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FEMA NFIP Program Changes and GSE Escrow Shortage Updates

NFIP Program and Flood Insurance Manual Changes

FEMA has announced multiple amendments to the National Flood Insurance Program (NFIP) in efforts to offset potential future losses and reduce the amount of carried risk. Some notable actions by the agency include:

  • Obtaining nearly $1.5 billion in reinsurance coverage
  • Withdrawing ‘non-compete’ rule permitting insurers that sell NFIP-backed policies through the “Write Your Own” (WYO) program to sell private flood insurance coverage as well
  • Slightly decreasing the amount the NFIP pays WYO insurer participants, a move that could cause premiums to lower for policyholders and send more funds to the NFIP to pay more claims

In addition, a revised NFIP Flood Insurance Manual was posted to FEMA’s Media Library regarding program changes. Proctor would like to bring your attention to the following topics effective January 1, 2019:

  • Premium Receipt Date Guidance for Invalid Payments
    • FEMA clarifies NFIP insurers may not use the receipt date of an invalid payment as the premium receipt date to determine the effective date of a policy transaction;
    • When an invalid payment occurs, the insurer should cancel the associated transaction back to its effective date immediately and notify the associated parties;
    • If a new payment is received, the insurer must process the transaction based on the premium receipt date of the new payment.
  • Primary Residence Determination
    • A policyholder and their spouse will be permitted to have more than one primary residence to accommodate for circumstances where each spouse may live in separate residences for more than 50 percent of the year, provided they submit the required documentation for each residence.

For a complete summary, review the NFIP’s Summary Attachment A here.

GSEs Escrow Shortage

Both Fannie and Freddie released servicing announcements concerning changes that will allow servicers more flexibility when collecting an escrow shortage associated with a modified loan. Where Servicers were previously required to spread the shortage over 60 months, they are now permitted to collect over a period of up to 60 months. Freddie clarified that if a future analysis identifies a subsequent shortage, Servicers must combine the shortages and the resulting term may be extended.

Servicers may immediately implement these changes, but are required to do so for any escrow analysis performed in connection with a modified loan on or after July 1, 2018.

For specific investor requirements and complete details, see Fannie Mae SVC-2018-03 and Freddie Mac Bulletin 2018-6.

Proctor will continue to monitor these topics and provide updates as they develop.