St Casimirs Mortgage Minute

ABA, ABIA Seek Lender Discretion on Insuring Detached Structures

While ABA and its American Bankers Insurance Association subsidiary welcomed recent legislative and regulatory clarification that flood insurance is not required for garages, sheds and other detached, non-residential structures, they said yesterday that lenders should not be constrained by the loan’s purpose and should retain “broad discretion” to require insurance -- for high-value detached structures, for example.

“Congress clearly sought to address a common complaint of borrowers who use residential property to secure a loan: the requirement to purchase a separate policy to insure garden sheds and detached garages against flood loss,” the associations said in a comment letter. “We encourage the agencies to avoid issuing ‘clarifications’ and definitions that will limit unnecessarily the ability of customers to benefit from this provision.”

ABA and ABIA also sought additional clarifications and changes to the proposed rules on mandatory escrow “to ensure that escrow requirements do not inadvertently increase the cost of credit -- without advancing the congressional goal of ensuring that borrowers maintain flood insurance over the life of their loan.