[khavens]

We have a situation, where a customer is already escrowing taxes and insurance. The maps have changed and they are in a flood zone. The customer went out and purchased flood insurance and paid for it. We have called them to explain, we need to start escrowing for flood insurance for next year and so on. The customer has hung up on the loan officer. We have mailed letters to this customer also. Which would be the best approach for an examiners point of view. Just start escrowing for flood and let the defiency catch up on their escrow analysis next February? Or should we cancel their escrow totally,including hazard & taxes? Or is there some other way I’m not thinking about.

Topic

[Debra]

I don’t think you are required to have the borrower escrow for flood before the 1/1/16 date…unless I am missing something.

This is a cut from the FDIC letter on the flood changes:

Escrow: The final rule requires institutions to escrow premiums and fees for flood insurance required by Part 339 for certain designated loans that are made, increased, extended, or renewed on or after January 1, 2016. It requires lenders to offer and make available to consumers the option to escrow premiums and fees for certain loans outstanding as of January 1, 2016. The final rule also implements exemptions to the escrow requirement provided under the HFIAA.

I’ve attached the hyperlink to the FDIC Summary Letter below.

https://www.fdic.gov/news/news/financial/2015/fil15032.pdf

Just my 2 cents.

[rcooper]

You must comply with the current flood escrow rules until new flood escrow rules are effective on January 1, 2016. Here’s a link to the OCC’s version of the current flood regulation escrow rule (see 12 CFR 22.5): https://www.gpo.gov/fdsys/pkg/CFR-2015-title12-vol1/pdf/CFR-2015-title12-vol1-sec22-5.pdf

Also, here is a link to similar question we answered: https://mycomplianceresource.com/forums/topic/escrow-for-flood-remapping/

[khavens]

§ 22.5 Escrow requirement.
If a bank requires the escrow of
taxes, insurance premiums, fees, or any
other charges for a loan secured by residential
improved real estate or a mobile
home that is made, increased, extended,
or renewed on or after October
1, 1996, the bank shall also require the
escrow of all premiums and fees for any
flood insurance required under § 22.3.

This part is where I’m getting hung up on then. We are escrowing currently for taxes and insurance, so flood should be required…right?

[rcooper]

Yes, you should escrow for flood on this loan since you are escrowing for other fees – I’m sorry you’re having a difficult time getting the borrower to communicate with you.

I wouldn’t recommend cancelling an escrow account after you determine flood insurance is required. It could be seen as a way to avoid compliance with the flood regulations current escrow rule.

[Jody]

We are a bank that reached total assets of $1 billion plus during 2015. I am getting hung up on the word either in 339.5(c)(1)(i) and the word consecutive in 339.5(c)(2).

Since we have not had assest of $1 billion for two consecutive years are we a small lender?

339.5 Escrow Requirement. (c)(1)(i) That has total assets of less than $1 billion as of December 31 of either of the two prior calendar years; and ….

339.5 Escrow Requirement (c)(2) [C]hange in status…has assets of $1 billion or more for two consecutive calendar year ends, the FDIC-supervised institution must escrow premiums and fees for …

[rcooper]

You are correct. Since as of Dec. 31 of one of the “two prior calendar years” (i.e. 2014 in your case) you had assets of less than $1 billion you are considered a small lender under this part. You just need to make sure you meet the other requirements in order to utilize the exception.

The exception will no longer apply once you have had two consecutive years of assets at $1 billion or more (e.g. 2015 and 2016).

[Author]

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