.” So, in this scenario, the force-placed policy is only about to expire, and has not yet lapsed. So, the property is still sufficiently covered by flood insurance. The text of the regulations does not require additional notification to the borrower when force-placed insurance is due for renewal. When the lender is notified that the force-placed flood insurance policy is about to expire, the lender should follow its normal communication practices with its insurance provider to renew the flood insurance policy on the borrower’s behalf, to ensure that flood insurance coverage remains in place. The lender, at its discretion, may notify the borrower that the lender is planning to renew or has renewed the force-placed policy. Such a notification may encourage the borrower to seek its own policy, which may be available for a lower premium amount.

If you are FDIC regulated, then stick that in your back pocket. If you are not, feel free to roll the dice.

We are FDIC regulated! The reality is we will keep sending the letters, but we'll certainly keep this support in case we need it.

We are FDIC regulated and just went through an exam with good coverage of flood. This is the letter we use for renewed FP policies. It received no criticism, so FWIW:

This letter is to inform you that we have renewed your force-placed insurance which recently expired. This insurance has been obtained on your behalf as required by the Flood Disaster Protection Act of 1973.

You have been previously notified of the circumstances surrounding your need to have flood insurance coverage and explaining your options, but to date no response has been received.

Attached is the flood insurance policy purchased on your behalf and its accompanying declaration page that explains the amount of coverage purchased on your behalf along with the premium cost.

You may obtain conventionally underwritten flood insurance coverage with a potential cost-saving benefit of doing so. If you purchase another flood insurance policy and notify us, we will cancel this policy and issue a refund for the unearned portion of the premium, if we deem that the policy you purchase is acceptable to satisfy the requirements.