Q: We are currently signed up with MPPP (Mortgage Portfolio Protection Plan) to issue our flood insurance notices and to establish forced placed flood insurance. The cost of this force placed coverage is extremely high. My question is this: Are banks allowed to contact a borrower’s insurance company/agent where their hazard insurance premium is currently written to have that company establish a regular flood insurance policy at a regular premium cost (with the Bank sending funds for the policy to the agent/company) or is forced placed coverage required at the higher premiums as alluded to in the letters?
A: Pages 40-42 of FEMA’s Mandatory Purchase of Flood Insurance Guidelines discuss force placement requirements in detail. According to these guidelines, a lender has the freedom to choose any insurer when force-placing coverage. Most loans for which flood insurance is force placed must be processed with a limited amount of underwriting information. Therefore, placement is appropriate through the MPPP, where only limited underwriting information is required.
If a lender is able to obtain adequate underwriting information, perhaps with help from the former insurance agent, it may be able to force place flood insurance protection via the Standard Flood Insurance Policy (SFIP). The SFIP is generally less costly than the MPPP.
– This Q&A was included in the materials from the FDIC New York Region Regulatory Teleconference: “Flood Insurance – Flood Insurance Compliance and an Examiner’s Perspective” which took place on December 3, 2012. These materials may be found here: https://www.fdic.gov/news/conferences/NY/2012-12-03.html