Document Changes: Notice of Special Flood Hazards (Cx11) and new Flood Insurance Warnings

On July 21, 2015, six Federal agencies finalized regulatory requirements implementing certain provisions of the Homeowner Flood Insurance Affordability Act of 2014 (80 FR 43216 [2015]). These amendments impose new requirements on the escrowing of flood insurance premiums, with the following dual effective dates:

• October 1, 2015 (the provisions of which apply to “a loan secured by residential improved real estate or a mobile home that is made, increased, extended or renewed after October 1, 1996” in which an escrow account has been established).
• January 1, 2016 (the provisions of which apply to loans “secured by residential improved real estate or a mobile home that is made, increased, extended, or renewed on or after January 1, 2016.”)

Of particular note is the fact that two different versions of the model “Notice of Special Flood Hazards” form (see 12 CFR § 208.25, App. A) have been promulgated, one to be used for loans between October 1 and December 31, 2015 and the other to be used for loans made on January 1, 2016.

As a result of these regulations, we have modified Cx11 to dynamically match the various versions of the model form. For the October version, text in the form will dynamically print to match the text of this version when:

• “Today’s Date” is not empty and is greater than or equal to 10/01/2015; or
• “Estimated Closing Date” is not empty and is greater than or equal to 10/01/2015.

Similarly, the updated text to the January version will dynamically print under the same conditions, except only if the dates are greater than or equal to January 1, 2016. We will also be printing Cx11 on letter-sized paper by default now, rather than legal-sized.

In addition to revising the model form, the new regulations also require flood insurance premiums to be escrowed under certain conditions. For loans subject to the October 2015 revisions, flood insurance premiums are required to be escrowed if an escrow account has been established for other assessments. For loans subject to the January 2016 revisions, flood insurance premiums must be escrowed regardless.

In order to help clients comply with these requirements, we are creating two new Warnings which will appear if flood insurance premiums are being collected, but are being waived from escrow. While the new requirements apply to most loans, there are some minor exceptions under 12 CFR § 208.25(d)(2) & (e), hence the reason for the Warnings rather than “hard-stop” restrictions. Some (but not all) of these exceptions include:

• Loans of an original principal balance of $5,000 or less and a repayment term of one year or less;
• Loans primarily for a business, commercial, or agricultural purpose (applies only to January 2016 provisions);
• A subordinate loan, but only if flood insurance coverage is obtained in connection with a senior lien (applies only to January 2016 provisions);
• Flood insurance coverage is provided through a condominium, cooperative, HOA, or other similar group (applies only to January 2016 provisions);
• HELOCs (applies only to January 2016 provisions);
• The term of the loan is 12 months or less (applies only to January 2016 provisions); and
• Small business entities (less than $1 billion in assets; applies only to January 2016 provisions).

The text of the warnings are as follows:

 
These changes will take effect on September 19, 2015. If you have any questions or concerns, please contact Client Support at 1.800.497.3584.

September 15, 2015
DR 182706