Topic: Flood Insurance
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We are providing the payment deferral outlined in the CARES Act to all our loan customers, including loans held in portfolio and loans serviced for Fannie Mae. Some of our customers will soon be entering the repayment phase of the forbearance agreement. Would adding the accrued interest to the principal balance and re-amortizing the loan over the remaining term trigger flood insurance requirements as a M.I.R.E. event? Does it matter whether capitalizing the accrued interest would cause the loan balance to exceed the original principal balance? Also, would any other disclosure requirements be triggered — assuming the modification does not constitute a “refinancing” under Regulation Z?
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We believe that adding unpaid interest to the loan’s principal balance (i.e., capitalizing the interest) —regardless of whether this would cause the loan balance to exceed the original principal balance — would trigger the flood insurance requirements, unless your loan contract permits unpaid interest to be capitalized, or your forbearance agreement by its terms is…
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We are an FDIC-regulated bank, and we do not believe the FDIC has authorized the acceptance of mutual aid society plans in the past. Under the recent private flood insurance rule, do we need to receive approval from the FDIC before accepting a mutual aid society plan?
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Yes, the flood insurance rules continue to require approval from your primary federal regulator before accepting a plan issued by a mutual aid society for flood insurance. As noted in the supplementary information for the final rule on private flood insurance, the FDIC expects its approval of mutual aid society plans will be “rare and…
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We are considering a COVID-19 loan modification program for existing clients that would allow for skipped payments, no credit reporting for past due amounts, extended pay periods, etc. Will we still be required to obtain flood determinations due to the modifications? We are aware of the interagency guidance stating that such modifications will not automatically be categorized as troubled debt restructurings.
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Whether such a modification would require you to a obtain a flood determination depends on the nature of the modification and whether you are able reuse a previous flood determination. This is the case regardless of whether the modification is categorized as a troubled debt restructuring. However, under recent FDIC guidance, you may be able…
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With respect to Illinois law, please offer any insights into granting borrowers’ requests to skip monthly payments on adjustable rate mortgages (ARMs) with thirty-year terms or monthly interest payments on home equity lines of credit (HELOCs). For the ARMs, the skipped payments would be added to the end of the scheduled loan payments, and for the HELOCs, the skipped interest-only payments would be spread over a few months to avoid the borrower being hit with one large interest payment.
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Illinois law does not expressly address mutually agreed-upon skipped payments — whether offered by the bank as a “skip-a-payment” program or when requested by the borrower. However, such arrangements are permissible in Illinois. It is important that your “skip-a-payment” agreement does not have the effect of canceling the original loan and substituting it for a…
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Our bank is going to begin accepting applications for commercial and agricultural loans and working with a new document vendor. What disclosures and terms and conditions are required for commercial and agricultural loans?
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While we cannot provide an exhaustive list of all necessary disclosures without knowing the details of the specific loans, we have highlighted some of the possibly applicable disclosure requirements below. Mortgage loans extended for primarily commercial or agricultural purposes are not subject to the TILA-RESPA Integrated Disclosure (TRID) requirements. However, certain disclosure requirements apply to…
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We have a customer for whom we force place hazard insurance (monthly) and flood insurance (yearly). We are aware that force placing the flood insurance is a M.I.R.E. event and send the flood insurance notice yearly. Do we also need to provide the flood insurance notice on a monthly basis since we are increasing the loan each month through the force placement of hazard insurance? Also, if we do not receive a signed copy of the flood insurance notice from the borrower, should we document that the notice was sent with no response?
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Whether the forced placement of hazard insurance on a property in a special flood hazard area triggers the requirement to send a flood insurance notice to the borrower depends on how the borrower is charged for the hazard insurance premiums and fees and whether your loan agreement permits advances to cover such costs. The flood…
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We originated a residential mortgage loan at some point after 1994 and before January 1, 2016 (we don’t know the exact date). At the time the loan was made, we established an escrow account for real estate taxes, homeowner’s insurance, and flood insurance, but we do not know whether we required this escrow account or the borrower voluntarily decided to establish the escrow account. The borrower has now asked to terminate the escrow account so that they can pay these items directly. Can we terminate the flood insurance escrow, since the loan was originated before mandatory flood escrows were required? We do not qualify for the small lender exception, and the loan has not been extended, renewed or increased since it was originated.
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Yes, we believe you may terminate the flood insurance escrow for a loan that was originated before January 1, 2016, provided that you have not made, increased, extended or renewed the loan since it was originated (i.e., no “M.I.R.E.” events have occurred). You are correct that flood insurance escrows are mandatory for the duration of…
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We received a private flood insurance policy that does not include the “compliance aid” language for mandatory acceptance as private flood insurance. The property is located in Illinois, but the insurance company that issued the policy is based in Florida. The policy’s declarations page states that the policy “is issued pursuant to Section 445 of the Illinois Insurance Code, by a company not authorized and licensed to transact business in Illinois and as such is not covered by the Illinois Insurance Guaranty Fund.” But the insurance company is listed as “active” on the Illinois Department of Insurance website and does not appear on the list of unacceptable surplus line insurers in Illinois. Does the Section 445 disclaimer disqualify the policy from consideration as a private flood insurance policy?
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We believe that this flood insurance policy could meet the definition of “private flood insurance,” even though the policy was issued by an “unauthorized insurer” with the Section 445 disclaimer. Of course, the policy also would have to meet the many other requirements in the “private flood insurance” definition. Additionally, we believe that this policy…
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How can a bank look up a surplus line insurer to determine if it is “recognized, or not disapproved” in Illinois, as required under the new private flood insurance rules?
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The list of “Ineligible Surplus Line Insurers in Illinois” is available on the Surplus Line Association of Illinois website, which is linked in the resources below. In Illinois, surplus line insurers are “unauthorized insurers” that do not hold a valid certificate of authority to sell insurance in Illinois. For this reason, surplus line insurance must…
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I am trying to determine whether a private flood insurance policy is issued by an insurance company authorized to sell insurance in Illinois. Is there a lookup tool where I can access this information?
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Yes, the Illinois Department of Insurance (IDOI) website has a lookup tool for insurance companies authorized to sell insurance in Illinois. The IDOI also publishes yearly market share reports that list providers authorized to sell insurance in Illinois by category, including private flood insurance. You can access the lookup tool by selecting “Company Lookup” from…