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We have a loan customer that currently escrows taxes, insurance, flood, etc. The loan originated in 2010, and the borrower opted to escrow everything at that time. We currently require escrow of taxes and insurance, so under the new flood rules are now escrowing flood insurance premiums for loans originated since new rules were implemented.
This borrower is now asking whether he can cancel his escrow for all payments, including flood insurance premiums, and pay independently. We have reviewed the flood rules, and so far have not found any guidance on whether a borrower that opted to escrow flood prior to the new rules may not opt to cancel that same escrow.
Does anyone know of any guidance to assist us further or run into the same situation? Thanks!
The flood regulations state:
Except as provided in paragraphs (a)(2) or (c) of this section, an FDIC-supervised institution, or a servicer acting on its behalf, shall require the escrow of all premiums and fees for any flood insurance required under § 339.3(a) for any designated loan secured by residential improved real estate or a mobile home that is made, increased, extended, or renewed on or after January 1, 2016, payable with the same frequency as payments on the designated loan are required to be made for the duration of the loan.This is a great question and I don’t believe there is anything that specifically addresses it. In my opinion, if the loan did not experience a MIRE event on or after January 1, 2016 then you are not required to escrow flood insurance. However, if the loan were made, increased, renewed or extended after January 1, 2016 we do not believe you would have the option to cancel the escrow of flood insurance.
In addition, you need to ensure the loan is not an HPML as there are additional stipulations that do not allow an escrow to be cancelled on an HPML.
If this loan is going to balloon or renew at a future date then that event may fall into one of the MIRE events described above and may not be worth cancelling escrow now and then having to redo it down the road.
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