How do others handle the annual escrow analysis statement when lender placement has commenced on Hazard/Flood insurance? Specifically if only the first warning letter has gone out but has not bound. Would you not use the preferred policy premium for forecasting the following year's escrow expenses? A majority of our lender placement cancels before it ever binds, so if we did not include the premium in the forecasted escrow expenses we would then be obligated to run a new analysis when lender placement cancels, since the previous analysis would then be inaccurate.

Our compliance team has issued a finding which has me scratching my head a bit and rather than talk it out they are digging in but being short on details as to what there is to remediate and how.

What is the specific finding and what citations did they give you to support it. I'm not sure I understand the issue.

The citation was (§1024.17(i)(1)) and the finding was inclusion of the preferred hazard insurance disbursement in the next year's projections when the borrower had received the first lender placed warning letter.

What is a preferred policy premium? You mean the forced placed premium or the normal borrower premium that you would normally expect to be paid?

the normal premium that would normally expect to pay, the lender placement hadn't bound yet and had only generated the first letter (LP did eventually cancel when we received an invoice for the preferred policy within 30 days of it's expiration, which was paid and policy rolled forward).

Then I disagree with your auditors. If the borrowers are still in that grace period to provide proof of insurance and may continue with their own insurance, why in the world would you base your escrow analysis on a force place premium?

They need to move on to something a little more important. There is nothing in .17(i)(1) that supports their opinion.

Given the experience with my own homeowners insurance this year, i.e. a fifty percent rate hike, I would expect that the forced placed premium will be substantially higher than the normal insurance premium currently on record. Perhaps their stance is simply to prevent the escrow from coming up short in absence of an updated premium?

If the bank wants to help the customer avoid a future payment shock, then they should run a short-year analysis once they know the actual premium amount. How to handle increased insurance premiums after the fact is a totally separate issue from getting cited for a regulatory violation under the circumstance described.