Q: Flood Insurance Triggers. If a lender offers a payment deferral program or skip-a-payment program, will this trigger the Federal flood insurance requirements?
A: Generally, a payment deferral program, such as a payment holiday or skip-a-payment program, is not a loan modification under the Federal flood insurance requirements and does not constitute a triggering event for purposes of flood insurance law because the term of the loan is not extended. However, if a lender extends the loan term, effectively modifying the loan, it is a triggering event and the flood insurance should cover the term of the loan plus any loan extension. Additionally, if a lender increases the loan amount, either through capitalizing interest or adding fees, then this would be a triggering event if such an increase is not permitted in the loan contract. If a MIRE event is triggered (see Question 12) when working with borrowers affected by the COVID-19 emergency, lenders may take the measures discussed in the answer to Question 12 above.
This Q&A was contained in the Frequently Asked Questions for Financial Institutions Affected by the Coronavirus Disease 2019 (Referred to as COVID-19) – As of March 3, 2021 (which may be updated from time to time). This may be found on the FDIC’s website here: https://www.fdic.gov/Coronavirus/faq-fi.pdf.