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A question from the M2M on Friday:
We are a small servicer and currently don’t force place hazard insurance because we have an impairment policy that would cover us in the event of insufficient or canceled/expired insurance. My read of the new rules is that we would still have to monitor and force place insurance where needed. I didn’t see anything that speaks to a blanket policy that would cover existing loans allow getting us out of this requirement. Does anyone have any insight into that?
Also, if we force place, do we add the premium on to the next 12 months worth of payments or add it as a lump sum to the loan as a payoff fee (trying to avoid a MIRE event, similar to Flood rules)?
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After reading your question more carefully and looking at the rules, the force-placement provisions puts limits on charging the borrower for force-placed insurance rather than requiring you to purchase as the flood insurance rules do. When force-placing hazard insurance you need to follow the servicing rules force-placement provisions.
You can add this cost to the escrow balance or otherwise seek reimbursement from the borrower for the funds you advance, which may include adding it to the loan balance or as a payoff fee if your contract allows for that. I believe some of the regulators have informally said that adding premiums in, if the contract allows, would not be a MIRE event, but you may want to check with your specific examiners to get their take before you make a decision.
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