[Anonymous]

Jack: what are your thoughts on the following related to loss mitigation/loan modification when it comes to flood coverage?

Currently they allow a borrower to maintain force placed coverage when completing a loan modification. It is noted that if the loan amount is increased and the principal balance is the less of the three they would need to get a new policy with enough coverage. But in instances where they are at max or the replacement cost is the lesser of the three, do they advise to allow the borrower to continue with the force placed policy, even though it primarily protects the lenders interest?
Loss Mitigation is informing Compliance that the customer can’t get insurance due to the delinquency on their mortgage. Would assume credit score impact.

[jholzknecht]

Any time you make, increase, renew or extend a loan the full set of flood insurance requirements apply. Unless you comply with the full set of rules, including requiring the borrower to purchase the proper amount of flood insurance, you should not make, increase, renew or extend the loan.

[Anonymous]

What if the borrower has a force placed policy that has sufficient coverage…can that force placed policy be used in a loan modification instance? Our default team is stating that customers cannot get their own policy due to delinquency on their mortgage (hence the loss mitigation/loan modification).

[jholzknecht]

The regulations do not allow you to make. increase, renew or extend a loan unless the customer purchases an adequate amount of insurance. I am aware of cases where the FDIC did not cite a violation when a loan covered by a force-placed policy was increased, renewed or extended, but there is nothing in the regulations that support that position. The safe answer is – don’t do it. If you must make. increase, renew or extend the loan or risk a total loss then it may be worth violating the regulation. Try to hang on to your force-placed coverage and hope for the best.

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