Lallis and Higgins Blog

Federal Agencies Require Escrow for Flood Insurance Beginning January 2016

Joseph Coupal - Wednesday, July 01, 2015
Five federal financial agencies finalized a rule requiring lenders to escrow flood insurance premiums for homes in flood zones, and exempting homeowners from a requirement to buy flood insurance for detached structures.

Here are some highlights from this amendment that was passed this week: 
 - Banks & Mortgage services must escrow for flood insurance premiums on mortgages made, amended, renewed or extended after      
   1/1/2016 for special flood hazard areas. 
- Lenders are required to offer clients with pre-existing loans by 6/30/2016 the option to escrow.
- This rule only applies to residential home and mobile home mortgages 
- Limited exceptions may apply for situations including condo's, home equity, commercial credit, and financial institutions with small-   
   bank exceptions 


The rule is from federal agencies with financial oversight responsibilities: the Office of the Comptroller of the Currency, the Federal Reserve System, the Federal Deposit Insurance Corporation, the Farm Credit Administration and the National Credit Union Administration. The rule implements provisions of the 2014 Homeowner Flood Insurance Affordability Act, which was designed to address concerns resulting in some of the provisions included in the Biggert-Waters flood insurance reform law of 2012. 

The agencies also clarified that under Biggert-Waters, financial institutions have the authority to charge borrowers for the cost of lender-placed flood insurance coverage starting on the date the borrower’s coverage lapses or becomes insufficient. You can find the complete publication on the new rule here.


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