Under current rules, when is flood insurance required to be escrowed?

From what I read, it seems to be only if we require a customer to setup an Escrow account. Is that correct?

We currently only require a customer to have an escrow account if they have PMI. Any other escrow accounts that are setup are because the consumer requested to have the escrow. So for the consumer requested escrow accounts, we wouldn't be required to escrow Flood Insurance?

I have the same question because I just found a note to myself that as of July 16, 2014 escrow for flood is required on all residential improved property.

Is this really effective now or are we waiting for new regulations?

January 2016 is the new date

What Bville found was the Biggert-Waters Act requirements. This part of BWA was modified by the HFIAA and delayed until 1/1/16.

So, current rules are:
You must escrow ONLY when you are already escrowing for something else AND they are in a SFHA. This does not include voluntary escrows.

As currently amended, when 2016 comes will it mean that banks that currently don't escrow any loans (except pre-existing HPMLs) under the rural/underserved exemption have to start escrowing flood loans (thereby ruining their rural/underserved exemption, which says that only those referenced 'pre-existing' HMPL loans could have escrow accounts and keep the exemption)? I didn't think so, but i've been having renewed doubts.

You will have to wait for the regulations to be issued, but the proposed regulations prior to the extension of the effective date basically exempted institutions under $1B in assets.

Thanks Randy.

Hopefully, I can get a quick response. Let's sat at origination, the borrower's property was not in a flood zone. Also, let's assume that his loan is a HPML which requires insurance and taxes to be escrowed.

Fast forward 2 years and we are informed that the flood map has changed and now the borrower's property is in a flood zone. I know that the borrower will have to purchase flood insurance, but do we have to require him to escrow flood insurance premiums going forward?

Yes. If there is an escrow account, you are always required to escrow flood insurance premiums.

Thank you Randy!!

Randy, I just sat through the FDIC Teleconference where it stated that the exception for escrow had 3 requirements:

1. assets of less than $1B;
2. On or before 7-6-12 you were not required by law to escrow for a loan; and
3. Did not have a policy to require escrow of T&I.

Since the 7-6-12 date in in the middle of the time that we were required to escrow for HPML, it looks like the only way you will be exempt from escrowing is if you did not do any HPML and have never done an escrow. Anyone else interpret it this way?

I'm not looking at the HFIAA, but I believe there's an exemption for escrows that result only from HPML's. IOW, if the only escrows you have are because the loan is a HPML, and you meet the other conditions (<$1B), you're not a "escrowing" bank. Therefore, you don't have to escrow for flood insurance in 2016.

Queen Mum, that's how I read things too. I didn't see the exemption that David spoke of. Hopefully I just overlooked it.

"The statute states that, except as provided by State law, regulated lending institutions that have total assets of less than $1 billion are excepted from this escrow requirement if, on or before July 6, 2012, the institution: (i) In the case of a loan secured by residential improved real estate or a mobile home, was not required under Federal or State law to deposit taxes, insurance premiums, fees, or any other charges in an escrow account for the entire term of the loan; and (ii) did not have a policy of consistently and uniformly requiring the deposit of taxes, insurance premiums, fees, or any other charges in an escrow account for loans secured by residential improved real estate or a mobile home."
https://www.federalregister.gov/articles...od-hazards#h-16

1) is your exemption if you only escrowed when required to do so by regulation, i.e. HPMLs.

But it also states "...if you meet the following:

1. assets of less than $1B; AND
2. On or before 7-6-12 you were not required by law to escrow for a loan; AND
3. Did not have a policy to require escrow of T&I.

I hope they clarify this in some way. A seminar I recently attended was thinking that we might have to escrow. Only institutions that didn't do HPML loans would end up being exempt.

They have done a pretty good job of clarifying this in the proposed regulations. I guess it is different than I previously read it. If you were making HPML loans prior to 07/06/12, you are going to have to escrow going forward regardless of what your standard escrow policy might have been.

Therefore, if on or before July 6, 2012, the institution: (i) was not required under Federal or State law to deposit taxes, insurance premiums, fees, or any other charges in an escrow account for the entire term of any loan secured by residential improved real estate or a mobile home; and (ii) did not have a policy of consistently and uniformly requiring the deposit of taxes, insurance premiums, fees, or any other charges in an escrow account for any loans secured by residential improved real estate or a mobile home, the institution may be eligible for the small lender exception provided it meets the size threshold.

We are a small lender in a rural and underserved area. But we did escrow for HPML loans when required by regulation. I don't know why they used a date smack dab in the middle of the HPML required time period.

The date is the date of enactment of the Biggert-Waters Act. The regulators did not select the date, Congress did.

So, because we have some loans that are HPML, we will have to require all flood insurance premiums to be escrowed correct? Effective January 2016.

Unless they do something to amend the dates, that's how I read it!

Me too Queen Mum. You know there always has to be something. Thanks!

Would this be for all loans that are required to have flood insurance or just the HPML's?

All loans.

But not until January 2016, correct?

That is correct.