WASHINGTON—Mortgage servicers will be required to escrow premiums and fees for flood insurance under a regulation now being proposed by federal banking agencies.
Don Griffin. vice president, personal lines for the Property and Casualty Insurers Association of America and also chairman of the WYO Flood Insurance Coalition, said most large lenders and their servicers already allow homeowners required to have flood to spread out their premium payments over 12 months. This will likely only impact small lenders who do not already do so, and therefore make the practice uniform, he said.
John Prible, vice president of federal government affairs for the Independent Insurance Agents and Brokers of America, added that, "This will provide an additional payment option for consumers, which is a good thing as long as the Federal Emergency Management Agency gets it right and doesn't make it too cumbersome on either banks or WYO's."
At the same time, Griffin said action on another key financing provision, allowing those who have paid off their homes or do not otherwise qualify for escrowing to pay their NFIP on installments, will likely not be implemented for awhile. However, the new proposal will further limit the need for people to use the installment provision when it is implemented, he acknowledged.
According to Griffin and insurance industry officials, most large mortgage servicers already allow premiums for the National Flood Insurance Program (NFIP) to be paid as part of their monthly mortgage payment, but this will make it uniform.
The rule is being published for comment with a 60-day comment period. It would be effective as of Jan. 2016 when published as a final rule.
The proposal is being published by the Federal Reserve System; the Farm Credit Administration; the Federal Deposit Insurance Corporation; the National Credit Union Administration; and the Office of the Comptroller of the Currency. It was mandated by the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA), which was enacted in March, and lessened the burdens imposed by a 2012 law that reauthorized the NFIP until 2017.
The proposed rule would also require mortgage servicers to provide borrowers of residential loans outstanding on Jan. 1, 2016, the option to escrow flood insurance premiums and fees. The proposal includes new and revised sample notice forms and clauses concerning the escrow requirement and the option to escrow.
It impacts residential real estate and mobile homes.
The proposal, if implemented, would also eliminate the requirement to purchase flood insurance for a structure that is a part of a residential property located in a special flood hazard area if that structure is detached from the primary residential structure and does not also serve as a residence.
However, under the proposal HFIAA, lenders may nevertheless require flood insurance on the detached structures to protect the collateral securing the mortgage, federal agency officials said.
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