Choosing the Right Post-Close Risk Management Strategy

• Eliminates Hazard Insurance Tracking: Removes the need to monitor borrower-provided hazard insurance on real estate loans after closing.

• No Need for Force-Placed Insurance or Warning Notices: Avoids sending lapse letters and issuing force-placed hazard insurance, reducing administrative workload.

• Optional Flood and REO Lender-Placed Coverage: Enhances protection with available add-ons for flood insurance and Real Estate Owned (REO) properties.

• Reduces Borrower Outreach Related to Insurance: Minimizes negative borrower interactions regarding insurance coverage, renewals, and policy issues.

• Decreases Borrower Complaints Over Force-Placed Insurance: Helps prevent borrower dissatisfaction caused by unnecessary or incorrectly placed insurance charges.

• Claims Can Be Filed Without Default or Foreclosure: Allows lenders to file claims even if a loan is current, improving portfolio protection.

• Improves Loan Servicing Efficiency: Streamlines servicing operations by removing manual insurance tracking tasks and related compliance burdens

• Collateral Type Covered: Confirm the policy applies to the specific types of loans in your portfolio, such as residential, commercial, agricultural, or second-lien loans.

• Coverage Limits & Structure: Evaluate how losses are reimbursed—does the policy pay up to the loan balance, actual repair cost, or replacement cost? Make sure limits are sufficient for your average property values.

• Policy Activation Requirements: Understand any requirements related to borrower-provided insurance at loan closing. Does the policy require proof of hazard insurance for activation, or is it automatic?

• Claims Process and Foreclosure Requirement: Clarify whether foreclosure is required before submitting a claim (many policies do not require foreclosure). Also, review how claims are filed, how proceeds are disbursed (to lender or borrower), and the typical timeframe for processing.

• Customizable Underwriting: Look for underwriting flexibility that fits your portfolio's characteristics, including loan types, lien positions, and geographic risk exposure (e.g., coastal properties, wildfire zones).

• Policy Exclusions and Limitations: Thoroughly understand what is not covered (e.g., wear and tear, mold, or earthquake damage), and how these exclusions align with your risk tolerance and loan types.

• Regulatory Compliance Support: Ensure the policy is compliant with federal and state regulations (including CFPB guidelines) and that your provider offers documentation and audit support during regulatory reviews.

• Portfolio-Wide Coverage: One policy provides coverage on the real estate portfolio, eliminating gaps from lapses or insufficient borrower insurance.
  
  
• No Hazard Insurance Tracking or Force-Placing Required: Simplifies operations by removing the need to monitor hazard insurance, notify borrowers and force-place coverage.
  
  
• Improved Borrower Experience: 
  No disruptive hazard force-placement letters or unexpected charges.
  
  
• Operational Efficiency: Reduces administrative workload, especially helpful for institutions with limited staffing.

• Transfers All Insurance Tracking Responsibilities: Shifts the burden of monitoring insurance, sending borrower notifications, and force-placing coverage to a third-party expert.

• Streamlines Loan Servicing Operations: Improves operational efficiency by eliminating manual insurance tracking and management tasks.

• Reduces Risk of Human Error and Non-Compliance: Lowers the chances of missed lapses, regulatory violations, and data inaccuracies common in internal tracking processes.

• Offers Potential Cost Savings: May reduce overall expenses compared to maintaining an in-house tracking system, especially for growing portfolios.

• Protects Against Uninsured Collateral Risk: Helps ensure continuous coverage and mitigates potential losses tied to uninsured or underinsured properties.

• Eliminates Mailroom Burdens: Transfers the responsibility of sorting, recording, and retaining insurance documents and correspondence.

Scope of Tracking Services

• Clarify what loan types will be tracked—residential, commercial—and whether tracking covers first and second liens, escrowed and non-escrowed loans.

Technology and Automation

• Assess the provider’s tracking platform:
  • Is it web-based and real-time?
  • Can you easily access loan-level data, coverage status, and reporting?
  • Does it integrate with your core system or LOS?

Borrower Notification Process

• Review how and when borrower notifications are sent:
  • Are letters compliant with CFPB and RESPA guidelines?
  • What does the letter cycle and outreach process look like?
  • Are notifications customizable to your institution’s branding?

Force-Placed Insurance Coordination

• Understand how the provider handles force-placement:

• Is coverage instantly placed or is there a waiting period to find proof of coverage?
• What’s the cancellation/refund process if borrower proof is later provided?
• How are premiums billed (annual or monthly??

Compliance and Audit Support

• Verify that the tracking provider has experience navigating state and federal regulations.
  • Do they offer compliance support during exams or audits?
  • Is documentation, data logs, and communication readily available?

Claims Support and Processing

• Evaluate how claims are managed when lender-placed coverage is triggered.
  • What is the claims process from start to finish?
  • Is there a dedicated claims team?
  • How quickly are claims resolved?

Service-Level Agreement (SLA) & Accountability

• Ensure the contract outlines responsibilities of each party.
  • Is there a dedicated account representative?
  • What are escalation procedures for service issues?

Data Security and Mail Handling

• Ask how borrower data is stored, secured, and transmitted.
  • Does the vendor handle physical mail processing (e.g., scanning, logging, storage)?
  • Are mailings tracked and archived for compliance?

Cost Structure & Term

• Understand how the service is priced:
  • Per New Loan or Monthly Loan Count?
  • Is there a term contract?

• Reduced Administrative Burden: Outsourcing eliminates the need for staff to manually monitor borrower-provided insurance, follow up on renewals, or manage tracking databases.

• Regulatory Compliance Support: Tracking providers stay current with evolving federal and state regulations (like RESPA and CFPB guidelines), helping lenders maintain compliance with borrower notification timelines, documentation, and force-placement procedures.

• Improved Operational Efficiency: Automation streamlines tracking, notifications, and force-placement—freeing internal resources to focus on core loan servicing tasks.

• Minimized Risk of Uninsured Collateral: Continuous monitoring ensures that if borrower insurance lapses, lenders can respond quickly and avoid exposure to uninsured property losses.

• Enhanced Accuracy and Lower Error Rates: Providers use sophisticated systems and quality control checks to reduce errors in data entry, coverage verification, and policy matching.

• Faster Force-Placement Response: When insurance is missing or insufficient, outsourced providers can promptly place lender-placed insurance, reducing gaps in coverage.

• Scalability for Growing Portfolios: The service easily adapts to increases in loan volume without requiring additional internal staff or infrastructure investment.

• Cost Predictability and Potential Savings: Fixed pricing models (per loan or per transaction) can be more cost-effective than managing staff, software, and mailings in-house—especially for mid-sized and larger lenders.

• Audit-Ready Documentation: Professional tracking systems archive all borrower communications, insurance records, and compliance logs—helping with audits and exams.

• Improved Borrower Experience: Many vendors offer branded notifications, live support, and simplified dispute resolution processes—reducing borrower confusion and complaints.

• Outsourced Mail Handling: All letters, return mail, and insurance documents are processed, sorted, and retained by the provider, eliminating the hassle of physical mail processing in-house.