Our VP/COO has asked me to research the following question:

I am looking into purchasing a mortgage protection insurance policy for the bank. The policy will basically require us to verify initial insurance coverage where we require coverage (hazard on all, flood only if in SFHA). Thereafter, we would not verify that the borrower’s insurance was kept in force. In the event there was a loss, this policy would pay the bank (single interest policy so would only pay our loss). Would this be acceptable for required maintenance of coverage throughout the loan under the Flood Regulations?

I have not found anything that indicates this would NOT be acceptable. Does anyone have information or experience to the contrary?

The law mandates the bank to require the borrower to obtain and maintain flood insurance for the life of the loan, and if the borrower fails to meet that requirement then the bank must force place insurance on behalf of the borrower. Your blanket insurance does not protect the borrower.

From page 37 of the Mandatory Purchase Guidelines:

If the borrower fails to purchase such flood insurance within 45 days after such notification, the lender or servicer shall purchase the insurance on behalf of the borrower and may charge the borrower for the cost of premiums and fees incurred by the lender or servicer.