Interagency Statement on Impact of Biggert-Waters Act on Flood Insurance Rules

March 29, 2013 at 10:10 pm Leave a comment

The joint banking agencies released an Interagency Statement that discusses the effective dates of certain provisions of the Biggert-Waters Flood Insurance Reform Act of 2012.  The amendments and their effective dates are discussed below.

1.  Force Placement of Flood Insurance.  The Biggert-Waters Act amends certain terms of the Flood Disaster Protection Act governing a lender’s obligation to force place a policy of flood insurance.  The amendments (i) address the fees and premiums that lenders may charge borrowers, (ii) require the lender to terminate force-placed insurance and to refund certain charges to the borrower after the borrower has obtained the requisite coverage, and (iii) permit lenders to rely on a declarations page as confirmation of a borrower’s existing flood insurance.  

These amendments became effective upon enactment of the Biggert-Waters Act last summer. 

2.  Civil Money Penalties.  The maximum civil money penalty for violations of the FDPA has been increased from $350 per violation to $2,000 per violation.  The amendments also remove the annual cap on such penalties.

These amendments became effective upon enactment of the Biggert-Waters Act last summer.

3.  Private Flood Insurance.  The Biggert-Waters Act amends the mandatory purchase requirement to require lenders to accept private flood insurance policies as long as the coverage complies with the standards set forth in the Biggert-Waters Act.  Lenders are required to notify borrowers that (i) flood insurance is available from private insurance companies or from NFIP directly, (ii) private insurers may provide the same level of coverage as an NFIP policy, and (iii) borrowers are encouraged to compare policies.

These amendments will not be effective until specific regulations are issued at a future date.

4. Escrow of Flood Insurance Payments.  Lenders and servicers must establish escrow accounts for flood insurance premiums and fees for covered loans outstanding or entered into after July 6, 2014.   Unless state law provides otherwise, a lender may be exempt from the escrow requirement if (i) the institution has less than $1 billion in assets, and (ii) as of July 6, 2012, the institution was not required to escrow taxes or insurance for the term of the loan and it did not have a policy to require escrow of taxes and insurance.

These amendments will not be effective until specific regulations are issued at a future date.

To read the full text of the Interagency Release, click here.

Entry filed under: Uncategorized.

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