WASHINGTON — Regulators finalized a rule Monday requiring financial institutions to escrow flood insurance premiums and fees for loans on real estate located in a flood zone.
Under the rule, which is similar to the six agencies' October 2014 proposal, the escrowing for flood insurance payments will cover loans on "residential improved" real estate and mobile homes starting next year. The final rule makes some technical changes and clarifications to the proposal based on feedback from stakeholders. For example, the regulators clarified the definition of certain detached structures that are exempted from the flood insurance requirement.
The rule implements changes made by the Homeowner Flood Insurance Affordability Act of 2014 meant to fix some of the unintended consequences of an early 2012 law, which had led to some consumers seeing jumps in their insurance premiums. (The six agencies are the NCUA, Federal Reserve Board, Farm Credit Administration, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency.)
Certain regulated institutions with less than $1 billion in assets are exempt from the escrow requirement. The rule also clarified that a regulated institution can charge a borrower for the cost of force-placed insurance while also detailing situations when a force-placed policy must be terminated.
The final rule also includes new and revised sample notice forms for covered institutions to send information to borrowers about their escrow options.