Flood Insurance COVID-19
This memo serves to update Miniter’s position regarding our COVID-19 insurance tracking based on new guidance available from the April 27, 2020 OCC update, the Federal Reserve Q&A published May 6, 2020, and the May 7, 2019 FDIC Q&A (updated).
The OCC, FDIC, and Federal Reserve have all issued Q&A responses regarding how the March 29, 2020 FEMA bulletin W-20002 affects regulatory guidance for flood insurance. These responses provide similar guidance. FDIC guidance gives the most detail, so we will respond to each section of the FDIC’s answers, which will be inclusive of both the Fed and OCC.
We have included links to all three regulators answers in the first paragraph of this introduction.
FEMA W-20002 Bulletin
All regulators reference FEMA W-20002 Bulletin “Extension of the Grace Period for Payment of National Flood Insurance Program (NFIP) Premiums Due to COVID-19 Pandemic, Insurance Program (NFIP) Premiums Due to COVID-19 Pandemic,”
We can summarize the FEMA bulletin concerning flood insurance tracking as follows; NFIP Flood policy invoices are mailed on schedule, but the borrower will have the 30-day payment grace period extended from 30 days to 120 days for expirations that occur between 2/13/20 and 6/15/20.
The NFIP will continue to send a notice of renewal and invoice to the borrower before the expiration of the borrower’s flood policy. If the expiration date is between 2/13/20 and 6/15/20, the “Notice of Intent to Cancel” will not be sent during the 30-day grace period but will be sent during the temporary 120-day grace period. The NFIP policy grace period coverage will stop 120 days after the expiration date unless the borrower pays the invoiced premium. If not, the borrower’s policy lapses as of the original policy expiration date.
Miniter’s interpretation: The original 2019 policy will/has expired per our tracking system. This triggers our normal flood tracking letter cycle:
- The first notification letter is sent on the expiration date. A payment grace period does not affect the status of this notification.
- A second notification letter is sent 30 days from the first notification. Again, the grace period does not affect this notification.
- The NOI is sent 45 days from the first letter. Placement of force-placed flood insurance occurs on the 46th day after the expiration date. The change we are recommending is that the lender not bill the borrower for force-placed premium unless force-placed insurance remains in effect approximately 15 days after the end of the 120-day grace period. As always, Miniter will cancel the force-placed insurance certificate as soon as we receive documentation of renewal of the borrower flood policy. We feel that 135 days after expiration should be sufficient timing to determine the status of the borrower’s insurance policy.
FDIC Question #30 COVID-19
…In light of this policy, for NFIP policies expiring during the FEMA emergency period, lenders may consider the following examples on implementing FEMA’s grace period extension:
>>>FDIC<<< A lender may provide the required notice to the borrower after determining the policy has expired with an indication that the NFIP grace period has been extended for 120 days. Lenders may inform borrowers that, in light of Bulletin W-20002, force placement will not occur until the end of the 120-day period.
Miniter Commentary: Fortunately, there is an alternative directly below to this guidance. Miniter will not be modifying our notifications as we feel this will confuse the borrower and lead to unnecessary force-placements as borrowers may not correctly interpret the 120 day grace period.
>>>FDIC<<< Alternatively, a lender may provide the required notice to the borrower at least 45 days before the end of the 120-day grace period.
Miniter Commentary: This is the guidance we have chosen to follow. The statement “at least 45 days before the end of the grace period” allows us to send notices with the usual timing, as shown above. This guidance will minimize confusion and allow both the lender and borrower to be protected if a loss occurs during the grace period, and the NFIP policy is allowed to lapse.
June 24, 2021 (2:00PM EDT)
This webinar is a panel discussion that provides a deep dive into the complexities of commercial insurance tracking. Both collateral value determination and operational risks will be discussed. Topics include:
- Insurance tracking for multi-collateral and cross-collateral loans.
- Real property valuations, tracked values, and their uses to manage lender risk.
- GSE requirements for Commercial loans.
On-Demand Recording (Recorded July 23, 2020)
This webinar provides insight into the six part blog series “Challenging the Force-Placed Insurance Business Model.”
>>>FDIC<<< For either example, if a flood insurance policy is insufficient or has expired or lapsed, lenders should make good faith efforts to have borrowers obtain sufficient flood insurance; otherwise, flood insurance should be force-placed on behalf of a borrower if the borrower does not pay the premium at the end of the 120-day grace period to ensure protection is in place in the event of a flood.
Miniter Response: If a borrower calls to our inbound call center regarding a notification, our agents are trained to explain the FEMA W-20002 bulletin. We explain that the notices and subsequent force-placed policy is insurance the lender has secured in the event the borrower does not renew their flood policy during the 120-day grace period. We also explain that there is no charge for this policy unless the borrower does not pay the premium to renew their own coverage. We further explain that If the borrower pays the premium to renew their own policy, this would cancel any force placed coverage previously secured. Miniter’s Borrower-Centric approach to insurance tracking acts in good faith on behalf of the borrower. Our agents will take time to educate the borrower on the grace period and how that may impact force placed coverage.
>>>FDIC<<< FDIC examiners, under the FDIC’s discretionary examination authority, will consider lenders’ good faith efforts to comply with flood insurance requirements, provided that the circumstances were related to the COVID-19 emergency and that the institution responded to any needed corrective action.
Miniter’s Response: Using the second option above so as not to confuse the borrower in a notification, and a willingness to help borrowers during an inbound call understand the 120 day grace period and how that may impact force placement, we feel, is sufficient to comply with “the lender’s good faith efforts” requirement.
>>>FDIC<<< Lenders should be aware that if they force-place flood insurance for NFIP policies that expire during the FEMA emergency period prior to the expiration of the 120-day grace period and the borrower pays the premium by the end of the 120-day grace period, the lender would be required under existing flood insurance regulations to refund the borrower for any overlapping flood insurance coverage.
Miniter Response: This is part of our standard workflow.
COVID-19 has brought additional work to lenders including processing PPP small business loans and working with borrowers on forbearance agreements. Fortunately, lenders only need to make small changes when it comes to NFIP flood compliance. As we stated earlier, for flood policies that expire between 2/13/2020 and 6/15/2020, we are recommending that lenders not bill the borrower for force-placed flood insurance until approximately 135 days after the expiration date of a borrower’s flood policy. This should allow sufficient time for our tracking operation to obtain proof of flood insurance if the borrower paid their flood insurance during the 120-day grace period.
The recent COVID-19 guidance did not address flood escrow insurance loans. We are recommending that the lender continue to pay these flood insurance invoices as they come due. In the case of escrow flood insurance for loans in a forbearance agreement, the escrow analysis may be driven negative during the forbearance time frame. This may not be an optimum solution, but the alternative of having a cancellation for non-payment of premium and a subsequent force-placement during the forbearance agreement in not recommended.