The new escrow requirement is mandated by the Biggert-Waters flood insurance reform bill Congress passed in 2010.
“For loans requiring flood insurance that are made on or after July 6, 2014, banks would be required to begin escrowing upon consummation,” according to a joint notice of proposed rulemaking issued by five regulatory agencies.
“For loans that are outstanding on July 6, 2014, banks would be required to begin escrowing with the first loan payment after the first renewal date of the borrower’s flood insurance policy on or after July 6, 2014,” the joint notice says.
“This timing for outstanding loans is intended to alleviate the potential burden of the new requirement on lenders and borrowers,” the regulators said.
The Federal Reserve Board, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency, Farm Credit Administration and National Credit Union Administration issued the joint notice of proposed rulemaking. The comment period ends Dec. 10.