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My bank has seen an influx of loan payment deferral requests as a result of the coronavirus/COVID-19 pandemic. Did the CARES Act include an exemption for escrowing flood insurance premiums when offering deferral assistance?

My bank, a national bank, has seen an influx of loan payment deferral requests as a result of the coronavirus/COVID-19 pandemic. Did the CARES Act include an exemption for escrowing of flood insurance premiums when offering deferral assistance?

It depends on the details related to the deferral assistance. For guidance on this issue, see the OCC’s Coronavirus Disease 2019 (COVID-19) Frequently Asked Questions for National Banks and Federal Savings Associations section addressing flood, where, in response to whether flood insurance regulations apply in connection with payment deferrals, it states “If a bank offers a payment deferral program … that does not involve… extending the loan term, such deferral is not a loan modification and would not constitute a triggering event under the regulation.”

Similarly, in response to whether flood regulations apply in connection with a loan modification, it states:

A bank’s modification of a designated loan, such as by extending the loan term, is a triggering event and … the bank is required to establish an escrow account for flood insurance premiums if an escrow account had not been previously set up … unless a loan exception applies … or the bank qualifies for the small lender exception…

In summary, the flood regulatory provisions are triggered when a bank makes, increases, extends, or renews a designated loan. Should the deferral assistance cause any of these actions, then regulatory requirements, including escrowing for flood insurance, may apply. (October 2020)

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