Flood insurance rules changes for lenders

(From an article in Florida Realtors online newsletter)

WASHINGTON – Oct. 23, 2013 – A group of federal agencies joined together to create flood insurance policy rules.

A rule proposed yesterday would implement some provisions of the Biggert-Waters Flood Insurance Reform Act of 2012. If it becomes official after a comment period that ends Dec. 10, 2013, it will impact the way lenders handle homeowner’s flood insurance coverage.

Agencies proposing the rule include: The FDIC, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the National Credit Union Administration and the Farm Credit Administration. If approved, it would impact all loans under each agency, and it would apply to all institutions that have less than $1 billion in assets.

Proposed rule highlights

• Lenders would be required to accept private flood insurance policies for mortgage loans that require coverage. To qualify, a private insurance policy must meet the statutory definition of “private flood insurance” and adhere to the minimum requirements under the Flood Disaster Protection Act.

• Lenders must tell homeowners if private flood insurance is available, and encourage them to compare rates and benefits of private coverage against those offered by the National Flood Insurance Program (NFIP).

• Lenders must escrow flood insurance premiums and fees, making the coverage part of a homeowner’s monthly mortgage payment. The proposed rule includes some specific details, such as when lenders must begin escrowing, including a 90-day written notice before escrowing outstanding loans. It also includes an exemption for some smaller lenders, as well as for business, commercial and agricultural loans, second lien loans, and residential condominium association policies.

• Lenders could still force-place a flood insurance policy on any homeowner that drops or takes out too little coverage. However, the rule would require the lender to terminate a force-placed insurance policy and refund any payments within 30 days for overlapping coverage.

The complete rule and information on how to submit a comment by the deadline, Dec. 10, 2013, is available as a PDF on the FDIC’s website.

The FDIC also offers a one-page PDF summary on its website. https://www.fdic.gov/news/financial-institution-letters/2013/fil13048.pdf

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