Pub. 6 2015 Issue 3

www.wvbankers.org 26 West Virginia Banker Introduction On June 22, 2015, the Federal banking regulators issued changes to regulations covering loans secured by residential real estate or mobile homes in special flood hazard areas. The new rules implement the Homeowner Flood Insurance Affordability Act of 2014 (HIFAA). HIFAA repealed and modified certain provisions of the Biggert-Waters Flood Insurance Reform Act (BWA), and makes additional program changes to aspects of the program not covered by BWA. This article will focus on HIFAA changes to escrow requirements for flood insurance premiums, and changes to force-placed re- quirements for flood insurance, exemptions for mandatary flood insurance for certain structures other than the main residence. The effective date for HIFAA is generally October 1, 2015, with the escrow changes effective January 1, 2016. Escrow of Flood Insurance Premiums HIFAA requires mandatory escrowing for flood insurance for loans secured by residential real estate or mobile homes in special flood hazard areas for loans that are M ade, I ncreased, R enewed, or E xtended on or after January 1, 2016. The acronym M.I.R.E. may be helpful in remembering these flood insurance triggers. Mandatory escrow is subject to exceptions including a small bank exception and exceptions by loan purpose. A bank may not be subject to the mandatory escrow requirements if the bank had total assets of less than $1 billion and, as of July 6, 2012, at enactment of BWA, was not otherwise required by state or federal law to escrow taxes, and did not have a policy of requiring escrow of taxes or insurance premiums. It is worth noting that some banks under $1 billion may have already been required by Regulation Z to escrow taxes and insur- ance in either 2010, when that requirement became effective for higher priced mortgage loans or in 2013, as a result of regulations implementing the Dodd-Frank Act. The 2013 changes included exemptions for lenders in rural or underserved markets. Loan purpose exemptions include: • Loans primarily for business, commercial or agricultural purposes • Loans secured by junior liens, if the borrowers already have flood insurance • Loans secured by an interest in a condominium, cooperative or other project development and covered by flood insurance purchased by the group association • Loans secured by an interest in a condominium, cooperative or other project development and covered by flood insurance purchased by the group association • Loans secured by an interest in a condominium, cooperative, Revised Flood Insurance Regulations Include Escrow Requirements By Richard C. Donovan, CPA, CRCM, CTP, Arnett Carbis Toothman LLP