Flood Disaster Protection Act - Refresher - What is a MIRE?
What constitutes a MIRE under the Act? The regulation states that a creditor “shall not Make, Increase, Renew or Extend any loan unless the building or mobile home and any personal property securing the loan is covered by flood insurance for the term of the loan.” This definition includes when the force place insurance premium is added to the principal balance of the loan (protective advance).
There is an ongoing debate within the industry whether adding force place flood insurance premiums to the principal balance of a loan is a MIRE that requires the creditor to provide a Notice of Special Hazard Area (NSHA) to the borrower. The Federal Deposit Insurance Corporation (FDIC) has clearly and concisely taken the position that this event is a MIRE and subject to the issuance and delivery of the NSHA to the borrower. FDIC’s Part 339 implements the federal flood regulations for FDIC-regulated banks.
FDIC’s stance that advancing force place flood insurance premiums to the loan balance results in an increase of the principal balance and is a “triggering event.”
There are alternatives to a protective advance. If the creditor is subject to the escrow requirements which were effective in January 2016, then the course of action is clear. An escrow account must be established, and the premium will be paid from the account. If the creditor is exempt under the Small Creditor exemption, then other considerations should be explored.
Do the creditor’s loan documents permit advancing funds to pay for flood insurance premiums and fees as additional debt? This provision would allow the additional funds advanced to be considered part of the original debt and would not be considered a triggering event. Keep in mind that the amount of the forced placed flood insurance coverage needs to include the “new” principal balance of the loan (after the premium and fees are advanced).
Another alternative is to establish a general ledger account and require the borrower to pay the premium either in a lump sum or over the course of the term of the force place policy, crediting the general ledger account.
To safeguard compliance, it is recommended that all financial institutions review its Flood Disaster Protection Act (FDPA) policies and procedures to ensure all requirements are met.
It is also recommended that periodic training is provided to help maintain a level of awareness on an ongoing basis.