WASHINGTON—NCUA is among five federal agencies that have issued a joint notice of proposed rulemaking to amend regulations pertaining to loans secured by property located in special flood hazard areas.
The proposed rule would implement provisions of the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA) relating to escrowing flood insurance payments and the exemption of certain detached structures from the mandatory flood insurance purchase requirement. HFIAA amends the escrow provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 (the Biggert-Waters Act).
In accordance with HFIAA, the proposed rule would require regulated lending institutions to escrow premiums and fees for flood insurance 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 regulated lending institution or a loan qualifies for a statutory exception.
In addition, the proposed rule would require institutions to provide borrowers of residential loans outstanding on Jan. 1, 2016, the option to escrow flood insurance premiums and fees. The proposal includes new and revised sample notice forms and clauses concerning the escrow requirement and the option to escrow.
Finally, the proposal would eliminate the requirement to purchase flood insurance for a structure that is a part of a residential property located in a special flood hazard area if that structure is detached from the primary residential structure and does not also serve as a residence. However, under HFIAA, lenders may nevertheless require flood insurance on the detached structures to protect the collateral securing the mortgage.
In a separate rulemaking, the agencies will address other provisions of the Biggert-Waters Act for which the agencies have jurisdiction and that were not amended by HFIAA.
Joining NCUA in issuing the proposal are the Federal Reserve System, the Farm Credit Administration, the FDIC, and the Office of the Comptroller of the Currency.