As winter approaches, many credit unions are about to make changes to their Final Flood Insurance Rule Amendments that went into effect Oct. 1, 2015, and more changes are on the horizon with the flood insurance rules, which will start Jan. 1, 2016.

Financial institutions with assets of $1 billion or more will have to begin escrowing for flood insurance premiums and other fees for any designated loan secured by residential improved property or a mobile home that is originated, refinanced, increased, extended or renewed on or after Jan. 1, 2016. However, there is a small lender exemption for financial institutions with assets of less than $1 billion. These institutions are not required to escrow for flood insurance premiums and fees, unless they have a policy of uniformly and consistently escrowing for taxes and insurance or if they were otherwise required by Federal or State law to escrow for taxes and insurance as of July 6, 2012 (the enactment date of the Biggert-Waters Act) for the term of the loan.

The federal financial regulatory agencies jointly amended their flood insurance regulations in order to incorporate changes effected by the Homeowner Flood Insurance Affordability Act of 2014 credit unions need to pay attention to not only the regulators, but also to the weather predictions.

According to a NOAA report, many coastal communities throughout the country could experience a higher number of floods between now and April of next year. In some cases there could be between a 33 to 125% increase in “nuisance flooding days.”

In California, wet weather is expected to create havoc to homeowners. Since 1978 in California, 37% of all flood insurance claims have come as a result of just two winters, 1982-83 and 1997-98 – the last two times that strong El Niño conditions similar to this year's have occurred. In both of those winters, pounding rainfall caused flooding, mudslides and other damage across the state. Forecasters say that January, February and March are expected to get the brunt of this winter's heavy rainfall across California. There is a 30-day waiting period for new flood insurance policies to go into effect.

A recent NOOA report states that higher sea levels and frequent storm surge, compounded by the strengthening El Niño, will result in the highest number of nuisance flooding days on record in some communities along the Mid-Atlantic and West Coast.

With this wet weather predicted for most coastal cities, the most operationally significant change for certain credit unions or servicers acting on their behalf, coming out of this Final Rule will likely be the changes to the escrow requirement effective for loans closing on or after Jan. 1, 2016.

Vicki Chenault, senior vice president of Escrow Services Division for CoreLogic which includes the Flood Services business unit, encourages credit unions of all sizes, to give equal consideration to the regulatory changes that became effective on Oct. 1, specifically the exemption of the mandatory purchase requirement for non-residential detached structures on residential properties securing loans made by credit unions:

“It is significant that Congress took action to amend a portion of the law that has not been amended in 20 years by adding to the short list of exemptions to the mandatory purchase requirement. The credit unions should take note of the additional specifics within the NCUA regulations, such as what is meant by a structure not serving 'as a residence,” Chenault said.

Chenault pointed out that in the regulation itself, referring to 12 C.F.R. 760.4(c)(3), the NCUA acknowledges that the determination of whether or not a structure serves “as a residence” shall be based upon the “good faith determination” of the credit union.

“I understand some of the challenges that this requirement presents and I'm glad to see the agencies recognize this with the 'good faith' threshold,” she said. “Additionally, as pointed out by the NCUA and the other agencies recently, credit unions can still require flood insurance on these non-residential detached structures based on value or other reasons.”

Instant Insights /

Flood Insurance Regulations: Weather or Not You Need to Be Concerned

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