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Federal Agencies Propose Clarifications to Flood Insurance Rules

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Five federal agencies are collaborating to clarify rules related to flood insurance requirements. The agencies released proposed revisions to an existing interagency document regarding flood insurance last week and are inviting comments on their proposal.

The Interagency Questions and Answers Regarding Flood Insurance is a joint effort by the Board of Governors of the Federal Reserve, the Farm Credit Administration, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency. The document was last updated in 2011.

In 2015, the agencies issued a new rule to implement parts of the Biggert-Waters Flood Insurance Reform Act of 2012 and the Homeowner Flood Insurance Affordability Act of 2014. This rule is detailed in the proposed updates to the document.

The agencies also noted that “over the years, the lending industry has requested that the Agencies provide additional guidance of flood insurance compliance issues on many occasions.”

Also, during a review of regulations, the agencies received comments requesting more guidance on renewal notices for forced-plan insurance policies, flood insurance amount requirements, and requirements for tenant-owned buildings and detached structures.

In addition to including the new rules based on the regulations from 2012 and 2015, the proposed changes to the document would reorganize the document in order to make it easier for lenders, servicers, regulators, and policyholders to find the sections pertinent to them.

The agencies also aim to improve clarity in several areas in order to “help reduce the compliance burden for lenders.”

The proposal includes new questions related to escrow of flood insurance premiums, requirements and exemptions for detached structures, and information on forced-placement procedures.

The agencies proposed six new questions and answers regarding exemptions for detached properties. They would also include details of exemptions for state-owned properties and properties with loans for less than $5,000 and a duration of one year or less.

While these exemptions apply, the agencies will also explain that borrowers may still purchase flood insurance, and “a lender may still require flood insurance as a condition of making the loan for purposes of safety and soundness, depending on its risk analysis.”

The proposal also addresses the issue of flood insurance requirements during times when the National Flood Insurance Program (NFIP) is unavailable, stating that lenders may make loans without flood insurance coverage but “must continue to make flood determinations, provide timely, complete and accurate notices to borrowers and comply with other aspects of the Regulation.” Lenders are also urged to continue to manage risk appropriately when the NFIP is not available.

The agencies also announced their intention to release a separate question and answer document for private flood insurance requirements.

About Author: Krista F. Brock

Krista Franks Brock is a professional writer and editor who has covered the mortgage banking and default servicing sectors since 2011. Previously, she served as managing editor of DS News and Southern Distinction, a regional lifestyle publication. Her work has appeared in a variety of print and online publications, including Consumers Digest, Dallas Style and Design, DS News and DSNews.com, MReport and theMReport.com. She holds degrees in journalism and art from the University of Georgia.
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