I just want to confirm that the new RESPA rule doesn't require us to force place hazard insurance, it just tells us what we need to do if we choose to force place. Is that correct?

That is correct.

Thanks, Randy.

And that's all documented in RESPA/Reg.X 1024.37, correct? All my lenders are from Missouri...

And if we "choose" not to do force-placement of hazard insurance?

The regulation only addresses what you have to do "if" you force place insurance. You can look until the cows come home and you will not find anything that says you don't have to force place insurance. If you are not going to force place insurance however and have no other hazard loss mitigation techniques in place, I would think the S&S examiners and your bank will be having some sort of discussion.

Thanks, Randy. I had taken it that we would need to, but in looking at Deena's post above it said "...if we choose..." and I thought maybe I had missed something.

Currently we require proof of hazard insurance at time of loan closing. We do not continue tracking nor do we force place because we have a blanket hazard policy that insures us (the FI).

My executives want to know if this is acceptable? Since we aren't required to force place insurance, do we have any obligation to the consumer to inform them of their risk(s) by allowing their policy to lapse?

Your last question makes it clear that your management is at least aware of the potentially greatest risk involved in this blanket policy -- having a mortgagor sue the bank after a casualty loss for which the mortgagor is uncovered (but the bank is). That doesn't suggest that such a suit would always go to the borrower. But there is that possibility, and the costs of defending such a suit could be greater than the dollar costs -- the bank could suffer reputation loss, too.

I suggest that management consult bank counsel for some guidance on any legal precedents in your state that might help management better assess the risks involved, and then consider at minimum a practice of contacting mortgagors whose policies are lapsing to warn them of the possible consequences.

we looked into blanket and found that like most things in life, if it sounds too good to be true it likely is. We discovered that very few banks use blanket; most track and force place. We were provided with the following disadvantages of blanket that most insurance providers selling blanket do not tell you about:

• Premium must be paid by lender and cannot be directly passed on to borrowers.
• Claims activity results in significant annual premium increases or cancellation
• Uncertain environment as to acceptability for Freddie/Fannie and SBA loans
• Difficult to leave blanket and go back to FPI since minimal records have been maintained
• Still need to “process” insurance mail and open all of it and look for insurance that is not covered under blanket which includes: REO, Flood, high balance and specialty loans, etc..
• Limits per loss per location may not be sufficient
• Blanket does not prompt borrowers to comply with loan agreement and furnish their own insurance

The subject topic is appropriate, so I'm reviving this thread.

We have a borrower who has escrow, has filed for bankruptcy, and has now cancelled his hazard policy. Since we are pursuing foreclosure, only in-house counsel can communicate with the borrower. In terms of hazard insurance, can/should I simply advance funds from escrow and re-issue the cancelled policy? I certainly don't want to jump through the hoops of notices associated with a FP hazard policy and don't even know if I could send that correspondence now because of the BK.

Your thoughts? What keeps this guy from cancelling the renewed policy and receiving a refund check to HIM for funds we advanced?

only in-house counsel can communicate with the borrower

Talk to them