Loan Renewal - Force placed coverage

Our group heard a flood presenter recently that stated loans made, increased, extended, or renewed must be insured by borrower purchased insurance and not forced placed insurance. That some CMPs had been imposed. He said this was addressed in the Q&A's. I cannot find anything in the Q&A'regarding loan renewals & FP. I understand that a renewal & extension is a triggering event and that we must do a flood determination. I also understand that you cannot force place to originate a loan. But there are scenarios when a policy is force placed on a commercial credit, then a month later, the loan renews. There is coverage in place under force placement. It was not force placed in order to originate or close the loan. Is this specifically addressed in the reg or guidelines? Can someone direct me to an answer as to why the FP policy already in force is not considered adequate coverage for a renewal or if this specific scenario is actually a violation?

In the Mandatory Purchase Guidelines, Section C, 52.h (under Force Placement) the second paragraph references origination. I take origination to mean Make and Renew, not just make.


Al

Plus, why would you renew a loan that is in default?

Okay...in my discussions with examiners, they seem to all agree that if FP insurance is in effect when a loan renews and not about to expire...you can go on with that policy just like you would with a 'normal policy.

Just sayin. I've had NO PROBLEMS with this.

Talk to YOUR regulator and get their stance on this.

Good advice RR.

Randy are you saying because there is a FP premium already added to the Note at time of renewal, you consider that loan in default?

It technically is in default because they are not keeping insurance in force as required in your loan agreement.

However, any LO that I know would look at you like you grew horns if you tell them that.

RR - you are correct. I have gored a LO or two in my time

I have always looked at a borrower that was too lazy to get their own insurance and just pay the huge increased cost in premiums of being suspect of a great deal more going wrong than what is on the surface.

But once it's covered under FP, they do have coverage and are paying the premiums via their Note. The premiums are financed, but they are paying them. I understand the default status during the 45 FP period, but you still consider it default once coverage is in place?

Yes, loan agreements typically require the "borrower" to maintain appropriate hazard insurance. They are not, they are in default.