Compliance Reminder for Lender Placed Hazard and Flood
Regulations can be confusing. There are mountains of inquiries and revisions to the revisions… So, below we've attempted to summarize a response to the top four questions we are asked. Be aware, that fines can be in the thousands of dollars should these regulations not be followed. Read on to get answers to the four most frequently asked questions.
Question 1: How much coverage should we force place?
It's whatever is required in the loan agreement documents. When there is no evidence of insurance, you are looking to protect 100% of your interest in the collateral (normally your loan balance). If the borrower has coverage, but it is not enough, then you place coverage for the difference. However, you would not place coverage for more than the replacement cost value of the structure - i.e. more than insurance would ever pay.
Our program advantages: Allows our clients to place coverage for the amount of coverage they need. We even provide for Insufficient coverage when the borrower's policy falls short - with no deductible. That's important because your borrower will already have a deductible to pay on their policy.
Question 2: What are the notification requirements before force placing?
Summary answer for timing:
- First notice upon discovery of inadequate protection.
- Second Notice 30 days from the date of the first notice. (Adjusted language used if there is a lapse in coverage)
- 15 days from the second (reminder) notice, the premium may be assessed to the borrower.
- Renewal Notice - 45 days prior to assessing the borrower a charge or fee for the renewal premium. Another section states, "before each anniversary" renewal shall be delivered.
Our Program advantages: Timing is flexible and at the discretion of our clients. We view the above bullet points as the minimum requirements. The key is to disclose, disclose and disclose again. The CFPB has been commissioned to protect consumers. We also support many different interpretations of the renewal notice requirements.
Question 3: What items should be in our warning letters?
Follow the model notices. Here is an actual model notice for your review. Get in touch and we can provide you with more samples to review.
MS-3(A)—Model Form for Force-Placed Insurance Notice Containing Information Required By §1024.37(c)(2)
[Name and Mailing Address of Servicer]
[Date of Notice]
[Borrower's Mailing Address]
Subject: Please provide insurance information for [Property
Dear [Borrower's Name]:
Our records show that your [hazard] [Insurance Type] insurance [is expiring] [expired], and we do not have evidence that you have obtained new coverage. Because [hazard] [Insurance Type] insurance is required on your property, [we bought insurance for your property] [we plan to buy insurance for your property]. You must pay us for any period during which the insurance we buy is in effect but you do not have insurance.
You should immediately provide us with your insurance information. [Describe the insurance information the borrower must provide]. [The information must be provided in writing.]
The insurance we [bought] [buy]:
- May be more expensive than the insurance you can buy yourself.
- May not provide as much coverage as an insurance policy you buy yourself.
If you have any questions, please contact us at [telephone number].
[If applicable, provide a statement advising a borrower to review additional information provided in the same transmittal.]
Our Program advantages: Our clients are provided with a packet of sample notices that are taken directly from the model notices. The language is 100% flexible, and the text will be presented on your letterhead.
Question 4: When do we have to refund the premium if the borrower responds with valid insurance?
Within fifteen (15) days of receiving the evidence of adequate coverage on the collateral.
Our Program advantages: Again, very flexible. Clients may pay their monthly or annual billing net of refunds and immediately have access to the refund from the GL. Refund checks are cut twice per month to assure the funds are on their way to you.
Our Online Lender-placed System and specialized staff can assist you by sending out notification letters for you, or we can help you utilize our system to keep track and send out notices from your institution.
We make compliance easy!
Note: Consult with your compliance advisors as well for their guidance on the applicable laws and guidelines that may apply.