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

Financial institutions with assets of $1 billion or more willhave to begin escrowing for flood insurance premiums and other feesfor any designated loan secured by residential improved property ora mobile home that is originated, refinanced, increased, extendedor renewed on or after Jan. 1, 2016. However, there is a smalllender exemption for financial institutions with assets of lessthan $1 billion. These institutions are not required to escrow forflood insurance premiums and fees, unless they have a policy ofuniformly and consistently escrowing for taxes and insurance or ifthey were otherwise required by Federal or State law to escrow fortaxes and insurance as of July 6, 2012 (the enactment date of theBiggert-Waters Act) for the term of the loan.

The federal financial regulatory agencies jointly amended theirflood insurance regulations in order to incorporate changeseffected by the Homeowner Flood Insurance Affordability Act of 2014credit unions need to pay attention to not only the regulators, butalso to the weather predictions.

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

In California, wet weather is expected to create havoc tohomeowners. Since 1978 in California, 37% of all flood insuranceclaims have come as a result of just two winters, 1982-83 and1997-98 – the last two times that strong El Niño conditions similarto this year's have occurred. In both of those winters, poundingrainfall caused flooding, mudslides and other damage across thestate. Forecasters say that January, February and March areexpected to get the brunt of this winter's heavy rainfall acrossCalifornia. There is a 30-day waiting period for new floodinsurance policies to go into effect.

A recent NOOA report states that higher sealevels and frequent storm surge, compounded by the strengthening ElNiño, will result in the highest number of nuisance flooding dayson record in some communities along the Mid-Atlantic and WestCoast.

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

Vicki Chenault, senior vice president of Escrow ServicesDivision for CoreLogic which includes the Flood Services businessunit, encourages credit unions of all sizes, to give equalconsideration to the regulatory changes that became effective onOct. 1, specifically the exemption of the mandatory purchaserequirement for non-residential detached structures on residentialproperties securing loans made by credit unions:

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

Chenault pointed out that in the regulation itself, referring to12 C.F.R. 760.4(c)(3), the NCUA acknowledges that the determinationof whether or not a structure serves “as a residence” shall bebased upon the “good faith determination” of the credit union.

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