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Financial Services Law Insights and Observations

Agencies Propose Flood Insurance Rule

FDIC Federal Reserve OCC Flood Insurance Biggert-Waters Act


On October 11, the FDIC, the OCC, the Federal Reserve Board, and other federal agencies (collectively the agencies) proposed a rule to implement changes to certain flood insurance regulations required by the Biggert-Waters Flood Insurance Reform Act of 2012. The proposal generally would, among other things, require premiums and fees for flood insurance to be escrowed for any loans secured by residential improved real estate or a mobile home. The proposal incorporates a statutory exception for any institution with total assets of less than $1 billion that, as of July 6, 2012, was not required by federal or state law to escrow taxes or insurance for the term of the loan and did not have a policy to require escrow of taxes and insurance. The agencies also propose requiring lenders to accept private flood insurance that meets the statutory definition to satisfy the mandatory purchase requirement, but seek comment on whether the final rule should include a provision that expressly permits lenders to accept a flood insurance policy issued by a private insurer that does not meet the definition of "private flood insurance.” The proposed rule also would amend lender-placement provisions to clarify that a lender or its servicer has the authority to charge a borrower for the cost of coverage commencing on the date on which the borrower's coverage lapsed or became insufficient. The proposal also stipulates the circumstances under which a lender or its servicer must terminate lender-placed insurance and refund payments to a borrower, and establishes documentary evidence a lender must accept to confirm that a borrower has obtained an appropriate amount of flood insurance coverage. Comments on the proposal are due by December 9, 2013.