MIRED loan

We have a consumer purpose, 1-4 family, dwelling that was recently, due to remapping, determined to be in a SFHA. The borrower did not obtain flood insurance and after the proper notification cycle, the force placed premium amounts for flood insurance were added to the loan balance thus increasing the balance and requiring that we now escrow for the flood insurance. Is there a specific timeframe in which you must set up the escrow account for this flood insurance? i.e. 10, 30, 45 days from force placement and increase in loan balance?

Not to hijack your post, but have you found anything in writing that is treating force placing flood as a MIRE event? I have the post from Banker’s Compliance Consulting yesterday that tells us to look at the language in our documents as to if that is a MIRE event or not. We are not a member of the ABA so I could not see the letter from the regulators.

Hijack away if it would keep us from having to escrow! I had posed this very question to a BOL guru and our regulatory counsel and they both were of the opinion that this was a MIRE event and escrow would be required. I will happily ask again--what language in our docs am I looking for?

It is really a matter of your loan documents and state law. In my state you can't add delinquent property taxes or premiums for force-placed insurance to a loan balance, you must establish an escrow account. When I worked for mortgage servicer, years ago, the borrower was assessed the premium on day 46, escrow was established on day 47, and escrow analysis was done and a payment change letter was sent to the borrower. The P&I did not change, but the borrower now had to pay outstanding escrow.

So, just tossing this out there..... Would it not make more sense if we have to escrow as a MIRE event to pay the flood policy current so that the borrower has better coverage and escrow verses having to force place and then escrow the flood which provides less coverage in most instances?

There is not any language in our documents currently. We are checking with our doc prep system to see what is there.

Look at the Mortgage or the Deed of Trust, there should be a section for Escrow Items. In my state it has "premiums for any and all insurance required by the Lender" with a reference to another section title Property Insurance, that defines property insurance as fire, hazard, earthquake, flood, etc. Based on this, we are unable to add force-placed insurance premiums (flood or hazard) to the loan balance, but need to establish an escrow account.

Here is the blog JobSecurity is referring to:
https://www.bankerscompliance.com/well-now-know/

The ABA has a meeting today (6/1st) with the regulators on this topic. Hopefully, we'll learn more following this meeting. If I hear anything, I'll post.

What still ticks me off is the regulators made a major change in interpretation and have never published anything to the banking industry. Writing a response letter to the ABA is not informing the banking industry of requirements.

Thank you David! Appreciate any additional info you can provide.

http://bankingjournal.aba.com/2017/06/ag...m_source=Eloqua


Agencies Clarify Interpretation on Lender-Placed Flood Insurance

î …June 2, 2017

In response to a query by American Bankers Association staff, the federal banking agencies recently provided clarifications on whether a lender charging a customer for premiums and fees for force-placed flood insurance to a borrower’s loan balance constitutes a loan balance increase that would be a “triggering event” under the Flood Disaster Protection Act. ABA sent the letter after hearing regulatory agency staff and examiners take the position that it would constitute a triggering event, which is “an interpretation new the industry and inconsistent with industry practice,” ABA noted.

The agencies said in a letter to ABA that the requirement to add the premiums and fees associated with the lender-placed flood insurance policy applies only when the lender intends to add the premiums and fees to the loan balance. If the premiums and fees are held in an unsecured account or are billed directly to the borrower, the amount of lender-placed flood insurance does not need to include the cost of the premiums and fees — although, if such amounts are subsequently rolled into the unpaid loan balance, the lender will need to then follow the guidance for premiums and fees added to the loan balance.

The letter also said that the agencies will issue additional guidance on this issue in the future. For more information, contact ABA’s Anjali Phillips.

Question - or frustration in hearing this - what about the Notice to borrower piece. If this is truly a "MIRE" event, then the Notice to Borrower would be required. Many times the borrowers could care less about contacting the bank in these situations - so - how in the heck are banks supposed to get a signed notice back before spending their $$$ and capitalizing the expense to the loan?????

Send it to them return receipt required and eliminate the signature requirement.

And if they don't pick it up from the post office? Grrrrr.

Then declare the loan in default (as it is) and start your foreclosure proceedings. Two can play that game and I have no tolerance for uncooperative borrowers. They have your money - they have to keep their half of the bargain.

Many times the default letter is all it takes to get a response.

Reviving this thread. Does anyone have a copy of the letter that the Agencies sent ABA? Also, did the Agencies ever issue any guidance on their requirement to add the premium to the loan balance?

No new guidance of which I am aware.

I haven't seen anything either.

Thanks Randy and Adam. BTW Adam, your article on this topic was really helpful.

We've been following this "guidance" since they provided it to ABA (we are FDIC regulated). I'm interested in knowing if other banks are following it or never followed it.

From my experience its a mixed bag about who has been following it. I do know of some bank's who weren't following it and were cited for being under insured and/or not providing the written notice so the interpretation is still in use in some shape or form.