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Our force placed flood insurance policy is a private policy. Our 3rd party flood tracking company that monitors for expiration dates, sends notification letters, and force places the insurance for us has gotten an endorsement to that private flood insurance policy added which states the compliance aid statement exactly. Is this acceptable? And with this addition, no review would be required, is that correct?
force placed flood insurance policies cover the bank only, and do no pay out to the borrower and the discretionary acceptance guidelines include a requirement to have both borrower and lender as loss payee. The discretionary acceptance guidelines require the policy cover the lender and borrower as loss payees, so I am wondering if this is an issue, i.e. is that required on a private policy too, and if so, how does adding the compliance aid statement make that ok?
The private flood rules apply to policies the borrower is bringing to you… it is defining what you must/may accept from the borrower.
In regards to the compliance aid statement in general, if a compliance aid statement is included you can rely on that as proof it does meet the definition of private flood insurance. With that said, if you know a policy doesn’t meet the definition, but it still includes the compliance aid statement I think you’d be putting your bank at risk if it didn’t at least comply with the discretionary rules. So, yes, you can rely on the compliance aid statement when determining if you are going to accept the private policy from the borrower… however, I would add the caveat that if you are aware that it does not, you need to do your due diligence to make sure you can accept it.
Giving this some more thought… wondering why the borrower isn’t listed on the force placed policy as a loss payee? If you are purchasing the policy on their behalf and they will be paying for it they should benefit from the policy/be listed on the policy.
I still believe the rules were intended to address situations where the borrower is bringing you a private policy; however, I also think you would have trouble justifying purchasing a force placed policy that doesn’t at least comply with the discretionary rules.
I agree with Robin, the mandatory acceptance of private flood insurance are related to the requirement to purchase flood insurance when making, increasing, renewing and extending a loan as required by Section .3(a), not the force place requirements contained in Section .7(d). The best guidance on this subject comes from the Interagency Qs & As.
Q 64. When may a lender rely on a private insurance policy that does not meet the criteria set forth by FEMA?
Answer: A lender may rely on a private insurance policy that does not meet the criteria set forth by FEMA only in limited circumstances. For example, when a flood insurance policy has expired and the borrower has failed to renew coverage, private insurance policies that do not meet the criteria set forth by FEMA, such as private insurance policies providing portfolio wide blanket coverage, may be useful protection for the lender for a gap in coverage in the period of time before a force placed policy takes effect. However, the lender must still force place adequate coverage in a timely manner, as required, and may not rely on a private insurance policy that does not meet the criteria set forth by FEMA on an ongoing basis.
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