You may recall hearing from us early last year regarding an FDIC interpretation that adding force-placed flood insurance premiums and fees to an existing loan balance is a “MIRE” (Make, Increase, Renew, Extend) event. The issue sparked some controversy because of the various compliance challenges that we discussed in detail in our January 2016 Newsletter. Well, thanks to a letter (subscription required) from the regulators to the American Bankers Association, we have our answer!
We now have clarification that if you add force-placed premiums and fees to the loan balance, you need to include those premiums and fees when determining the amount of required flood insurance. So, if your loan balance is the basis for the amount of required flood insurance (your “lesser of 3”), you will need to make sure that the force-placed policy covers the existing loan balance PLUS any additional force-placed insurance premiums and fees.
Whether other requirements are triggered (determination, notice, escrow) is determined by your Note language. If your Note language permits you to “advance” funds to pay for flood insurance premiums, doing so will not trigger these additional requirements. Otherwise, adding force-placed premiums to a loan balance will also trigger requirements related to the determination, Notice, and potentially escrow. Either way, if the premiums/fees are added to the loan balance, you need to take those amounts into consideration when determining the amount of required flood insurance.
If the force-placed premiums and fees are added to an unsecured account or billed directly to the borrower but not added to the loan balance, charging them is not a MIRE Event.
What is your process and how will this impact you? If you’d like to discuss, we will be doing so at our next on Monthly Connection June 9th!