rlcarey, for loans where the flood insurance will be force placed, the process here is to freeze the line so that no more draws can be made by the borrower (this is outlined in their loan docs as action that the lender may take in this scenario), the commitment amount is reduced to the current actual balance and the draw indicator is set to "N" to not allow further draws...that's what management decided to do...so that is why the force placed amount is using the current balance, not the line or (original) commitment amount.

Just curious if the examiners have agreed that force placing flood insurance is an acceptable reason to suspend the HELOC? Our examiners were always looking at our HELOC suspension program for violations of the permissible purposes to suspend HELOC credit under Reg. Z.

From FDIC FIL 58-2008 regarding suspension of HELOCs:

"In addition to permitting reductions or suspensions of HELOC limits in the circumstances outlined above, Regulation Z also permits such action if:

the borrower is in default of a material obligation under the agreement;"

Maintaining adequate insurance is a material obligation under the agreement, so suspending the line would be allowed, IMO.

We have language in the loan note/agreement that says we are allowed to suspend the line for items such as this. OCC has never criticized it (although that doesn't really mean anything...we have had examiners say everything is great in one exam and the next exam all of a sudden the same exact thing is an issue when NOTHING has changed).

FYI - ABA sent a letter on 4/22/16 to the regulatory agencies about increase in loan balance for force placement premiums as a triggering event.

ABA Banking Journal referencing the letter:
http://bankingjournal.aba.com/2016/04/ab...lood-insurance/

Actual letter:
http://www.aba.com/Compliance/Documents/...6815.1458840992

Thanks Happy. I couldn't get those links to work so I contacted Anjali Phillips at the ABA and she provoked me with the following link:
http://www.aba.com/Compliance/Documents/Ltr-ForcePlacedFloodInsurance2016Apr.pdf

I emailed my FDIC contact regarding the force place = MIRE issue, and he also confirms that it should be treated as a MIRE event. However, he said that the memo stemmed from an "interagency flood insurance working group" which leads me to believe it isn't just the FDIC with this opinion. He also stated that the group noted that no new flood notice would be required in these situations.

As an aside, my contact is a 20+ year lead examiner and before I contacted him about his, he hadn't heard anything about it. He had to do research to even find the "mystery memo" and information about the working group. So I don't know how much of an emphasis is being place on this issue right now, at least out of the San Francisco office.

Well I hope the ABA's letter will at least get the working group to issue something instead of keeping it in their back pocket as a mechanism to fine banks as they perform their exams. What other reason is this being kept a secret? And why are they picking and choosing bits and pieces of what is required for a triggering event (not requiring the notice in this scenario)? So frustrating for the operating units as well as internal audit when reviewing for compliance.

Good morning! Saw the 4.22.16 ABA letter referenced in a presentation which brought me to this thread. Are there any updates on this? Performing a flood review currently and want to be sure I have all the details we need.

At the ABA RCC in mid-June, this was discussed in many sessions. The only update I can give you is that the regulators (mostly FDIC) are saying they will revisit their position on this. The other regulators don't seem to be in 100% agreement with the FDIC's position. The FDIC could back off or they could say force placing premiums is a MIRE event, but if they do say it's a MIRE event, I think we'll see it in writing. I don't know when to expect this. I've learned to not hold my breath.

Anyone here have their flood exam in the past few months??? Did it come up at all in your exam (assuming your process is to add the f/p premium to the balance)? We have not had our exam yet but when we do I will let you know if it comes up at all (OCC).

Thank you!

We actually submitted this question to the Richmond FRB last month:

"If the bank force places flood insurance after 1-1-16 and the force place premium will be added to loan balance. Is this a MIRE event which triggers escrow provisions of the flood regulations?"

And they emailed us back the following response: (Yes, they emailed and didn't call with their answer. I was very shocked.)

"Adding the premium to the loan balance doesn’t count as a triggering event and you’re not required to escrow. Let me know if you have any questions."

Who knows what they will say at our next exam, but this at least calmed my nerves a little.

NSF: That's consistent with what I'm hearing from other FRB regulated banks. Which makes it even more odd that the FDIC insists this is a joint agency opinion.

We've decided to wait for formal guidance before we change our process. We'll take the risk since we only have 2 consumer loans that we have to force place on.

Contemplating changing our way of handling force placed insurance. We currently add the FP insurance on to the principal balance, which as I've read and confirmed with our regulator (FDIC) that is a triggering event for escrow. We want to handle the force placing of any insurance as we handle late fees which it does not get added to the principal balance. We have considered and don't think we would have a UDAAP issue RL Carey as we push to have our customers pay force placed insurance, late fees and other fees as soon as possible and don't wait the 30 years.

We want to just make sure that there is no REG Z issue. Any insight would be appreciated.

Adding insurance to the principal balance is a matter of State law and your loan contract.

"we push to have our customers pay force placed insurance, late fees and other fees as soon as possible"

How, if it doesn't represent a default condition?

You need to be sitting down with your legal counsel.

This thread has been very helpful! I have a few questions of my own-
1. Is there an issue if add the forced placed policy premium to the loan balance and now that new balance exceeds the original Note amount?
2. Are we obligated to re-amortize the loan based on the new balance (whether it exceeds the original balance or not)?
3. We did a loan modification within the last 30 days to extend the maturity date and pulled a new determination & sent the flood notice. If we add the force place policy to the loan balance say today, do we need to pull another determination or can we rely on the one that was just pulled?

1. Legal question
2. Based on loan contract.
3. Anytime you increase the loan balance, you have a triggering event.

Reviving this old thread...has anything official come out (since the last update on this thread) saying that adding the force placed balance to the loan balance is an MIRE event? I do not recall seeing anything. Thanks.

The regulators wrote a letter to the ABA on 5/22/17 and there was an article in the FRB Outlook (I don't know the date off the top of my head) that addressed this, but the regulators have never issue a FIL, Bulletin or CA letter to officially address this issue.

The 2017 ABA letter said they would be issuing guidance "shortly". What a joke.

Here is the ABA article, but as far as I can tell, you have to be an ABA member to actually read the response. I could not find it otherwise publicly available.

Whether or not anything has been issued, I can tell you that in my FDIC exam in 2017, regulators did treat it as a MIRE event, and checked to make sure coverage was sufficient. San Francisco region.

Thanks David, rlcarey and mtngrrl.

Anyone have any insight as to how the OCC is treating this?

Just found this...

https://www.aba.com/Compliance/Mem/Documents/AgenciesLtr-FloodInsurance2017May.pdf