Notice of Proposed Rule
Summary
Prepared by the NASCUS State Regulatory Affairs Department
October 17, 2013
Interagency Rulemaking 12 CFR Part 760
Loans in Areas Having Special Flood Hazards
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The National Credit Union Administration (NCUA), in conjunction with the Office of the Comptroller of the Currency, the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Farm Credit Administration, has issued a notice of proposed rulemaking to implement changes to the Flood Disaster Protection Act (FDPA) required by the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters). These changes are amendments to 12 CFR Part 760. Federally insured state-chartered credit unions (FISCUs) are required to comply with NCUA's Flood Insurance rules pursuant to Part 741.216.
Comments are due to NCUA on December 10, 2013.
NASCUS is reviewing the rule and will be working with the NASCUS Legislative & Regulatory Affairs Committee to determine if NASCUS will file comments and develop the response if warranted. If you have thoughts on this proposed rule you would like to share with NASCUS, please contact Sabrina Cotter () or Brian Knight ().
The proposed rule may be read here:
(Text of the NCUA rule begins on pg. 141)
Rule at-a-Glance:
· Mandates that credit unions must accept private flood insurance (as defined in 760.2(i)) as satisfaction of the flood insurance requirement.
· Creates a safe harbor for flood insurance policies if a State insurance regulator makes a determination in writing that the policy meets the definition of private flood insurance.
· Requires a credit union, or servicer acting on behalf of the credit union, to keep in escrow all premiums and fees for flood insurance required under 760.3(a) on any loan secured by residential improved real estate or a mobile home that is outstanding or entered into on or after July 6, 2014, payable with the same frequency as payments on the loan, for the duration of the loan.
· Establishes an exception to the escrow requirement for credit unions with total assets under $1 billion as of December 31 of either of the two prior calendar years, if they did not have an existing policy requiring an escrow account for premiums and fees, and if not otherwise required by state or federal law.
· Authorizes a credit union to purchase flood insurance on the borrower’s behalf if the borrower fails to obtain the requisite level of coverage within 45 days after notification by the credit union that additional insurance is needed (force-placed insurance).
· Requires a credit union to terminate force-placed insurance and refund to the borrower all premiums and fees paid during any period which the borrower’s flood insurance coverage and the force-placed coverage were each in effect, within 30 days of receiving confirmation of a borrower’s existing flood insurance coverage.
Background
The National Flood Insurance Program (NFIP) makes federally subsidized flood insurance available to owners of improved real estate or mobile homes located in special flood hazard areas. A special flood hazard area is an area within a floodplain that has a 1% chance or greater of flooding in any given year. In 1973, the FDPA made the purchase of flood insurance mandatory, and gave the federal financial regulators authority to direct the lending institutions that they regulate to require flood insurance on improved properties located in special flood hazard areas.
In 1994 Congress passed the Riegle Community Development and Regulatory Improvement Act, which established escrow requirements and force-placed flood insurance coverage in an effort to alleviate the financial burden of flood insurance on the federal government and taxpayers. The Biggert-Waters Act took further steps to bolster the private flood insurance market by mandating that lending institutions accept private insurance and hold premiums and fees on residential improved real estate in escrow, unless they qualify for the statutory exemption. Biggert-Waters also clarifies that lenders may charge borrowers for costs incurred in procuring force-placed insurance from the date that the coverage lapsed, and establishes a procedure for terminating force-placed insurance.
The agencies have specifically requested comments on the proposed safe harbor provision, and whether flood insurance policies issued by private insurers that do not meet the Act’s definition of “private flood insurance” should be allowed to satisfy the mandatory purchase requirement. NASCUS will prepare a comment letter addressing these and other issues, and will circulate it for comment by December 3, 2013. Please feel free to share your thoughts with us in the interim.
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