WASHINGTON (11/30/15)--Amendments to escrow provisions of the Homeowner Flood Insurance Affordability Act will take effect Jan. 1, 2016. The National Credit Union Administration, along with the other agencies, approved the changes in June.
CUNA’s e-Guide has detailed information on federal flood insurance requirements, which contain the applicable guidance and regulations from the NCUA.
Section 760.5 of NCUA’s regulations will require federally insured credit unions to escrow flood insurance premiums and fees secured by residential improved real estate or mobile homes that are made, increased, renewed or extended on or after that date, unless the loan or institution qualifies for an exemption.
As of Jan. 1, 2016, credit unions have until June 30, 2016, to mail or deliver information to borrowers about the option to escrow the flood insurance payments for outstanding loans.
The regulation contains sample language credit unions may use to notify borrowers concerning the escrow requirement (Appendix A, to be included with or in the Notice of Special Flood Hazards) and the option to escrow (Appendix B).
Credit unions with assets of less than $1 billion as of Dec. 31 of the past two calendar years are exempt from this escrow requirement, as long as the credit union was not required by law to escrow taxes or insurance for the term of the loan and did not have a policy of consistently requiring escrow of taxes and insurance on or before July 6, 2012.
For credit unions that have grown in asset size and no longer qualify for the exception, the regulation contains transition rules.
The regulation also excepts several types of loans from the general escrow requirement, including:
If a credit union determines at any time during the term of the loan that the exception no longer applies, the credit union must begin escrowing flood insurance premiums and fees for the formerly excepted loan as soon as reasonably practicable.