ARLINGTON, Va.—Looking for guidance related to escrowing of flood insurance for credit unions that have recently gone through a merger?
NAFCU's Loran Jackson, NAFCU's regulatory compliance counsel, reviews the rules governing escrow requirements for institutions that once qualified for the small lender exception.
Jackson offered the example of one credit union that met the small lender exception being acquired by a larger credit union that never qualified for the exception. Do the credit unions need to begin escrowing flood insurance premiums for the loans that were made while the small lender exception applied?
Not a Lot of Guidance
She said there is not a lot of guidance for the small lender exception as not many credit unions qualify for it, but does find some direction within the "change in status" provision of the NCUA's flood insurance rules escrow requirements:
- For new loans, credit unions are required to begin following the escrow requirements on July 1 of the first calendar year of the change in status
- For existing loans that did not require a flood insurance escrow but the borrower decided to extend or renew the loan on or after July 1 of the first year of the change in status, credit unions must begin escrowing
- For existing loans that were not renewed or extended but are still outstanding after the change in status, credit unions are required to offer borrowers the option to escrow the premiums for flood insurance.
When to Contact Attorney
Jackson stated that the language in the rule refers only to credit unions that once qualified for the small lender exception and now no longer do; there is no explicit reference for whether the acquiring credit union should be treated as though there was a "change in status."
For credit unions experiencing this type of scenario, Jackson recommends consulting with an attorney for advice on how to proceed.