Federal bank regulators have proposed regulations that would require automatic escrowing of the premium payments on flood insurance policies. Federally regulated mortgage lenders are already required to make sure borrowers living in designated flood hazard areas purchase and maintain flood insurance. The new regulations would intensify efforts to ensure that borrowers don’t let their policies lapse. The Federal Reserve, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, Farm Credit Administration and the National Credit Union Administration have jointly proposed the rules, which, if finalized, would apply to loans originated after July 1, 2016. The proposal includes another change that homeowners will probably like a lot more than the escrow requirement. It would eliminate the requirement for flood insurance on buildings that are detached from the main residential structure as long as they are not used for residential purchases. There is a potential escape hatch for lenders, however. The new rules would allow them to require insurance on detached structures if necessary to protect the collateral securing the mortgage.
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