Flood insurance regs launch Oct. 1, Jan. 1, 2016

October 5, 2015

ALEXANDRIA, Va. (10/5/15)--Changes to force-placement of flood insurance and exemptions for detached structures payments are effective as of last week, and the National Credit Union Administration sent out a regulatory alert detailing changes.

The alert (15-RA-05) re-emphasizes requirements of an interagency final rule. The NCUA, along with other financial regulatory agencies, issued the joint final rule in July.

Effective Oct. 1, force-placed insurance changes:

  • Clarify that a credit union or its servicer has the authority to charge a borrower for the cost of force-placed flood insurance commencing on the date on which the borrower’s coverage lapsed or became insufficient;
  • Provide that, under certain circumstances, a credit union or its servicer must terminate force-placed insurance coverage and refund payments to a borrower for any period of overlap in coverage; and
  • Describe the documentary evidence a credit union must accept to confirm that a borrower has obtained an appropriate amount of flood insurance coverage.

Also effective Oct. 1, a new detached structures exemption applies to any structure that is a part of a residential property, but is detached from the primary residential structure and does not serve as a residence. These properties are exempt from the mandatory flood insurance requirements.

In addition, new requirements for credit unions with more than $1 billion in assets to escrow flood insurance payments on residential improved real estate securing any designated loans are effective starting Jan. 1, 2016.

 Credit unions with below $1 billion in assets do not have to comply with these escrow requirements unless it is required for law to escrow taxes or insurance for the term of the loan; or the credit union has a policy of “consistently and uniformly” requiring escrow of taxes and insurance.