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#2203167 - 01/16/19 07:47 PM Escrow yes or no
HRH Okie Banker Offline
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Joined: Jan 2003
Posts: 3,070
Oklahoma
We've had a map change and need flood insurance on a mobile home - no real estate. We are a small servicer. The question is do we need to escrow for flood if we escrow for no other items? Do we have to consider forced placed flood a MIRE event and there fore have to escrow for the premiums. Add to that how do you word the letter than says you have to purchase flood and we need to pay for/escrow for that. Thank you, all help is very appreciated.
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Flood Compliance
#2203230 - 01/16/19 10:47 PM Re: Escrow yes or no HRH Okie Banker
David Dickinson Offline
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David Dickinson
Joined: Nov 2000
Posts: 18,762
Central City, NE
You say you are a small servicer, but there's a different exemption for Small Banks found in the Flood rules. Here's an excerpt from our Flood training manual on the Small Bank Exception:


2. Small Bank Exception [ยง339.5(c)(1)]:
Some banks will be exempt from the flood insurance escrow requirements (including optional escrows). Any bank that meets the following:

a. Asset Size Test:
The bank had assets of less than $1 billion either of the prior two calendar year ends; and

b. Escrow Account Test:
In relation to any loans secured by residential improved real estate or a mobile home on or before July 6, 2012:

i. Consistent Escrow Policy:
The bank did not have a policy of consistently and uniformly requiring an escrow account); and


ii. HPML Escrow Requirement:
The bank was not required to escrow under Federal (i.e., HPML) or State law for the entire term of any loan.


iii. Voluntary Escrow Account Note:
The small bank exception cannot be lost due to voluntary escrow accounts.

---------------------

If you qualify as a Small Bank, then you don't need to worry about escrowing for flood insurance. If you don't qualify, then "yes", if you force place and add the premium to the loan amount, you are Increasing the loan amount (a MIRE event).

Please reply and let us know if you qualify for the exemption. If not, I can give you more about notifying applicable borrowers (it's a LONG story!).
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http://www.bankerscompliance.com

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#2203262 - 01/17/19 02:21 PM Re: Escrow yes or no HRH Okie Banker
HallieK Offline
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HallieK
Joined: Jul 2001
Posts: 369
Oklahoma
The attached thread includes a conversation about whether or not adding the flood premium to the loan balance is to be considered a MIRE event. Per the guidance I included in that thread, the addition of the premium is not a MIRE event if the note allows for the addition of the cost to the note balance. So, if no MIRE event them no escrow requirement, correct?


https://www.bankersonline.com/forum/ubbt...row#Post2190661

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#2203328 - 01/17/19 08:38 PM Re: Escrow yes or no HRH Okie Banker
David Dickinson Offline
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David Dickinson
Joined: Nov 2000
Posts: 18,762
Central City, NE
Yes - If no MIRE event, no escrow requirement.

However, if you increase the loan amount, it is a MIRE event. You are right that the regulatory agencies issued a letter to the ABA in May 2017 that discusses loan contracts and this possibly not being an increase. The problem is they have never issued formal guidance on this (only to the ABA) and some examiners are still saying if you force place insurance and add the premium to the loan balance, you are increasing the loan amount - a MIRE event.

Here's the wording from the May 2017 letter to the ABA:
"If the institution's loan contract with the borrower includes a provision permitting the lender or servicer to advance funds to pay for flood insurance premiums and fees as additional debt to be secured by the building or mobile home, such an advance would be considered part of the loan. As such, the addition of the flood insurance premiums and fees to the loan balance is not considered an "increase" in the loan amount, and thus would not be considered a triggering event. Consequently, the notice and escrow requirements that may result from a triggering event would not apply. "

So there are two questions:
1. Does your loan contact have this provision? and
2. Will your regulators accept this "guidance"?
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David Dickinson
http://www.bankerscompliance.com

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#2203681 - 01/23/19 04:41 PM Re: Escrow yes or no HRH Okie Banker
HRH Okie Banker Offline
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Joined: Jan 2003
Posts: 3,070
Oklahoma
We do qualify for Small Bank Exception and yes, out note allows us to add forced placed premiums to the note. I understand the part about the MIRE event and I'm okay with considering it a MIRE event rather than go up against the regulators but do we have to escrow or are we supposed to offer an escrow?
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Just working here until I get my letter from Hogwarts.

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