United States: Consumer Finance Update: Proposed Rulemaking Under The Homeowner Flood Insurance Affordability Act Of 2014

On October 24, 2014, the Board of Governors of the Federal Reserve System, Farm Credit Administration, Federal Deposit Insurance Corporation, National Credit Union Administration and Office of the Comptroller of the Currency (the "Agencies") announced that they have approved a joint notice of the Agencies' proposed rulemaking to amend regulations pertaining to loans secured by property located in special flood hazard areas. The proposed rule: (1) implements certain provisions of the Homeowner Flood Insurance Affordability Act of 2014 (the "HFIAA") relating to escrowing flood insurance payments, which amends the escrow provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 ("Biggert-Waters"), and (2) provides clarification with respect to HFIAA's stated exemption for certain detached structures from the mandatory flood insurance purchase requirement. A description of each of these requirements, as well as important dates for implementing such requirements, is contained below. Comments to the proposed rule will be due 60 days after it is posted to the Federal Register, which is expected to occur shortly.

New Requirements Regarding Escrowing Flood Insurance Payments

The Agencies' proposed rule generally requires regulated lending institutions, or servicers acting on their behalf, to escrow premiums and fees for flood insurance for any loans secured by residential improved real estate or mobile homes that are made, increased, extended or renewed on or after January 1, 2016, with certain exceptions from this requirement for regulated lending institutions that: (i) have total assets of less than $1 billion; (ii) as of the date of enactment of Biggert-Waters, were not required by Federal or State law to escrow taxes or insurance for the term of the loan; and (iii) did not have a policy to require escrow of taxes and insurance. In addition, pursuant to the proposed rule, regulated lending institutions must offer and make available to a borrower the option to escrow flood insurance premiums and fees for loans that are outstanding as of January 1, 2016, and all premiums and fees subject to this escrow requirement must be payable with the same frequency as payments on the loan that are made for the duration of the loan. The proposed rule also includes the following exceptions from the escrow requirement, as amended by HFIAA: (i) loans that are in a subordinate position to a senior lien secured by the same property for which flood insurance is being provided; (ii) loans secured by residential improved real estate or a mobile home that is part of a condominium, cooperative, or other project development, provided certain conditions are met (i.e. that the association maintains the proper flood insurance coverage for the entire property); (iii) loans that are extensions of credit primarily for a business, commercial or agricultural purpose; (iv) home equity lines of credit; (v) nonperforming loans; and (vi) loans with terms not longer than twelve months. The proposal implements these provisions generally as provided in HFIAA, with additional clarifications to provide more specific guidance to regulated lending institutions in administering this requirement.

In an effort to assist regulated lending institutions to comply with the aforementioned requirements, the Agencies' proposed rule includes new and revised sample notice forms in Appendices A and B. Specifically, the proposal amends the current Sample Form of Notice of Special Flood Hazards and Availability of Federal Disaster Relief Assistance included in Appendix A of the Agencies' proposed regulations, to add language concerning the revised escrow requirement and includes an additional sample clause, Sample Clause for Option to Escrow for Outstanding Loans in Appendix B to assist institutions in complying with the proposed rule's requirement to inform borrowers of outstanding loans about their option to escrow flood insurance premiums and fees.

Significantly, the Agencies noted in their announcement that the amendments made by HFIAA to the current statutes regarding the escrow requirement will not supersede the current escrow provisions during the period beginning on July 6, 2012, and ending on December 31, 2015. Accordingly, regulated lending institutions are advised to comply with the escrow requirements included in the Flood Disaster Protection Act prior to its being amended by Biggert-Waters.

HFIAA's Exemption For Certain Detached Structures From The Mandatory Flood Insurance Purchase Requirements

Consistent with Section 13(a) of HFIAA, the Agencies' proposed rule includes an exemption to the general mandatory flood insurance purchase requirement for certain detached structures on properties located in special flood hazard areas. Specifically, the statute provides that flood insurance is not required to be purchased, in the case of any residential property, for any structure that is "a part of such a property but is detached from the primary residential structure and does not serve as a residence." Although the proposed rule does not provide clarification regarding what constitutes either a "primary residential structure" or a structure that does not serve as a "residence," the Agencies stated that this exemption seeks to exclude "relatively low-value structures" from the mandatory purchase requirement (i.e. detached sheds and garages). It is important to note, however, that Section 13(a) does not require regulated lending institutions to exempt all detached structures from flood insurance coverage. The proposed rule allows regulated lending institutions to continue to require flood insurance on certain detached structure as a matter of safety and soundness, as the Agencies understand that some detached structures might be of relatively high value (i.e. a detached greenhouse).

The Agencies acknowledged that there may be some lingering ambiguity in the proposed rule as it relates to Section 13(a) of HFIAA. In their announcement, the Agencies specifically solicited comment from regulated lending institutions and other industry participants to determine whether further clarification is necessary. As mentioned above, from a reading of the proposed rule, there remains uncertainty as to when such structures serve as a "residence," but may not meet certain State or local definitions of "residence," or when a detached structure that was not initially a "residence" becomes a "residence." Additionally, the proposed rule applies this exemption to "residential property" without including a definition for the term. The exclusion of such a definition creates ambiguity as the term "residential" may refer not only to the type of property securing the loan, but also to the purpose of the loan. It appears from the Agencies' announcement that they are amenable to providing further clarification based upon comments received from regulated lending institutions and other industry participants.

Further, the Agencies proposed an amendment to their regulations on the use of the standard flood hazard determination form for structures exempted from the mandatory flood insurance purchase requirements pursuant to Section 13(a) of HFIAA. Specifically, the proposed amendment would clarify that a regulated lending institution is not required to perform a flood hazard determination for any properties or structures that are exempt from the mandatory flood insurance purchase requirement because flood insurance is not required on such properties and structures. It is the Agencies' belief that requiring regulated lending institutions to determine whether such properties or structures are located in a special flood hazard area is unnecessary and would ultimately result in borrowers being charged unnecessary fees.

Finally, the Agencies note in their announcement that Section 13(b) of HFIAA, which the Consumer Financial Protection Bureau is expected to implement, amends section 5(b) of the Real Estate Settlement Procedures Act. This new section requires regulated lending institutions to send a related disclosure to borrowers informing them that they may still wish to obtain, and mortgage lenders may still require borrowers to maintain, flood insurance even when it is not required by the Flood Disaster Protection Act, as amended.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
22 Jan 2019, Seminar, San Francisco, United States

Dentons is pleased to offer a full day of classes, just in time for the California MCLE compliance period deadline of January 31, 2019.*

23 Jan 2019, Seminar, Los Angeles, United States

Dentons is pleased to offer a full day of classes, just in time for the California MCLE compliance period deadline of January 31, 2019.*

24 Jan 2019, Other, New York, United States

Join Dentons’ Health Care Partner Lori Mihalich-Levin and White Collar & Government Investigations Counsel Christine Genaitis as they lead conference sessions at AHLA Academic Medical Centers and Teaching Hospitals Institute.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions