Flood insurance, corporate CU rule changes proposed by NCUA

October 23, 2014

ALEXANDRIA, Va. (10/24/14)--A proposal to amend rules regarding loans in areas having special flood hazards was issued by the National Credit Union Administration at the agency's monthly meeting, part of a joint proposal with other federal regulators.

The NCUA, Office of the Comptroller of the Currency, Federal Reserve board, Federal Deposit Insurance Corp. and the Farm Credit Administration, all issued the proposal.

From left, CUNA Deputy General Counsel Mary Dunn speaks with NCUA Chair Debbie Matz after the agency's board meeting Thursday. (CUNA Photo)

The rule would amend the agencies' regulations regarding loans in area with special flood hazards by implementing provisions of the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA). The HFIAA amends the Biggert-Waters Flood Insurance Act of 2012, and the regulators' proposal would replace a pending proposal in the Biggert-Waters act.

The proposed rule would:

  • Establish requirements with respect to the escrow of flood insurance payments, as well as implement a HFIAA exemption for certain detached structures from the mandatory flood insurance purchase requirement;

  • Amend provisions that tie the escrow requirement to the origination, refinance, increase, extension, or renewal of a loan after Jan. 1, 2016 and provide additional exceptions to the escrow requirement;

  • Apply a HFIAA mandate for lending institutions to provide an option to borrowers to escrow flood insurance premiums and fees for loans that are outstanding as of Jan. 1, 2016; and

  • Provide a new exemption purchase requirements for a structure that is part of a residential property but is detached from the primary residential structure and does not serve as a residence.

Frank Kressman, association general counsel for the NCUA, said the current proposal is likely to be part of a bigger picture when all is said and done.

"As part of the process, at least at the staff level, there's some disagreement about how to move forward with the private insurance. So there's likely to be a third proposed rule yet to come out to deal with the private insurance issue." He said. "The plan would be, once those proposals make their way through the process, they will all be finalized at once. But we don't know when that will be."

The other proposed rule discussed at the NCUA's meeting Thursday dealt with technical corrections and clarifications of regulatory provisions to corporate credit union regulations. The proposal will clarify the mechanics of a number of substantive regulatory provisions and also make several non-substantive technical corrections, according to the agency.

Some of the changes include:

  • Correcting an error where NCUA staff omitted capturing the retained earnings of a merged credit union when the continuing corporate computes its 2016 or 2020 capital ratios;

  • Allowing corporate credit unions to borrow on a secured basis for 120 days over the current 30 days to better meet seasonal liquidity demands; and

  • Removing a limitation on borrowing that could have impeded a corporate's ability to meet member liquidity needs.

"None of these proposals recommend removing or easing the regulatory constraints and requirements governing minimum capital levels, investment concentrations and maturity limits or asset credit quality standards," said Scott Hunt, director of the NCUA's Office of National Examinations and Supervision. "We continue to believe these elements of the regulation are working as intended, that is, ensuring a healthy and safe corporate credit union system."

Both proposals will be open for 60-day comment periods.