NAFCU Compliance Blog

Taking a Closer Look at the Interagency Statement on Flood Insurance – Part 2: Private Flood Insurance and Escrow of Flood Insurance Payments

Written by Bernadette Clair, Regulatory Compliance Counsel

Last week we blogged about the Interagency Statement on the Impact of the Biggert-Waters Act (Statement) and several provisions of the Biggert-Waters Act (Act) that became effective upon enactment on July 6, 2012 – dealing with civil money penalties and force placement of insurance.

The Statement also addresses provisions that are not yet effective and will require rulemaking by the federal regulatory agencies. These provisions include:

Private Flood Insurance. Currently a lender may, but is not required to, accept private flood insurance that meets the requirements of the Flood Disaster Protection Act (FDPA). The Act amended the mandatory purchase requirement to require lenders to accept private flood insurance policies as satisfaction of the mandatory purchase requirement if the coverage provided by the private flood insurance satisfies the standards specified in the Act.

The Act also requires lenders to disclose to borrowers that:

• Flood insurance under the National Flood Insurance Program (NFIP) is available from private insurance companies or from the NFIP directly;
• Flood insurance that provides the same level of coverage as an NFIP policy may be available from private insurance companies; and
• Borrowers are encouraged to compare policies.

 These provisions of the Act are not effective until implementing regulations are issued.

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Escrow of Flood Insurance Payments: The Act also contains a provision requiring lenders and servicers to escrow flood insurance payments for new and existing residential real estate and mobile home secured loans outstanding or entered into after July 6, 2014.

There is a limited exemption for certain institutions. Except as may be required under state law, an institution with assets less than $1 billion is exempt from the escrow requirement if the institution, as of July 6, 2012, was not required by federal or state law to escrow taxes or insurance for the term of the loan, and the institution did not have a policy of requiring the escrow of taxes and insurance.

This section of the Act also requires implementing regulations and as noted in the Statement, the agencies intend to publish escrow regulations in sufficient time for the industry to implement them prior to July 2014.

Taking a Closer Look at the Interagency Statement on Flood Insurance: Civil Money Penalties and Force Placement of Insurance

Written by Bernadette Clair, Regulatory Compliance Counsel

In our April 1st blog, we mentioned the release of an Interagency Statement on the Impact of the Biggert-Waters Act (Statement) by several agencies including the NCUA. (As of this posting, NCUA has not issued its own announcement, but in the meantime the Statement is available on the Office of the Comptroller of the Currency’s website here.) For more information about the Act itself, see our blog from July 25th of last year.

The Statement was issued to provide guidance on the “effective dates of certain provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 (the Act), enacted July 6, 2012, and the impact of the Act on the Agencies’ proposed Interagency Questions and Answers.” Agency rulemaking will be required to implement some of the Act’s provisions; however, today we want to point out several provisions that became effective upon enactment on July 6, 2012, dealing with civil money penalties and force placement of insurance.

Civil Money Penalties. The Act amended the Flood Disaster Protection Act of 1973 (the FDPA) to increase the civil money penalties that can be assessed against lenders for failure to comply with flood insurance requirements. The maximum civil money penalty for a FDPA violation has been increased to $2,000.  The Act also removed the penalty cap per year.

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Force Placement of Insurance. The Act also amended the FDPA to require lenders to release a force-placed policy within 30 days of receipt of confirmation of a borrower’s flood insurance coverage and refund premiums for the period during which the force-placed policy and the borrower’s policy were both in effect. From the Statement:

 “The FDPA provides that a lender or its servicer must notify a borrower if it determines that the flood insurance coverage on the improved real estate or mobile home serving as collateral for the borrower’s loan has expired or is less than the amount required for that particular property (42 USC 4012a(e)). The notice must inform the borrower of the need to purchase flood insurance. If the borrower fails to purchase flood insurance within 45 days after notification, the lender or servicer must purchase flood insurance on behalf of the borrower and may charge the borrower for the cost of premiums and fees incurred by the lender or servicer. The Act amends the FDPA to:

• Provide that the premiums and fees that a lender or servicer may charge the borrower include premiums or fees incurred for coverage beginning on the date on which flood insurance coverage lapsed or did not provide sufficient coverage amount;

• Require the lender or servicer, within 30 days of receiving a confirmation of a borrower’s existing flood insurance coverage, to terminate any force-placed insurance and refund to the borrower all force-placed insurance premiums and any related fees paid for by the borrower during any period of overlap between the borrower’s policy and the force-placed policy; and

• Require a lender or servicer to accept as confirmation of a borrower’s existing flood insurance policy a declarations page that includes the existing flood insurance policy number and the identity and contact information for the insurance company or agent.”

 Note in particular the first bullet above, which points out that the FDPA has been amended to specifically provide that a lender can charge the borrower for premiums and fees incurred for coverage beginning on the date flood insurance coverage lapsed.

The ability to charge a borrower for insurance coverage within the 45 day notification period has been the topic of discussion for years and was the subject of multiple versions (available here and here) of proposed Interagency flood insurance Q&A #62.  The amendment to the FDPA clarifies that it is permissible to charge for policy coverage that begins on the date that flood insurance lapsed, which would include charges incurred for coverage within the 45 day notice period.  Accordingly, the Agencies have indicated that Q&A #62 is no longer necessary and will not be finalized.

Interagency Statement on Flood Insurance; NAFCU's April Compliance Monitor; Go Blue!

Written by Steve Van Beek

On Friday afternoon, the Office of Comptroller Currency posted an Interagency Statement on the impact of the Biggert-Waters Act. NCUA is a part of the interagency group and I expect that they'll issue an announcement early this week. According to the statement, "this guidance discusses the effective dates of certain provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 (the Act), enacted July 6, 2012, and the impact of the Act on the Agencies’ proposed Interagency Questions and Answers."

Specifically, the Interagency Statement discusses:

• Force Placement
• Civil Money Penalties
• Private Flood Insurance
• Escrow of Flood Insurance Premiums
• Interagency Q&As

The full Interagency Statement is here.

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April Compliance Monitor. The April 2013 NAFCU Compliance Monitor is now available for download (NAFCU members only). The April issue includes a detailed article on new Mortgage Loan Originator Requirements as well as an article outlining the New Homeownership Counseling Disclosure Requirement. If you've missed any Compliance Monitors in 2013, head to this link where you can find the 2013 issues as well as direct links to the main articles.

Additionally, the April 2013 edition of NAFCU's Compliance Calendar & Pending Regulations Chart is also available.

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Final Four Bound. In case you missed Michigan's domination of Florida yesterday, I've conveniently included a link to the highlights here. And, who can forget Friday's outstanding comeback against Kansas. If you were wondering my reaction to Trey Burke's three-pointer late in regulation, this video pretty much sums it up (if you need a refresher on the 1998 World Cup and Dennis Bergkamp, I've got you covered).

Go Blue!

Updated Forms – Standard Flood Hazard Determination; SCRA Notice Disclosure

Written by Bernadette Clair, Regulatory Compliance Counsel

In honor of Friday, we’ll take a break from the CFPB and keep it light today.  These are a couple of forms that have recently been updated and that you’ll want to make sure don’t slip under the radar.

Standard Flood Hazard Determination (SFHD) Form.  FEMA recently updated the SFHD Form used for determining whether flood insurance is required and available in connection with making, increasing, extending, renewing or purchasing a loan.  The form number has been changed from FEMA Form 81-93 to FEMA Form 086-0-32 and the expiration date of the new form is May 30, 2015.

FEMA indicates that it will be allowing users a three year transition period, ending on the expiration date (May 30, 2015), to update their systems before use of the revised form is mandatory.  Credit unions can continue using the previous form until the end of the transition period, and can begin using the new form as soon as their systems are updated.  The new form is available here.

Servicemembers Civil Relief Act (SCRA) Notice Disclosure.  HUD has issued an updated Form HUD-92070 with an expiration date of November 30, 2014.  (The previous form expired July 31, 2012).  Since 2006, mortgage lenders have been required to send delinquent homeowners this notice informing them of the rights available under the SCRA.  Credit unions should begin using the updated notice if they have not already done so.

Have a great weekend, everyone!

National Flood Insurance Program Extension Comes with Additional Requirements; NAFCU Regulatory Alerts

Written by Bernadette Clair, Regulatory Compliance Counsel

In our July 11th blog, we mentioned that President Obama signed a long-term reauthorization of the National Flood Insurance Program (NFIP), extending the program through September 30, 2017.  In addition to the five-year extension, the Biggert-Waters Flood Insurance Reform Act of 2012 (Act), which can be found here starting on page 521, contains additional provisions impacting credit unions.

Here are a few highlights that caught my eye:

• Increased Penalties.  The Act increases civil money penalties that can be assessed against lenders for failure to comply with flood insurance requirements.  The Act sets forth a penalty of $2,000 per violation and removes the penalty cap.
• Mandatory Escrow.  The Act contains a provision requiring lenders to escrow flood insurance payments.  The requirement applies to “any mortgage outstanding or entered into on or after the expiration of the 2-year period beginning on the date of enactment of this Act.” (Section 100209(b)).  There is a limited exemption for institutions with assets of less than $1,000,000,000 that meet certain additional criteria.
• Disclosures.  Notification will be required under RESPA that flood insurance is available under the NFIP or from a private insurance company, whether or not the real estate is located in an area having special flood hazards.
• Force-Placed Insurance.  The Act requires lenders to release a force-placed policy within 30 days of receipt of confirmation of a borrower’s flood insurance coverage and refund premiums for the period during which the force-placed policy and the borrower’s policy were both in effect.
• Premium Subsidies.   Provision of the Act also phase out certain federal premium subsidies, and prohibits subsidies for any property not previously insured by the NFIP or with a lapsed flood insurance policy.  These changes could impact member’s flood insurance premiums for second home loans, refinances, as well as other loans.

FEMA has indicated that guidance on the NFIP implementation will be provided in future bulletins.

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Regulatory Alerts.  NAFCU’s Regulatory Affairs Team has issued two Regulatory Alerts seeking input from NAFCU members on the CFPB’s proposed TILA/RESPA rule.  The first alert, 12-EA-19, covers the proposed definition of finance charge.  The additional proposed changes are covered by the second alert, 12-EA-20.

House Passes ATM Disclosure Fix; Flood Insurance Extended for 5 Years; HMDA

Written by Steve Van Beek

ATM Disclosure Bill.  On Monday, the House voted 371 to 0 to pass H.R. 4367 which would remove the "on the machine" fee disclosure requirement from the Electronic Funds Transfer Act (and 12 CFR 1005.16 of Regulation E).  Up next, NAFCU will continue to push the Senate to pass a similar bill.    

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Flood Insurance.  On Friday, President Obama signed a long-term reauthorization of the National Flood Insurance Program.  The five-year extension pushes the program through September 30, 2017.  This long-term extension will provide some sense of certainty in the mortgage market in the upcoming years.  Even as most other parts of the mortgage process will be changed by Dodd-Frank, at least credit unions will not need to worry about continual lapses of the flood insurance program.  

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The CFPB's republishing of the consumer regulations has caused a couple of technical issues.  Hopefully, these will be fixed by the CFPB in the future - but I wanted to point one out as an important resource has been accidently hidden during the republishing.  

HMDA Commentary.  The official staff commentary of Regulation C provides extensive information and discussion on the underlying HMDA reporting requirements.  Unfortunately, during the republishing the official staff commentary - Supplement I - was pushed under Appendix B in the Electronic Code of Federal Regulations.  Until this is fixed, you'll need to go to Regulation C in the e-CFR and then scroll through Appendix B in order to find the official staff commentary to Regulation C (Supplement I).    

Flood Insurance; Reverse Mortgages; NCUA Letter 12-CU-07; Hearing on Mobile Payments

Written By JiJi Bahhur, Regulatory Compliance Counsel

Flood Insurance.  On Friday, Congress approved an omnibus agreement that, among other things, provides a five-year reauthorization for the National Flood Insurance Program (NFIP).  The law includes a NAFCU-backed clarification on lenders’ force-placement of flood insurance when coverage lapses.  President Obama is expected to sign this into law soon as this issue goes to press.  For the latest, check out NAFCU Today. 

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The CFPB’s Reverse Mortgages Report.  Last Thursday, the Consumer Financial Protection Bureau (CFPB) sent a very lengthy report to Congress addressing reverse mortgages.  While compiling the information for the report, the CFPB found that reverse mortgages are complex and difficult for consumers to understand, and increasingly, have resulted in unintended use. 

Since Dodd-Frank gives the CFPB the authority to implement rules on reverse mortgage transactions, the CFPB is seeking information so that it can consider future rulemakings on the topic.  From the report to Congress, the CFPB found four areas where additional research would help determine if additional consumer education or regulatory action is needed.  Those four areas include:

• Factors that influence reverse mortgage consumers’ decision-making;
• Consumers’ use of reverse mortgage loan proceeds;
• Longer-term consumer outcomes of a decision to obtain a reverse mortgage; and
• Differences in market dynamics and business practices among broker, correspondent, and retail channels. 

Although there are not many credit unions that offer reverse mortgages, this is something to keep an eye on.  The request for information is published in the Federal Register with a 60-day comment period.  Also, the CFPB published a four-page consumer guide to reverse mortgages. 

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NCUA Letter 12-CU-07.  Last Thursday, the National Credit Union Administration (NCUA) released a letter to credit unions addressing interagency guidance designed to protect military homeowners changing duty stations.  The NCUA Letter to Credit Unions on Mortgage Servicing Practices Impacting Military Homeowners (Letter No: 12-CU-07) details the steps that credit unions servicing mortgage loans to military families should take to implement the Interagency Guidance on Mortgage Servicing Practices Concerning Military Homeowners with Permanent Change of Station Orders, which we blogged on last week.  The guidance addresses unfair, deceptive, or abusive practices in relation to homeowners serving in the military and who have received Permanent Change of Station (PCS) orders.

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Hearing on Financial Services and Consumer Credit.  Last Friday, FinCEN’s Director, James H. Freis, and CFPB’s Assistant Director of Card and Payment Markets, Marla Blow, testified before the Financial Services Subcommittee, on mobile payments.  The gist of the testimony was that existing regulations would need to be examined to determine if there are barriers that need to be addressed, and if so, how to update the regulations to address potential concerns. 

To view the testimonies of James H. Freis and Marla Blow, go here and here. 

Qualified Mortgages; Flood; Compliance Monitor; Fair Lending Webinars

Written by Steve Van Beek

Below are just a few quick items for your Friday - have a great weekend!

Qualified Mortgages.  The Consumer Financial Protection Bureau has reopened the comment period for their Qualified Mortgage rule (also known as the Ability-to-Repay rule).  The new comment period ends on July 9, 2012.  It had been expected that the CFPB would finalize this rule in early 2012 but it kept getting pushed back - with good reason as this rule has the potential to significantly alter the mortgage market - and now looks like it will be late 2012 before a final rule.  Dodd-Frank requires the rule in place by January 2013.  The CFPB's notice regarding the extended comment period is here. 

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Flood.  A 2-month extension was passed and then signed by President Obama.  This extends the National Flood Insurance Program (NFIP) through July.

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NAFCU's Compliance Monitor.  Our June 2012 issue of NAFCU's Compliance Monitor is now available for download by NAFCU members.  This month the articles focus on Reporting Interest Payments to Nonresident Aliens as well as the increased Focus on Fair Lending.

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Fair Lending Webinars.  The Federal Reserve's Consumer Outlook Live series is hosting a June 21st webinar on 2010 Census Data - What it Means for CRA, HMDA and Fair Lending Compliance.  The webinar is free and follows on the heels of their November 2, 2011 - Fair Lending Issues and Hot Topics webinar (archived version available).   

The Federal Credit Union (TFCU) Magazine; Flood; NCUA Regulatory Review

Written by Steve Van Beek

A couple of weeks back, we highlighted the Compliance Central articles in past The Federal Credit Union magazine editions.  Well, NAFCU has recently updated and enhanced The Federal Credit Union and released a reader-friendly digital version.

To view the May/June issue of The Federal Credit Union go here and click on the image.  The digital version is interactive allowing you to click on a particular article and be taken directly to that page.  This month's issue includes articles on:

• The 55+ Advantage - How credit unions are leverageing opportunities with older Americans.
• In the Year 2022 - Are credit unions prepard for the mobile future?

This is in addition to the usual Compliance Central articles and views from NAFCU's President/CEO Fred Becker and NAFCU's Chair.  Again, the digital version is available here.  

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Flood.  The House seems on track to pass a flood insurance extension - providing an additional 60-days of coverage.  Something tells me we'll have similar stories and discussions in a few months on flood.  Additional information is available in the NAFCU Today.

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NCUA's Regulatory Review.  NAFCU has released its Regulatory Alert (12-EA-12) on NCUA's Annual Regulatory Review of its regulations.  Take a minute to analyze the regulations under review and send along your comments.  Now is the time to voice your comments and frustrations with the existing regulations.  And, by sending your comments to NAFCU - you can get your message to NCUA anonymously.  

More on Prepaids; NCUA Grants Available; NCUA on YouTube; Flood Insurance Update

Written by Steve Van Beek

Below are just a couple short items to help you ease into the upcoming long weekend.

CFPB ANPR on Prepaids.  The CFPB's ANPR was published today in the Federal Register.  Comments are due by July 23, 2012.  NAFCU members - our Regulatory Affairs team will have a Regulatory Alert out in the near future.

For more on prepaids, the CFPB's press release is here and Director Cordray's speech is here.  

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NCUA Grants and Loans.  Credit unions with a low-income designation might want to take a look at NCUA grants and loans through their Community Development Revolving Loan Fund (CDRLF).  NCUA has a YouTube video with additional details on the program.  

Importantly, NCUA has prioritized its 2012 grants for the following:

• Financial literacy and education in school branches;
• New product and service development;
• Staff, official, and board member training;
• Student and job creation internships; and
• Volunteer Income Tax Assistance. (emphasis added).

Additional information on the process can be found in Letter to Credit Unions 12-CU-04 and the Enclosure (which includes the grant guidelines).  

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NCUA's May Economic Update.  NCUA has a new Youtube video with their May 2012 Economic Update.  

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Flood Insurance.  The NAFCU Today has the latest on a possible Flood Insurance extension.  If you are interested in having the NAFCU Today emailed to you each day, you can sign up here.  The NAFCU Today is open to everyone who is interested.