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#1917136 - 04/24/14 02:00 PM Another Flood Escrow Question
OldSchoolBanker Offline
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Joined: May 2005
Posts: 660
FL
I have been asked to change wording in our escrow policy to allow borrowers to voluntarily set up escrow totally at their discretion. This assumes they are not >80%, VA, FHA OR Higher Priced Mortgages.

I thought that if a borrower was located in a covered flood zone AND they elected escrow for taxes OR insurance, they must also escrow for flood. As a borrower, I did not think they could escrow for Hazard only and not escrow for flood. I do understand that they can elect not to escrow at all as our program would be voluntary.

Is this thinking incorrect?

Your feedback is appreciated.
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Flood Compliance
#1917219 - 04/24/14 04:03 PM Re: Another Flood Escrow Question OldSchoolBanker
nu2regs Offline
Member
Joined: Mar 2013
Posts: 75
That is how I understand it.

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#1917279 - 04/24/14 05:48 PM Re: Another Flood Escrow Question OldSchoolBanker
waterdog Offline
Junior Member
Joined: Jan 2013
Posts: 49
Could someone clarify this requirement for me? I was just researching this same question and was thinking it worked just as OldSchool stated but then I found this and now I'm confused.
This if from FED Flood manual: The escrow requirement does not apply if the institution does not require the maintenance of other escrows or the establishment of an escrow account in connection with the particular type of loan, even if permitted by the loan documents. So by requiring only HPML to escrow are we "requiring the maintenance of other escrows" ??

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#1917493 - 04/25/14 11:16 AM Re: Another Flood Escrow Question OldSchoolBanker
OldSchoolBanker Offline
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Joined: May 2005
Posts: 660
FL
Thanks for chiming in Waterdog. That is at the heart of my question. Some types of loans such as HPML, FHA, VA, Bond must escrow. Can we require only those mentioned to escrow AND then the rest to select ala carte, whether to escrow tax only, hazard only then not escrow flood?
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#1917500 - 04/25/14 11:40 AM Re: Another Flood Escrow Question OldSchoolBanker
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 79,234
Galveston, TX
The rules right now are simple, when the B_W changes go into place in 2016, it might be a little more difficult:

52. When must escrow accounts be established for flood insurance purposes?

Answer: If a lender requires the escrow of taxes, insurance premiums, fees, or any other charges for a loan secured by residential improved real estate or a mobile home, the lender must also require the escrow of all flood insurance premiums and fees. When administering loans secured by one-to-four family dwellings, lenders should look to the definition of “Federally related mortgage loan” contained in the Real Estate Settlement Procedures Act (RESPA) to see whether a particular loan is subject to the escrow requirements in Section 10 of RESPA. (This includes individual units of condominiums. Individual units of cooperatives, although covered by Section 10 of RESPA, are not insurable under the NFIP and are not covered by the Regulation.) Loans on multi-family dwellings with five or more units are not covered by RESPA requirements. Pursuant to the Regulation, however, lenders must escrow premiums and fees for any required flood insurance if the lender requires escrows for other purposes, such as hazard insurance or taxes.

53. Do voluntary escrow accounts established at the request of the borrower trigger a requirement for the lender to escrow premiums for required flood insurance?

Answer: No. If escrow accounts for other purposes are established at the voluntary request of the borrower, the lender is not required to establish escrow accounts for flood insurance premiums. Examiners should review the loan policies of the lender and the underlying legal obligation between the parties to the loan to determine whether the accounts are, in fact, voluntary. For example, when a lender’s loan policies require borrowers to establish escrow accounts for other purposes and the contractual obligation permits the lender to establish escrow accounts for those other purposes, the lender will have the burden of demonstrating that an existing escrow was made pursuant to a voluntary request by the borrower.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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