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Federal Banking Regulators Issue Flood Insurance Rule

June 25, 2015

On June 22, the Federal Reserve, the Farm Credit Administration, the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration and the Office of the Comptroller of the Currency finalized a joint final rule regarding loans secured by properties located in special flood hazard areas. The final rule implements provisions of the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA).

What It Means to Agents: The rule generally requires regulated lending institutions to escrow flood insurance premiums and fees for loans secured by residential improved real estate or mobile homes that are made, increased, extended or renewed on or after January 1, 2016, unless the loan qualifies for a statutory exception.

The rule requires institutions to provide borrowers of residential loans outstanding as of January 1, 2016, the option to escrow flood insurance premiums and fees.

The rule includes a statutory exemption from the requirement to purchase flood insurance for a structure that is a part of a residential property if that structure is detached from the primary residence and does not also serve as a residence. However, lenders may nevertheless require flood insurance on the detached structures to protect the collateral securing the mortgage.

This rule does not address the private flood insurance provisions in the Biggert-Waters Act. The agencies plan to address these provisions in a separate rulemaking. The rule also implements provisions in the Biggert-Waters Flood Insurance Reform Act of 2012 (the Biggert-Waters Act) relating to the force placement of flood insurance. The text of the full rule can be found here.

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