Federal agencies tinker with flood insurance rules
The final rule implements provisions of the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA) and provisions in the Biggert-Waters Flood Insurance Reform Act of 2012 (the Biggert-Waters Act).
In accordance with HFIAA, the final rule requires regulated lending institutions to escrow flood insurance premiums and fees for loans secured by residential improved real estate or mobile homes that are made, increased, extended or renewed on or after Jan. 1, 2016, unless the loan qualifies for a statutory exception. Certain regulated lending institutions are exempt from the escrow requirement if they have total assets of less than $1 billion.
Further, the final rule requires institutions to provide borrowers of residential loans outstanding as of Jan. 1, 2016, the option to escrow flood insurance premiums and fees. The final rule includes new and revised sample notice forms and clauses concerning the escrow requirement and the option to escrow.
The final rule also includes a statutory exemption to purchase flood insurance for a structure that’s part of a residential property if it’s detached and doesn’t also serve as a residence. However, under HFIAA, lenders may still require flood insurance on the detached structures to protect the covered property.
Lastly, the final rule covers the Biggert-Waters Act provisions on force placement. These provisions clarify that regulated lending institutions have the authority to charge a borrower for the cost of force-placed flood insurance coverage starting on the date a borrower’s coverage lapses or becomes insufficient. It also covers the steps a lender must follow to terminate force-placed flood insurance and refund payments.
This final rule does not address the private flood insurance provisions in the Biggert-Waters Act. The agencies plan to address those provisions in a separate rulemaking.
The Board of Governors of the Federal Reserve System, the Farm Credit Administration, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency issued the final rule.
Final Ruling Here (pdf)