We have a loan that originated in 2009, and has had flood insurance escrowed since origination.
We purchased the loan in 2016. There have been no MIRE events. The customer would like to remove flood from escrow and pay it themselves moving forward.

I d not see anything in the regs where it prohibits this, but I would like your opinions please!

I see that my question is similar to the two questions posted here earlier but David and rlcarey seem to be giving conflicting answers. If anyone could clarify I would appreciate it very much.

https://www.bankersonline.com/forum/ubbthreads.php/topics/2149747/escrow-required#Post2149747

https://www.bankersonline.com/forum/ubbt...ins#Post2148345

Do you meet the exemptions (small lender exemption) for not escrowing flood insurance on new loans? I don't see a conflict in those two answers?

Thank you for your response,

We do not meet the small lender exemption.

It looks like David was saying that there is nothing preventing the borrower from removing the flood escrow as there was no MIRE event, whereas your response reads that if you are required to escrow for flood on new loans there is no clause in the flood regs providing for the cancellation of an existing escrow for flood insurance. Am I reading your response wrong? Are you are saying that the silence regarding the discontinuance of escrow for flood insurance for loans originated before the regs means that there is nothing preventing the removal?

What David was saying is that the act of force placing flood insurance does not specifically trigger an escrow account requirement. However, if you add that force placed premium to the loan balance, then you are going to create a MIRE event, since you are increasing the loan balance, and thus trigger the escrow requirements.

Bottom line: Once escrowed, there are no provision that would allow you to cancel a flood insurance escrow.

Not to belabor the point:

If my borrower asks why we are not allowing him to remove the escrow from his flood insurance - what part of the reg can I point to that states that?

If all I am hanging my hat on is that the reg is silent with regards to removing flood escrow for loans that originated prior to the implementation, is there anything stating that silence in the reg = inability to take an action?

Thank you again for all of your help in clarifying this, and apologies on the slow understanding here.

I suggest you call your EIC and ask them. Is it worth the $2,000 fine if they disagree during an exam? There is no direct regulatory support for cancelling flood insurance from an existing escrow account.

That's $2,090 now, and due for another inflation adjustment next month.

I will be requesting the opinion of outside counsel, but what I'm getting from you is that this is a grey area and that in your experience you would err on the side of caution and require the borrower to maintain escrow for their flood insurance even though there is nothing in the regs stating that we cannot remove their flood from escrow.

Is it worth the $2,000 fine if they disagree during an exam?
---------> What would the examiner point to that we did wrong? Also, why would we be fined?

There is no direct regulatory support for cancelling flood insurance from an existing escrow account.
---------> So anytime a statute is silent on a topic this means you cannot take any action? I understand this position if you are stating that "in your experience" regulatory silence in this area means err on the side of keeping the account escrowed, or even if you have seen that other lenders have been dinged for removing flood escrow in this type of situation. I'm just trying to figure out what I am missing here, being new to compliance and I am now more interested in figuring out how you arrived to this conclusion so that I can learn how to better approach these issues in the future.

You are not exempt from escrowing flood insurance. You have a loan that has flood insurance already escrowed. You choose to cancel it. I don't think a examiner needs any more information than that. It is not something that I would choose to test, regardless of outside opinions.

(d) Option to escrow--(1) In general. An FDIC-supervised institution, or a servicer acting on its behalf, shall offer and make available to the borrower the option to escrow all premiums and fees for any flood insurance required under § 339.3 for any loan secured by residential improved real estate or a mobile home that is outstanding on January 1, 2016, or July 1 of the first calendar year in which the FDIC-supervised institution has had a change in status pursuant to paragraph (c)(2) of this section, unless:

(i) The loan or the FDIC-supervised institution qualifies for an exception from the escrow requirement under paragraphs (a)(2) or (c) of this section, respectively;

(ii) The borrower is already escrowing all premiums and fees for flood insurance for the loan; or

(iii) The FDIC-supervised institution is required to escrow flood insurance premiums and fees pursuant to paragraph (a) of this section.


If you are not exempt from the flood insurance premium escrow requirements then I would have to opine the above cite does not give you the option to cancel an existing flood insurance premium escrow. But the risk is yours to take.

Thanks again for your input guys.