The federal regulatory agencies have issued interagency guidance to inform financial institutions about revisions to the Flood Disaster Protection Act ( FDPA ), which was amended by the Biggert-Waters Flood Insurance Reform Act of 2012 ( Act ).
The guidance states the following elements became effective upon passing of the Act:
- FDPA violation civil money penalties increased to $2,000, per occurrence, and the previous cap on penalties was removed.
- Lenders or servicers may charge a borrower for premiums and fees incurred for force-placed insurance coverage beginning on the date flood insurance coverage lapsed or was less than the amount required by the FDPA. However, force-placed insurance must be terminated and all associated premiums and fees refunded to the borrower within 30 days if a lender or servicer receives evidence of existing flood insurance coverage.
The guidance states the following elements are not effective until further regulations are issued:
- Lenders will be required to disclose to borrowers that private flood insurance policies will be accepted if the coverage satisfies the standards specified in the Act.
- Lenders and servicers will be required to establish escrow accounts for flood insurance premiums and fees for residential improved real estate or a mobile home that is originated after July 6, 2014. However, a financial institution that meets both of the following requirements will be exempt if:
- It has less than $1 billion in assets.
- As of July 6, 2012, it was not required by federal or state law to escrow taxes or insurance for the term of the loan, and it did not have a policy to require escrow of taxes and insurance.
View the interagency guidance. To discuss the impact of the guidance on your institution, please contact the expert listed below at PYA, (800) 270-9629.
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