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ABA Seeks Interagency Guidance Related to Force-Place Flood Insurance Premiums
On April 22, the American Bankers Association (ABA) sent a letter to the OCC, the Federal Reserve, and the FDIC regarding force-place flood insurance (also known as lender-placed insurance). The ABA probed the question of whether or not the advancement of a lender-placed flood insurance premium constitutes an “increase” to the designated loan – a statutory “tripwire” under the Flood Disaster Protection Act (FDPA). According to the letter, “increasing reports” from ABA members suggest that examiners are taking the position that “advancing a flood insurance premium in order to force-place flood insurance increases a loan balance and therefore constitutes a MIRE event [(making, increasing, renewing, or extending a designated loan)].” The letter summarizes FDPA requirements, noting that, if examiners are in fact considering the advancement of a premium to force-place flood insurance as an increase to a designated loan, such an “interpretation is new to the industry and is inconsistent with industry practice and contractual obligations under standard mortgage loan agreements.” According to the ABA, this new approach would result in increased borrower confusion and expense: “[i]ndeed, if adding the flood insurance premium to the loan is considered to increase the loan amount, following that logic through, the payment of a force-placed hazard insurance premium, taxes, or even a late fee would also ‘increase’ the loan—and result in a MIRE event as it is wholly inconsistent to treat these protective advances differently. Accordingly, a delinquent borrower could experience a ‘MIRE event’ as frequently as monthly with each late payment. Clearly, this was not Congress’s intent.” The ABA urged the banking agencies to release interagency guidance to address concerns related to the advancement of flood insurance premiums as a potential MIRE event.