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Wednesday, October 22, 2014

Flood Insurance Rules on Escrow, Detached Structures Proposed

The FDIC board voted to issue a proposed rule implementing the mandatory escrow and detached structure requirements in this year’s Homeowner Flood Insurance Affordability Act, which addressed affordability problems in the 2012 Biggert-Waters flood insurance reform law.

The proposal — issued jointly with the OCC, Federal Reserve, Farm Credit Administration and National Credit Union Administration — would exempt detached structures that are not used as a residence from a requirement to be insured, protecting homeowners from steep insurance bills for storage sheds or garages. While this provision was effective on enactment, the proposal would formally include it in the agencies’ rules, and the agencies solicited comment on necessary clarifications.

The proposal also addressed HFIAA-required exceptions to the mandatory escrow requirement covering subordinate loans on the same property, loans for condos or coops, loans with a primary purpose of business or agriculture, home equity lines of credit, nonperforming loans and loans with terms of less than one year. Lenders would be required to offer customers an option to escrow starting in January 2016, when the escrow requirements begin for new and renewed loans. The proposal also included new and revised sample forms and contract text.

The agencies said they plan to address in a separate rulemaking provisions of Biggert-Waters on the acceptability of non-NFIP policies and expectations for lender-placed flood insurance. Comments are due 60 days after publication in the Federal Register.

Read the proposed rule.

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