Loans in Areas Having Special Flood Hazards

[Federal Register Volume 60, Number 201 (Wednesday, October 18, 1995)]

[Proposed Rules]

[Pages 53962-53985]

From the Federal Register Online via the Government Publishing Office [www.gpo.gov]

[FR Doc No: 95-25257]

[[Page 53961]]

_______________________________________________________________________

Part II

Department of the Treasury

Office of the Comptroller of the Currency

12 CFR Part 22

Federal Reserve System

12 CFR Part 208

Federal Deposit Insurance Corporation

12 CFR Part 339

Department of the Treasury

Office of Thrift Supervision

12 CFR Parts 563 and 572

Farm Credit Administration

12 CFR Part 614

National Credit Union Administration

12 CFR Part 760

_______________________________________________________________________

Loans in Areas Having Special Flood Hazards; Proposed Rule

Federal Register / Vol. 60, No. 201 / Wednesday, October 18, 1995 /

Proposed Rules

[[Page 53962]]

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 22

[Docket No. 95-24]

RIN 1557-AB47

FEDERAL RESERVE SYSTEM

12 CFR Part 208

[Regulation H, Docket No. R-0897]

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 339

RIN 3064-AB66

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Parts 563 and 572

[No. 95-179]

RIN 1550-AA82

FARM CREDIT ADMINISTRATION

12 CFR Part 614

RIN 3052-AB57

NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 760

Loans in Areas Having Special Flood Hazards

AGENCIES: Office of the Comptroller of the Currency, Treasury; Board of

Governors of the Federal Reserve System; Federal Deposit Insurance

Corporation; Office of Thrift Supervision, Treasury; Farm Credit

Administration; National Credit Union Administration.

ACTION: Joint notice of proposed rulemaking.

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SUMMARY: The Comptroller of the Currency (OCC), Board of Governors of

the Federal Reserve System (Board), Federal Deposit Insurance

Corporation (FDIC), Office of Thrift Supervision (OTS), and National

Credit Union Administration (NCUA) are proposing to amend their

regulations, and the Farm Credit Administration (FCA) is proposing to

issue new regulations, regarding loans in areas having special flood

hazards. This action is required by statute and is intended to

implement the provisions of the National Flood Insurance Reform Act of

1994. Among other statutorily mandated provisions, the proposal would

establish new escrow requirements for flood insurance premiums,

explicit authority and the requirement for lenders and servicers to

``force-place'' flood insurance under certain circumstances, enhanced

flood hazard notice requirements, and new authority for lenders to

charge fees for determining if a property is located in a special flood

hazard area.

DATES: Comments must be received by December 18, 1995.

ADDRESSES: Comments should be directed to:

OCC: Communications Division, Office of the Comptroller of the

Currency, 250 E Street, SW., Washington, DC 20219, Attention: Docket

No. 95-24. Comments may be inspected and photocopied at the same

location. In addition, comments may be sent by facsimile transmission

to FAX number 202/874-5274 or by electronic mail to

[email protected]

Board: William W. Wiles, Secretary, Board of Governors of the

Federal Reserve System, 20th Street and Constitution Avenue, NW.,

Washington, DC 20551, Attention: Docket No. R-0897, or delivered to

room B-2222, Eccles Building, between 8:45 a.m. and 5:15 p.m. Comments

may be inspected in Room MP-500 between 9:00 a.m. and 5:00 p.m.

weekdays, except as provided in Sec. 261.8 of the Board of Governors'

rules regarding availability of information, 12 CFR 261.8.

FDIC: Jerry L. Langley, Executive Secretary, Attention: Room F-402,

Federal Deposit Insurance Corporation, 550 17th Street NW., Washington,

DC 20429. Comments may be delivered to Room F-400, 1776 F Street, NW.,

Washington, DC 20429, on business days between 8:30 a.m. and 5:00 p.m.

or sent by facsimile transmission to FAX number 202/898-3838. Internet:

[email protected] Comments will be available for inspection and

photocopying in room 7118, 550 17th Street, NW., Washington, DC 20429,

between 8:30 a.m. and 5:00 p.m. on business days.

OTS: Chief, Dissemination Branch, Records Management and

Information Policy, Office of Thrift Supervision, 1700 G Street NW.,

Washington, DC 20552, Attention: Docket No. 95-179. These submissions

may be hand delivered to 1700 G Street, NW., from 9:00 a.m. to 5:00

p.m. on business days or may be sent by facsimile transmission to FAX

number (202/906-7755). Comments will be available for inspection at

1700 G Street NW., from 1:00 p.m. until 4:00 p.m., on business days.

FCA: Patricia W. DiMuzio, Associate Director, Regulation

Development, Office of Examination, Farm Credit Administration, 1501

Farm Credit Drive, McLean, VA 22102-5090. Copies of all comments will

be available for examination by interested parties in Regulation

Development, Office of Examination, Farm Credit Administration.

NCUA: Becky Baker, Secretary of the Board, National Credit Union

Administration, 1775 Duke Street, Alexandria, VA 22314-3428. Comments

will be available for inspection at the same location. Send comments to

Ms. Baker via the bulletin board by dialing 703/518-6480. Send one copy

by U.S. mail or fax to FAX number 703/518-6319.

FOR FURTHER INFORMATION CONTACT:

OCC: Carol Workman, Compliance Specialist (202/874-4858),

Compliance Management; Margaret Hesse, Attorney, Community and Consumer

Law Division (202/874-5750), Jacqueline Lussier, Senior Attorney, or

Saumya Bhavsar, Attorney, Legislative and Regulatory Activities

Division (202/874-5090), Office of Chief Counsel.

Board: Diane Jackins, Senior Review Examiner, Jennifer Lowe, Review

Examiner (202/452-3946), Division of Consumer and Community Affairs;

Lawranne Stewart, Senior Attorney (202/452-3513), or Rick Heyke,

Attorney (202/452-3688), Legal Division. For the hearing impaired only,

Telecommunication Device for the Deaf (TDD), Earnestine Hill or

Dorothea Thompson (202/452-3544).

FDIC: Mark Mellon, Senior Attorney, Regulation and Legislation

Section (202/898-3854), Legal Division, or Ken Baebel, Senior Review

Examiner (202/942-3086), or Barbara L. Boehm, Consumer Affairs

Specialist (202/942-3631), Division of Compliance and Consumer Affairs.

OTS: Larry Clark, Program Manager, Compliance and Trust, Compliance

Policy (202/906-5628); Catherine Shepard, Senior Attorney, Regulations

and Legislation Division (202/906-7275), Office of Chief Counsel.

FCA: Robert G. Magnuson, Policy Analyst, Regulation Development

(703/883-4498), Office of Examination; or William L. Larsen, Senior

Attorney, Regulatory Operations Division (703/883-4020), Office of

General Counsel. For the hearing impaired only, TDD (703/883-4444).

NCUA: Kimberly Iverson, Program Officer (703/518-6375), Office of

Examination and Insurance; or Jeffrey

[[Page 53963]]

Mooney, Staff Attorney (703/518-6563), Office of General Counsel.

SUPPLEMENTARY INFORMATION:

I. Background

A. Introduction

The Riegle Community Development and Regulatory Improvement Act,

Pub. L. 103-325, 108 Stat. 2160 (CDRI Act), which the President signed

into law on September 23, 1994, comprehensively revised the Federal

flood insurance statutes. The flood insurance provisions of the CDRI

Act require the OCC, Board, FDIC, OTS, and NCUA to revise their current

flood insurance regulations. The FCA is required to promulgate flood

insurance regulations for the first time. The six agencies are issuing

this proposal jointly in order to fulfill these statutory requirements.

All six of the agencies have coordinated and consulted with the Federal

Financial Institutions Examination Council (FFIEC), as is required by

certain of the CDRI Act flood insurance provisions.1

\1\ The heads of five of the six agencies (OCC, Board, FDIC,

OTS, and NCUA) comprise the membership of the FFIEC.

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This preamble first briefly describes the National Flood Insurance

Program (NFIP), then highlights the CDRI Act amendments to it that are

of significance to the institutions supervised by the six agencies.

Institutions are encouraged to consult the CDRI Act for further detail

about the provisions described here as well as for amendments to the

NFIP that do not require rulemaking by the six agencies.2

\2\See, e.g., CDRI Act sections 521 (flood insurance purchase

requirement for Federal disaster relief recipients may not be

waived), 522 (Federal agency lenders subject to provisions of

statute), 573 (increase in maximum flood insurance coverage

amounts), 579 (delay of effective date of flood insurance policies),

and 582 (flood disaster assistance barred in certain circumstances;

duty to provide certain notices on transfer of property).

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Following the description of the statutory background is a

discussion of the substance of the proposed regulations. The agencies'

proposals are substantively consistent, although the format of the

regulatory text varies in order to accommodate the format currently in

use at each agency.3 With respect to flood insurance regulations,

these proposals satisfy the statutory obligations of the OCC, Board,

FDIC, and OTS under section 303(a) of the CDRI Act. That section

requires each of these agencies to review and streamline its

regulations and to work jointly to make uniform all regulations and

guidelines implementing common statutory or supervisory policies.

\3\This proposal is also a component of the OCC's Regulation

Review Program. Each of the agencies involved in this rulemaking is

engaged in a similar effort to reduce unnecessary regulatory burden

and to simplify and clarify its regulations.

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B. The National Flood Insurance Program

The NFIP is administered primarily under two statutes: the National

Flood Insurance Act of 1968 (1968 Act) and the Flood Disaster

Protection Act of 1973 (1973 Act). These statutes are codified at 42

U.S.C. 4001-4129.4 The 1968 Act made Federally subsidized flood

insurance available to owners of improved real estate or mobile homes

located in special flood hazard areas if their community participates

in the NFIP. A special flood hazard area (SFHA) is an area within a

flood plain having a one percent or greater chance of flood occurrence

in any given year.5 SFHAs are delineated on maps issued by FEMA

for individual communities.6 A community establishes its

eligibility to participate in the NFIP by adopting and enforcing

floodplain management measures to regulate new construction and by

making substantial improvements within its SFHAs to eliminate or

minimize future flood damage.7

\4\The Federal Emergency Management Agency (FEMA) administers

the NFIP; its regulations implementing the NFIP appear at 44 CFR

parts 50-79 (1995).

\5\44 CFR 59.1.

\6\44 CFR part 65.

\7\44 CFR part 60.

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The 1973 Act amended the NFIP by requiring the OCC, Board, FDIC,

OTS, and NCUA to issue regulations governing the lending institutions

they supervise. The regulations directed lenders to require flood

insurance on improved real estate or mobile homes serving as collateral

for a loan (security property) if the security property was located in

a SFHA in a participating community. To implement statutory amendments

enacted in 1974, the regulations required lenders to notify borrowers

that security property is located in a SFHA and of the availability of

Federal disaster assistance with respect to the property in the event

of a flood.

C. CDRI Act Amendments

Title V of the CDRI Act, the National Flood Insurance Reform Act of

1994 (Reform Act), comprehensively revises the NFIP. The Reform Act is

intended to increase compliance with flood insurance requirements and

participation in the NFIP in order to provide additional income to the

National Flood Insurance Fund and to decrease the financial burden of

flooding on the Federal government, taxpayers, and flood victims.8

\8\H.R. Conf. Rep. No. 652, 103d Cong., 2d Sess. 195 (1994)

(Conference Report).

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The Reform Act changed some of the terms used to refer to

regulators and entities subject to the NFIP. The Reform Act refers to

the six regulators collectively as the Federal entities for lending

regulation. This preamble discussion refers to the six regulators as

the Federal entities for lending regulation or the agencies. The Reform

Act, and this preamble discussion, refer to the institutions supervised

by the six agencies collectively as regulated lending institutions or

lenders.9

\9\In the statute, the term lender also refers to a Federal

agency lender, which means a Federal agency that makes direct loans

secured by improved real estate or a mobile home. This proposal does

not apply to Federal agency lenders. See CDRI Act sections 511, 512,

522.

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The following provisions of the Reform Act are especially

significant to regulated lending institutions. References to the

appropriate sections of the CDRI Act are given in parentheses.

Scope of coverage (sections 511, 512, 522). The Reform Act expanded

the scope of coverage of the NFIP in several ways. First, it added the

FCA to the list of regulators covered by the NFIP and added Farm Credit

banks and other lenders supervised by the FCA to the list of covered

financial institutions.

Second, the Reform Act directed the Federal National Mortgage

Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation

(Freddie Mac) to implement procedures ``reasonably designed to ensure''

that property securing the residential mortgage loans they purchase is

covered by flood insurance if the security property is located in a

SFHA in a community that participates in the NFIP. Thus, entities not

directly covered by Federal flood insurance laws will indirectly be

required to satisfy the statutory flood insurance requirements if they

sell residential mortgage loans to Fannie Mae or Freddie Mac.

Third, as discussed more fully below, some of the Reform Act's

provisions apply to loan servicers. The Reform Act defines the term

servicer to include any person responsible for receiving any scheduled

periodic payments from a borrower pursuant to the terms of a loan,

including amounts for taxes, insurance premiums, and other charges with

respect to the property securing a loan, and making the payments with

respect to the amounts received from the borrower as may be required

pursuant to the terms of the loan.

Dates of Applicability. Except for the standard flood hazard

determination

[[Page 53964]]

form and escrow provisions described later in this preamble, the flood

insurance provisions in the Reform Act that apply to insured banks,

savings associations, and credit unions took effect on September 23,

1994, the date of enactment of the Reform Act. The Reform Act

specifically provides that the regulations implementing the flood

insurance purchase requirement promulgated by the OCC, Board, FDIC,

OTS, and NCUA that were in effect immediately before the date of

enactment remain in effect until these agencies issue the new rules

that the Reform Act requires. Thus, loans in compliance with the

agencies' existing flood insurance rules that are made before new rules

are finalized do not violate the requirements imposed by Federal flood

insurance laws.

The statutory provisions that apply to Fannie Mae and Freddie Mac

take effect on September 23, 1995. Unlike the regulated lending

institutions supervised by the other Federal entities for lending

regulation, Farm Credit System (System) institutions were not part of

the NFIP before passage of the Reform Act and are not subject to any

current flood insurance regulations. In section 522 of the Reform Act,

Congress made clear that System participation in the NFIP would not be

required for a minimum of one year after enactment of the Reform Act,

thus ensuring a transition period for integration of the System into

the NFIP.

As set forth below, a number of the Reform Act provisions require

agency implementing regulations. These regulations will establish the

basic framework for participation by System institutions in the NFIP.

While it could be argued that System institutions should be required to

comply as of September 23, 1995, with applicable statutory requirements

of the Reform Act that do not require FCA regulations, the FCA believes

that piecemeal applicability of Reform Act requirements before the

fundamental regulatory framework envisioned by Congress is in place

might be unfairly burdensome to institutions and unnecessarily

difficult for the FCA to enforce.

Further, the FCA believes that System lenders should have the

opportunity to comment on NFIP implementing regulations before their

requirements go into effect. Accordingly, the FCA will not criticize

System institutions in examinations for failure to follow the

requirements of the Reform Act until FCA implementing regulations are

effective. Notwithstanding this interpretation of Reform Act

applicability, to ensure a smooth integration of the System into the

NFIP, the FCA encourages System lending institutions to initiate

adequate preparations so that their lending activities will comply with

NFIP requirements by the time final flood insurance regulations are

adopted.

Flood insurance requirement (section 522). Under the 1973 Act,

regulated lending institutions could not ``make, increase, extend, or

renew'' any loan secured by improved real estate or a mobile home

located in a SFHA in a participating community unless the security

property and any personal property securing the loan was covered for

the life of the loan by flood insurance. The Reform Act continues this

basic requirement but adds a new exemption for small, short-term

loans--those with an original principal balance of $5,000 or less and a

repayment term of one year or less.

Escrow of flood insurance payments (section 523). The Reform Act

directs the agencies to issue rules imposing a new escrow requirement

for flood insurance payments. Under these rules, a regulated lending

institution that requires the escrow of taxes, property insurance

premiums, fees, or other charges for a loan secured by residential

improved real estate must require the escrow of flood insurance

premiums and fees as well. Loans secured by commercial property are not

subject to this escrow requirement.

Forced placement of flood insurance (section 524). The 1973 Act did

not expressly authorize lenders to purchase--or force place--flood

insurance on behalf of a borrower. The Reform Act explicitly confers

forced placement authority on both lenders and servicers, and requires

lenders and servicers to force place insurance under certain

circumstances. If, at the time of origination or at any time during the

term of a loan, the lender or servicer determines that the security

property and any personal property securing the loan lack adequate

flood insurance coverage, the lender or servicer must notify the

borrower of the borrower's responsibility to obtain coverage at the

borrower's expense. If the borrower fails to purchase flood insurance

within 45 days after that notification, the lender or servicer must

purchase the insurance on the borrower's behalf.

The forced placement authority and requirement are self-

implementing, and apply to all loans outstanding on or after September

23, 1994.\10\ In forced placement situations, the lender or servicer

may pass the cost of the insurance--premiums and fees--on to the

borrower.

\10\With regard to the timing of the applicability of this

requirement to System institutions, see discussion under ``Dates of

applicability,'' supra.

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The Reform Act also provides procedures for the resolution of

disputed flood hazard determinations that would trigger the mandatory

purchase requirement. At the joint request of the borrower and

regulated lending institution, the Director of FEMA will review the

determination and within 45 days make the final decision whether or not

the building or mobile home is located in an area having special flood

hazards. Review of a flood insurance determination may be requested

whenever a determination occurs, either at origination or at any time

during the term of the loan. FEMA published a notice of proposed

rulemaking with respect to these procedures on June 15, 1995, 60 FR

31442. The comment period closed on August 15, 1995.

Penalties (section 525). The Reform Act authorizes the appropriate

Federal entity for lending regulation to impose civil money penalties

against a regulated lending institution that engages in a pattern or

practice of violating the flood insurance statute or regulations.

Notice and opportunity for hearing are required before civil money

penalties may be imposed. Penalties may be assessed in amounts of up to

$350 for each violation, not to exceed $100,000 per calendar year, for

any single regulated lending institution.

The agencies note that liability for civil money penalties remains

with the regulated lending institution that committed the violation.

Transfer of the loan does not extinguish the liability of the

transferring lender; conversely, the transferee is not liable for

violations committed by another lender that previously held the loan.

The agencies also note that a lender that purchases or renews flood

insurance in the appropriate amount on a borrower's behalf under the

statute's forced placement provisions is deemed by the express language

of the statute to have complied with the agencies' regulations

requiring lenders to ensure adequate coverage on security property

located in a SFHA.

Flood determination fees (section 526). The 1973 Act did not

expressly authorize regulated lending institutions to charge borrowers

for the cost of making a flood insurance determination. The Reform Act

provides that any person making a loan secured by improved real estate

or a mobile home, or any servicer for such a loan, may charge a

reasonable fee for the costs of determining whether the building or

mobile home is located in a SFHA. The

[[Page 53965]]

lender or servicer acting on behalf of the lender may charge the

determination fee to the borrower or, in the case of a loan transfer or

sale, the loan purchaser under prescribed circumstances. These include

when the determination (1) is made in connection with the making,

increasing, extending, or renewing of the loan that the borrower

initiates, (2) is made in response to map changes by FEMA, or (3)

results in the purchase of flood insurance under the forced placement

provisions.

Notice requirements (section 527). The 1968 Act, as amended,

required regulated lending institutions to provide notice to purchasers

or lessees if the property securing the loan is located in a SFHA. The

Reform Act further amends the 1968 Act: (1) to add detail to the

required contents of the notice; (2) to require regulated lending

institutions to give notice of special flood hazards to loan servicers,

as well as to purchasers or lessees; and (3) to require lenders to

notify FEMA of the identity of the servicer of a loan subject to flood

insurance requirements and of the identity of the new servicer if there

is a change in loan servicers.

The Reform Act also requires the Director of FEMA (or the

Director's designee) to provide advance notice of the expiration of any

flood insurance contract to the owner of the property covered by the

contract, the loan servicer of any loan secured by such insured

property, and (if known to the Director) the owner of the loan.

Standard flood hazard determination form (section 528). The Reform

Act requires FEMA to develop a standard form for recording a lender's

determination whether security property for a given loan is located in

a SFHA for which flood insurance is available. The Reform Act mandates

that the form be developed by regulations issued 270 days after

September 23, 1994, the date of enactment. FEMA published a notice of

proposed rulemaking with respect to the form on April 7, 1995, 60 FR

17758, and a final rule on July 6, 1995, 60 FR 35276. FEMA's final rule

was effective upon publication in the Federal Register.

The Reform Act also requires the Federal entities for lending

regulation to issue regulations requiring regulated lending

institutions to use the standard form developed by FEMA. The Reform Act

mandates that the agencies' regulations be issued together with FEMA's

rule establishing the form. The agencies published a final rule that

complies with this statutory requirement on July 6, 1995. 60 FR 35286.

Under this rule, as mandated by the Reform Act, regulated lending

institutions must use the form beginning 180 days after the issuance of

the rule, or January 2, 1996.

Examination regarding compliance (section 529). The Reform Act

requires each appropriate Federal entity for lending regulation to

assess compliance with the NFIP when it conducts examinations of the

regulated lending institutions it supervises. The OCC, Board, FDIC,

OTS, and NCUA are required to report to Congress on compliance by

insured depository institutions and insured credit unions with the

requirements of the NFIP. The FCA has authority under the Farm Credit

Act (12 U.S.C. 2001-2279bb-6) to assess compliance by Farm Credit

System institutions with the NFIP.

Availability of flood maps (section 575). Under the Reform Act,

FEMA must make flood insurance rate maps and related information

available free of charge to the Federal entities for lending regulation

(and certain other governmental entities) and at a reasonable cost to

all other persons. FEMA also must provide notice of any change to flood

insurance map panels, including changes effected by letter of map

amendment or letter of map revision, not later than 30 days after the

map change or revision becomes effective. FEMA must either publish this

notice in the Federal Register or provide notice by another, comparable

method. Finally, every six months FEMA must publish a compendium of all

changes and revisions to flood insurance map panels and all letters of

map amendment and revision for which it published notice during the

preceding six months. These compendia are available free of charge to

the Federal entities for lending regulation (and certain other

governmental entities) and for a fee set by FEMA to all other persons.

II. Description of the Proposal

A. Overview

The Reform Act directs the Federal entities for lending regulation

to write regulations implementing certain of its provisions and

specifies their content. The OCC, Board, FDIC, OTS, and NCUA are

proposing to revise their current flood insurance regulations11 to

reflect the changes required by the Reform Act. The FCA is proposing

new flood insurance regulations for the institutions it regulates. All

of the agencies were mindful of the need to keep regulatory burden to a

minimum as they prepared this proposal, and, accordingly, are proposing

only regulatory requirements necessary to implement the Reform Act.

\11\OTS's current flood insurance regulation is codified at 12

CFR 563.48. For ease of reference, the OTS is creating a new part

572 for its flood insurance regulation and repealing 12 CFR 563.48.

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The purpose of the Reform Act is to strengthen and enhance the

NFIP. It does not focus on the safety and soundness of financial

institutions. Depending on the location and activities of a lender,

adequate flood insurance coverage may be important from a safety and

soundness perspective as a component of prudent underwriting and as a

means of protecting the lender's ongoing interest in its collateral.

Accordingly, this preamble notes issues that may raise safety and

soundness concerns in some circumstances and invites comment on these

issues so that the agencies can consider whether to provide informal

guidance, separate from these implementing regulations, that addresses

safe and sound banking practices with respect to flood insurance.

In deciding whether guidance of this type is appropriate, the

agencies will consider the fact that a lender's needs with respect to

flood insurance vary widely depending on the type of lending the

institution does and the geographic areas it serves. Therefore, each

lender is generally in the best position to tailor its flood insurance

policies and procedures to suit its business. The agencies encourage

lenders to evaluate and, when necessary, modify their flood insurance

programs to comport with both the requirements of Federal flood

insurance laws and regulations and principles of safe and sound

banking.

B. Topic-by-Topic Discussion

Authority, Purpose and Scope

The agencies have expanded this section to add detailed statements

of authority, purpose and scope. The FCA is proposing language similar

to that proposed by the other agencies. The NCUA is proposing to

replace the current question and answer format of its flood insurance

regulations with standard regulation text so that its flood insurance

regulations are consistent with the other agencies.

Loan Servicers

The agencies propose to apply their regulations implementing the

escrow, forced placement, and flood hazard determination fee provisions

of the Reform Act to regulated lending institutions and to loan

servicers acting on behalf of regulated lending institutions. The

agencies propose to cover loan servicers in this way for several

reasons. First, the agencies do

[[Page 53966]]

not have jurisdiction over all servicers. Some servicers are not

regulated lending institutions or their affiliates.

Second, the agencies do not interpret the NFIP to impose

obligations on loan servicers independent from the obligations it

imposes on the owner of a loan.

The NFIP looks to activities that are conducted by lenders rather

than loan servicers--that is, the making, increasing, extending, or

renewing of a loan--as the triggers for ensuring adequate flood

insurance coverage. The mandatory purchase requirement under section

102 of the 1973 Act (42 U.S.C. 4012a(b)) applies only to lenders.

Moreover, the Conference Report indicates that a principal reason

for the adoption of the forced placement provision was to remove any

doubt that lenders have the legal authority to require borrowers to

purchase flood insurance or, if the lender purchases the insurance, to

require the borrower to pay for it. Conference Report at 199. The

agencies conclude that loan servicers were covered by the provision so

that they could perform for the lender the administrative tasks related

to the forced placement of flood insurance--including providing the

requisite notices to borrowers, arranging for the insurance, and

collecting and transmitting insurance premiums--without fear of

liability to the borrower for the imposition of unauthorized charges.

Finally, section 102(f) of the 1973 Act (42 U.S.C. 4012a(f)) as

added by section 525 of the CDRI Act does not authorize the agencies to

seek civil money penalties against loan servicers that are not

regulated lending institutions. The statute's failure to impose

liability on servicers independent of lenders reinforces the conclusion

that a servicer's obligation to comply with NFIP requirements arises

from its contractual relationship with a lender. A lender thus may

fulfill its duties under the NFIP by imposing its responsibilities on

the servicer under a servicing contract. Accordingly, lenders should

include in their loan servicing agreements language ensuring that the

servicer will take all necessary steps with respect to escrow

requirements, forced placement of flood insurance, flood hazard

determinations, and notices if the lender or its servicer should

determine that there are deficiencies in any of these aspects of

servicing agreements.

Definitions

The agencies have added or revised certain definitions, including

definitions of the terms ``building,'' ``designated loan,''12

``mobile home,'' and ``servicer.'' The agencies also added certain

definitions that enable them to streamline the operative provisions of

the regulation, including definitions of the terms ``Director,''

``residential improved real estate,'' and ``special flood hazard

area.''

\12\The definition of the term ``designated loan'' refers to

loans ``secured by a building or mobile home'' because, as a

practical matter, flood insurance is generally available only with

respect to a structure or mobile home and not with respect to the

land on which the structure or mobile home sits. This definition is

unique to the agencies' flood insurance regulations and carries no

implication about the nature or extent of the collateral that a

lender otherwise requires as a matter of prudent underwriting.

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Flood Insurance Requirement

The Reform Act did not change the basic requirement for the

purchase of flood insurance when a security property is located in a

special flood hazard area in a participating community, nor did it

modify the minimum required amount of the insurance.13 The minimum

amount continues to be the lesser of the amount of the outstanding

principal balance of the loan or the maximum limit for coverage under

the 1968 Act.14 Accordingly, the five agencies that currently have

flood insurance regulations are not proposing any substantive amendment

to the text that implements this portion of the statute.

\13\See also section 573 of the CDRI Act, increasing the maximum

flood insurance coverage limits.

\14\In addition to the dollar limits in the 1968 Act, flood

insurance coverage under the NFIP is limited to the overall value of

the property less the value of the land.

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Loan Purchase as Equivalent to Loan Origination

The agencies' current regulations differ in their treatment of the

issue whether the purchase of a loan constitutes the making of a loan

for purposes of flood insurance. The OCC and the Board take the

position that a loan purchase is not an event that triggers the

obligation to make a flood hazard determination. The FDIC has not

previously had an opportunity to express an opinion on the question.

The OTS's current regulations, on the other hand, view the purchase

of a loan as the equivalent of the making of a loan for flood

determination purposes. In an effort to promote uniformity among the

agencies, the OTS is considering aligning its position with that of the

OCC and the Board, so that a loan purchase by a savings association

would not trigger an obligation to make a flood hazard

determination.15 Based on its regulations governing loan

purchasing, NCUA previously took the position that if flood insurance

would have been required for a Federal credit union to grant the loan,

flood insurance would be necessary for the credit union to purchase the

loan.

\15\OTS has historically taken a different position on this

question than the OCC and the Board. Section 102(b) of the 1973 Act

(42 U.S.C. 4012a(b)) provides that regulated lending institutions

may not ``make'' any loan secured by improved real estate or a

mobile home located in a SFHA unless the security property is

covered by an adequate policy of flood insurance. The OTS's

predecessor, the Federal Home Loan Bank Board, considered the word

``make'' to be broad enough to include loan purchases. Otherwise,

savings institutions could evade flood insurance requirements by the

simple expedient of purchasing, rather than originating, loans. See

34 FR 5749 (Feb. 15, 1974). Accordingly, the OTS's regulations

implementing the 1973 Act construe the phrase ``make a loan'' as

including purchased loans, see 12 CFR 563.48(b).

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The OCC and the Board do not propose to revise their current

regulatory language to add a loan purchase as a ``tripwire'' for

determining whether adequate flood insurance exists. The statute

identifies the events--the making, increasing, extending, or renewing

of a loan--that trigger a lender's obligation to review the adequacy of

flood insurance coverage on an affected loan. The Reform Act does not

include loan purchase in this list of specified tripwires. The OCC and

the Board note that a loan purchaser may always require as a condition

of purchase that the seller determine whether the security property is

located in a SFHA. The Reform Act authorizes the seller to charge a fee

to the purchaser for making this determination.

With respect to residential mortgage loans sold in the secondary

market, the inclusion of loan purchase as a tripwire event may be

unnecessary because of the expansion of the scope of the NFIP's

coverage with regard to Fannie Mae and Freddie Mac. Fannie Mae and

Freddie Mac are the largest volume purchasers of residential mortgage

loans. As a practical matter, these entities establish the industry

standards not only for the residential mortgage loans that they buy,

but for all residential mortgage loans that the originator does not

intend to keep in portfolio. The bulk of home loans sold to other

purchasers, including regulated lending institutions, typically conform

with Fannie Mae and Freddie Mac standards. Pursuant to the Reform Act

amendments,16 those standards will include adequate flood

insurance coverage on collateral securing loans sold to these entities.

The OCC and the Board believe that including loan purchase as a

regulatory tripwire could result in the imposition of duplicative (and

potentially

[[Page 53967]]

inconsistent) requirements on the seller and the purchaser of a

residential mortgage loan sold in the secondary market.

\16\Section 522 of the CDRI Act.

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As noted previously, the FDIC has not previously had an opportunity

to express an opinion on the question of whether the purchase of a loan

is equivalent to the making of a loan for purposes of Federal flood

insurance laws. The FDIC now proposes, in the interest of regulatory

consistency, to formally adopt the position adhered to by the OCC and

the Board that a loan purchase is not an event that triggers the

obligation to make a flood hazard determination.

Given the Reform Act's extension of the flood insurance

requirements to Fannie Mae and Freddie Mac, the OTS believes that

coverage of loan purchases may no longer be necessary, especially if

the agencies issue guidance on loan purchases, as discussed below.

Therefore, the OTS, in an effort to promote consistent treatment for

all regulated lending institutions, proposes to remove loan purchases

from its flood insurance regulations. The OTS requests comment on this

proposal.

Prior to the Reform Act, the NCUA took the position that if flood

insurance would have been required for a Federal credit union to grant

the loan, flood insurance would be necessary for the credit union to

purchase the loan. This position is based upon the requirements of 12

CFR 701.23(b)(1) of the NCUA regulations, which state that a Federal

credit union may only purchase a loan if it could have granted that

loan or if the loan is restructured within 60 days after purchase so

that it is a loan the Federal credit union could grant. The NCUA

invites comment on whether it should maintain this position.

All of the agencies are considering whether, as a supervisory

matter, to provide guidance on the flood insurance policies that

institutions should follow when they purchase loans, including

nonconforming home loans, loans secured by commercial property,

portfolios of loans, and loan participations. Loans in these categories

may be subject to underwriting standards that differ significantly from

those established by Fannie Mae, Freddie Mac, or other government-

sponsored enterprises for housing. Institutions with portfolios that

include purchased loans may need to develop procedures to ensure that

such purchases do not result in concentrations of loans secured by

property subject to flood hazards for which insurance is not available

or has not been obtained. The agencies invite comment on the need for

this type of guidance and on what it should include.

Loan Acquisitions Involving Table Funding Arrangements.

The agencies also invite comment regarding whether lenders who

provide table funding to close loans originated by mortgage brokers or

mobile home dealers should be deemed to be ``making'' or ``purchasing''

loans for purposes of the flood insurance requirements. In the typical

table funding situation, the party providing the funding ordinarily

reviews and approves the credit standing of the borrower and issues a

commitment to the broker or dealer to purchase the loan at the time the

loan is originated. Frequently, all loan documentation and other

statutorily mandated notices are supplied by the party providing the

funding, rather than the broker or dealer. The funding party provides

the original funding for the mortgage loan ``at the table'' when the

broker or dealer and the borrower close the loan. Concurrent with the

loan closing, the funding party acquires the loan from the broker or

dealer. Technically, however, the party providing the funding is

purchasing rather than originating the loan.

The Financial Accounting Standards Board (FASB)17 provides

guidance on the issue whether the party providing the funding should

account for a table funding arrangement as a loan purchase or loan

origination, and what criteria should be used to evaluate whether a

table funding arrangement constitutes a loan purchase or a loan

origination. A mortgage loan acquired by the party providing the

funding in a table funding arrangement should be accounted for as a

purchase of the loan by the acquirer if the loan is legally structured

as an origination by the broker or dealer and if the broker or dealer

is independent of the provider of funds. In making these

determinations, the broker or dealer must satisfy each of five

criteria. Those criteria are:

\17\See Financial Accounting Standards Board, EITF Abstracts,

Emerging Issues Task Force Issue No. 92-10, ``Loan Acquisitions

Involving Table Funding Arrangements,'' 1993.

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1. The broker or dealer is registered and licensed to originate

and sell loans under the applicable laws of the states or other

jurisdictions in which it conducts business;

2. The broker or dealer originated, processed, and closed the

loan in its own name and is the first titled owner of the loan, with

the mortgage banking enterprise becoming a holder in due course;

3. The broker or dealer is an independent third party and not an

affiliate of the mortgage banking company. As a nonaffiliate, the

correspondent must bear all of the costs of its place of business,

including the costs of its origination operations;

4. The broker or dealer must sell loans to more than one

mortgage banking enterprise and not have an exclusive relationship

with the acquirer; and

5. The broker or dealer is not directly or indirectly

indemnified by the mortgage banking enterprise for market or credit

risks on loans originated by the broker or dealer. However, a

commitment by the mortgage banking enterprise for the purchase of

loans from the broker or dealer is not considered to be an

indemnification for purposes of this requirement.

If any of the criteria is not met, then the loan should be accounted

for as an originated loan by the provider of the funds.

Under the Real Estate Settlement Procedures Act of 1974, as

amended, (12 U.S.C. 2601-2617) (RESPA), table funding is defined as a

settlement at which a loan is funded by a contemporaneous advance of

loan funds and an assignment of the loan to the person advancing the

funds.18 A table-funded transaction is not a ``secondary market

transaction.'' 24 CFR 3500.2. A bona fide transfer of a loan obligation

in the secondary market is not covered by RESPA or Regulation X, with

certain exceptions. 24 CFR 3500.5(b)(7). The regulation provides that

in determining what constitutes a bona fide transfer of a loan

obligation in the secondary market, HUD will consider the real source

of funding and the real interest of the funding lender. Mortgage broker

transactions that are table-funded are not ``secondary market

transactions.'' Neither the creation of a dealer loan nor the first

assignment of such loan to a lender is a ``secondary market

transaction.''

\18\ Regulations issued by the Department of Housing and Urban

Development (HUD) under RESPA appear in 24 CFR part 3500 (Regulation

X).

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In the agencies' view, a table-funded transaction is more like a

loan origination by the provider of funds than a purchase of a loan in

the secondary market by that entity. Thus, lenders who provide table

funding to close loans originated by a mortgage broker or mobile home

dealer will be considered to be making a loan for purposes of the flood

insurance requirements. The agencies request comment on this position

and whether the FASB or RESPA standard is a more appropriate guideline.

Applicability of Federal Flood Insurance Requirements to Subsidiaries

The question whether Federal flood insurance legislation applies to

mortgage banking subsidiaries of regulated lending institutions is

mooted

[[Page 53968]]

to some extent by the previously noted Reform Act amendment requiring

Fannie Mae and Freddie Mac to ensure that any improved real estate or

mobile home located in a SFHA that secures a mortgage loan these

entities purchase is covered by the legally required amount of flood

insurance. Since mortgage bankers generally securitize their mortgage

loans and then sell them in the secondary market, any such loan that is

sold to either Fannie Mae or Freddie Mac must comply with their

requirements and therefore must be covered by flood insurance.

Fannie Mae and Freddie Mac primarily purchase residential mortgage

loans, however, and then usually for 1- to 4-family residential unit

dwellings. As a result, most mortgage loans secured by commercial

property or by residential property with more than 4 units are not

subject to Fannie Mae or Freddie Mac requirements. Each agency's

discussion with respect to the applicability of Federal flood insurance

requirements to the subsidiaries of the institutions it regulates is

set forth below.

OCC and Board. National banks' operating subsidiaries are subject

to the rules applicable to the operations of their parent banks as

provided under 12 CFR 5.34. Similarly, state member banks' operating

subsidiaries are subject to the rules applicable to the operations of

their parent banks.

FDIC. The FDIC is responsible for the federal supervision of state

chartered banks which are not members of the Federal Reserve System.

The FDIC has been given specific legal authority to fulfill that

function through the prescription of such rules and regulations as the

Board of Directors of the FDIC may deem necessary to carry out the

provisions of the Federal Deposit Insurance Act (FDI Act) or any other

law which the FDIC has the responsibility of administering or enforcing

including Federal flood insurance legislation. See section 9(a)(Tenth)

of the FDI Act (12 U.S.C. 1819(a)(Tenth)). The authority of the FDIC to

regulate insured nonmember banks extends to activities that such

institutions may conduct through subsidiaries. The FDIC therefore

proposes to require by regulation that a subsidiary of an insured

nonmember bank that engages in lending secured by real estate must

comply with Federal flood insurance requirements. The FDIC invites

comment from all interested parties on this proposed interpretation.

The FDIC proposes to make subsidiaries of insured nonmember banks

subject to Federal flood insurance requirements by defining the term

``bank'' to include a subsidiary of such an institution. The FDIC

invites comments on this proposed method.

OTS. Operating subsidiaries of Federal savings associations are

subject to the rules, including flood insurance regulations, applicable

to their parent savings associations. 12 CFR 545.81(e). However, the

current OTS regulations implementing the 1973 Act do not apply to a

service corporation. 12 CFR 563.48(a); discussed in 39 FR 5749 (Feb.

15, 1974). Because the Reform Act defines the term regulated lending

institution to include, among other things, any bank, savings and loan

association, or similar institution subject to the supervision of a

Federal entity for lending regulation, the OTS is proposing to apply

its flood insurance regulations to service corporations that engage in

mortgage lending. The OTS believes this position is consistent with the

statutory language and Congressional intent, and ensures uniform and

consistent treatment for regulated financial institutions. The OTS

requests comment on this proposal.

FCA. Service corporations organized under the Farm Credit Act (12

U.S.C. 2001-2279bb-6) are System institutions subject to the

regulations applicable to the operations of their parent banks. 12

U.S.C. 2213. Since System service corporations have no authority to

extend credit, the applicability of these proposed flood insurance

requirements to such organizations should not be in question. 12 U.S.C.

2211.

NCUA. A credit union, by itself, with other credit unions and/or

with non-credit union parties, may invest in or loan money to a

corporation or limited partnership, called a credit union service

organization (CUSO), which provides services to its credit union

investors. 12 CFR 701.27(d). CUSOs are not directly regulated by the

NCUA; rather, NCUA establishes the conditions for Federal credit union

investments in and loans to such organizations. 12 CFR 701.27(a). Since

NCUA does not exercise direct regulatory or supervisory jurisdiction

over them, NCUA believes that CUSOs are not regulated lending

institutions subject to the Reform Act. However, CUSOs that originate

mortgage loans generally do not warehouse those loans. Their loans are

either sold directly to the secondary market or sold to the credit

union. Therefore, as a practical matter, CUSOs must adhere to the

Federal flood insurance requirements when making loans since, as

described herein, loans purchased by credit unions or sold to Fannie

Mae or Freddie Mac must conform with these requirements.

Exemptions

Before its amendment by the Reform Act, the 1973 Act provided an

exemption to the basic flood insurance requirement for State-owned

property covered under a policy for self-insurance satisfactory to the

Director of FEMA. 42 U.S.C. 4012a. The proposal retains this exemption

and adds the Reform Act's new exemption for loans with an original

principal balance of $5,000 or less and a repayment term of one year or

less.

Escrow of Flood Insurance Payments

The Reform Act requires the agencies to adopt rules providing that

a regulated lending institution must require the escrow of flood

insurance premiums for loans secured by residential properties if the

lender requires the escrow of other funds to cover other charges

associated with the loan, such as taxes, premiums for other types of

insurance, and fees. The proposal implements this new requirement.

Where appropriate, servicing agreements between a lender and loan

servicer also should require a loan servicer to escrow flood insurance

premiums.

Escrow of flood insurance premiums is not required if the regulated

lending institution does not require escrow of taxes, insurance

premiums, or other payments. Thus, if a regulated lending institution

terminates a loan escrow account, the lender is no longer required to

escrow flood insurance premiums.

Under section 523 of the CDRI Act (42 U.S.C. 4012a(d)), escrow

accounts for flood insurance premiums are subject to the applicable

provisions of section 10 of RESPA, 12 U.S.C. 2609. Section 10 generally

limits the amount that may be maintained in an escrow account and

requires certain escrow account statements.19 The regulations

implementing section 10 appear at 24 CFR 3500.17 (1995). See also 60 FR

8812 (Feb. 15, 1995) and 60 FR 24734 (May 9, 1995) (revising

Sec. 3500.17). The requirement to escrow flood insurance premiums will

take effect when the new

[[Page 53969]]

rules implementing the Reform Act are final.

\19\Certain loans are exempt from RESPA, however, including a

loan for any purpose on property of 25 acres or more, or an

extension of credit primarily for a business, commercial, or

agricultural purpose. See 12 U.S.C. 2606; 24 CFR 3500.5. Thus RESPA

is narrower in scope than the Federal flood insurance legislation.

The agencies are of the opinion that section 10 of RESPA applies to

flood insurance escrow accounts only if the underlying loan is

covered by RESPA. For example, a lender that originates a loan in a

special flood hazard area primarily for a business, commercial or

agricultural purpose must escrow flood insurance premiums if it

escrows other types of payments (such as payments for insurance or

taxes) but the escrow account established for that loan need not

comply with the requirements of section 10 of RESPA.

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Forced Placement of Flood Insurance

The Reform Act requires a regulated lending institution or servicer

acting on its behalf to purchase--or ``force place''--flood insurance

for the borrower if the regulated lending institution or servicer

determines that adequate coverage is lacking. The statute does not

prescribe how or when the regulated lending institution or servicer

should make this determination. The Reform Act does say, however, that

the determination may occur at the time of origination or at any time

during the term of the loan. The forced placement provision applies to

all loans outstanding on or after September 23, 1994.20

\20\With regard to the timing of the applicability of this

requirement to System institutions, see discussion under ``Dates of

applicability,'' supra.

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The agencies note that the Reform Act contains provisions designed

to make it easier for lenders and servicers to obtain actual notice of

remappings or of the expiration of coverage of flood insurance. FEMA

must publish notice of all remappings; and FEMA must provide advance

notice of the expiration of insurance coverage to property owners, loan

servicers, and (if known to FEMA) the owners of the loans.

Portfolio Review

The Reform Act and the proposed rules do not require regulated

lending institutions or servicers to undertake a review of all loans in

portfolio as of September 23, 1994, that is, a retroactive portfolio

review. First, the Reform Act does not revise the list of events that

trigger a determination, that is, the making, increasing, renewing, or

extension of a loan. Second, the Reform Act imposes no requirement for

retroactive portfolio review. Finally, a requirement for retroactive

portfolio review would impose a burden on regulated lending

institutions that is both costly and unnecessary in light of the system

of specific tripwires that the Reform Act establishes.

Similarly, the agencies do not believe that the Reform Act requires

regulated lending institutions or servicers to conduct portfolio

reviews on a prospective basis. The 1968 and 1973 Acts as amended by

the Reform Act do not prescribe portfolio review, or any other method,

as the means that lenders or servicers should use to determine whether

security property is adequately covered by flood insurance, nor does it

require that determinations be made at any particular time.

Because the Reform Act does not mandate review of loan portfolios,

the agencies do not propose to establish such a requirement by

regulation. Regulated lending institutions and their servicers will

nonetheless need to develop policies and procedures to ensure that,

where a determination has been made that property securing a loan is

located in a SFHA, they are in compliance with the Reform Act's forced

placement provision.

In addition, it may be appropriate as a matter of safety and

soundness for the agencies to ensure that institutions that are

significantly exposed to the risks for which flood insurance is

designed to compensate determine the adequacy of flood insurance

coverage by (1) periodic reviews, or (2) reviews triggered by remapping

of areas represented in a regulated lending institution's loan

portfolio.

The agencies solicit comment on the advisability of issuing

guidance in this area and on how the guidance should differentiate

among regulated lending institutions based on their levels of exposure

to flood risk. In particular, the agencies invite comment describing

the methods that regulated lending institutions already use or are

considering for determining the adequacy of flood insurance coverage;

the cost (or other burden) associated with portfolio reviews; and on

whether the additional loans for which flood insurance would be

required as a result of portfolio reviews would be significant in

relation to a regulated lending institution's or servicer's portfolio.

Penalties

The penalty provisions of the Reform Act are self-executing. They

do not require the agencies to develop regulations to implement them,

and the agencies are not proposing to do so.

Determination Fees

The Reform Act authorizes a lender or servicer acting on behalf of

a lender to charge a reasonable fee for making a flood hazard

determination, notwithstanding any other Federal or State law. This fee

may be charged to the borrower under certain circumstances specified in

the statute: if the borrower initiates the transaction (the making,

increasing, extending, or renewing of a loan) that triggers a flood

hazard determination; if the determination reflects FEMA's revision of

map areas subject to flooding; or if the determination results in the

purchase of flood insurance under the forced placement provision. In

the case of a sale or transfer of the loan, the fee may be charged to

the purchaser or transferee. The proposal includes the same

authorization to charge reasonable determination fees as the Reform

Act.

Section 526 of the CDRI Act (42 U.S.C. 4012a(h)) constitutes an

authorization to charge fees in certain circumstances, notwithstanding

the provisions of any other Federal or State law. It does not limit the

ability of a lender to provide for determination fees in other

circumstances under its lending contract, provided that such fees are

not in conflict with other Federal or State laws.

Notice Requirements

The proposal revises the current regulation to reflect the

provisions added by the Reform Act that prescribe the minimum contents

of a regulated lending institution's notice concerning special flood

hazards to borrowers and loan servicers.

The 1968 Act (42 U.S.C. 4104a) requires regulated lending

institutions to notify the ``purchaser or lessee (or obtain

satisfactory assurances that the seller or lessor has notified the

purchaser or lessee)'' of special flood hazards. In this context, the

terms ``purchaser'' and ``lessee'' refer to the person who will occupy

a property. The Reform Act did not amend this statutory language. The

current regulation states that the regulated lending institution must

notify the borrower of special flood hazards and states that in lieu of

such notification, a regulated lending institution may obtain

satisfactory written assurance that the seller or lessor has so

notified the borrower prior to the execution of the sale or lease

agreement. Each of the agencies has used the word ``borrower'' in place

of the ``purchaser'' or ``lessee'' designation contained in the

statute, primarily to provide greater clarity. The proposal does not

change this terminology.

The agencies invite comment on the advisability of retaining this

language.

The notification to the borrower and servicer must include a

warning that the building on the improved real estate or the mobile

home is or will be located in an area having special flood hazards, a

description of the flood insurance purchase requirements under section

102(b) of the 1973 Act (42 U.S.C. 4012a(b)), a statement that insurance

may be purchased under the NFIP and is also available from private

insurers, and any other information that the Director of FEMA considers

necessary to carry out the purposes of the NFIP. The proposal follows

the statute and

[[Page 53970]]

requires that these items be included in the notice.21

\21\Readers should be aware that section 1364 of the 1968 Act as

amended by section 527 of the CDRI Act requires that the notice of

special flood hazards also list any other information that the

Director of the FEMA considers necessary to carry out the purposes

of the NFIP. The agencies have been informed by FEMA staff that at

the present time there are no plans to require that any other

information be listed on the notice.

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The current regulatory provision requiring lenders to provide

notice to borrowers of the availability of Federal disaster relief

assistance in the event of flooding implements a portion of the 1973

Act (42 U.S.C. 4106(b)) that has not been amended substantively and,

therefore, remains unchanged.

The 1968 Act requires the lender to provide notice of special flood

hazards within a reasonable period of time in advance of the signing of

the documents involved in the transaction. The proposal reflects the

Reform Act amendment that added the loan servicer to the entities that

must be notified. However, in the agencies' view, it may not be

possible in all cases for a lender to provide such advance notice to a

loan servicer. The agencies request comment on the appropriate timing

of the notification to the loan servicer.

The current regulations require that the borrower, prior to

closing, furnish the lender with a written acknowledgment of the

receipt of the notices. The Reform Act mandates that the agencies'

regulations require lenders to retain a record of the receipt of the

notices by the borrower and the loan servicer. The proposed regulation

reflects this change and deletes the acknowledgment provision.

The agencies request comment on whether the final regulations

should require the lender to retain a copy of each notice in its files.

The substance of the ``safe harbor'' provision in the current

regulations permitting lenders to rely on the language presented in

sample notices that currently appear either in the body of the

regulations or in an appendix to the regulations remains unchanged. The

language in the sample notices is revised to reflect amendments to the

1968 Act (42 U.S.C. 4104a(a)(3)) made by section 527 of the CDRI Act.

The proposal also implements the new requirement that regulated

lending institutions notify the Director of FEMA (or the Director's

designee) of the identity of the loan servicer and of any change in the

servicer with respect to any loan secured by improved real estate or a

mobile home located in a SFHA. The agencies understand that the

Director of FEMA intends to designate the insurance agent that writes

the flood insurance to receive the notice.

The agencies request comment on whether the final regulations

should require the lender to retain a copy of the notice of the

identity of the servicer in its files.

Use of Standard Flood Hazard Determination Form

As mentioned in the Background section of this proposal, each

agency has issued a final rule requiring the institutions they

supervise to use the standard flood hazard determination form developed

by FEMA when they determine whether improved real estate or a mobile

home offered as collateral for a loan is located in a SFHA. For the

convenience of the reader, the sections of the regulatory text

established by those final rules are included in this proposal. The

regulatory text contains nonsubstantive revisions made to reflect

abbreviations and minor word changes to fit the format of the proposed

regulations.

The Reform Act permits lenders to rely on third-party

determinations but only if the third party guarantees the accuracy of

the information provided to the lender. Moreover, the Reform Act

permits a lender to rely on a previous determination whether the

security property is located in a special flood hazard area and exempts

the lender from liability for errors in the previous determination, if

the previous determination is not more than seven years old and the

basis for it was recorded on the standard flood hazard determination

form that FEMA has developed.

There are two clearly defined exceptions to relying on a previous

determination. A lender may not rely on a previous determination if

FEMA's map revisions or updates have caused the security property to be

located in a SFHA, or if the lender contacts FEMA and discovers that

map revisions or updates affecting the security property have been made

after the date of the previous determination.

Recordkeeping Requirements

The rules of the five agencies that currently have flood insurance

regulations include a requirement that an institution keep records

sufficient to show how it has determined whether loans fall within the

coverage of the NFIP and the implementing regulations. The proposal

removes this provision because the proposed provisions on recordkeeping

appear in the substantive sections to which they pertain, including the

required use of the standard flood hazard determination form and the

notification sections.

Agricultural Lending Considerations

System lending institutions have raised preliminary questions

regarding the operation of the NFIP, particularly with respect to the

cost of insuring agricultural structures that secure loans. The FCA

notes that questions regarding the operation and cost structure of the

NFIP should be directed to FEMA as administrator of the NFIP. However,

the FCA recognizes that System institutions are entering the NFIP for

the first time and are concerned about their new administrative

responsibilities under the NFIP as well as the costs of flood insurance

to borrowers. The FCA is not in the position to respond fully to some

of the concerns that have been raised regarding the NFIP, but FEMA

officials indicate that the NFIP does differentiate between non-

residential agricultural buildings and other types of non-residential

buildings for purposes of pricing flood insurance. Thus a barn, storage

shed or other type of agricultural structure at a given elevation in a

SFHA might cost less to insure against flood loss than another type of

commercial structure more susceptible to flood damage. Where required,

borrowers may insure their non-residential buildings using one policy

with a schedule separately listing the buildings\22\ or on a separate

policy for each building. Each building must be covered by flood

insurance.

\22\FEMA also permits use of schedules to list multiple

structures for purposes of the standard flood hazard determination

form. See 60 FR 35276, 35280 (July 6, 1995); 44 CFR part 65, App. A.

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Concern has also been expressed regarding treatment under the NFIP

of improved property securing an agricultural loan that is located

within a SFHA but on high ground making flooding unlikely. FEMA

officials indicate that a borrower in such circumstances could apply to

FEMA for a Letter of Map Amendment, which, if granted would exclude the

building from the SFHA and eliminate the requirement for flood

insurance on the structure. See 44 CFR part 70. As previously noted,

questions regarding the operation of the NFIP generally should be

directed to FEMA and NFIP officials.

III. Regulatory Flexibility Act

Under section 605(b) of the Regulatory Flexibility Act (RFA) (5

U.S.C. 605(b)), the initial regulatory flexibility analysis otherwise

required under section 603 of the RFA (5 U.S.C. 603) is not required if

the head of the agency certifies that the rule will not

[[Page 53971]]

have a significant economic impact on a substantial number of small

entities and the agency publishes such certification and a succinct

statement explaining the reasons for such certification in the Federal

Register along with its general notice of proposed rulemaking.

Pursuant to section 605(b) of the RFA, the OCC, Board, FDIC, OTS,

and NCUA hereby certify that this proposed rule will not have a

significant economic impact on a substantial number of small entities.

The agencies expect that this proposal will not: (1) Have significant

secondary or incidental effects on a substantial number of small

entities, or (2) create any additional burden on small entities.

Moreover, this proposal is required by the Reform Act. Accordingly, a

regulatory flexibility analysis is not required.

As a general matter, the proposed rule does not impose standards

that are in excess of industry standards with respect to flood

insurance, as those standards are reflected in the underwriting

standards for Fannie Mae and Freddie Mac. Further, for those lenders

already covered by existing flood insurance requirements, the proposed

rule does not represent a significant increase over the burden imposed

under the current rules. For such lenders, the proposed rules would

increase burden above that imposed under the current rules in the

following respects: (1) Where the lender escrows other tax and

insurance payments, premiums for required flood insurance must be

escrowed as well; (2) the content of the notices currently provided to

borrowers is modified; and (3) notice to FEMA of the servicer of the

loan on property in a special flood hazard area is required.\23\ Each

of these additions to the current rules is required by the Reform Act.

\23\The provision concerning forced placement of flood insurance

is self-implementing and is included in the proposed rules only to

ensure that lenders are aware of the authority and requirements of

that provision. Including the provision in the proposed rule does

not impose any additional burden on lenders.

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IV. Paperwork Reduction Act of 1995

The OCC, FDIC, OTS, and NCUA invite comment on:

(1) Whether the proposed collection of information contained in

this notice of proposed rulemaking is necessary for the proper

performance of each agency's functions, including whether the

information has practical utility;

(2) The accuracy of each agency's estimate of the burden of the

proposed information collection;

(3) Ways to enhance the quality, utility, and clarity of the

information to be collected; and

(4) Ways to minimize the burden of the information collection on

respondents, including through the use of automated collection

techniques or other forms of information technology.

Respondents/recordkeepers are not required to respond to this

collection of information unless it displays a currently valid OMB

control number.

OCC: The collection of information requirements contained in this

notice of proposed rulemaking have been submitted to the Office of

Management and Budget for review in accordance with the Paperwork

Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on the collections

of information should be sent to the Office of Management and Budget,

Paperwork Reduction Project (1557), Washington, DC 20503, with copies

to the Legislative and Regulatory Activities Division (1557), Office of

the Comptroller of the Currency, 250 E Street, SW., Washington, DC

20219.

The collection of information requirements in this proposed rule

are found in 12 CFR 22.6, 22.7, 22.9, and 22.10. This information is

required to evidence compliance with the requirements of the National

Flood Insurance Program with respect to lenders (national banks) and

borrowers (anyone who applies for a loan secured by improved real

property or a mobile home which may be located in a special flood

hazard area). The likely respondents/recordkeepers are national banks.

Estimated average annual burden hours per respondent/recordkeeper:

26 hours.

Estimated number of respondents and/or recordkeepers: 3,000.

Estimated total annual reporting and recordkeeping burden: 78,000

hours.

Start-up costs to respondents: None.

Records are to be maintained for the period of time respondent/

recordkeeper owns the loan.

Board: In accordance with section 3506 of the Paperwork Reduction

Act of 1995 (44 U.S.C. Ch. 35; see also 5 CFR 1320 Appendix A Item 1),

the Board reviewed the proposed rule under the authority delegated to

the Board by the Office of Management and Budget. Comments on the

collections of information should be sent to the Office of Management

and Budget, Paperwork Reduction Project (7100-0280), Washington, DC

20503, with copies of such comments to be sent to Mary M. McLaughlin,

Federal Reserve Board Clearance Officer, Division of Research and

Statistics, Mail Stop 97, Board of Governors of the Federal Reserve

System, Washington, DC 20551.

The collection of information requirements in this proposed

regulation will be included in 12 CFR 208.23. This information is

required to evidence compliance with the requirements of the National

Flood Insurance Program with respect to lenders (state chartered member

banks) and borrowers (anyone who applies for a loan secured by improved

real property or a mobile home which may be located in a special flood

hazard area). The respondents/recordkeepers are for-profit financial

institutions, including small businesses.

Respondent/recordkeepers are not required to respond to this

collection of information unless it displays a currently valid OMB

control number. The OMB control number is 7100-0280.

It is estimated that there will be 975 respondent/recordkeepers and

a total of 25,977 hours of annual hour paperwork burden. The estimated

annual hour paperwork burden per respondent/recordkeeper is 26.6 hours,

1 hour for recordkeeping and, when the property is located in a special

flood hazard area, a total of 25.6 hours for: (a) Notifying the

borrower and the servicer; (b) notifying the Director of the initial

servicer; (c) if necessary, notifying the Director when the loan

servicer has changed; and (d) if necessary, notifying the borrower

regarding forced placement. Banks likely will add the required records

to their existing usual and customary loan documentation. Thus there is

estimated to be no significant annual cost burden over the annual hour

burden. Additionally, the Board estimates that there is no associated

capital or start up cost. Based on an hourly cost of $20, the annual

cost to the public is estimated to be $519,540.

Because the records would be maintained at state member banks and

the notices are not provided to the Board, no issue of confidentiality

under the Freedom of Information Act arises.

Comments are invited on: (a) Whether the proposed collection of

information is necessary for the proper performance of the Board's

functions, including whether the information has practical utility; (b)

the accuracy of the Board's estimate of the burden of the proposed

information collection, including the cost of compliance; (c) ways to

enhance the quality, utility, and clarity of the information to be

collected; and (d) ways to minimize the burden of information

collection on respondents, including through the use of automated

collection techniques or other forms of information technology.

FDIC: The collections of information contained in this notice of

proposed rulemaking have been submitted to the

[[Page 53972]]

Office of Management and Budget for review in accordance with the

Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on the

collections of information should be sent to the Office of Management

and Budget, Paperwork Reduction Project (3604-0092), Washington, DC

20503, with copies of such comments to be sent to Steven F. Hanft,

Office of the Executive Secretary, Room F-453, Federal Deposit

Insurance Corporation, 550 17th Street, NW., Washington, DC 20429.

The collections of information requirements in this proposed

regulation are found in 12 CFR 339.6, 339.7, 339.9, and 339.10. This

information is required to evidence compliance with the requirements of

the National Flood Insurance Program with respect to lenders (state

chartered nonmember banks) and borrowers (anyone who applies for a loan

secured by improved real estate or a mobile home which may be located

in a special flood hazard area).

The likely respondents/recordkeepers are insured nonmember banks

and their subsidiaries.

Estimated number of respondents/recordkeepers: 6,250.

Estimated average annual burden hours per respondent/recordkeeper:

26 hours.

Estimated total annual reporting and recordkeeping burden: 162,500

hours.

Start-up costs to respondents: None.

Records are to be maintained for the period of time respondent/

recordkeeper owns the loan.

OTS: The reporting requirements contained in this notice of

proposed rulemaking have been submitted to the Office of Management and

Budget for review in accordance with the Paperwork Reduction Act of

1995 (44 U.S.C. 3507(d)). Comments on the collections of information

should be sent to the Office of Management and Budget, Paperwork

Reduction Project (1550), Washington, DC 20503, with copies to the OTS,

1700 G Street, NW., Washington, DC 20552.

The recordkeeping requirements in this notice of proposed

rulemaking are found in 12 CFR 572.6, 572.7, 572.9, and 572.10. The

recordkeeping requirements set forth in this notice of proposed

rulemaking are needed by the OTS in order to supervise savings

associations and develop regulatory policy. The likely recordkeepers

are OTS-regulated savings associations.

Estimated number of respondents and/or recordkeepers: 1,500.

Estimated average annual burden hours per recordkeeper: 26 hours.

Estimated total annual reporting and recordkeeping burden: 39,000

hours.

Start-up costs to respondents: None.

Records are to be maintained for the period of time respondent/

recordkeeper owns the loan.

NCUA: The collection of information requirements contained in this

notice of proposed rulemaking will be submitted to the Office of

Management and Budget (OMB) for review under the Paperwork Reduction

Act. Written comments on the collection of information should be

forwarded directly to the OMB Desk Officer indicated below at the

following address: OMB Reports Management Branch, New Executive Office

Building, Room 10202, Washington, DC 20503. Attn: Milo Sunderhauf. NCUA

will publish a notice in the Federal Register once OMB action is taken

on the submitted request.

The collection of information requirements in this proposed

regulation are found in 12 CFR 760.6, 760.7, 760.9 and 760.10. This

information is required to evidence compliance with the requirements of

the National Flood Insurance Program with respect to lenders (Federally

insured credit unions) and borrowers (members that apply for a loan

secured by improved real estate or a mobile home which may be located

in a special flood hazard area). The likely recordkeepers are Federally

insured credit unions.

Estimated number of respondents and/or recordkeepers: 700.

Estimated average annual burden hours per respondent/recordkeeper:

26 hours.

Estimated total annual reporting and recordkeeping burden: 16,325

hours.

Start-up costs to respondents: None.

Records are to be maintained for the period of time respondent/

recordkeeper owns the loan.

V. Executive Order 12866

OCC and OTS: The OCC and the OTS have determined that this proposed

rule is not a significant regulatory action as defined in Executive

Order 12866.

VI. Executive Order 12612

NCUA: This proposed rule, like the current 12 CFR part 760 it would

replace, will apply to all Federally insured credit unions. The NCUA

Board, pursuant to Executive Order 12612, has determined, however, that

this proposed rule will not have a substantial direct effect on the

States, on the relationship between the national government and the

States, or on the distribution of power and responsibilities among

various levels of government. Further, this proposed rule will not

preempt provisions of State law or regulations.

VII. Unfunded Mandates Reform Act of 1995

OCC and OTS: Section 202 of the Unfunded Mandates Reform Act of

1995, Pub. L. 104-4, 109 Stat. 48 (1995) (Unfunded Mandates Act),

requires that covered agencies prepare a budgetary impact statement

before promulgating a rule that includes any Federal mandate that may

result in the expenditure by State, local, and tribal governments, in

the aggregate, or by the private sector, of $100 million or more in any

one year. If a budgetary impact statement is required, section 205 of

the Unfunded Mandates Act also requires covered agencies to identify

and consider a reasonable number of regulatory alternatives before

promulgating a rule. As discussed in the preamble, the proposed rule

revises current OCC and OTS flood insurance regulations as prescribed

by Title V of the Riegle Community Development and Regulatory

Improvement Act of 1994, Pub. L. 103-325, Title V, 108 Stat. 2160

(1994) (Reform Act). The Reform Act specifically requires six agencies,

including the OCC and OTS, to implement certain of the Reform Act's

amendments through regulations. Therefore, to the extent that the

proposed rules impose new Federal requirements, such requirements are

statutorily mandated by the Reform Act. Nevertheless, the OCC and OTS

have determined that the proposed rules will not result in expenditures

by State, local, and tribal governments, or by the private sector, of

more than $100 million in any one year. Accordingly, the OCC and OTS

have not prepared a budgetary impact statement or specifically

addressed the regulatory alternatives considered.

List of Subjects

12 CFR Part 22

Flood insurance, Mortgages, National banks, Reporting and

recordkeeping requirements.

12 CFR Part 208

Accounting, Agriculture, Banks, banking, Confidential business

information, Crime, Currency, Federal Reserve System, Flood insurance,

Mortgages, Reporting and recordkeeping requirements, Securities.

12 CFR Part 339

Flood insurance, Reporting and recordkeeping requirements.

12 CFR Part 563

Accounting, Advertising, Crime, Currency, Flood insurance,

Investments, Reporting and recordkeeping

[[Page 53973]]

requirements, Savings associations, Securities, Surety bonds.

12 CFR Part 572

Flood insurance, Reporting and recordkeeping requirements, Savings

associations.

12 CFR Part 614

Agriculture, Banks, banking, Flood insurance, Foreign trade,

Reporting and recordkeeping requirements, Rural areas.

12 CFR Part 760

Credit unions, Mortgages, Flood insurance, Reporting and

recordkeeping requirements.

Office of the Comptroller of the Currency

12 CFR CHAPTER I

Authority and Issuance

For the reasons set forth in the joint preamble, chapter I of title

12 of the Code of Federal Regulations is proposed to be revised to read

as follows:

PART 22--LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS

Sec.

22.1 Authority, purpose, and scope.

22.2 Definitions.

22.3 Requirement to purchase flood insurance where available.

22.4 Exemptions.

22.5 Escrow requirement.

22.6 Required use of standard flood hazard determination form.

22.7 Forced placement of flood insurance.

22.8 Determination fees.

22.9 Notice of special flood hazards and availability of Federal

disaster relief assistance.

22.10 Notice of servicer's identity.

Appendix A to Part 22--Sample Form of Notice of Special Flood Hazards

and Availability of Federal Disaster Relief Assistance

Authority: 12 U.S.C. 93a; 42 U.S.C. 4012a, 4104a, 4104b, 4106,

and 4128.

Sec. 22.1 Authority, purpose, and scope.

(a) Authority. This part is issued pursuant to 12 U.S.C. 93a and 42

U.S.C. 4012a, 4104a, 4104b, 4106, and 4128.

(b) Purpose. The purpose of this part is to implement the

requirements of the National Flood Insurance Act of 1968 and the Flood

Disaster Protection Act of 1973, as amended (42 U.S.C. 4001-4129).

(c) Scope. This part, except for Secs. 22.6 and 22.8, applies to

loans secured by buildings or mobile homes located or to be located in

areas determined by the Director of the Federal Emergency Management

Agency to have special flood hazards. Sections 22.6 and 22.8 apply to

loans secured by buildings or mobile homes, regardless of location.

Sec. 22.2 Definitions.

(a) Act means the National Flood Insurance Act of 1968, as amended

(42 U.S.C. 4001-4129).

(b) Bank means a national bank or a bank located in the District of

Columbia and subject to the supervision of the Comptroller of the

Currency.

(c) Building means a walled and roofed structure, other than a gas

or liquid storage tank, that is principally above ground and affixed to

a permanent site, and a walled and roofed structure while in the course

of construction, alteration, or repair.

(d) Community means a State or a political subdivision of a State

that has zoning and building code jurisdiction over a particular area

having special flood hazards.

(e) Designated loan means a loan secured by a building or mobile

home that is located or to be located in a special flood hazard area in

which flood insurance is available under the Act.

(f) Director means the Director of the Federal Emergency Management

Agency.

(g) Mobile home means a structure, transportable in one or more

sections, that is built on a permanent chassis and designed for use

with or without a permanent foundation when attached to the required

utilities. The term mobile home does not include a recreational

vehicle. For purposes of this part, the term mobile home means a mobile

home on a permanent foundation.

(h) NFIP means the National Flood Insurance Program authorized

under the Act.

(i) Residential improved real estate means real estate upon which a

home or other residential building is located or to be located.

(j) Servicer means the person responsible for:

(1) Receiving any scheduled, periodic payments from a borrower

under the terms of a loan, including amounts for taxes, insurance

premiums, and other charges with respect to the property securing the

loan; and

(2) Making payments of principal and interest and any other

payments from the amounts received from the borrower as may be required

under the terms of the loan.

(k) Special flood hazard area means the land in the flood plain

within a community having at least a one percent chance of flooding in

any given year, as designated by the Director.

Sec. 22.3 Requirement to purchase flood insurance where available.

A bank shall not make, increase, extend, or renew any designated

loan unless the building or mobile home and any personal property

securing the loan is covered by flood insurance for the term of the

loan. The amount of insurance must be at least equal to the lesser of

the outstanding principal balance of the designated loan or the maximum

limit of coverage available for the particular type of property under

the Act.

Sec. 22.4 Exemptions.

The flood insurance requirement prescribed by Sec. 22.3 does not

apply with respect to:

(a) Any State-owned property covered under a policy of self-

insurance satisfactory to the Director, who publishes and periodically

revises the list of States falling within this exemption; or

(b) Property securing any loan with an original principal balance

of $5,000 or less and a repayment term of one year or less.

Sec. 22.5 Escrow requirement.

If a bank requires the escrow of taxes, insurance premiums, fees,

or any other charges for a loan secured by residential improved real

estate or a mobile home that is made, increased, extended, or renewed

after [effective date of final regulation], then the bank shall also

require the escrow of all premiums and fees for any flood insurance

required under Sec. 22.3. The bank, or a servicer acting on behalf of

the bank, shall deposit the flood insurance premiums on behalf of the

borrower in an escrow account. Depending upon the type of loan, such

escrow account may be subject to escrow requirements adopted pursuant

to section 10 of the Real Estate Settlement Procedures Act of 1974 (12

U.S.C. 2609), which generally limits the amount that may be maintained

in escrow accounts for certain types of loans and requires escrow

account statements for those accounts. Upon receipt of a notice from

the Director or other provider of flood insurance that premiums are

due, the bank or its servicer shall pay the amount owed to the

insurance provider from the escrow account.

Sec. 22.6 Required use of standard flood hazard determination form.

(a) Use of form. A bank shall use the standard flood hazard

determination form developed by the Director (as set forth in Appendix

A of 44 CFR part 65) when determining whether the building or mobile

home offered as collateral

[[Page 53974]]

security for a loan is or will be located in a special flood hazard

area in which flood insurance is available under the Act. The standard

flood hazard determination form may be used in a printed, computerized,

or electronic manner.

(b) Retention of form. A bank shall retain a copy of the completed

standard flood hazard determination form, in either hard copy or

electronic form, for the period of time the bank owns the loan.

Sec. 22.7 Forced placement of flood insurance.

If a bank, or a servicer acting on behalf of the bank, determines,

at the time of origination or at any time during the term of a

designated loan, that the building or mobile home and any personal

property securing the designated loan is not covered by flood insurance

or is covered by flood insurance in an amount less than the amount

required under Sec. 22.3, then the bank or its servicer shall notify

the borrower that the borrower should obtain flood insurance, at the

borrower's expense, in an amount at least equal to the amount required

under Sec. 22.3, for the term of the loan. If the borrower fails to

obtain flood insurance within 45 days after notification, then the bank

or its servicer shall purchase insurance on the borrower's behalf. The

bank or its servicer may charge the borrower for the cost of premiums

and fees incurred in purchasing the insurance.

Sec. 22.8 Determination fees.

(a) General. Notwithstanding any Federal or State law other than

the Flood Disaster Protection Act of 1973, as amended (42 U.S.C. 4001-

4129), any bank, or a servicer acting on behalf of the bank, may charge

a reasonable fee for determining whether the building or mobile home

securing the loan is located or will be located in a special flood

hazard area.

(b) Borrower fee. The determination fee may be charged to the

borrower if the determination:

(1) Is made in connection with a making, increasing, extending, or

renewing of the loan that is initiated by the borrower;

(2) Reflects the Director's revision or updating of floodplain

areas or flood-risk zones;

(3) Reflects the Director's publication of a notice or compendium

that:

(i) Affects the area in which the building or mobile home securing

the loan is located; or

(ii) By determination of the Director, may reasonably require a

determination whether the building or mobile home securing the loan is

located in a special flood hazard area; or

(4) Results in the purchase of flood insurance coverage under

Sec. 22.7.

(c) Purchaser or transferee fee. The fee may be charged to the

purchaser or transferee of a loan in the case of the sale or transfer

of the loan.

Sec. 22.9 Notice of special flood hazards and availability of Federal

disaster relief assistance.

(a) Notice requirement. When a bank makes, increases, extends, or

renews a loan secured by a building or a mobile home located or to be

located in a special flood hazard area, the bank shall mail or deliver

a written notice to the borrower and to the servicer in all cases

whether or not flood insurance is available under the Act for the

collateral securing the loan.

(b) Contents of notice. The written notice must include the

following information:

(1) A warning, in a form approved by the Director, that the

building or the mobile home is or will be located in a special flood

hazard area;

(2) A description of the flood insurance purchase requirements set

forth in section 102(b) of the Flood Disaster Protection Act of 1973,

as amended (42 U.S.C. 4012a(b));

(3) A statement, where applicable, that flood insurance coverage is

available under the NFIP and may also be available from private

insurers; and

(4) A statement whether Federal disaster relief assistance may be

available in the event of damage to the building or mobile home caused

by flooding in a Federally-declared disaster.

(c) Timing of notice. The bank shall provide the notice required by

paragraph (a) of this section to the borrower and the servicer within a

reasonable time before the completion of the transaction.

(d) Record of receipt. The bank shall retain a record of the

receipt of the notices by the borrower and the servicer for the period

of time the bank owns the loan.

(e) Alternate method of notice. Instead of providing the notice to

the borrower required by paragraph (a) of this section, a bank may

obtain satisfactory written assurance from the seller or lessor that,

within a reasonable time before the completion of the sale or lease

transaction, the seller or lessor has notified the borrower that the

building or mobile home is or will be located in a special flood hazard

area. The bank shall retain a record of the written assurance from the

seller or lessor for the period of time the bank owns the loan.

(f) Use of prescribed form of notice. A bank may comply with the

notice requirements of this section by providing written notice to a

borrower and to the servicer containing the language presented in

appendix A to this part not less than ten days before the completion of

the transaction (or not later than the bank's commitment if the period

between the commitment and the completion of the transaction is less

than ten days).

Sec. 22.10 Notice of servicer's identity.

(a) Notice requirement. When a bank makes, increases, extends,

renews, sells, or transfers a loan secured by a building or mobile home

located or to be located in a special flood hazard area, the bank shall

notify the Director (or the Director's designee) in writing of the

identity of the servicer of the loan.

(b) Transfer of servicing rights. The bank shall notify the

Director (or the Director's designee) of any change in the servicer of

a loan described in paragraph (a) of this section within 60 days after

the effective date of the change. Upon any change in the servicing of a

loan described in paragraph (a) of this section, the duty to provide

notice under this paragraph (b) shall transfer to the transferee

servicer.

Appendix A to Part 22--Sample Form of Notice of Special Flood Hazards

and Availability of Federal Disaster Relief Assistance

We are giving you this notice to inform you that:

______ The building securing the loan for which you have applied

is or will be located in an area with special flood hazards.

______ The mobile home securing the loan for which you have

applied is or will be located in an area with special flood hazards.

The area has been identified by the Director of the Federal

Emergency Management Agency (FEMA) as a special flood hazard area

using FEMA's Flood Insurance Rate Map or the Flood Hazard Boundary

Map for the following community: ____________. This area has at

least a one percent (1%) chance of being flooded in any given year.

The risk grows each year. For example, during the life of a 30-year

mortgage loan, the risk of a flood in a special flood hazard area is

at least 26%.

Federal law allows a lender and borrower jointly to request the

Director of FEMA to review the determination of whether the property

securing the loan is located in a special flood hazard area. If you

would like to make such a request, please contact us for further

information.

______ The community in which the property securing the loan is

located participates in the National Flood Insurance Program (NFIP).

Federal law will not allow us to make you the loan that you have

applied for if you do not purchase flood insurance. The flood

insurance must be maintained for the life of the loan.

[[Page 53975]]

Flood insurance coverage under the NFIP may be

purchased through an insurance agent who will obtain the policy

either directly through the NFIP or through an insurance company

that participates in the NFIP. Flood insurance also may be available

from private insurers that do not participate in the NFIP.

At a minimum, flood insurance purchased must cover the

lesser of:

(1) The outstanding principal amount of the loan; or

(2) The maximum amount of coverage allowed for the type of

property under the NFIP.

Federal disaster relief assistance (usually in the form

of a low-interest loan) may be available for damages incurred in

excess of your flood insurance if your community's participation in

the NFIP is in accordance with NFIP requirements.

______ Flood insurance coverage under the NFIP is not available

for the property securing the loan because the community in which

the property is located does not participate in the NFIP. In

addition, if the non-participating community has been identified for

at least one year as containing a special flood hazard area,

properties located in the community will not be eligible for Federal

disaster relief assistance in the event of a Federally-declared

flood disaster.

Dated: September 11, 1995.

Eugene A. Ludwig,

Comptroller of the Currency.

Federal Reserve System

12 CFR CHAPTER II

Authority and Issuance

For the reasons set forth in the joint preamble, part 208 of

chapter II of title 12 of the Code of Federal Regulations is proposed

to be amended as set forth below:

PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL

RESERVE SYSTEM (REGULATION H)

1. The authority citation for part 208 continues to read as

follows:

Authority: 12 U.S.C. 36, 248(a), 248(c), 321-338a, 371d, 461,

481-486, 601, 611, 1814, 1823(j), 1828(o), 1831o, 1831p-1, 3105,

3310, 3331-3351, and 3906-3909; 15 U.S.C. 78b, 781(b), 781(g),

781(i), 78o-4(c)(5), 78q, 78q-1, and 78w; 31 U.S.C. 5318; 42 U.S.C.

4012a, 4104a, 4104b, 4106, and 4128.

Sec. 208.8 [Amended]

2. In Sec. 208.8, paragraph (e) is removed and reserved, and

appendix A--Sample Notices is removed.

3. A new Sec. 208.23 is added at the end of subpart A to read as

follows:

Sec. 208.23 Loans in areas having special flood hazards.

(a) Purpose and scope--(1) Purpose. The purpose of this section is

to implement the requirements of the National Flood Insurance Act of

1968 and the Flood Disaster Protection Act of 1973, as amended (42

U.S.C. 4001-4129).

(2) Scope. This section, except for paragraphs (f) and (h) of this

section, applies to loans secured by buildings or mobile homes located

or to be located in areas determined by the Director of the Federal

Emergency Management Agency to have special flood hazards. Paragraphs

(f) and (h) of this section apply to loans secured by buildings or

mobile homes, regardless of location.

(b) Definitions. (1) Act means the National Flood Insurance Act of

1968, as amended (42 U.S.C. 4001-4129).

(2) Building means a walled and roofed structure, other than a gas

or liquid storage tank, that is principally above ground and affixed to

a permanent site, and a walled and roofed structure while in the course

of construction, alteration, or repair.

(3) Community means a State or a political subdivision of a State

that has zoning and building code jurisdiction over a particular area

having special flood hazards.

(4) Designated loan means a loan secured by a building or mobile

home that is located or to be located in a special flood hazard area in

which flood insurance is available under the Act.

(5) Director means the Director of the Federal Emergency Management

Agency.

(6) Mobile home means a structure, transportable in one or more

sections, that is built on a permanent chassis and designed for use

with or without a permanent foundation when attached to the required

utilities. The term mobile home does not include a recreational

vehicle. For purposes of this section, the term mobile home means a

mobile home on a permanent foundation.

(7) NFIP means the National Flood Insurance Program authorized

under the Act.

(8) Residential improved real estate means real estate upon which a

home or other residential building is located or to be located.

(9) Servicer means the person responsible for:

(i) Receiving any scheduled, periodic payments from a borrower

under the terms of a loan, including amounts for taxes, insurance

premiums, and other charges with respect to the property securing the

loan; and

(ii) Making payments of principal and interest and any other

payments from the amounts received from the borrower as may be required

under the terms of the loan.

(10) Special flood hazard area means the land in the flood plain

within a community having at least a one percent chance of flooding in

any given year, as designated by the Director.

(c) Requirement to purchase flood insurance where available. A

state member bank shall not make, increase, extend, or renew any

designated loan unless the building or mobile home and any personal

property securing the loan is covered by flood insurance for the term

of the loan. The amount of insurance must be at least equal to the

lesser of the outstanding principal balance of the designated loan or

the maximum limit of coverage available for the particular type of

property under the Act.

(d) Exemptions. The flood insurance requirement prescribed by

paragraph (c) of this section does not apply with respect to:

(1) Any State-owned property covered under a policy of self-

insurance satisfactory to the Director, who publishes and periodically

revises the list of States falling within this exemption; or

(2) Property securing any loan with an original principal balance

of $5,000 or less and a repayment term of one year or less.

(e) Escrow requirement. If a state member bank requires the escrow

of taxes, insurance premiums, fees, or any other charges for a loan

secured by residential improved real estate or a mobile home that is

made, increased, extended, or renewed after [effective date of final

regulation], then the state member bank shall also require the escrow

of all premiums and fees for any flood insurance required under

paragraph (c) of this section. The state member bank, or a servicer

acting on behalf of the bank, shall deposit the flood insurance

premiums on behalf of the borrower in an escrow account. Depending upon

the type of loan, such escrow account may be subject to escrow

requirements adopted pursuant to section 10 of the Real Estate

Settlement Procedures Act of 1974 (12 U.S.C. 2609), which generally

limits the amount that may be maintained in escrow accounts for certain

types of loans and requires escrow account statements for those

accounts. Upon receipt of a notice from the Director or other provider

of flood insurance that premiums are due, the state member bank or its

servicer shall pay the amount owed to the insurance provider from the

escrow account.

(f) Required use of standard flood hazard determination form--(1)

Use of form. A state member bank shall use the standard flood hazard

determination form developed by the Director (as set forth in Appendix

A of 44 CFR part 65)

[[Page 53976]]

when determining whether the building or mobile home offered as

collateral security for a loan is or will be located in a special flood

hazard area in which flood insurance is available under the Act. The

standard flood hazard determination form may be used in a printed,

computerized, or electronic manner.

(2) Retention of form. A state member bank shall retain a copy of

the completed standard flood hazard determination form, in either hard

copy or electronic form, for the period of time the bank owns the loan.

(g) Forced placement of flood insurance. If a state member bank, or

a servicer acting on behalf of the bank, determines, at the time of

origination or at any time during the term of a designated loan, that

the building or mobile home and any personal property securing the

designated loan is not covered by flood insurance or is covered by

flood insurance in an amount less than the amount required under

paragraph (c) of this section, then the bank or its servicer shall

notify the borrower that the borrower should obtain flood insurance, at

the borrower's expense, in an amount at least equal to the amount

required under paragraph (c) of this section, for the term of the loan.

If the borrower fails to obtain flood insurance within 45 days after

notification, then the state member bank or its servicer shall purchase

insurance on the borrower's behalf. The state member bank or its

servicer may charge the borrower for the cost of premiums and fees

incurred in purchasing the insurance.

(h) Determination fees--(1) General. Notwithstanding any Federal or

State law other than the Flood Disaster Protection Act of 1973, as

amended (42 U.S.C. 4001-4129), any state member bank, or a servicer

acting on behalf of the bank, may charge a reasonable fee for

determining whether the building or mobile home securing the loan is

located or will be located in a special flood hazard area.

(2) Borrower fee. The determination fee may be charged to the

borrower if the determination:

(i) Is made in connection with a making, increasing, extending, or

renewing of the loan that is initiated by the borrower;

(ii) Reflects the Director's revision or updating of floodplain

areas or flood-risk zones;

(iii) Reflects the Director's publication of a notice or compendium

that:

(A) Affects the area in which the building or mobile home securing

the loan is located; or

(B) By determination of the Director, may reasonably require a

determination whether the building or mobile home securing the loan is

located in a special flood hazard area; or

(iv) Results in the purchase of flood insurance coverage under

paragraph (g) of this section.

(3) Purchaser or transferee fee. The fee may be charged to the

purchaser or transferee of a loan in the case of the sale or transfer

of the loan.

(i) Notice of special flood hazards and availability of Federal

disaster relief assistance--(1) Notice requirement. When a state member

bank makes, increases, extends, or renews a loan secured by a building

or mobile home located or to be located in a special flood hazard area,

the bank shall mail or deliver a written notice to the borrower and to

the servicer in all cases whether or not flood insurance is available

under the Act for the collateral securing the loan.

(2) Contents of notice. The written notice must include the

following information:

(i) A warning, in a form approved by the Director, that the

building or the mobile home is or will be located in a special flood

hazard area;

(ii) A description of the flood insurance purchase requirements set

forth in section 102(b) of the Flood Disaster Protection Act of 1973,

as amended (42 U.S.C. 4012a(b));

(iii) A statement, where applicable, that flood insurance coverage

is available under the NFIP and may also be available from private

insurers; and

(iv) A statement whether Federal disaster relief assistance may be

available in the event of damage to the building or mobile home caused

by flooding in a Federally-declared disaster.

(3) Timing of notice. The state member bank shall provide the

notice required by paragraph (i)(1) of this section to the borrower and

the servicer within a reasonable time before the completion of the

transaction.

(4) Record of receipt. The state member bank shall retain a record

of the receipt of the notices by the borrower and the servicer for the

period of time the bank owns the loan.

(5) Alternate method of notice. Instead of providing the notice to

the borrower required by paragraph (i)(1) of this section, a state

member bank may obtain satisfactory written assurance from the seller

or lessor that, within a reasonable time before the completion of the

sale or lease transaction, the seller or lessor has notified the

borrower that the building or mobile home is or will be located in a

special flood hazard area. The state member bank shall retain a record

of the written assurance from the seller or lessor for the period of

time the bank owns the loan.

(6) Use of prescribed form of notice. A state member bank may

comply with the notice requirements of this paragraph (i) by providing

written notice to a borrower and to the servicer containing the

language presented in appendix A to this section not less than ten days

before the completion of the transaction (or not later than the bank's

commitment if the period between the commitment and the completion of

the transaction is less than ten days).

(j) Notice of servicer's identity--(1) Notice requirement. When a

state member bank makes, increases, extends, renews, sells, or

transfers a loan secured by a building or mobile home located or to be

located in a special flood hazard area, the bank shall notify the

Director (or the Director's designee) in writing of the identity of the

servicer of the loan.

(2) Transfer of servicing rights. The state member bank shall

notify the Director (or the Director's designee) of any change in the

servicer of a loan described in paragraph (j)(1) of this section within

60 days after the effective date of the change. Upon any change in the

servicing of a loan described in paragraph (j)(1) of this section, the

duty to provide notice under this paragraph (j)(2) shall transfer to

the transferee servicer.

Appendix A to Sec. 208.23--Sample Form of Notice of Special Flood

Hazards and Availability of Federal Disaster Relief Assistance

We are giving you this notice to inform you that:

______The building securing the loan for which you have applied

is or will be located in an area with special flood hazards.

______The mobile home securing the loan for which you have

applied is or will be located in an area with special flood hazards.

The area has been identified by the Director of the Federal

Emergency Management Agency (FEMA) as a special flood hazard area

using FEMA's Flood Insurance Rate Map or the Flood Hazard Boundary

Map for the following community:____________. This area has at least

a one percent (1%) chance of being flooded in any given year. The

risk grows each year. For example, during the life of a 30-year

mortgage loan, the risk of a flood in a special flood hazard area is

at least 26%.

Federal law allows a lender and borrower jointly to request the

Director of FEMA to review the determination of whether the property

securing the loan is located in a special flood hazard area. If you

would like to make such a request, please contact us for further

information.

______The community in which the property securing the loan is

located

[[Page 53977]]

participates in the National Flood Insurance Program (NFIP). Federal

law will not allow us to make you the loan that you have applied for

if you do not purchase flood insurance. The flood insurance must be

maintained for the life of the loan.

Flood insurance coverage under the NFIP may be

purchased through an insurance agent who will obtain the policy

either directly through the NFIP or through an insurance company

that participates in the NFIP. Flood insurance also may be available

from private insurers that do not participate in the NFIP.

At a minimum, flood insurance purchased must cover the

lesser of:

(1) The outstanding principal amount of the loan; or

(2) The maximum amount of coverage allowed for the type of

property under the NFIP.

Federal disaster relief assistance (usually in the form

of a low-interest loan) may be available for damages incurred in

excess of your flood insurance if your community's participation in

the NFIP is in accordance with NFIP requirements.

______Flood insurance coverage under the NFIP is not available

for the property securing the loan because the community in which

the property is located does not participate in the NFIP. In

addition, if the non-participating community has been identified for

at least one year as containing a special flood hazard area,

properties located in the community will not be eligible for Federal

disaster relief assistance in the event of a Federally-declared

flood disaster.

By order of the Board of Governors of the Federal Reserve

System, October 3, 1995.

William W. Wiles,

Secretary of the Board.

Federal Deposit Insurance Corporation

12 CFR CHAPTER III

Authority and Issuance

For the reasons set forth in the joint preamble, the Board of

Directors of the FDIC proposes to revise part 339 of chapter III of

title 12 of the Code of Federal Regulations to read as follows:

PART 339--LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS

Sec.

339.1 Authority, purpose, and scope.

339.2 Definitions.

339.3 Requirement to purchase flood insurance where available.

339.4 Exemptions.

339.5 Escrow requirement.

339.6 Required use of standard flood hazard determination form.

339.7 Forced placement of flood insurance.

339.8 Determination fees.

339.9 Notice of special flood hazards and availability of Federal

disaster relief assistance.

339.10 Notice of servicer's identity.

Appendix A to Part 339--Sample Form of Notice of Special Flood Hazards

and Availability of Federal Disaster Relief Assistance

Authority: 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128.

Sec. 339.1 Authority, purpose, and scope.

(a) Authority. This part is issued pursuant to 42 U.S.C. 4012a,

4104a, 4104b, 4106, and 4128.

(b) Purpose. The purpose of this part is to implement the

requirements of the National Flood Insurance Act of 1968 and the Flood

Disaster Protection Act of 1973, as amended (42 U.S.C. 4001-4129).

(c) Scope. This part, except for Secs. 339.6 and 339.8, applies to

loans secured by buildings or mobile homes located or to be located in

areas determined by the Director of the Federal Emergency Management

Agency to have special flood hazards. Sections 339.6 and 339.8 apply to

loans secured by buildings or mobile homes, regardless of location.

Sec. 339.2 Definitions.

(a) Act means the National Flood Insurance Act of 1968, as amended

(42 U.S.C. 4001-4129).

(b) Bank means an insured State nonmember bank and an insured State

branch of a foreign bank or any subsidiary of an insured State

nonmember bank.

(c) Building means a walled and roofed structure, other than a gas

or liquid storage tank, that is principally above ground and affixed to

a permanent site, and a walled and roofed structure while in the course

of construction, alteration, or repair.

(d) Community means a State or a political subdivision of a State

that has zoning and building code jurisdiction over a particular area

having special flood hazards.

(e) Designated loan means a loan secured by a building or mobile

home that is located or to be located in a special flood hazard area in

which flood insurance is available under the Act.

(f) Director means the Director of the Federal Emergency Management

Agency.

(g) Mobile home means a structure, transportable in one or more

sections, that is built on a permanent chassis and designed for use

with or without a permanent foundation when attached to the required

utilities. The term mobile home does not include a recreational

vehicle. For purposes of this part, the term mobile home means a mobile

home on a permanent foundation.

(h) NFIP means the National Flood Insurance Program authorized

under the Act.

(i) Residential improved real estate means real estate upon which a

home or other residential building is located or to be located.

(j) Servicer means the person responsible for:

(1) Receiving any scheduled, periodic payments from a borrower

under the terms of a loan, including amounts for taxes, insurance

premiums, and other charges with respect to the property securing the

loan; and

(2) Making payments of principal and interest and any other

payments from the amounts received from the borrower as may be required

under the terms of the loan.

(k) Special flood hazard area means the land in the flood plain

within a community having at least a one percent chance of flooding in

any given year, as designated by the Director.

Sec. 339.3 Requirement to purchase flood insurance where available.

A bank shall not make, increase, extend, or renew any designated

loan unless the building or mobile home and any personal property

securing the loan is covered by flood insurance for the term of the

loan. The amount of insurance must be at least equal to the lesser of

the outstanding principal balance of the designated loan or the maximum

limit of coverage available for the particular type of property under

the Act.

Sec. 339.4 Exemptions.

The flood insurance requirement prescribed by Sec. 339.3 does not

apply with respect to:

(a) Any State-owned property covered under a policy of self-

insurance satisfactory to the Director, who publishes and periodically

revises the list of States falling within this exemption; or

(b) Property securing any loan with an original principal balance

of $5,000 or less and a repayment term of one year or less.

Sec. 339.5 Escrow requirement.

If a bank requires the escrow of taxes, insurance premiums, fees,

or any other charges for a loan secured by residential improved real

estate or a mobile home that is made, increased, extended, or renewed

after [effective date of final regulation], then the bank shall also

require the escrow of all premiums and fees for any flood insurance

required under Sec. 339.3. The bank, or a servicer acting on behalf of

the bank, shall deposit the flood insurance premiums on behalf of the

borrower in an escrow account. Depending upon the type of loan, such

escrow account may be

[[Page 53978]]

subject to escrow requirements adopted pursuant to section 10 of the

Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2609) which

generally limits the amount that may be maintained in escrow accounts

for certain types of loans and requires escrow account statements for

those accounts. Upon receipt of a notice from the Director or other

provider of flood insurance that premiums are due, the bank or its

servicer shall pay the amount owed to the insurance provider from the

escrow account.

Sec. 339.6 Required use of standard flood hazard determination form.

(a) Use of form. A bank shall use the standard flood hazard

determination form developed by the Director (as set forth in Appendix

A of 44 CFR part 65) when determining whether the building or mobile

home offered as collateral security for a loan is or will be located in

a special flood hazard area in which flood insurance is available under

the Act. The standard flood hazard determination form may be used in a

printed, computerized, or electronic manner.

(b) Retention of form. A bank shall retain a copy of the completed

standard flood hazard determination form, in either hard copy or

electronic form, for the period of time the bank owns the loan.

Sec. 339.7 Forced placement of flood insurance.

If a bank, or a servicer acting on behalf of the bank, determines,

at the time of origination or at any time during the term of a

designated loan, that the building or mobile home and any personal

property securing the designated loan is not covered by flood insurance

or is covered by flood insurance in an amount less than the amount

required under Sec. 339.3, then the bank or its servicer shall notify

the borrower that the borrower should obtain flood insurance, at the

borrower's expense, in an amount at least equal to the amount required

under Sec. 339.3, for the term of the loan. If the borrower fails to

obtain flood insurance within 45 days after notification, then the bank

or its servicer shall purchase insurance on the borrower's behalf. The

bank or its servicer may charge the borrower for the cost of premiums

and fees incurred in purchasing the insurance.

Sec. 339.8 Determination fees.

(a) General. Notwithstanding any Federal or State law other than

the Flood Disaster Protection Act of 1973, as amended (42 U.S.C. 4001-

4129), any bank, or a servicer acting on behalf of the bank, may charge

a reasonable fee to the borrower for determining whether a building or

mobile home securing the loan is located or will be located in a

special flood hazard area.

(b) Borrower fee. The determination fee may be charged to the

borrower if the determination:

(1) Is made in connection with a making, increasing, extending, or

renewing of the loan that is initiated by the borrower;

(2) Reflects the Director's revision or updating of floodplain

areas or flood-risk zones;

(3) Reflects the Director's publication of a notice or compendium

that:

(i) Affects the area in which the building or mobile home securing

the loan is located; or

(ii) By determination of the Director, may reasonably require a

determination whether the building or mobile home securing the loan is

located in a special flood hazard area; or

(4) Results in the purchase of flood insurance coverage under

Sec. 339.7.

(c) Purchaser or transferee fee. The fee may be charged to the

purchaser or transferee of a loan in the case of the sale or transfer

of the loan.

Sec. 339.9 Notice of special flood hazards and availability of Federal

disaster relief assistance.

(a) Notice requirement. When a bank makes, increases, extends, or

renews a loan secured by a building or a mobile home located or to be

located in a special flood hazard area, the bank shall mail or deliver

a written notice to the borrower and to the servicer in all cases

whether or not flood insurance is available under the Act for the

collateral securing the loan.

(b) Contents of notice. The written notice must include the

following information:

(1) A warning, in a form approved by the Director, that the

building or the mobile home is or will be located in a special flood

hazard area;

(2) A description of the flood insurance purchase requirements set

forth in section 102(b) of the Flood Disaster Protection Act of 1973,

as amended (42 U.S.C. 4012a(b));

(3) A statement, where applicable, that flood insurance coverage is

available under the NFIP and may also be available from private

insurers; and

(4) A statement whether Federal disaster relief assistance may be

available in the event of damage to the building or mobile home caused

by flooding in a Federally-declared disaster.

(c) Timing of notice. The bank shall provide the notice required by

paragraph (a) of this section to the borrower and the servicer within a

reasonable time before the completion of the transaction.

(d) Record of receipt. The bank shall retain a record of the

receipt of the notices by the borrower and the servicer for the period

of time the bank owns the loan.

(e) Alternate method of notice. Instead of providing the notice to

the borrower required by paragraph (a) of this section, a bank may

obtain satisfactory written assurance from the seller or lessor that,

within a reasonable time before the completion of the sale or lease

transaction, the seller or lessor has notified the borrower that the

building or mobile home is or will be located in a special flood hazard

area. The bank shall retain a record of the written assurance from the

seller or lessor for the period of time the bank owns the loan.

(f) Use of prescribed form of notice. A bank may comply with the

notice requirements of this section by providing written notice to a

borrower and to the servicer containing the language presented in

appendix A to this part not less than ten days before the completion of

the transaction (or not later than the bank's commitment if the period

between the commitment and the completion of the transaction is less

than ten days).

Sec. 339.10 Notice of servicer's identity.

(a) Notice requirement. When a bank makes, increases, extends,

renews, sells, or transfers a loan secured by a building or mobile home

located or to be located in a special flood hazard area, the bank shall

notify the Director (or the Director's designee) in writing of the

identity of the servicer of the loan.

(b) Transfer of servicing rights. The bank shall notify the

Director (or the Director's designee) of any change in the servicer of

a loan described in paragraph (a) of this section within 60 days after

the effective date of the change. Upon any change in the servicing of a

loan described in paragraph (a) of this section, the duty to provide

notice under this paragraph (b) shall transfer to the transferee

servicer.

Appendix A to Part 339--Sample Form of Notice of Special Flood Hazards

and Availability of Federal Disaster Relief Assistance

We are giving you this notice to inform you that:

______ The building securing the loan for which you have applied

is or will be located in an area with special flood hazards.

______ The mobile home securing the loan for which you have

applied is or will be located in an area with special flood hazards.

[[Page 53979]]

The area has been identified by the Director of the Federal

Emergency Management Agency (FEMA) as a special flood hazard area

using FEMA's Flood Insurance Rate Map or the Flood Hazard Boundary

Map for the following community:

________________________________________. This area has at least a

one percent (1%) chance of being flooded in any given year. The risk

grows each year. For example, during the life of a 30-year mortgage

loan, the risk of a flood in a special flood hazard area is at least

26%.

Federal law allows a lender and borrower jointly to request the

Director of FEMA to review the determination of whether the property

securing the loan is located in a special flood hazard area. If you

would like to make such a request, please contact us for further

information.

______ The community in which the property securing the loan is

located participates in the National Flood Insurance Program (NFIP).

Federal law will not allow us to make you the loan that you have

applied for if you do not purchase flood insurance. The flood

insurance must be maintained for the life of the loan.

Flood insurance coverage under the NFIP may be

purchased through an insurance agent who will obtain the policy

either directly through the NFIP or through an insurance company

that participates in the NFIP. Flood insurance also may be available

from private insurers that do not participate in the NFIP.

At a minimum, flood insurance purchased must cover the

lesser of:

(1) The outstanding principal amount of the loan; or

(2) The maximum amount of coverage allowed for the type of

property under the NFIP.

Federal disaster relief assistance (usually in the form

of a low-interest loan) may be available for damages incurred in

excess of your flood insurance if your community's participation in

the NFIP is in accordance with NFIP requirements.

______ Flood insurance coverage under the NFIP is not available

for the property securing the loan because the community in which

the property is located does not participate in the NFIP. In

addition, if the non-participating community has been identified for

at least one year as containing a special flood hazard area,

properties located in the community will not be eligible for Federal

disaster relief assistance in the event of a Federally-declared

flood disaster.

By order of the Board of Directors.

Dated at Washington, D.C., this 26th day of September, 1995.

Federal Deposit Insurance Corporation.

Jerry L. Langley,

Executive Secretary.

Office of Thrift Supervision

12 CFR CHAPTER V

Authority and Issuance

For the reasons set forth in the joint preamble, subchapter D of

chapter V of title 12 of the Code of Federal Regulations is proposed to

be amended, as set forth below:

SUBCHAPTER D--REGULATIONS APPLICABLE TO ALL SAVINGS ASSOCIATIONS PART

563--OPERATIONS

1. The authority citation for part 563 is revised to read as

follows:

Authority: 12 U.S.C. 375b, 1462, 1462a, 1463, 1464, 1467a, 1468,

1817, 1828, 3806.

Sec. 563.48 [Removed]

2. Section 563.48 is removed.

3. A new part 572 is added to read as follows:

PART 572--LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS

Sec.

572.1 Authority, purpose, and scope.

572.2 Definitions.

572.3 Requirement to purchase flood insurance where available.

572.4 Exemptions.

572.5 Escrow requirement.

572.6 Required use of standard flood hazard determination form.

572.7 Forced placement of flood insurance.

572.8 Determination fees.

572.9 Notice of special flood hazards and availability of Federal

disaster relief assistance.

572.10 Notice of servicer's identity.

Appendix A to Part 572--Sample Form of Notice of Special Flood Hazards

and Availability of Federal Disaster Relief Assistance

Authority: 12 U.S.C. 1462, 1462a, 1463, 1464; 42 U.S.C. 4012a,

4104a, 4104b, 4106, and 4128.

Sec. 572.1 Authority, purpose, and scope.

(a) Authority. This part is issued pursuant to 12 U.S.C. 1462,

1462a, 1463, 1464 and 42 U.S.C. 4012a, 4104a, 4104b, 4106, 4128.

(b) Purpose. The purpose of this part is to implement the

requirements of the National Flood Insurance Act of 1968 and the Flood

Disaster Protection Act of 1973, as amended (42 U.S.C.4001-4129).

(c) Scope. This part, except for Secs. 572.6 and 572.8, applies to

loans secured by buildings or mobile homes located or to be located in

areas determined by the Director of the Federal Emergency Management

Agency to have special flood hazards. Sections 572.6 and 572.8 apply to

loans secured by buildings or mobile homes, regardless of location.

Sec. 572.2 Definitions.

(a) Act means the National Flood Insurance Act of 1968, as amended

(42 U.S.C. 4001-4129).

(b) [Reserved]

(c) Building means a walled and roofed structure, other than a gas

or liquid storage tank, that is principally above ground and affixed to

a permanent site, and a walled and roofed structure while in the course

of construction, alteration, or repair.

(d) Community means a State or a political subdivision of a State

that has zoning and building code jurisdiction over a particular area

having special flood hazards.

(e) Designated loan means a loan secured by a building or mobile

home that is located or to be located in a special flood hazard area in

which flood insurance is available under the Act.

(f) Director of FEMA means the Director of the Federal Emergency

Management Agency.

(g) Mobile home means a structure, transportable in one or more

sections, that is built on a permanent chassis and designed for use

with or without a permanent foundation when attached to the required

utilities. The term mobile home does not include a recreational

vehicle. For purposes of this part, the term mobile home means a mobile

home on a permanent foundation.

(h) NFIP means the National Flood Insurance Program authorized

under the Act.

(i) Residential improved real estate means real estate upon which a

home or other residential building is located or to be located.

(j) Servicer means the person responsible for:

(1) Receiving any scheduled, periodic payments from a borrower

under the terms of a loan, including amounts for taxes, insurance

premiums, and other charges with respect to the property securing the

loan; and

(2) Making payments of principal and interest and any other

payments from the amounts received from the borrower as may be required

under the terms of the loan.

(k) Special flood hazard area means the land in the flood plain

within a community having at least a one percent chance of flooding in

any given year, as designated by the Director of FEMA.

Sec. 572.3 Requirement to purchase flood insurance where available.

A savings association shall not make, increase, extend, or renew

any designated loan unless the building or mobile home and any personal

property securing the loan is covered by flood insurance for the term

of the loan. The amount of insurance must be at least equal to the

lesser of the outstanding principal balance of the designated loan or

the maximum limit of coverage available for the particular type of

property under the Act.

[[Page 53980]]

Sec. 572.4 Exemptions.

The flood insurance requirement prescribed by Sec. 572.3 does not

apply with respect to:

(a) Any State-owned property covered under a policy of self-

insurance satisfactory to the Director of FEMA, who publishes and

periodically revises the list of States falling within this exemption;

or

(b) Property securing any loan with an original principal balance

of $5,000 or less and a repayment term of one year or less.

Sec. 572.5 Escrow requirement.

If a savings association requires the escrow of taxes, insurance

premiums, fees, or any other charges for a loan secured by residential

improved real estate or a mobile home that is made, increased,

extended, or renewed after [effective date of final regulation], then

the savings association shall also require the escrow of all premiums

and fees for any flood insurance required under Sec. 572.3. The savings

association or a servicer acting on behalf of the savings association,

shall deposit the flood insurance premiums on behalf of the borrower in

an escrow account. Depending upon the type of loan, such escrow account

may be subject to escrow requirements adopted pursuant to section 10 of

the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2609),

which generally limits the amount that may be maintained in escrow

accounts for certain types of loans and requires escrow account

statements for those accounts. Upon receipt of a notice from the

Director of FEMA or other provider of flood insurance that premiums are

due, the savings association or its servicer shall pay the amount owed

to the insurance provider from the escrow account.

Sec. 572.6 Required use of standard flood hazard determination form.

(a) Use of form. A savings association shall use the standard flood

hazard determination form developed by the Director of FEMA (as set

forth in Appendix A of 44 CFR part 65) when determining whether the

building or mobile home offered as collateral security for a loan is or

will be located in a special flood hazard area in which flood insurance

is available under the Act. The standard flood hazard determination

form may be used in a printed, computerized, or electronic manner.

(b) Retention of form. A savings association shall retain a copy of

the completed standard flood hazard determination form, in either hard

copy or electronic form, for the period of time the savings association

owns the loan.

Sec. 572.7 Forced placement of flood insurance.

If a savings association, or a servicer acting on behalf of the

savings association, determines, at the time of origination or at any

time during the term of a designated loan, that the building or mobile

home and any personal property securing the designated loan is not

covered by flood insurance or is covered by flood insurance in an

amount less than the amount required under Sec. 572.3, then the savings

association or its servicer shall notify the borrower that the borrower

should obtain flood insurance, at the borrower's expense, in an amount

at least equal to the amount required under Sec. 572.3, for the term of

the loan. If the borrower fails to obtain flood insurance within 45

days after notification, then the savings association or its servicer

shall purchase insurance on the borrower's behalf. The savings

association or its servicer may charge the borrower for the cost of

premiums and fees incurred in purchasing the insurance.

Sec. 572.8 Determination fees.

(a) General. Notwithstanding any Federal or State law other than

the Flood Disaster Protection Act of 1973, as amended (42 U.S.C. 4001-

4129), any savings association, or a servicer acting on behalf of the

savings association, may charge a reasonable fee for determining

whether the building or mobile home securing the loan is located or

will be located in a special flood hazard area.

(b) Borrower fee. The determination fee may be charged to the

borrower if the determination:

(1) Is made in connection with a making, increasing, extending, or

renewing of the loan that is initiated by the borrower;

(2) Reflects the Director of FEMA's revision or updating of

floodplain areas or flood-risk zones;

(3) Reflects the Director of FEMA's publication of a notice or

compendium that:

(i) Affects the area in which the building or mobile home securing

the loan is located; or

(ii) By determination of the Director of FEMA, may reasonably

require a determination whether the building or mobile home securing

the loan is located in a special flood hazard area; or

(4) Results in the purchase of flood insurance coverage under

Sec. 572.7.

(c) Purchaser or transferee fee. The fee may be charged to the

purchaser or transferee of a loan in the case of the sale or transfer

of the loan.

Sec. 572.9 Notice of special flood hazards and availability of Federal

disaster relief assistance.

(a) Notice requirement. When a savings association makes,

increases, extends, or renews a loan secured by a building or a mobile

home located or to be located in a special flood hazard area, the

association shall mail or deliver a written notice to the borrower and

to the servicer in all cases whether or not flood insurance is

available under the Act for the collateral securing the loan.

(b) Contents of notice. The written notice must include the

following information:

(1) A warning, in a form approved by the Director of FEMA, that the

building or the mobile home is or will be located in a special flood

hazard area;

(2) A description of the flood insurance purchase requirements set

forth in section 102(b) of the Flood Disaster Protection Act of 1973,

as amended (42 U.S.C. 4012a(b));

(3) A statement, where applicable, that flood insurance coverage is

available under the NFIP and may also be available from private

insurers; and

(4) A statement whether Federal disaster relief assistance may be

available in the event of damage to the building or mobile home caused

by flooding in a Federally-declared disaster.

(c) Timing of notice. The savings association shall provide the

notice required by paragraph (a) of this section to the borrower and

the servicer within a reasonable time before the completion of the

transaction.

(d) Record of receipt. The savings association shall retain a

record of the receipt of the notices by the borrower and the servicer

for the period of time the savings association owns the loan.

(e) Alternate method of notice. Instead of providing the notice to

the borrower required by paragraph (a) of this section, a savings

association may obtain satisfactory written assurance from the seller

or lessor that, within a reasonable time before the completion of the

sale or lease transaction, the seller or lessor has notified the

borrower that the building or mobile home is or will be located in a

special flood hazard area. The savings association shall retain a

record of the written assurance from the seller or lessor for the

period of time the savings association owns the loan.

(f) Use of prescribed form of notice. A savings association may

comply with the notice requirements of this section by providing

written notice to a borrower and to the servicer containing

[[Page 53981]]

the language presented in appendix A to this part not less than ten

days before the completion of the transaction (or not later than the

savings association's commitment if the period between the commitment

and the completion of the transaction is less than ten days).

Sec. 572.10 Notice of servicer's identity.

(a) Notice requirement. When a savings association makes,

increases, extends, renews, sells, or transfers a loan secured by a

building or mobile home located or to be located in a special flood

hazard area, the savings association shall notify the Director of FEMA

(or the Director of FEMA's designee) in writing of the identity of the

servicer of the loan.

(b) Transfer of servicing rights. The savings association shall

notify the Director of FEMA (or the Director of FEMA's designee) of any

change in the servicer of a loan described in paragraph (a) of this

section within 60 days after the effective date of the change. Upon any

change in the servicing of a loan described in paragraph (a) of this

section, the duty to provide notice under this paragraph (b) shall

transfer to the transferee servicer.

Appendix A to Part 572--Sample Form of Notice of Special Flood Hazards

and Availability of Federal Disaster Relief Assistance

We are giving you this notice to inform you that:

______ The building securing the loan for which you have applied

is or will be located in an area with special flood hazards.

______ The mobile home securing the loan for which you have

applied is or will be located in an area with special flood hazards.

The area has been identified by the Director of the Federal

Emergency Management Agency (FEMA) as a special flood hazard area

using FEMA's Flood Insurance Rate Map or the Flood Hazard Boundary

Map for the following community:

________________________________________. This area has at least a

one percent (1%) chance of being flooded in any given year. The risk

grows each year. For example, during the life of a 30-year mortgage

loan, the risk of a flood in a special flood hazard area is at least

26%.

Federal law allows a lender and borrower jointly to request the

Director of FEMA to review the determination of whether the property

securing the loan is located in a special flood hazard area. If you

would like to make such a request, please contact us for further

information.

______ The community in which the property securing the loan is

located participates in the National Flood Insurance Program (NFIP).

Federal law will not allow us to make you the loan that you have

applied for if you do not purchase flood insurance. The flood

insurance must be maintained for the life of the loan.

Flood insurance coverage under the NFIP may be

purchased through an insurance agent who will obtain the policy

either directly through the NFIP or through an insurance company

that participates in the NFIP. Flood insurance also may be available

from private insurers that do not participate in the NFIP.

At a minimum, flood insurance purchased must cover the

lesser of:

(1) The outstanding principal amount of the loan; or

(2) The maximum amount of coverage allowed for the type of

property under the NFIP.

Federal disaster relief assistance (usually in the form

of a low-interest loan) may be available for damages incurred in

excess of your flood insurance if your community's participation in

the NFIP is in accordance with NFIP requirements.

______ Flood insurance coverage under the NFIP is not available

for the property securing the loan because the community in which

the property is located does not participate in the NFIP. In

addition, if the non-participating community has been identified for

at least one year as containing a special flood hazard area,

properties located in the community will not be eligible for Federal

disaster relief assistance in the event of a Federally-declared

flood disaster.

Dated: September 30, 1995.

By the Office of Thrift Supervision.

Jonathan L. Fiechter,

Acting Director.

Farm Credit Administration

12 CFR CHAPTER VI

Authority and Issuance

For the reasons stated in the preamble, part 614 of chapter VI,

title 12 of the Code of Federal Regulations is proposed to be amended

as follows:

PART 614--LOAN POLICIES AND OPERATIONS

1. The authority citation for part 614 continues to read as

follows:

Authority: 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128; secs.

1.3, 1.5, 1.6, 1.7, 1.9, 1.10, 2.0, 2.2, 2.3, 2.4, 2.10, 2.12, 2.13,

2.15, 3.0, 3.1, 3.3, 3.7, 3.8, 3.10, 3.20, 3.28, 4.12, 4.12A, 4.13,

4.13B, 4.14, 4.14A, 4.14C, 4.14D, 4.14E, 4.18, 4.19, 4.36, 4.37,

5.9, 5.10, 5.17, 7.0, 7.2, 7.6, 7.7, 7.8, 7.12, 7.13, 8.0, 8.5 of

the Farm Credit Act (12 U.S.C. 2011, 2013, 2014, 2015, 2017, 2018,

2071, 2073, 2074, 2075, 2091, 2093, 2094, 2096, 2121, 2122, 2124,

2128, 2129, 2131, 2141, 2149, 2183, 2184, 2199, 2201, 2202, 2202a,

2202c, 2202d, 2202e, 2206, 2207, 2219a, 2219b, 2243, 2244, 2252,

2279a, 2279a-2, 2279b, 2279b-1, 2279b-2, 2279f, 2279f-1, 2279aa,

2279aa-5); sec. 413 of Pub. L. 100-233, 101 Stat. 1568, 1639.

2. Part 614 is amended by revising subpart S to read as follows:

Subpart S--Flood Insurance Requirements

Sec.

614.4920 Purpose and scope.

614.4925 Definitions.

614.4930 Requirement to purchase flood insurance where available.

614.4935 Escrow requirement.

614.4940 Required use of Standard Flood Hazard Determination Form.

614.4945 Forced placement of flood insurance.

614.4950 Determination fees.

614.4955 Notice of special flood hazards and availability of

Federal disaster relief assistance.

614.4960 Notice of servicer's identity.

Appendix A to Subpart S of Part 614--Sample Form of Notice of Special

Flood Hazards and Availability of Federal Disaster Relief Assistance

Subpart S--Flood Insurance Requirements

Sec. 614.4920 Purpose and scope.

(a) Purpose. This subpart implements the requirements of the

National Flood Insurance Act of 1968 (1968 Act) and the Flood Disaster

Protection Act of 1973 (1973 Act), as amended (42 U.S.C. 4001-4129).

(b) Scope. This subpart, except for Secs. 614.4940 and 614.4950,

applies to loans of Farm Credit System (System) institutions that are

secured by buildings or mobile homes located or to be located in areas

determined by the Director of the Federal Emergency Management Agency

to have special flood hazards. Sections 614.4940 and 614.4950 apply to

loans secured by buildings or mobile homes, regardless of location.

Sec. 614.4925 Definitions.

(a) Building means a walled and roofed structure, other than a gas

or liquid storage tank, that is principally above ground and affixed to

a permanent site, and a walled and roofed structure while in the course

of construction, alteration, or repair.

(b) Community means a State or a political subdivision of a State

that has zoning and building code jurisdiction over a particular area

having special flood hazards.

(c) Designated loan means a loan secured by a building or a mobile

home that is located or to be located in a special flood hazard area in

which flood insurance is available under the 1968 Act.

(d) Director means the Director of the Federal Emergency Management

Agency.

(e) Mobile home means a structure, transportable in one or more

sections, that is built on a permanent chassis and designed for use

with or without a permanent foundation when attached to the required

utilities. The term mobile home does not include a recreational

vehicle. For purposes of this subpart,

[[Page 53982]]

the term mobile home means a mobile home on a permanent foundation.

(f) NFIP means the National Flood Insurance Program authorized

under the 1968 Act.

(g) Residential improved real estate means real estate upon which a

home or other residential building is located or to be located.

(h) Servicer means the person responsible for:

(1) Receiving any scheduled, periodic payments from a borrower

under the terms of a loan, including amounts for taxes, insurance

premiums, and other charges with respect to the property securing the

loan; and

(2) Making payments of principal and interest and any other

payments from the amounts received from the borrower as may be required

under the terms of the loan.

(i) Special flood hazard area means the land in the flood plain

within a community having at least a one percent chance of flooding in

any given year, as designated by the Director.

Sec. 614.4930 Requirement to purchase flood insurance where available.

(a) General requirement. A System institution shall not make,

increase, extend or renew any designated loan unless the building or

mobile home and any personal property securing the loan are covered by

flood insurance for the term of the loan. The amount of insurance must

be at least equal to the lesser of the outstanding principal balance of

the designated loan or the maximum limit of coverage available for the

particular type of property under the 1968 Act.

(b) Exemptions. The flood insurance requirement of paragraph (a) of

this section does not apply with respect to:

(1) Any State-owned property covered under a policy of self-

insurance satisfactory to the Director, who publishes and periodically

revises the list of States falling within this exemption; or

(2) Property securing any loan with an original principal balance

of $5000 or less and a repayment term of one year or less.

Sec. 614.4935 Escrow requirement.

If a System institution requires the escrow of taxes, insurance

premiums, fees, or any other charges for a loan secured by residential

improved real estate or a mobile home that is made, increased, extended

or renewed after [effective date of final regulation], then the

institution also shall require the escrow of all premiums and fees for

any flood insurance required under Sec. 614.4930. The institution, or a

servicer acting on behalf of the institution, shall deposit the flood

insurance premiums on behalf of the borrower in an escrow account.

Depending upon the type of loan, such escrow account may be subject to

escrow requirements adopted pursuant to section 10 of the Real Estate

Settlement Procedures Act of 1974 (12 U.S.C. 2609), which generally

limits the amount that may be maintained in escrow accounts for certain

types of loans and requires escrow account statements for those

accounts. Upon receipt of a notice from the Director or other provider

of flood insurance that premiums are due, the institution or its

servicer shall pay the amount owed to the insurance provider from the

escrow account.

Sec. 614.4940 Required use of Standard Flood Hazard Determination

Form.

(a) Use of form. System institutions shall use the Standard Flood

Hazard Determination Form developed by the Director (as set forth in

Appendix A of 44 CFR part 65) when determining whether a building or

mobile home offered as collateral security for a loan is or will be

located in a special flood hazard area in which flood insurance is

available under the 1968 Act. The Standard Flood Hazard Determination

Form may be used in a printed, computerized, or electronic manner.

(b) Retention of form. System institutions shall retain a copy of

the completed Standard Flood Hazard Determination Form, in either hard

copy or electronic form, for the period of time the institution owns

the loan.

Sec. 614.4945 Forced placement of flood insurance.

If a System institution, or a servicer acting on behalf of the

institution, determines, at the time of origination or at any time

during the term of a designated loan, that the building or mobile home

and any personal property securing the designated loan are not covered

by flood insurance or are covered by flood insurance in an amount less

than the amount required under Sec. 614.4930(a), then the institution

or its servicer shall notify the borrower that the borrower should

obtain flood insurance, at the borrower's expense, in an amount at

least equal to the amount required under Sec. 614.4930(a), for the term

of the loan. If the borrower fails to obtain flood insurance within 45

days after notification, then the institution or its servicer shall

purchase insurance on the borrower's behalf. The institution or its

servicer may charge the borrower for the premiums and fees incurred in

purchasing the insurance.

Sec. 614.4950 Determination fees.

(a) General. Notwithstanding any Federal or State law other than

the 1973 Act, any System institution, or a servicer acting on behalf of

the institution, may charge a reasonable fee for determining whether

the building or mobile home securing the loan is located or will be

located in a special flood hazard area.

(b) Borrower fee. The determination fee may be charged to the

borrower if the determination:

(1) Is made in connection with a making, increasing, extending, or

renewing of the loan that is initiated by the borrower;

(2) Reflects the Director's revision or updating of floodplain

areas or flood-risk zones;

(3) Reflects the Director's publication of a notice or compendium

that:

(i) Affects the area in which the building or mobile home securing

the loan is located; or

(ii) By determination of the Director, may reasonably require a

determination whether the building or mobile home securing the loan is

located in a special flood hazard area; or

(4) Results in the purchase of flood insurance coverage under

Sec. 614.4945.

(c) Purchaser or transferee fee. The fee may be charged to the

purchaser or transferee of a loan in the case of the sale or transfer

of the loan.

Sec. 614.4955 Notice of special flood hazards and availability of

Federal disaster relief assistance.

(a) Notice requirement. When a System institution makes, increases,

extends, or renews a loan secured by a building or a mobile home

located or to be located in a special flood hazard area, the

institution shall mail or deliver a written notice containing the

information specified in paragraph (b) of this section to the borrower

and to the servicer of the loan. Notice is required whether or not

flood insurance is available under the 1968 Act for the collateral

securing the loan.

(b) Contents of notice. The written notice must include the

following information:

(1) A warning, in a form approved by the Director, that the

building or the mobile home is or will be located in a special flood

hazard area;

(2) A description of the flood insurance purchase requirements set

forth in section 102(b) of the 1973 Act (42 U.S.C. 4012a(b));

(3) A statement, where applicable, that flood insurance coverage is

available under the NFIP and also may be available from private

insurers; and

(4) A statement whether Federal disaster relief assistance may be

[[Page 53983]]

available in the event of damage to the building or the mobile home

caused by flooding in a Federally declared disaster.

(c) Timing of notice. The institution shall provide the notice

required by paragraph (a) of this section to the borrower and the

servicer within a reasonable time before the completion of the

transaction.

(d) Record of receipt. Each institution shall retain a record of

the receipt of the notices by the borrower and the servicer for the

period of time the institution owns the loan.

(e) Alternate method of notice. Instead of providing the notice to

the borrower required by paragraph (a) of this section, an institution

may obtain satisfactory written assurance from the seller or lessor

that, within a reasonable time before the completion of the sale or

lease transaction, the seller or lessor has notified the borrower that

the building or mobile home is or will be located in a special flood

hazard area. The institution shall retain a record of the written

assurance from the seller or lessor for the period of time the

institution owns the loan.

(f) Use of prescribed form of notice. An institution may comply

with the notice requirements of this section by providing written

notice to a borrower and to the servicer containing the language

presented in appendix A to this subpart not less than 10 days before

the completion of the transaction (or not later than the institution's

commitment if the period between the commitment and the completion of

the transaction is less than 10 days).

Sec. 614.4960 Notice of servicer's identity.

(a) Notice requirement. When a System institution makes, increases,

extends, renews, sells, or transfers a loan secured by a building or a

mobile home located or to be located in a special flood hazard area,

the institution shall notify the Director (or the Director's designee)

in writing of the identity of the servicer of the loan.

(b) Transfer of servicing rights. The institution shall notify the

Director (or the Director's designee) of any change in the servicer of

a loan described in paragraph (a) of this section within 60 days after

the effective date of the change. Upon any change in the servicing of a

loan described in paragraph (a) of this section, the duty to provide

notice under this paragraph (b) shall transfer to the transferee

servicer.

Appendix A to Subpart S of Part 614--Sample Form of Notice of

Special Flood Hazards and Availability of Federal Disaster Relief

Assistance

We are giving you this notice to inform you that:

______The building securing the loan for which you have applied

is or will be located in an area with special flood hazards.

______The mobile home securing the loan for which you have

applied is or will be located in an area with special flood hazards.

The area has been identified by the Director of the Federal

Emergency Management Agency (FEMA) as a special flood hazard area

using FEMA's Flood Insurance Rate Map or the Flood Hazard Boundary

Map for the following community:

________________________________________. This area has at least a

1-percent chance of being flooded in any given year. The risk grows

each year.

For example, during the life of a 30-year mortgage loan, the risk of

a flood in a special flood hazard area is at least 26 percent.

Federal law allows a lender and borrower jointly to request the

Director of FEMA to review the determination of whether the property

securing the loan is located in a special flood hazard area. If you

would like to make such a request, please contact us for further

information.

______The community in which the property securing the loan is

located participates in the National Flood Insurance Program (NFIP).

Federal law will not allow us to make you the loan that you have

applied for if you do not purchase flood insurance. The flood

insurance must be maintained for the life of

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