We originated a residential mortgage loan at some point after 1994 and before January 1, 2016 (we don’t know the exact date). At the time the loan was made, we established an escrow account for real estate taxes, homeowner’s insurance, and flood insurance, but we do not know whether we required this escrow account or the borrower voluntarily decided to establish the escrow account. The borrower has now asked to terminate the escrow account so that they can pay these items directly. Can we terminate the flood insurance escrow, since the loan was originated before mandatory flood escrows were required? We do not qualify for the small lender exception, and the loan has not been extended, renewed or increased since it was originated.

Yes, we believe you may terminate the flood insurance escrow for a loan that was originated before January 1, 2016, provided that you have not made, increased, extended or renewed the loan since it was originated (i.e., no “M.I.R.E.” events have occurred).

You are correct that flood insurance escrows are mandatory for the duration of all loans secured by buildings or mobile homes in special flood hazard areas (SFHAs) extended on or after January 1, 2016. Before this requirement became effective, the National Flood Insurance Reform Act of 1994 required lenders to escrow for flood insurance for such loans if the lender also required the escrowing of taxes and insurance premiums. However, this provision was repealed by the Biggert–Waters Flood Insurance Reform Act of 2012, and we are not aware of other requirements to maintain a flood insurance escrow for a loan originated before January 1, 2016.

We confirmed this conclusion with a compliance specialist at the OCC’s headquarters in Washington, D.C., who told us that if no M.I.R.E. events have occurred and the loan documents do not require escrowing for flood insurance, there is no requirement to continue to maintain a flood insurance escrow for a loan originated before January 1, 2016.

For resources related to our guidance, please see:

OCC Flood Insurance Rules, 12 CFR 22.5(a)(1) (“Except as provided in paragraphs (a)(2) or (c) of this section, a national bank or a Federal savings association, or a servicer acting on its behalf, shall require the escrow of all premiums and fees for any flood insurance required under § 22.3(a) for any designated loan secured by residential improved real estate or a mobile home that is made, increased, extended, or renewed on or after January 1, 2016, payable with the same frequency as payments on the designated loan are required to be made for the duration of the loan.”)

National Flood Insurance Reform Act of 1994, P.L. 103-325, Sec. 523(d)(1) [Superseded by Biggert–Waters Flood Insurance Reform Act of 2012] (“Each Federal entity for lending regulation (after consultation and coordination with the Financial Institutions Examination Council) shall by regulation require that, if a regulated lending institution requires the escrowing of taxes, insurance premiums, fees, or any other charges for a loan secured by residential improved real estate or a mobile home, then all premiums and fees for flood insurance under the National Flood Insurance Act of 1968 for the real estate or mobile home shall be paid to the regulated lending institution or other servicer for the loan in a manner sufficient to make payments as due for the duration of the loan. Upon receipt of the premiums, the regulated lending institution or servicer of the loan shall deposit the premiums in an escrow account on behalf of the borrower. . . .”)

Biggert–Waters Flood Insurance Reform Act of 2012, P.L. 112-141, Sec. 100209, codified in 42 USC 4012a(d) (“Each Federal entity for lending regulation (after consultation and coordination with the Federal Financial Institutions Examination Council) shall, by regulation, direct that all premiums and fees for flood insurance under the National Flood Insurance Act of 1968, for residential improved real estate or a mobile home, shall be paid to the regulated lending institution or servicer for any loan secured by the residential improved real estate or mobile home, with the same frequency as payments on the loan are made, for the duration of the loan. Except as provided in subparagraph (B), upon receipt of any premiums or fees, the regulated lending institution or servicer shall deposit such premiums and fees in an escrow account on behalf of the borrower. . . .”)

Final Rule, Loans in Areas Having special Flood Hazards, 80 Fed. Reg. 43215, 43242 (July 21, 2015) (“Effective January 1, 2016, § 22.5 is revised to read as follows: (a) In general—(1) Applicability. Except as provided in paragraphs (a)(2) or (c) of this section, a national bank or a Federal savings association, or a servicer acting on its behalf, shall require the escrow of all premiums and fees for any flood insurance required under § 22.3(a) for any designated loan secured by residential improved real estate or a mobile home that is made, increased, extended, or renewed on or after January 1, 2016, payable with the same frequency as payments on the designated loan are required to be made for the duration of the loan.”)