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#798785 - 08/20/07 08:13 PM
Force placed flood coverage
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Diamond Poster
Joined: May 2007
Posts: 1,245
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We force placed flood insurance on a loan at loan origination, (prior notice was given to the customer). The policy is coming up for renewal. Do we need to give the customer the 45 day notice prior to renewing the policy or can we just renew the force place insurance automatically.
Please advise
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#798790 - 08/20/07 08:15 PM
Re: Force placed flood coverage
banker-12
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Power Poster
Joined: Dec 2002
Posts: 4,619
SC
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#799159 - 08/21/07 01:53 PM
Re: Force placed flood coverage
banker-12
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Diamond Poster
Joined: Oct 2001
Posts: 1,570
Wisteria Lane..
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We force placed flood insurance on a loan at loan origination When you say origination, do you mean the loan closing? My understanding of the flood requirements is that you can't make the loan if the borrower won't give you evidence of flood insurance at the loan closing (i.e. force-placement can't be used).
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#799426 - 08/21/07 05:12 PM
Re: Force placed flood coverage
Glutes
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Diamond Poster
Joined: May 2007
Posts: 1,245
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Thanks for the info. Actually I meant at loan closing, but this policy was already in place from a prior loan. This new loan paid of the other loan which already had the force placed insurance.
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#799447 - 08/21/07 05:24 PM
Re: Force placed flood coverage
banker-12
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10K Club
Joined: Aug 2002
Posts: 47,678
Bloomington, IN
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You should not have refinanced the loan. You still closed a loan using force placed insurance.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#799568 - 08/21/07 06:35 PM
Re: Force placed flood coverage
Dan Persfull
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Diamond Poster
Joined: May 2007
Posts: 1,245
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Oh no, that's right. Thanks,
I have another question in relation to flood insurance. Can we use an in house evaluation to determine the amount of coverage to insure if we don't have an appraisal.
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#799730 - 08/21/07 08:37 PM
Re: Force placed flood coverage
banker-12
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10K Club
Joined: Aug 2002
Posts: 47,678
Bloomington, IN
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Yes, provided the evaluation is a "true" evaluation.
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#799808 - 08/21/07 09:54 PM
Re: Force placed flood coverage
Dan Persfull
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Diamond Poster
Joined: May 2007
Posts: 1,245
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Do we follow the same coverage calculations for a townhome like we do a condo? I have a loan for $264,000, the insurance is for $665,000. There are 24 units, so I took the 24 x $250,000 = $6,000,000 to give me the insurance coverage. The insurance we have is for $665,000; the value of the townhome is $330,000, do we need to increase the coverage to $6,000,000 or is it already covered with the $665,000.
thanks for your help
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#802614 - 08/24/07 08:04 PM
Re: Force placed flood coverage
banker-12
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Platinum Poster
Joined: Feb 2003
Posts: 624
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We have an outstanding loan with forced placed insurance and the lender wants to renew the loan. Am I understanding that we can NOT renew the loan with the force placed insurance on it? If the lender wants to renew the loan, the borrower must get insurance? If the borrower doesn't get the insurance then the lender can't renew the loan & should call the loan?
Thanks.
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#803006 - 08/27/07 02:01 PM
Re: Force placed flood coverage
David Dickinson
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Platinum Poster
Joined: Feb 2003
Posts: 624
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Not trying to be thick headed, I just want to ensure that I understand.
Let's assume we force placed a policy on 3/1/07 & the policy expires 3/1/08. The loan comes up for renewal on 6/1/07. Can we renew this loan since the force placed insurance is good thru 3/1/08? Or are we prohibited from renewing the loan because there's force placed insurance at the time of renewal & not insurance the customer purchased?
Thanks.
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#803031 - 08/27/07 02:18 PM
Re: Force placed flood coverage
donnac
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10K Club
Joined: Aug 2002
Posts: 47,678
Bloomington, IN
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From the Mandatory Purchase Guidelines, page 37:
By enacting 42 U.S.C. §4012a(e)(2), Congress intended lenders to have clear authority to force place; under certain circumstances, they are obligated to force place. The force placement of coverage is designed for use at any time during the term of a loan in uninsured and under-insured situations; it is not intended for use at loan origination. If a borrower refuses to obtain flood coverage as a condition of obtaining a loan, the loan is deficient and is not to be made.
Renewing a loan is a tripwire for flood insurance, including the mandatory notice to the borrower. In your situation the borrower has not obtained flood insurance as required. You have a force placed policy and it cannot be used for an origination.
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#803034 - 08/27/07 02:19 PM
Re: Force placed flood coverage
David Dickinson
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10K Club
Joined: Jul 2001
Posts: 84,363
Galveston, TX
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But the other question is why would you want to renew a loan for a customer that is in technical default on the original loan?
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#803087 - 08/27/07 03:05 PM
Re: Force placed flood coverage
rlcarey
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Platinum Poster
Joined: Feb 2003
Posts: 624
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Please be patient with me.
If I read David's post correctly, he indicates I CAN renew the loan because there's insurance in effect, even though it's force placed insurance.
If I read Dan's post correctly, he indicates I CANNOT renew the loan even though there's a force placed policy in effect.
I guess I'm still confused whether or not we can renew the loan with the force placed insurance that is already in effect? (Not force placing a new policy at renewal.)
As for renewing the loan when the customer is in technical default, I agree but the lenders sometimes see things differently.
Thanks.
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#803094 - 08/27/07 03:08 PM
Re: Force placed flood coverage
rlcarey
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10K Club
Joined: Aug 2002
Posts: 47,678
Bloomington, IN
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If you have insurance coverage in place on 6/1/07, then you can renew the loan at that time - even if it's force placed insurance. I'm not sure I would agree with this David. You are renewing the loan which requires you to send the notice to the borrower informing them they are in a SFHA and that they must obtain flood insurance as a condition of closing the loan. In this situation they have not obtained insurance. The bank has force placed it and force placement is not to be used to originate/close a loan.
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#803099 - 08/27/07 03:11 PM
Re: Force placed flood coverage
donnac
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10K Club
Joined: Oct 2000
Posts: 40,086
Cape Cod
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OK. Whether David or Dan is correct about renewing a loan on which force-placed coverage is in place, I'll repeat Randy's question: Why would you? Consider it from the borrower perspective, if that helps. Unless things have changed, force-placed coverage is a good deal more expensive than borrower-purchased insurance. Unless the bank is not passing along the cost of the force-placed coverage, why would the borrower want to renew with the more expensive coverage in place?
From a practical perspective, if your bank continues allowing this borrower to renew when the bank has force-placed coverage in effect, you're perverting the purpose of force-placed coverage.
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#803205 - 08/27/07 05:00 PM
Re: Force placed flood coverage
John Burnett
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10K Club
Joined: Jul 2001
Posts: 84,363
Galveston, TX
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While not whole-hearted on this one, I'm probably leaning to more on Dan's side on this one. The Mandatory Guidelines do state:
By enacting 42 U.S.C. §4012a(e)(2), Congress intended lenders to have clear authority to force place; under certain circumstances, they are obligated to force place. The force placement of coverage is designed for use at any time during the term of a loan in uninsured and under-insured situations; it is not intended for use at loan origination. If a borrower refuses to obtain flood coverage as a condition of obtaining a loan, the loan is deficient and is not to be made.
While this deals with orginations, I'm not too sure that the same would not be considered true for renewals.
Unless there is something else out there - it might be a toss-up.
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#804664 - 08/29/07 01:52 PM
Re: Force placed flood coverage
rlcarey
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Power Poster
Joined: Nov 2006
Posts: 3,261
Tiger's Den!
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Can anyone tell me if the examiners are citing banks over this issue...more specifically, being cited for renewing an exisitng commercial line of credit with existing force-placed flood insurance?
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#804686 - 08/29/07 02:11 PM
Re: Force placed flood coverage
TINKerBell
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Gold Star
Joined: Jul 2007
Posts: 436
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Flood issues are a hot button for examiners. I recently started at this institution and we had software errors that resulted in exam violations. (Which the loan officers should have caught but didn't) I would say you don't want to find out the hard way.
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#804699 - 08/29/07 02:19 PM
Re: Force placed flood coverage
trail hiker
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Power Poster
Joined: Nov 2006
Posts: 3,261
Tiger's Den!
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I know that Flood is a hot topic, yet our recent FRB exam just concluded with no mention of this specific area of concern (in fact we had no flood issues), which is why I want to know if other banks were being cited for this issue?
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#804732 - 08/29/07 02:48 PM
Re: Force placed flood coverage
TINKerBell
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10K Club
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Posts: 47,678
Bloomington, IN
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I know of no banks that have been cited for this issue, however one does not readily know what all the flood CMPs being handed down consist of either. Your examiner may not have caught the fact your policies were forced placed policies or he/she does not believe, as I do, that it would be a violation. However, I would not rely on the opinion of a field examiner for something so volatile. I would want at a minimum the blessing from the Regional Office of the applicable regulatory authority. Your next examiner may take a different stance on the issue.
When you renew a loan, you are IMO originating a new transaction, and as I said earlier the renewal of a loan is a tripwire that puts all the requirements of the flood regulation in motion again. And if the borrower refuses to obtain flood insurance after the appropriate notice you are not to make the loan and you will not convince me that renewing a loan is not making a loan agreement.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#804838 - 08/29/07 03:27 PM
Re: Force placed flood coverage
Dan Persfull
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Joined: Nov 2006
Posts: 3,261
Tiger's Den!
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Thanks Dan! You have been most helpful, as usual!
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