Can the lender ask more than replacement cost?

IvanZhang

New Member
4
State of New York.
the loan amount is $800,000 for 2 family house
the replacement cost (dwelling A coverage) of the house is $600,000.
Does the lender have the rights to demand $800,000 replacement cost?
 
Does the lender have the rights to demand $800,000 replacement cost?

IS the lender demanding it?

If it is and won't budge, you should seriously consider switching to another lender.

Read the following article. It's old and many mortgage companies have become more sophisticated about the insurance requirement.

Talking: Insurance; Meeting A Lender's Demands

Read this, too:

Mortgagee’s Requirement that Buyers Obtain Homeowner’s Insurance Covering the Amount of the Mortgage

It's also old so contact the DFS and see if there has been any recent developments.
 
Did you or your agent send them the RCE? In my experience, that is usually sufficient to end it. They just want to make sure that their interests are covered. With the RCE and perhaps reference to the appropriate state statute, they should be satisfied.
 
New York
3 NYCRR 38.9 Limitation on excess insurance and required disclosures
(a) Limitation on excess insurance.
No mortgage banker or exempt organization shall require any mortgagor, in connection with the granting of a mortgage loan, to obtain a hazard insurance policy in excess of the replacement cost of the improvements on the property as a condition for the granting of such mortgage loan.
 
It's probably just a point of confusion the underwriters need to know about. A lot of times in either high value areas or in situations where there is a small house on a lot of land the value of the land once the house burns to the ground is so significant that it wouldn't be more than the replacement cost of the structure itself; usually if that's explained to the lender it's fine.
 
State of New York.
the loan amount is $800,000 for 2 family house
the replacement cost (dwelling A coverage) of the house is $600,000.
Does the lender have the rights to demand $800,000 replacement cost?

In Michigan it is against the law for a lender to require more than the actual replacement cost. We see this on many lakefront properties where the market value of the home is exceedingly high because of the lot value, but home replacement cost doesn't change because of the land value. If you point that out & the added value on the home policy of any other structures coverages like detached structures, pole buildings & pools, you may be able to talk sense into the lender.

During the days of 125% loans to consumers, we saw this a ton & the lender would say if you cant get me a dec sheet showing the Coverage A needed on this refinance, we will call another insurance agent who will write it that way. They did the same thing to get the home inspectors to get the values inflated to what was needed to UW the loan.
 
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