Written by Shereefat Balogun, Regulatory Compliance Counsel
Consumer Compliance Outlook. The Third/Fourth Quarter 2015 issue of the Federal Reserve’s Consumer Compliance Outlook is now available. Articles in this issue, which focuses on flood insurance compliance, include:
- Agencies Issue Final Rule for New Flood Insurance Requirements
- Flood Insurance Compliance Requirements
The Editors noted that the issue is devoted to flood insurance compliance because flood insurance requirements regularly appear among the top-cited violations by examiners.
As a reminder, on July 21, 2015 NCUA, along with several other regulators, jointly published a final rule to implement new flood insurance requirements enacted by the Biggert-Waters Flood Insurance Reform Act of 2012 (BWA) and the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA). We previously blogged about the topic earlier here.
Generally, the rule requires that credit unions escrow premiums and fees for flood insurance for loans secured by residential improved real estate or mobile homes that are made, increased, extended or renewed on or after January 1, 2016, unless the credit union or a loan qualifies for a statutory exception.
We receive a lot of compliance questions relating to the statutory exceptions. Generally, our members want to know which loans and which lenders are exempted from the new flood insurance requirements. The rule provides the following exceptions to the escrow requirements:
- The loan is primarily for business, commercial or agricultural purposes;
- The loan is in a subordinate position to a senior lien secured by the same residential improved real estate or mobile home for which the borrower has obtained flood insurance coverage.
- The flood insurance coverage is provided by a policy that meets the requirements of 760.3(a) and is provided by a condominium association, cooperative, homeowners association, or other applicable group as a common expense;
- The loan is a home equity line of credit;
- The loan is a nonperforming loan that is 90 or more days past due; or
- The loan is a term of less than 12 months.
Moreover, the rule includes a “small lender” exception. The rule exempts any credit union with total assets of less than $1 billion (as of December 31st of either of the two previous calendar years) that, as of July 6, 2012,:
- was not required under federal or state law to deposit taxes, insurance premiums, fees, or any other charges in an escrow account for the entire term of any loan secured by residential improved real estate or a mobile home; and
- did not have a policy of consistently and uniformly requiring the deposit of taxes, insurance premiums, fees, or any other charges in an escrow account for loans secured by residential improved real estate or a mobile home.
The article on Agencies Issue Final Rule for New Flood Insurance Requirements provides an excellent summary of the flood insurance escrow requirements. The issue also contains a resource page with helpful flood insurance links.
CFPB Assists with Application of TRID to Construction Loans. Earlier this week, the CFPB published a fact sheet on how construction loans are affected by TILA/RESPA Integrated Disclosure (TRID) rules. The fact sheet notes that construction loans are:
- covered by the “know before your owe” mortgage disclosures unless the loans are open-end transactions or are for a commercial purpose, and
- covered by existing provisions under Regulation Z, including the Loan Estimate and Closing Disclosure rule.
The fact sheet also covers how to disclose a construction loan with permanent financing as either one transaction or more than one transaction.
NAFCU Regulatory Affairs Department: Update from Washington
Live Webcast: Thursday, January 28 | 2:00 p.m. – 3:30 p.m. EST
Part of the CFPB/NCUA Webcast Series
The industry’s best Regulatory Affairs team is your direct connection to credit union regulatory updates and rulemakings brought by the CFPB, NCUA and other regulators. Through this webcast you’ll receive an update on what’s new coming out of Washington, and how it could affect your most vulnerable departments. Learn about overdraft, field of membership, the future of payments and other essential topics.
Programming Note. NAFCU's office will close at noon today and will also be closed on Monday for the long holiday weekend. We will be back to blogging on Wednesday. Have a great long weekend!