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#2271542 - 06/10/22 08:23 PM Force-Placing escrowed hazard insurance
CindyS Offline
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Joined: Sep 2005
Posts: 133
Illinois
Our employee that handled Escrow just resigned and we are discovering and trying to correct several issues. Our biggest issue is the following...

-A fixed rate loan sold into the secondary market, that we retain servicing on.
-The loan had escrow for both taxes and insurance.
-The loan has been significantly past due over the past 2 years. We are in the process of foreclosure on the loan, but that has been a slow process due to Covid and an attorney that is very slow to respond.
-The escrowed taxes have been paid as they should, but we just discovered that the former employee did not pay the escrowed hazard insurance in 2021 or 2022. The loan was over 100 days past due in 2021 when the insurance would have been due, but the employee did not pay the premium, did not send any notices and did not force-place insurance.

The customer's insurance was obviously cancelled due to non-payment so we cannot reinstate that policy.

Can we send the 45 & 15 day notices now and force-place coverage? Can we force-place coverage only covering the balance of the loan, or since the hazard insurance was originally escrowed, would we need to have enough coverage to protect the customer's interest as well?

Can the force-placed insurance premium be applied against the existing escrow account? (The escrow account is negative, but that would at least allow for better tracking)

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#2271544 - 06/10/22 08:46 PM Re: Force-Placing escrowed hazard insurance CindyS
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
If the account was more than 30 days past due, you were under no obligation to advance funds to pay the insurance premiums. I assume there were not enough funds in the account at that time.

If that is the case, then whether to continue to enforce your required insurance clause in your security agreement and force place insurance becomes a contractual issue and a business decision.

Unless I am missing something.
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#2283609 - 04/20/23 02:19 PM Re: Force-Placing escrowed hazard insurance CindyS
bcompliance Offline
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Joined: Sep 2014
Posts: 1,294
If anyone is an expert on secondary market loans - can a bank purchase a 'blanket' policy to cover the force placed requirement for secondary market loans? The guide does not address the blanket policies out on the market. We have had legal review and they said it would be ok. When we ask Fannie and Freddie they act like you must force place even if you have a 'blanket' policy. Wondering what others are doing so we can settle the internal discussion going on right now.
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#2283611 - 04/20/23 02:30 PM Re: Force-Placing escrowed hazard insurance CindyS
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
FNMA has no provisions for lender placed blanket policies in the servicing manual.

B-6-01, Lender-Placed Insurance Requirements (10/14/2015)
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#2283681 - 04/21/23 01:29 PM Re: Force-Placing escrowed hazard insurance CindyS
bcompliance Offline
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Joined: Sep 2014
Posts: 1,294
So just to further clarify - if you were doing a compliance audit of the topic and the bank was only relying on a blanket policy for lender placed insurance and not force placing, that bank would be out of compliance with the secondary market requirments?
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#2283683 - 04/21/23 01:39 PM Re: Force-Placing escrowed hazard insurance CindyS
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
Yes - your servicing contract says you will abide by the instructions in the Servicing manual. You get paid to service these loans, what is the issue and why are you going to pay for a blanket policy for which you cannot get reimbursed? These are not your loans. How can you insure something that you do not own?
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#2283684 - 04/21/23 01:45 PM Re: Force-Placing escrowed hazard insurance CindyS
bcompliance Offline
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Joined: Sep 2014
Posts: 1,294
Thank you. We have a disagreement internally and I am just seeking input of experts on the topic such as yourself. I do not know the rules very well and am trying to find an amicable solution.
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