NCUA and the federal banking agencies amended the interagency flood insurance regulations in June to implement changes the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA) and Biggert-Waters Flood Insurance Reform Act of 2012 mandate.
The final rule goes into effect on Oct. 1, 2015, with the exception of the mandatory escrow provisions and the model clauses in Appendices A and B, which become effective on Jan. 1, 2016.
The final rule:
Incorporates HFIAA’s exemption for certain detached structures from the mandatory flood insurance purchase requirement. This statutory provision became effective with the law’s enactment in 2014.
Requires lenders/servicers to escrow premiums and fees for flood insurance for any loan secured by residential improved real estate or a mobile home that’s made, increased, extended, or renewed on or after Jan. 1, 2016. For outstanding loans, lenders have until June 30, 2016, to mail or deliver information to borrowers about the option to escrow the insurance payments.
Institutions with total assets of less than $1 billion are exempt from the escrow requirement if, as of July 6, 2012, they didn’t already escrow taxes and insurance in accordance with state or federal law or the institution’s consistently-applied policy.
The rule also exempts six types of loans:
Includes new and revised sample notice forms and clauses relating to the escrow requirement and the option to escrow.
Amends the force placement of flood insurance provisions to clarify that a lender/servicer has the authority to charge a borrower for the cost of flood insurance coverage commencing on the date on which the borrower’s coverage lapsed or became insufficient. The final rule stipulates the circumstances under which a lender or its servicer must terminate force-placed flood insurance coverage and refund payments to a borrower. It also sets forth the documentary evidence a lender must accept to confirm that a borrower has obtained an appropriate amount of flood insurance coverage.
An October 2013 proposed rule would have required lenders to accept private flood insurance coverage, as defined in Biggert-Waters, to satisfy the mandatory flood insurance purchase requirement. The agencies have yet to finalize this provision.