Our bank nor this particular loan qualify for any escrow exceptions. As a bank we don't require borrowers to escrow but for 95% of loans we escrow at the borrower's option. Have a loan where we didn't escrow HOI or taxes, but the home is in a flood zone. Should we escrow for just the flood insurance premium?

The Biggert-Waters Act requires you to escrow flood insurance premiums beginning Jan. 1, 2016 whenever you have a triggering event.

You must. This became a requirement on 1/1/16.

Thanks!!!! If we didn't. How would we correct? Send the borrower notice and create the escrow account immediately?

You need to set up the escrow account as soon as possible. I'm not certain that corrects the violation, but it's all you can do now.

Just to be sure - are you saying that the loan made since 01/01/16 or had a MIRE event since that date?

My answer would be: If the answer is yes - then you must escrow ASAP. If the answer is no then, David, would they be required to send a letter offering to escrow the flood premium?

I'm not sure that you have a correctable violation. How are you going to go back to the borrower now and make an escrow account mandatory because you made an error. It is the same situation as in the past when you made a HPML and didn't escrow. The horse is out of the barn, unless you can point to something in your loan contract that would allow you to do so. Consult you legal counsel.

we don't escrow at all for our term or line of credit equities. No home insurance or taxes through the bank. The customer just has to show proof of payment during application. If we have a property that is in a flood zone do we have to start escrowing that insurance payment? We don't have an escrow department.

(3) Small lender exception—(i) Qualification. Except as may be required under applicable State law, paragraphs (e)(1), (2), and (4) of this section do not apply to a member bank:

(A) That has total assets of less than $1 billion as of December 31 of either of the two prior calendar years; and

(B) On or before July 6, 2012:

(1) Was not required under Federal or State law to deposit taxes, insurance premiums, fees, or any other charges in an escrow account for the entire term of any loan secured by residential improved real estate or a mobile home; and

(2) Did not have a policy of consistently and uniformly requiring the deposit of taxes, insurance premiums, fees, or any other charges in an escrow account for any loans secured by residential improved real estate or a mobile home.

Let's say you were under $1 billion, but did have a policy in place prior to 7/6/2012 or were a bank that offered and had loans with escrows. Would you still qualify for the exemption due to being under $1 billion?

(A) That has total assets of less than $1 billion as of December 31 of either of the two prior calendar years; and

So that tells me that if you were under $1 billion but HAD a policy in place, you would not qualify to be exempt, since the AND is not an OR

Correct.

Randy is correct. The 1 Billion part of the exemption was put in to capture banks going forward. If your bank grows to $1B, you no longer qualify for the exemption and must begin escrow on applicable loans.

The 2nd part of the exemption (prior to 7/6/12 did you have a policy of escrowing . . .) was a one time test. IOW, if you started escrowing in August 2012, you still keep the exemption. They drew a "line in the sand" with the passing of the Biggert-Waters Act (7/6/12) that basically said "If you were already escrowing, then you don't get this exemption. But if you haven't escrowed prior to the passing of this new law AND you are below $1B, you do get the exemption."

Thank you, that is the way I applied it when the Biggert Waters Act took effect, we were doing HPML loans and requiring escrows on our residential loans.

I have a separate question (situation) now. Bank under $1 billion back when implementing BWA, still under $1 billion and is currently escrowing and use to escrow prior to 2012, but only followed the $1 billion asset size test. What do you recommend?

That’s a tough one. I believe we have discussed this before. Obviously start escrowing on all applicable loans going forward & send the Option to Escrow to applicable existing borrowers. Should you go back to all applicable borrowers since 1/1/16? Some would say yes. I think it’s a management call. You can’t fix the violation now but you could try to reduce the regulatory “damage” by notifying & starting to escrow. It probably will be a public relations nightmare.

Sorry to drag up this old thread but our bank is no longer able to claim the small creditor exemption so escrowing flood insurance premiums is totally new to us. We have a couple of scenarios that we disagree on and want some expert opinions.

1. A HELOC that is in a flood zone in which we do not require escrow for any of our existing HELOC loans.
2. A commercial loan secured by a 1-4 family dwelling but we also do not require escrow on any commercial loans.

Some of us feel both are exempt but some say they are not. I would appreciate your opinions.

12 CFR 208.25(e)

(ii) Exceptions. Paragraph (e)(1)(i) of this section does not apply if:

(A) The loan is an extension of credit primarily for business, commercial, or agricultural purposes;

(D) The loan is a home equity line of credit;