A servicer determines that flood insurance on a designated loan has expired and sends the borrower the required notice. The borrower does not obtain adequate coverage within 45 days. What must the servicer do?
Correct Answer
A) Purchase flood insurance on the borrower's behalf
Why this is correct: If a borrower fails to obtain adequate flood insurance within 45 days after required notice, the servicer must purchase flood insurance on the borrower's behalf (force-place insurance). This is a mandatory requirement under the National Flood Insurance Act and Regulation H to protect the collateral and ensure compliance. Why the other choices are wrong: The option "Wait until the next annual escrow analysis" is incorrect because the 45-day deadline triggers immediate action, not a delayed escrow review. The option "Release the property from the mortgage" is wrong; failing to maintain insurance is a default, but it does not result in a release of the lien—it typically leads to force-placed insurance or default proceedings. The option "Cancel the borrower's hazard insurance" is incorrect; hazard insurance (for fire, etc.) is separate from flood insurance and should not be canceled due to a flood insurance lapse. Exam tip: Remember the sequence: notice, 45-day wait, then force-place. The servicer must act.
Why This Is the Correct Answer
Why this is correct: If a borrower fails to obtain adequate flood insurance within 45 days after required notice, the servicer must purchase flood insurance on the borrower's behalf (force-place insurance). This is a mandatory requirement under the National Flood Insurance Act and Regulation H to protect the collateral and ensure compliance. Why the other choices are wrong: The option "Wait until the next annual escrow analysis" is incorrect because the 45-day deadline triggers immediate action, not a delayed escrow review. The option "Release the property from the mortgage" is wrong; failing to maintain insurance is a default, but it does not result in a release of the lien—it typically leads to force-placed insurance or default proceedings. The option "Cancel the borrower's hazard insurance" is incorrect; hazard insurance (for fire, etc.) is separate from flood insurance and should not be canceled due to a flood insurance lapse. Exam tip: Remember the sequence: notice, 45-day wait, then force-place. The servicer must act.
More Federal Laws Questions
Before the team acts on a production meeting, a training manager must address SCRA Interest Rate Cap. Which response is most defensible?
A team member asks about RESPA Kickbacks and Referrals in an investor-delivery review while trying to confirm the rule-based response. Which response should the loan team use?
During a disclosure desk review, the loan team encounters an RESPA Servicing Transfer issue. Which response should avoid a shortcut that would misapply the rule?
A disciplinary-risk review raises a question about TILA APR and finance-charge rules. Which action should the renewal specialist recommend?
An MLO is reviewing procedures for a case where a compliance analyst asks why covered mortgage application data is collected. What is the proper handling?
A consumer complaint response raises a question about GLBA privacy requirements. Which action should the state compliance officer recommend?
Before the team acts on a branch training session, a policy analyst must address RESPA Servicing Transfer Notice. Which response is most defensible?
A training manager is resolving RESPA Referral Fees during an internal audit sample. Which action best fits the rule?
An operations lead is resolving ECOA Prohibited Discrimination Bases during a loan-team coaching session. Which action best fits the rule?
In a file escalation meeting, a disclosure specialist sees facts tied to TILA Closing Disclosure. What should the file reflect?
People Also Study
General Mortgage Knowledge
20% of exam
Mortgage Loan Origination Activities
27% of exam
Ethics, Fraud & Consumer Protection
18% of exam
Uniform State Test Content
11% of exam
Related Study Resources
Previous Question
A processor handoff raises an RESPA Servicing Requirements question for a licensing coordinator. What answer should guide the file?
Next Question
A higher-priced first-lien file is set up with no escrow account, on the basis that the borrower has a good credit score. What was required before consummation?