Written by Brandy Bruyere, Regulatory Compliance Counsel
Cautious Optimism Regarding Flood Escrow Requirements. On July 6th, 2012 President Obama signed the Biggert-Waters Flood Insurance Reform Act into law. Biggert-Waters introduced a host of changes to flood insurance, including mandatory escrowing of flood insurance premiums for a broad range of both existing and new home loans. The law also included a provision that the escrow requirements would become effective on July 6th, 2014. On October 10th, 2013 NCUA and several of its fellow regulators issued a joint proposed rulemaking implementing the various requirements of the Biggert-Waters. The escrow proposal applied to nearly all loans secured by real estate in a flood zone. While Biggert-Waters also included an exception for some credit unions, this was very narrow. Only credit unions with less than $1 billion in assets and did not have a consistent, uniform policy of escrowing their real estate loans would be exempt. Without final regulations, the looming July 6th deadline has been causing some anxiety in the compliance community for those trying to stay on top of their regulatory obligations.
There is tentatively good news this Friday in regards to escrow accounts for flood insurance. Congress recently passed a bill amending Biggert-Waters, including reforming the escrow provisions. President Obama is expected to sign this bill which would be helpful for those credit unions concerned about the upcoming July deadline.
First, the bill will delay the implementation date for the flood escrow requirement until January 1st, 2016. This gives NCUA and other regulators time to finalize regulations in accordance to the changes to the law. Additionally, the new law narrows the scope of the escrow requirement by excluding several additional kinds of loans from the law. The excluded loans now include:
- Home equity lines of credit;
- Loans secured by real estate or a mobile home that is used for a business purpose;
- Loans secured by a condominium or similar property where the association provides flood insurance as part of common expenses;
- Junior or subordinate loans where flood insurance is already provided under the superior loan;
- Nonperforming loans; and
- Loans with terms of 12 months or less.
Finally, while Biggert-Waters required credit unions to escrow both outstanding and new loans, the new law relieves some of the regulatory burden by making flood escrows for outstanding loans optional. Outstanding loans are those which still have a remaining balance and would be subject to the flood escrow rule if the loan had been originated, refinanced, increased, extended, or renewed on or after January 1st, 2016. Instead of mandating flood escrows for these accounts, instead credit unions must offer members the option to escrow their flood premiums for these loans. Overall, this law, if signed as expected, will provide a reprieve by both delaying and narrowing the scope of the Biggert-Waters flood escrow requirement.
NCUA Board Holds March Meeting. The NCUA Board met yesterday with two items on its agenda. First, the Board received an update on the Temporary Corporate Credit Union Stabilization Fund. Second, the Board unanimously approved a joint rulemaking regarding minimum requirements for appraisal management companies. However, Chairman Matz noted that NCUA, while required to participate in this rulemaking by Dodd-Frank, is actually the only financial regulator that is “lacking the regulatory authority to examine vendors for safety and soundness and compliance with laws and regulations.” For more information, the March Board Action Bulletin is available here.
The New Compliance GPS Has Landed! The 2014 edition of NAFCU’s Credit Union Compliance GPS is here! This comprehensive, electronic resource translates complex regulatory language into plain English. The latest edition includes an expanded section on Reg E and the Remittance Transfer Rule, 7 new sections on the CFPB’s mortgage rules, improved user-friendly search functions, including more hyperlinks and bookmarks and much more. Get yours today!
Finally, I can’t share good news without adding a happy canine photo to the blog. I thought about discussing March Madness, but I’m not really qualified. Also, I become irrationally angry when bracket-busters do not work in my favor! Anyway, here is what my dog looks like when he’s pretending to be a sports fan watching college basketball: