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#2203730 - 01/23/19 07:05 PM Re: Force Placing insurance perplexed1
rlcarey Offline
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rlcarey
Joined: Jul 2001
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Galveston, TX
Yup log in is required
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Flood Compliance
#2204522 - 01/30/19 09:37 PM Re: Force Placing insurance perplexed1
Gotwood Offline
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Joined: May 2001
Posts: 715
Absent the MIRE Event issue, is it a violation of the regulation to do the following on a closed-end consumer loan:

Unpaid Balance $200,000
Force Placed Insurance Amt. $3,250
Force Place Policy written for $203,250
Appraised Value $270,000

Auditors are reading the regulation to say the force place amount must be the lesser of the unpaid principal balance or the maximum amount of NFIP, whichever is less.

I read it to say the amount must at least be the lesser of the unpaid principal balance or the maximum amount of NFIP. in this case, it more than the unpaid principal balance, but does not exceed the nfip maximum of $250,000. appreciate your thoughts.

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#2204525 - 01/30/19 09:51 PM Re: Force Placing insurance perplexed1
mtngrrl Offline
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mtngrrl
Joined: Mar 2011
Posts: 499
Northern California
If you're adding the $3250 to the loan amount, that changes your unpaid balance to $203,250, your new lowest amount.
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#2204538 - 01/30/19 10:36 PM Re: Force Placing insurance perplexed1
Gotwood Offline
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Joined: May 2001
Posts: 715
if it is not added to the loan balance, but is included in a fees/charges bucket, does is that in contradiction to the regulation?

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#2204552 - 01/31/19 12:28 PM Re: Force Placing insurance Gotwood
Adam Witmer Offline
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Joined: Sep 2010
Posts: 2,658
Originally Posted By Gotwood
Auditors are reading the regulation to say the force place amount must be the lesser of the unpaid principal balance or the maximum amount of NFIP, whichever is less.

I read it to say the amount must at least be the lesser of the unpaid principal balance or the maximum amount of NFIP. in this case, it more than the unpaid principal balance, but does not exceed the nfip maximum of $250,000. appreciate your thoughts.

So your auditors are saying it must be exactly the lesser amount? Have them read this FAQ:

16. Can a lender require more flood insurance than the minimum required by the Regulation?
Answer: Yes. Lenders are permitted to require more flood insurance coverage than required by the Regulation. The borrower or lender may have to seek such coverage outside the NFIP. Each lender has the responsibility to tailor its own flood insurance policies and procedures to suit its business needs and protect its ongoing interest in the collateral. However, lenders should avoid creating situations where a building is ‘‘over-insured.’’


I completely agree with you that the required amount of coverage is "at least" the amounts referenced. The only thing you have to worry about is requiring more coverage than what would actually be insured, which does not appear to be the case in your specific situation. For another regulatory citation, the 2016 interagency rule uses the term "at least" many times in reference to the coverage requirements: https://www.fdic.gov/news/board/2015/2015-06-16_notice_sum_c_fr.pdf
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#2204593 - 01/31/19 04:36 PM Re: Force Placing insurance perplexed1
David Dickinson Offline
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David Dickinson
Joined: Nov 2000
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Central City, NE
I'm with Adam. You need the "lesser" amount as a minimum. You can certainly go higher than that. You just can't go higher than the insurable value.
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#2241604 - 08/26/20 02:52 PM Re: Force Placing insurance perplexed1
Inherent_Risk Offline
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Joined: Jan 2017
Posts: 570
I feel like this is the best thread to ask, as it has a lot of the background. Does everybody agree that the ABA letter guidance on whether force placed insurance being added to principal is a MIRE event is finally being officially documented in the proposed Flood rules (Force Placed question 10)?

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#2241648 - 08/27/20 01:05 PM Re: Force Placing insurance perplexed1
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 83,219
Galveston, TX
That is what they are attempting. That is why it is important to send in your comments. Under the current proposal, it is going to depend on your actual loan agreement as to how you treat it. If you want to have to analyze every one of your loan agreements when it comes time to force place, then send in a comment that you support the proposal.
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