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FOS Blog

13 Jan

Are you ready for Flood of 2016

In July of 2015, the Office of the Comptroller of the Currency (OCC) along with the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), the Farm Credit Administration and the National Credit Union Administration have issued the final rule implementing certain provisions of the Biggert-Waters Flood Insurance Reform Act and the Homeowner Flood Insurance Affordability Act.

Existing regulations amended by the final rule:

  1. Incorporate statutory exemptions to the general mandatory flood insurance purchase requirement for detached structures. Flood insurance is not required for any structure that is part of a residential property if it is detached from the primary residential structure and does not serve as a residence.  Note:  A bank may choose to require flood insurance on this structure to protect the collateral securing the mortgage.
  2. Establish requirements for national banks and federal savings associations to escrow flood insurance payments on residential improved real estate securing a loan. In general banks or servicers are required to escrow flood premiums and fees for flood insurance for any loan made, increased, extended or renewed that is secured by residential improved real estate or mobile home on or after January 1, 2016.  The escrow requirement does not apply to loans that are secured by commercial properties.

Exceptions of the final rule:

  • Small lenders applicable to banks that have total assets of less than $1 billion and as of July 6, 2012 was not required by applicable federal or state law to escrow taxes or insurance for the term of the loan AND did not have a policy to require escrow of taxes and insurance. Institutions that no longer qualifying for this exception is required to escrow for loans having a triggering event on or after July 1 of the first calendar year of the changed status.
  • Certain loans:
    • Loans that are in a subordinate position to a senior lien secured by the same property for which flood insurance is being provided
    • Loans secured by residential improved real estate or mobile home that is part of a condominium, cooperative or project development, provided certain conditions are met
    • Loans that are extensions of credit primarily for a business, commercial or agricultural purpose.
    • Home equity lines of credit
    • Non – performing loans
    • Loans with terms of 12 months or less

The bank must also start escrowing for certain loans that are excepted from the required escrowing as soon as it is reasonably practicable for any loan that the bank determines is no longer exempt.

  1. Banks that are required to escrow must also offer borrowers an option to escrow flood insurance premiums and fees on existing loans that are outstanding as of January 1, 2016. Notice must be delivered to borrowers regarding this option no later than June 30, 2016.
  2. Clarifies that banks and servicers have the authority to charge borrowers for the cost of force placed flood insurance coverage, beginning the date on which the borrower’s coverage has lapsed or became insufficient. Additionally, the final rule provides the lending institution with 30 days from receipt of the borrower’s confirmation of existing flood insurance to conduct necessary inquiries to ensure the policy satisfies the requirement and refund premiums to the borrower.

Have you revisited your existing flood procedures and practices? Are you compliant? For additional information contact the author Cindy Tice at