Int Q&A – Escrow Small Lender Exception 5 – Is the option to escrow notice required for all outstanding loans secured by residential real estate that are not excepted from the escrow requirement?

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Q:  Escrow Small Lender Exception 5 – Is the option to escrow notice required for all outstanding loans secured by residential real estate that are not excepted from the escrow requirement? What about outstanding loans that are not secured by buildings located in SFHAs?
 
A:   Under the Regulation, lenders or their servicers are required to offer and make available the option to escrow flood insurance premiums and fees for all outstanding designated loans secured by residential improved real estate or a mobile home located in an SFHA as of January 1, 2016, or July 1 of the first calendar year in which the lender no longer qualifies for the small lender exception to the escrow requirement. With the expiration of the June 30, 2016, deadline to comply with the option to escrow notice requirement for outstanding loans as of January 1, 2016, that requirement currently applies only to lenders who have a change in status and no longer qualify for the small lender exception. Such lenders will be required to provide the option to escrow notice by September 30 of the first calendar year in which the lender has had a change in status pursuant to the Regulation. The requirement to provide the option to escrow notice does not apply to outstanding loans or to lenders that are excepted from the general escrow requirement under the Regulation. The option to escrow notice requirement also does not apply to loans that are not subject to the mandatory flood insurance purchase requirement.
 
 
ADDITIONAL INFORMATION:
This Q&A was included in the Interagency Questions and Answers Regarding Flood Insurance, which were issued on 05/11/2022.  They were published in the Federal Register on 05/31/2022 and may be found here:  https://www.federalregister.gov/documents/2022/05/31/2022-10414/loans-in-areas-having-special-flood-hazards-interagency-questions-and-answers-regarding-flood
 

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