On July 6, 2020 (85 FR 40442), the Federal agencies proposed to reorganize, revise, and expand the Interagency Questions and Answers Regarding Flood Insurance. The agencies previously revised the Q&As in 2009 and 2011. These Q&As help lenders meet their responsibilities under Federal flood insurance law and to increase public understanding of their flood insurance regulations.
The agencies are proposing these revisions in light of the significant changes to flood insurance requirements pursuant to the Biggert-Waters Act and Homeowner Flood Insurance Affordability Act, as well as regulations issued to implement these laws. Further, over the years, the lending industry has requested that the agencies provide additional guidance on flood insurance compliance issues on many occasions, including at conferences and through interagency webinars.
The proposed rule includes the following potential revisions, among others:
• Reorganizes the Q&As to provide a more logical flow of questions through the flood insurance process, and a new system of designation.
• Addresses the potential for lapses in the authorization of the National Flood Insurance Protection (NFIP).
• Provides additional information, including factors, regarding the sufficiency of private flood insurance.
• Provides guidance regarding when a flood insurance policy must be effective, specifically what “closing date” means in “wet funding” and “dry funding” states.
• Certain aspects of the detached structure exemption.
• That flood insurance is required on the contents regardless of whether the security interest in the contents is perfected.
• That multi-family buildings or mixed-use properties are included in the definition of “residential improved real estate” and therefore subject to the escrow requirement, unless an exemption applies.
• That when a junior lienholder determines the primary lienholder does not have sufficient flood insurance coverage in place and is also not escrowing, the junior lienholder would need to ensure sufficient insurance is in place and would need to escrow.
• Escrow for construction-permanent loans.
• That even if a lender provides a notice before the expiration date of flood insurance, it is still required to send a force-placed notice once flood insurance has lapsed or become insufficient.
The proposed rule can be found here: https://www.govinfo.gov/ content/pkg/FR-2020-07-06/ pdf/2020-14015.pdf.