ABA in a letter last week urged regulators to issue guidance clarifying whether the advancement of a lender-placed flood insurance premium constitutes an “increase” to the designated loan, which is a statutory “tripwire” under the Flood Disaster Protection Act. The association said that such an interpretation “would be new to the industry and is inconsistent with industry practice and contractual obligations under standard mortgage loan agreements,” and would “result in significant borrower confusion and unnecessary borrower expense.”
ABA noted that an advance of a lender-placed flood insurance premium is contemplated as a pre-authorized contractual obligation under the existing loan agreement, and that while the advances may increase the overall amount owed to the lender, the advance of the premium does not “increase” the loan amount in a way that would trigger compliance requirements under FDPA.
