Renewal of flood force placement

I have a flood loan that was force placed January 2015 and the expiration of the force place insurance is 1-22-16. The force place flood insurance automatically renews with an effective date of 12:01AM on 1-23-16. Does the lapse of the one minute trigger a 45 day letter?

You are required to send an annual 45 day letter on force placed insurance anyway to give the borrower an opportunity to purchase their own policy.

Can you point me to where this is required. I am having trouble finding it.

Right now, there is no differentiation between a policy purchased by the borrower or the bank in the regulations.

In the preamble to the final rules, this comment was made:

With respect to the notification regarding the renewal of a force-placed flood insurance
policy, some industry commenters requested additional guidance. One commenter stated that the
Agencies should do more to reduce the need for force-placed flood insurance, and suggested that
the Agencies coordinate with the CFPB to mitigate gaps in the regulations pertaining to flood
insurance policies. The Agencies may provide guidance in the future regarding notification in
connection with the renewal of a force-placed flood insurance policy.

I'll let you be the judge regarding what that actually means.

I agree with Randy although it's a little difficult to prove. The regulation requires you to notify the borrower of the need for borrower purchased insurance. You did that a year ago by purchasing a 1 year policy. Now it's about to expire. It should and then you notify them of the need for it again.

If you read about MPPP policies that were designed to be purchased by lenders in the case of force placement, you'll learn that you can notify the borrower 45 days prior to the expiration of the MPPP policy. You can't do that with standard policies. If you understand all of that, it becomes more clear that you are to let the policy you purchased expire and then notify again.

In keeping with the theme of this thread, I would like to add a question.

Do any of you who use Financial Insurance Consultants who issue through Lloyds of London know if they are sending any type of annual proof of insurance (I mean the policy DOES have an expiration on it!) to the customer? I don't even see where the bank is getting anything but the annual renewal premium invoice.

One day Flood reviews are going to make me go postal...I swear.

That is a question you are going to have to ask them. Since the policy has to be purchased on behalf of the customer, the customer should be getting a copy of the actual policy which will explain their rights and responsibilities when it comes time to file a claim.

I agree with you, I was just asked for where it was required, so trying to accommodate that wish. Thank you.

I may be wrong, slubbug, but I think Randy was responding to my similar question about annual policies.

Okay, I'm still befuddled. Randy, you state above that 'you are required to send an annual 45-day letter' But the following Q&A from the Outlook Live Webinar does not read that way. Did something change or was further clarified that I've totally missed?

OUTLOOK LIVE TRANSCRIPT
INTERAGENCY FLOOD INSURANCE REGULATION UPDATE
OCTOBER 22, 2015

QUESTION 10 – IF A BORROWER’S FORCE-PLACED FLOOD INSURANCE IS ABOUT TO EXPIRE, WHAT PROCESS DOES THE LENDER NEED TO USE TO RENEW THE FORCE-PLACED FLOOD INSURANCE COVERAGE?
Alex, since you handled the force-placed portion of our presentation, would you be willing to handle this question?
Alex Cheng:
I’d be happy to. So, the regulations covering force placement practices require the lender to notify the borrower if the lender, and I quote, “determines at any time during the term of the designated loan that the building or mobile home and any personal property securing the designated loan, is not covered by flood insurance, or is covered by flood insurance in an amount less than required.” So, in this scenario, the force-placed policy is only about to expire, and has not yet lapsed. So, the property is still sufficiently covered by flood insurance. The text of the regulations does not require additional notification to the borrower when force-placed insurance is due for renewal. When the lender is notified that the force-placed flood insurance policy is about to expire, the lender should follow its normal communication practices with its insurance provider to renew the flood insurance policy on the borrower’s behalf, to ensure that flood insurance coverage remains in place. The lender, at its discretion, may notify the borrower that the lender is planning to renew or has renewed the force-placed policy. Such a notification may encourage the borrower to seek its own policy, which may be available for a lower premium amount.

That answer to question 10 goes against everything I have learned in all webinars and articles related to flood compliance, and goes against everything our regulators have expected (OCC).

I agree under the old rules, but this was in regard to the more recent changes. It's what I've understood all along [regarding the BW changes to FP requirements]

RR Joker (or anyone), can you provide a source other than the answer to question # 10 above? I looked through the 190 page final notice (link below) and do not see this being allowed/discussed...however I could have missed it. Just wondering if you saw it elsewhere. Thanks.

https://www.fdic.gov/news/board/2015/2015-06-16_notice_sum_c_fr.pdf

The only thing I found that spoke to this was as follows (from page 60 of link above):

With respect to the notification regarding the renewal of a force-placed flood insurance policy, some industry commenters requested additional guidance. One commenter stated that the Agencies should do more to reduce the need for force-placed flood insurance, and suggested that the Agencies coordinate with the CFPB to mitigate gaps in the regulations pertaining to flood insurance policies. The Agencies may provide guidance in the future regarding notification in connection with the renewal of a force-placed flood insurance policy.

The document above was issued 7/21/15. The FDIC call was 10/22/15. Did something come out between 7/21 and 10/22?

Joker is quoting from the transcript of the 10/22/15 Outlook webinar:
OUTLOOK LIVE TRANSCRIPT
INTERAGENCY FLOOD INSURANCE REGULATION UPDATE
OCTOBER 22, 2015

Let's dissect this:
The text of the regulations does not require additional notification to the borrower when force-placed insurance is due for renewal.
They're right. You don't have to notify the borrower PRIOR to the expiration of the force placed insurance.

When the lender is notified that the force-placed flood insurance policy is about to expire, the lender should follow its normal communication practices with its insurance provider to renew the flood insurance policy on the borrower’s behalf, to ensure that flood insurance coverage remains in place.
This is new to me. I think it's more of a suggestion than a requirement (and not necessarily a good one).

The lender, at its discretion, may notify the borrower that the lender is planning to renew or has renewed the force-placed policy.
I think there's 3 option that's even better: Notify the borrower that THEY have to get flood insurance. See Randy's & my posts on 3/15/16.

Also, no where does the law or regulation require this. As Randy & I have both stated, the intent is for the borrower to purchase their own insurance. I believe the law and regulation allow 1) the force placed policy to expire, and 2) the lender to begin notification procedures again.

Thanks David...I think that transcript may lead some to erroneously stop their force placement notification process when the loan already has f/p policy in effect and they may just renew the policy without the proper notification at/after expiration.

When the lender is notified that the force-placed flood insurance policy is about to expire, the lender should follow its normal communication practices with its insurance provider to renew the flood insurance policy on the borrower’s behalf, to ensure that flood insurance coverage remains in place.
This is new to me. I think it's more of a suggestion than a requirement (and not necessarily a good one).

That's one opinion...but from what I see, no one ever buys there own insurance once they area force-placed so why would you really want to wait on it to expire and start all over again. The following paragraph is included in our letter where we FP to begin with and again when we send the renewal...starting over with a new 45 day letter doesn't seem efficient at all to me considering they got that one initially.

You may obtain conventionally underwritten flood insurance coverage with a potential cost-saving benefit of doing so. If you purchase another flood insurance policy and notify us, we will cancel this policy and issue a refund for the unearned portion of the premium, if we deem that the policy you purchase is acceptable to satisfy the requirements.

When we have an existing f/p policy, when it expires we purchase a policy (it is a private policy, not an NFIP policy, and not MPPP, there is no 30 day waiting period) effective at expiration of the old, and send the typical 45 day letter along with the binder. So in reality they are being covered from day one. The letter says the borrower has 45 days to purchase their own policy...if after the 45 days the borrower has not provided their own policy, we send another letter saying we have now force placed and give them the copy of the actual policy. The letters do include language about they being responsible for the premium and also if they provide their own policy, we would cancel the f/p and refund the overlapping premium. Sorry, I do not recall the wording of the letters off the top of my head.

RR Joker I would be worried that if your letter does not mention the 45 day period you may run into issues with your regulator.

You're right Joker - that is my opinion. That's what I give as a consultant. You say "no one ever buys their own insurance one they are force places". Could it be that your bank makes it easier for them to do so? If your bank used MPPP (the intended force placed insurance by the NFIP, FEMA and the regulators), it is more expensive. I doubt your borrowers would be so passive and allow your institution to purchase the insurance for them. If you enjoy having borrowers let you do the work for them and allow you to purchase insurance for them, then that's great. Maybe you can chalk it up to good customer service. I see it as a non-cooperative borrower that is taking advantage of a passive lender that allows the borrower to run the bank.

If you purchased an MPPP policy, you don't have to wait until expiration and start over - so that argument doesn't hold water.

I follow the reasoning to send the 45 day notice.....is it necessary to send the 15 day letter when renewing force place?

The regulation does not require a WRITTEN initial notification, but it's the best idea.

The regulation does not require subsequent notification. The MPPP program has a series of 3 letters (day 1, day 30 and day 45), but these aren't a requirement for standard policies.

Refer to §339.7(a).

Thank you, David.