From the new proposed FAQs.
If the lender’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 advancement 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. If, however, there is no explicit provision permitting this type of advancement of funds in the loan contract, the addition of flood insurance premiums and fees to the borrower’s loan balance would be considered an “increase†in the loan amount, and, therefore is considered a triggering event because no advancement of funds was contemplated as part of the loan.
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