WASHINGTON (6/23/15)--A largely CUNA-supported joint final rule that amends requirements for loans secured by properties in special flood hazard was approved by five federal regulatory agencies, they announced jointly Monday.
The board of the National Credit Union Administration, one of the five agencies, approved the final interagency rule at its meeting Thursday. The rule requires the escrow of flood insurance payments on residential improved real estate securing a loan.
The joint rule of NCUA, Office of the Comptroller of the Currency, the Federal Reserve System board of governors, Federal Deposit Insurance Corp. and Farm Credit Administration implements provisions of the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA) related to requiring escrowing flood insurance payments and exempting certain detached structures from the mandatory flood insurance purchase requirement.
It also implements provisions in the Biggert-Waters Flood Insurance Reform Act of 2012 about the force placement of flood insurance when homeowners’ policies lapse or are insufficient.
In a December 2014 comment letter, CUNA asked the agencies to “be mindful of placing additional regulatory requirements on credit unions, adding, “Some credit unions remain concerned that they do not have the capability to escrow flood insurance premiums on loans processed by their core processing systems. For these credit unions, upgrades to facilitate escrowing flood insurance premiums will be costly and time consuming, with these costs eventually borne by members.”
The final rule requires regulated lenders with assets of $1 billion or more to escrow both flood insurance premiums and fees for loans secured by residential improved real estate or mobile homes and that are made, increased, extended or renewed on or after Jan. 1, 2016. They also must provide borrowers of residential loan outstanding as of Jan. 1, 2016, the option to escrow flood insurance premiums and fees. The final rule includes new and revised sample notice forms and clauses concerning the escrow requirement and option to escrow.
Structures that are part of a residential property but are detached from the primary residence and do not serve as a residence are exempt from the flood insurance requirement. However, under HFIAA, lenders may require flood insurance on the detached structures to protect the mortgage’s collateral.
The force-placement provisions clarify that lenders have authority to charge a borrower for the cost of force-placed flood insurance coverage beginning on the date that the borrower’s coverage lapses or becomes insufficient and stipulates the circumstances under which a lender must terminate force-placed flood insurance and refund payments to the borrower.
The final rule does not address private flood insurance provisions in the Biggert-Waters Act, the agencies said. They plan to address those provisions in a separate rulemaking. The final rule will be published in the Federal Register.