We have an existing loan secured by property located in a SFHA where flood insurance is forced placed. We are going to refinance the loan into a new loan secured by the same property. The borrower wants to keep that same force placed flood insurance. However, our third party flood insurance company has said that force placed insurance is not transferrable and that they will need to cancel the existing flood insurance and then start the letter notification process for the new loan and force placed insurance. Would this be considered a violation of closing a new loan without adequate flood insurance? The policy would be effective back to the note date of the new loan.

Either scenario is a violation. The customer needs to purchase their own insurance.

Actually the same lender can refinance an existing loan that has an existing force placed insurance policy in place.

I'm not sure that fits this scenario though since the existing policy is being canceled and a new policy is being force placed. IMO that would be a violation because you are using force placed insurance to close a designated loan.

I'm certainly not doubting you, but this is news to me. I was always under the impression that you could not originate a loan with force place flood under any circumstance. I must've missed the same institution refinance exemption somewhere along the way.

The old/expired Mandatory Purchase of Flood Insurance Guidelines indicated you couldn't close a loan with forced placed flood insurance, but this was never in the law or regulation. This was clarified at an Outlook Live Webinar on 10-22-15, where it was stated that financial institution can MIRE a loan with force placed flood insurance coverage. All that matters is that there is adequate coverage in place. Who bought it is not a regulatory factor.


My personal opinion is that I wouldn't MIRE a loan with force placed insurance. If the borrower won't cooperate to purchase insurance, why would you want to make them a new loan?