Effective date of interagency flood insurance escrow rule

A press release yesterday morning from the Federal Reserve, Farm Credit Administration, FDIC, NCUA and OCC announced their approval of a joint final rule that modifies regulations that apply to loans secured by properties located in special flood hazard areas. The final rule implements provisions of the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA) relating to the escrowing of flood insurance payments and the exemption of certain detached structures from the mandatory flood insurance purchase requirement. The final rule also implements provisions in the Biggert-Waters Flood Insurance Reform Act of 2012 relating to the force placement of flood insurance. Beginning January 1, 2016, in accordance with HFIAA, regulated institutions will be required 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 qualifies for a statutory exemption or the institution itself is exempt because it has total assets of less than $1 billion and meets certain other criteria. In addition, the rule:

• Requires non-exempt institutions to provide borrowers of residential loans already on the books as of January 1, 2016, the option to escrow flood insurance premiums and fees
• Includes new and revised sample notice forms and clauses relating to the escrow requirement and the option to escrow
• Includes a statutory exemption for the flood insurance purchase requirement for a structure that is a part of a residential property if that structure is detached from the primary residence and does not itself serve as a residence
• Provides new definitions of "a structure that is part of a residential property," and "detached"
• Exempts from the mandatory escrow requirement loans primarily for business, commercial or agricultural purposes; loans secured by junior liens if the borrower has obtained flood insurance; loans for which flood insurance is provided by a condo associations, cooperative, homeowners association or similar group; HELOCs; nonperforming loans; and loans with a term of 12 months or less

The rule will become effective October 1, 2015, with the exception of the mandatory escrow provisions, which will become effective on January 1, 2016.