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A New Plan to Collect Flood Insurance Premiums

Rules proposed by the Federal Reserve, the Office of the Comptroller of the Currency and other regulators would require flood insurance premiums paid by property owners to be automatically set aside in escrow accounts...
October 29, 2014

Rules proposed by the Federal Reserve, the Office of the Comptroller of the Currency and other regulators would require flood insurance premiums paid by property owners to be automatically set aside in escrow accounts. This would ensure property owners in flood-prone areas stay current on their flood insurance bills. The escrow requirement would impact new and refinanced loans made after Jan. 1, 2016.

This requirement for lenders to escrow flood insurance premiums was included in both the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12) and the Flood Insurance Affordability Act of 2014 (GW14), congressional reform legislation for the National Flood Insurance Program (NFIP).

What It Means to Agents: Congress wanted to assure that as lenders require or offer borrowers to escrow for the property taxes and insurance premiums on mortgaged properties, that lenders' "insurance" portion of the escrow also provide for flood insurance premiums. NFIP mandates that lenders include a requirement for flood insurance if the mortgaged buildings are located in a High Hazard Flood Zone. However, this mandate does not preclude lenders from expanding this requirement of their borrowers, as their individual underwriting guidelines may dictate.

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