… WITH FORCE-PLACED FLOOD INSURANCE PREMIUM DOES NOT INCREASE MORTGAGE LOAN EVEN THOUGH IT IS ADDED TO THE MORTGAGE LOAN PAYMENT.
The American Bankers Association sent a letter on April 22, 2016 to three bank regulators "Re: The Force-Placement of Flood Insurance as a MIRE Event." In that letter, the ABA argued that the increased insurance premium of force-placed insurance, which is always added to a homeowner's monthly mortgage payment, did not actually "increase" the mortgage loan. (The Flood Disaster Protection Act regulates national banks with regard to "making increasing, renewing or extending (MIRE event) a designated loan," to quote from the ABA's letter.) The ABA argues in its letter that the banking regulators-addressees cannot interpret the FDPA to cover the act of increasing a mortgage loan payment, when a bank increases that monthly mortgage payment by adding the monthly premium amount of collateral protection insurance placed by the bank.
It is the ABA's stated position that if the increased premium of the force-placed insurance did increase the mortgage loan, then the bank force-placing the flood insurance would be "prohibited" by the Flood Disaster Protection Act from adding the amount of the premium for the collateral protection insurance purchased by the bank to protect itself, to the borrower's monthly mortgage payment.
The ABA does not say so in its letter, but that is a reasonable interpretation that many knowledgeable, experienced practitioners would make.
Time will tell how the three banking regulators respond to ABA's letter. Parenthetically, the Consumer Financial Protection Bureau apparently found out about the letter from reading the newspapers. The ABA did not even "cc" the CFPB on the letter.
There are several other very interesting points in the ABA April 22, 2016 letter. They are worth exploration in further articles to be posted here.
Please Read The Disclaimer. ©2016 by Dennis J. Wall, author of "Lender Force-Placed Insurance Practices" (American Bar Association 2015). You are invited to visit the author's website. All rights reserved.
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