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Joint Final Flood Insurance Rules

In order to fulfill the compliance requirements in connection with the release of the Joint Final Flood Insurance Rules, Cenlar is taking the following actions stated below.  Please review this information carefully.  There are actions which will be required on your part to assist us in properly servicing your loans to ensure compliance.

Business Purpose – Flood Compliance

Background:  On June 22, 2015 the FDIC, OCC, Federal Reserve, Farm Credit  Administration and National Credit Union Administration announced approval of a joint final rule implementing provisions of the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA) and the Biggert-Waters Flood Insurance Reform Act of 2012. The final rule does not address private flood insurance provisions. The aforementioned agencies plan to address those provisions in a separate rule making.

Impacted Flood Rules:

Detached Structure Exemption– Effective 10/01/2015:

The final rule states that flood insurance is not required for any structure that is part of a residential property if it is detached from the primary residential structure and does not serve as a residence.

Lenders can require coverage on these detached structures as a matter of safety and soundness and in the borrower’s best interest.

Actions /Considerations:

New Loans & Existing Loans at Renewal

  • Unless Cenlar is advised otherwise, new loans and existing loans with detached non-residential structures situated in a special flood hazard area after 10/01/2015 will not be tracked for flood insurance covering the detached structure(s).
  • If any detached structures require flood insurance, whether on new loans or existing loans, the Client must advise Cenlar via an e-mail to the FloodInsDetachedProp@Cenlar.com box. The email must include the Replacement Cost Value and description of the structure, i.e. Guest House, and note if it is a new or existing loan.Force Placement of Flood Insurance – Effective 10/01/2015:
  • The final rule clarifies the authority to charge borrowers for the cost of forced-placed flood insurance coverage commencing on the date on which borrower-purchased coverage lapsed or on which the coverage became insufficient.
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  • Until further notice, Cenlar will continue its force placed flood insurance after a three (3) letter process cycle, and premiums will be charged after the 45-day Notice Period
  • All properties will be insured under a Binder during the letter cycle

Termination of Forced-Placed Flood Insurance – Effective 10/01/2015

Termination of coverage and refunds are required within 30 days of receipt of satisfactory evidence of insurance.

  • All refunds of hazard & flood premiums are completed within 15 calendar days

Escrow Requirement – Effective January 1, 2016:

Escrow for flood insurance premiums will be required for any designated loan secured by residential improved real estate or a mobile home that is made, increased, extended, or renewed on or after January 1, 2016.  The final rule excepts certain loans from this requirement and also contains an exception for small lenders (Clients,) namely banks that had total assets of less than $1 billion as of  July 6, 2012 and did not have a policy to require escrow of taxes and insurance.

Loans are excluded from this Rule if:

  • The loan is an extension of credit primarily for business, commercial, or agricultural purposes;
  • The loan is in a subordinate position to a senior lien secured by the same residential improved real estate or mobile home for which the borrower  has obtained flood insurance  coverage that meets the requirements;
  • Flood insurance coverage for the residential improved real estate or mobile home is provided by a policy that is provided by a condominium association, cooperative, homeowner’s association, or other applicable group; and
  • The premium for which is paid by the condominium association, cooperative, homeowner’s association, or other applicable group as a common expense;
  • The loan is a home equity line of credit;
  • The loan is a nonperforming loan, which is a loan that is  90 or more days past due and remains nonperforming until it is permanently modified or until the entire amount past due, including principal, accrued interest, and penalty interest incurred as the result of past due status, is collected or otherwise discharged in full; or
  • The loan has a term of no longer than 12  months.

Actions/Considerations

  • Cenlar’s Clients will need to advise Cenlar, via their Client Relations Manager,  if they are exempt from this Escrow Rule. If Cenlar is not informed of any exempt status, Cenlar will proceed to establish the required escrow accounts.
  • Any non-escrow loan modified, renewed or extended, after 12/31/2015 requires an escrow for flood insurance.
  • A Zone remap is not considered a triggered event and escrow need not be established.  However, borrowers will be given the option to escrow at the time of notification that the subject property has been remapped into a special flood hazard area.

Option Notice – Must be delivered by June 30, 2016:

Notice is required to allow borrowers the option to escrow for flood insurance and fees for loans that are outstanding as of January 1, 2016. Notice must be issued to borrowers of this escrow option by June 30, 2016 and the escrow must be implemented as soon as reasonably practicable after receiving a borrower’s request to escrow.

  • Cenlar will provide the following information to Clients by 12/31/2015:
    • Loans to receive notice;
    • Loans to be excluded from mailing;
    • Draft borrower option notice for review.
  • A finalized list will be provided when the borrower notices are issued.
  • Option notices will be mailed by April 30, 2016.
  • Procedures for escrow collection are under review and will be shared once completed.
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