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#2209187 - 03/21/19 04:17 PM
Can a loan be IRED with FPI in place?
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Junior Member
Joined: Aug 2018
Posts: 44
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Can a loan be increased, renewed, or extended with force placed flood insurance in effect?
I am not able to locate the reference to this issue.
Your assistance is greatly appreciated.
Last edited by John Burnett; 06/05/19 03:34 PM.
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#2209189 - 03/21/19 04:32 PM
Re: Can a loan be IRED with FPI in place?
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Platinum Poster
Joined: Aug 2015
Posts: 756
Land Lacking in Lakes, IL
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Was it force placed because the borrower refused to pay it? If that's the case, why would you want to IRE a loan, unless they're going to obtain their own flood policy BEFORE you complete the IRE?
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"Pressure is something you feel when you don't know what you're doing" - Peyton Manning
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#2214192 - 05/22/19 05:39 PM
Re: Can a loan be IRED with FPI in place?
David Dickinson
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Junior Member
Joined: Feb 2016
Posts: 41
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One example that comes to mind is extending the term an existing loan in connection with a modification, when a loan is in default. It could stand to reason that if a borrower could no longer afford their monthly payment, the same borrower may have allowed flood insurance to lapse if the premium was not affordable.
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#2214204 - 05/22/19 06:29 PM
Re: Can a loan be IRED with FPI in place?
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10K Club
Joined: Jul 2001
Posts: 83,363
Galveston, TX
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The question remains: Why would you extend a loan that is in default, if the borrower has no means to clear the default, which includes properly insuring the property?
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#2214269 - 05/23/19 02:35 PM
Re: Can a loan be IRED with FPI in place?
rlcarey
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Junior Member
Joined: Feb 2016
Posts: 41
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In my example, extending the term in order to lower monthly payments and keep the borrower in their home.
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#2214274 - 05/23/19 03:09 PM
Re: Can a loan be IRED with FPI in place?
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10K Club
Joined: Jul 2001
Posts: 83,363
Galveston, TX
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When they still cannot afford to pay for insurance? I would only do it if they agreed to purchase an insurance policy and begin escrow. Otherwise, all you are doing is prolonging the inevitable.
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#2214298 - 05/23/19 06:01 PM
Re: Can a loan be IRED with FPI in place?
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Platinum Poster
Joined: Aug 2015
Posts: 756
Land Lacking in Lakes, IL
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At some point, wouldn't that become a TDR as well?
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"Pressure is something you feel when you don't know what you're doing" - Peyton Manning
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#2214299 - 05/23/19 06:35 PM
Re: Can a loan be IRED with FPI in place?
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10K Club
Joined: Jul 2001
Posts: 83,363
Galveston, TX
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At some point - yes - like as soon as you suspected they were no longer able to make their payments and you modified the loan.
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#2214619 - 05/30/19 05:07 PM
Re: Can a loan be IRED with FPI in place?
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Junior Member
Joined: Sep 2012
Posts: 25
Coppell, Texas
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Force-placed Flood is not an automatic indicator that the borrower has a financial impairment or hardship. FP Flood rates, being uniform for rating efficiency, have turned out to be lower than NFIP and private market rates in numerous scenarios. Many a borrower gets a force-placed quote and jumps on it, finding they save hundreds (if not thousands!) of dollars by accepting the lender's force-placed coverage.
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#2214695 - 05/31/19 04:00 PM
Re: Can a loan be IRED with FPI in place?
David Dickinson
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Junior Member
Joined: Sep 2012
Posts: 25
Coppell, Texas
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I work with both private and force-placed insurance and can tell you unequivocally: It happens all the time. Once you understand how force-placed rating works, you also understand *why* it happens.
The short of it: Most force-placed programs have super-basic rate charts that only require four things to rate: (1) property-use, (2) state, (3) county and (4) leading character of flood zone (i.e. "Is it A, V or something else?").
All of those underwriting details that trigger higher premiums when quoted through either NFIP or private insurance, like elevation, don't trigger any premium variance under a FP program. +10 feet? -20 feet? No matter; all the same base rate per $100. So properties that command higher premiums due to low or negative elevation *alone* get some very attractive pricing from the lender's program.
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#2214748 - 06/03/19 11:12 AM
Re: Can a loan be IRED with FPI in place?
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10K Club
Joined: Jul 2001
Posts: 83,363
Galveston, TX
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David,
I have heard this before, i.e., that private force placed flood policies through the bank are actually cheaper than an NFIP policy in some jurisdictions. I have always wondered about that and wonder how good the policies really are. With the new private insurance regulations, maybe banks will be taking a harder look.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com
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#2214749 - 06/03/19 12:29 PM
Re: Can a loan be IRED with FPI in place?
rlcarey
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Power Poster
Joined: Sep 2010
Posts: 2,658
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David,
I have heard this before, i.e., that private force placed flood policies through the bank are actually cheaper than an NFIP policy in some jurisdictions. I have always wondered about that and wonder how good the policies really are. With the new private insurance regulations, maybe banks will be taking a harder look. I too have heard (quite a few times) that forced placed policies can be quite cheaper than an NFIP policy. I always thought it was probably due to the premiums for forced place policies not keeping pace with the increases the NFIP policies have seen in the last decade or so - but Randy's point about the quality of the policy is an interesting theory as well.
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Adam Witmer, CRCM All statements are my opinion, not those of my employer, and should not be taken as legal advice. www.compliancecohort.com
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#2214851 - 06/04/19 01:43 PM
Re: Can a loan be IRED with FPI in place?
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10K Club
Joined: Jul 2001
Posts: 83,363
Galveston, TX
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Most that I have seen are issued by Lloyd's.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com
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#2215006 - 06/05/19 03:37 PM
Re: Can a loan be IRED with FPI in place?
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10K Club
Joined: Oct 2000
Posts: 40,086
Cape Cod
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Back to the initial question -- Although it's technically acceptable to IRED the loan when FP coverage in already in place, it is not acceptable to get FP coverage so the loan can be IRED when there is no flood policy in place at the present.
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John S. Burnett BankersOnline.com Fighting for Compliance since 1976 Bankers' Threads User #8
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#2215447 - 06/11/19 08:02 PM
Re: Can a loan be IRED with FPI in place?
David Dickinson
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Junior Member
Joined: Sep 2012
Posts: 25
Coppell, Texas
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To finish up the thread on force-placed coverage: Lenders utilize "Force Placed Flood" products - yes, they are private market, but they are not available to borrowers. These programs are specifically designed for lenders to use when force-placing. They often utilize master policies which establish uniform rate tables and require minimal information to effect coverage - because lenders have to be able to quickly force-place and may not know details about the property that a typical insurance product would require for rating/underwriting approval.
With FP Flood, the form of coverage often mirrors NFIP policy forms in order to eliminate compliance issues for lenders, and also names the borrower as an insured (FP Hazard or Wind will rarely include the borrower as a named insured). Net result: same coverage as NFIP without negative rating variables being applied. Again, the kind of details needed that drive higher premiums are the very details not asked for by bank programs, thus lower rates.
Obvious disadvantages to the borrower: Borrower cannot raise the limit above minimum required set by lender and borrower's contents are not covered (unless also force-placed, because the contents secure the loan). Otherwise, it's a bit of a loophole.
Rates are starting to come up and will continue to do so over the next few years, but even with rate adjustments, FP programs will likely continue to offer better rates on some of these high-risk properties.
Hope that helps shed some light on things! Cheers!
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