Joint Notice of Proposed Rulemaking on Loans in Areas Having Special Flood Hazards
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FDIC Financial Institution Letters › Joint Notice of Proposed Rulemaking on Loans in Areas Having Special Flood Hazards
Text
Vol. 78
Wednesday,
No. 210
October 30, 2013
Part III
Department of the Treasury
Office of the Comptroller of the Currency
12 CFR Parts 22 and 172
Federal Reserve System
12 CFR Part 208
Federal Deposit Insurance Corporation
12 CFR Parts 339 and 391
Farm Credit Administration
12 CFR Part 614
National Credit Union Administration
12 CFR Part 760
Loans in Areas Having Special Flood Hazards; Proposed Rule
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Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Parts 22, 172
[Docket ID OCC–2013–0015]
RIN 1557–AD67
FEDERAL RESERVE SYSTEM
12 CFR Part 208
[Regulation H, Docket No. R–1462]
RIN 7100 AE–00
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Parts 339, 391
RIN 3064–AE03
FARM CREDIT ADMINISTRATION
12 CFR Part 614
RIN 3052–AC93
NATIONAL CREDIT UNION
ADMINISTRATION
12 CFR Part 760
RIN 3133–AE18
Loans in Areas Having Special Flood
Hazards
AGENCY: Office of the Comptroller of the
Currency, Treasury; Board of Governors
of the Federal Reserve System; Federal
Deposit Insurance Corporation; Farm
Credit Administration; National Credit
Union Administration.
ACTION: Joint notice of proposed
rulemaking.
SUMMARY: The Office of the Comptroller
of the Currency (OCC), Board of
Governors of the Federal Reserve
System (Board), Federal Deposit
Insurance Corporation (FDIC), the Farm
Credit Administration (FCA), and the
National Credit Union Administration
(NCUA) (collectively, the Agencies) are
proposing to amend their regulations
regarding loans in areas having special
flood hazards to implement provisions
of the Biggert-Waters Flood Insurance
Reform Act of 2012
Governors of the Federal Reserve
System (Board), Federal Deposit
Insurance Corporation (FDIC), the Farm
Credit Administration (FCA), and the
National Credit Union Administration
(NCUA) (collectively, the Agencies) are
proposing to amend their regulations
regarding loans in areas having special
flood hazards to implement provisions
of the Biggert-Waters Flood Insurance
Reform Act of 2012. Specifically, the
proposal would establish requirements
with respect to the escrow of flood
insurance payments, the acceptance of
private flood insurance coverage, and
the force-placement of flood insurance.
The proposal also would clarify the
Agencies’ flood insurance regulations
with respect to other amendments made
by the Act and make technical
corrections. Furthermore, the OCC and
the FDIC are proposing to integrate their
flood insurance regulations for national
banks and Federal savings associations
and for State non-member banks and
State savings associations, respectively.
DATES: Comments must be received on
or before December 10, 2013, except that
comments on the Paperwork Reduction
Act analysis in part V of the
SUPPLEMENTARY INFORMATION must be
received on or before December 30,
2013.
ADDRESSES: Interested parties are
encouraged to submit written comments
jointly to all of the Agencies.
Commenters are encouraged to use the
title ‘‘Loans in Areas Having Special
Flood Hazards’’ to facilitate the
organization and distribution of
comments among the Agencies.
Interested parties are invited to submit
written comments to:
OCC: Because paper mail in the
Washington, DC area and at the OCC is
subject to delay, commenters are
encouraged to submit comments by the
Federal eRulemaking Portal or email, if
possible. Please use the title ‘‘Loans in
Areas Having Special Flood Hazards’’ to
facilitate the organization and
distribution of the comments
cies.
Interested parties are invited to submit
written comments to:
OCC: Because paper mail in the
Washington, DC area and at the OCC is
subject to delay, commenters are
encouraged to submit comments by the
Federal eRulemaking Portal or email, if
possible. Please use the title ‘‘Loans in
Areas Having Special Flood Hazards’’ to
facilitate the organization and
distribution of the comments. You may
submit comments by any of the
following methods:
• Federal eRulemaking Portal—
‘‘regulations.gov’’: Go to http://
www.regulations.gov. Enter ‘‘Docket ID
OCC–2013–0015’’ in the Search Box and
click ‘‘Search.’’ Results can be filtered
using the filtering tools on the left side
of the screen. Click on ‘‘Comment Now’’
to submit public comments. Click on the
‘‘Help’’ tab on the Regulations.gov home
page to get information on using
Regulations.gov, including instructions
for submitting public comments.
• Email: regs.comments@
occ.treas.gov.
• Mail: Legislative and Regulatory
Activities Division, Office of the
Comptroller of the Currency, 400 7th
Street SW., Suite 3E–218, Mail Stop
9W–11, Washington, DC 20219.
• Hand Delivery/Courier: 400 7th
Street SW., Suite 3E–218, Mail Stop
9W–11, Washington, DC 20219.
• Fax: (571) 465–4326.
Instructions: You must include
‘‘OCC’’ as the agency name and ‘‘Docket
ID OCC–2013–0015’’ in your comment.
In general, OCC will enter all comments
received into the docket and publish
them on the Regulations.gov Web site
without change, including any business
or personal information that you
provide such as name and address
information, email addresses, or phone
numbers. Comments received, including
attachments and other supporting
materials, are part of the public record
and subject to public disclosure. Do not
enclose any information in your
comment or supporting materials that
you consider confidential or
inappropriate for public disclosure
r personal information that you
provide such as name and address
information, email addresses, or phone
numbers. Comments received, including
attachments and other supporting
materials, are part of the public record
and subject to public disclosure. Do not
enclose any information in your
comment or supporting materials that
you consider confidential or
inappropriate for public disclosure.
You may review comments and other
related materials that pertain to this
rulemaking action by any of the
following methods:
• Viewing Comments Electronically:
Go to http://www.regulations.gov. Enter
‘‘Docket ID OCC–2013–0015’’ in the
Search box and click ‘‘Search.’’
Comments can be filtered by Agency
using the filtering tools on the left side
of the screen. Click on the ‘‘Help’’ tab
on the Regulations.gov home page to get
information on using Regulations.gov,
including instructions for viewing
public comments, viewing other
supporting and related materials, and
viewing the docket after the close of the
comment period.
• Viewing Comments Personally: You
may personally inspect and photocopy
comments at the OCC, 400 7th Street
SW., Washington, DC. For security
reasons, the OCC requires that visitors
make an appointment to inspect
comments. You may do so by calling
(202) 649–6700. Upon arrival, visitors
will be required to present valid
government-issued photo identification
and to submit to security screening in
order to inspect and photocopy
comments.
• Docket: You may also view or
request available background
documents and project summaries using
the methods described above.
Board: You may submit comments,
identified by Docket No. R–1462 or RIN
7100 AE–00, by any of the following
methods:
• Agency Web site: http://
www.federalreserve.gov. Follow the
instructions for submitting comments at
http://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm.
• Federal eRulemaking Portal: http://
www.regulations.gov. Follow the
instructions for submitting comments
Board: You may submit comments,
identified by Docket No. R–1462 or RIN
7100 AE–00, by any of the following
methods:
• Agency Web site: http://
www.federalreserve.gov. Follow the
instructions for submitting comments at
http://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm.
• Federal eRulemaking Portal: http://
www.regulations.gov. Follow the
instructions for submitting comments.
• Email: regs.comments@
federalreserve.gov. Include the docket
number in the subject line of the
message.
• Fax: (202) 452–3819 or (202) 452–
3102.
• Mail: Address to Robert deV.
Frierson, Secretary, Board of Governors
of the Federal Reserve System, 20th
Street and Constitution Avenue NW.,
Washington, DC 20551.
All public comments will be made
available on the Board’s Web site at
http://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm as
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Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules
1 Public Law 112–141, 126 Stat. 916 (2012).
2 Public Law 93–234, 87 Stat. 975 (1973).
3 See 42 U.S.C. 4012a(b)(1). The heads of four of
the five Agencies (OCC, Board, FDIC, and NCUA)
comprise part of the membership of the FFIEC.
submitted, unless modified for technical
reasons. Accordingly, comments will
not be edited to remove any identifying
or contact information. Public
comments may also be viewed
electronically or in paper in Room MP–
500 of the Board’s Martin Building (20th
and C Streets NW.) between 9:00 a.m.
and 5:00 p.m. on weekdays.
FDIC: You may submit comments by
any of the following methods:
• Federal eRulemaking Portal: http://
www.regulations.gov. Follow the
instructions for submitting comments.
• Agency Web site: http://
www.fdic.gov/regulations/laws/federal/
propose.html
• Mail: Robert E
paper in Room MP–
500 of the Board’s Martin Building (20th
and C Streets NW.) between 9:00 a.m.
and 5:00 p.m. on weekdays.
FDIC: You may submit comments by
any of the following methods:
• Federal eRulemaking Portal: http://
www.regulations.gov. Follow the
instructions for submitting comments.
• Agency Web site: http://
www.fdic.gov/regulations/laws/federal/
propose.html
• Mail: Robert E. Feldman, Executive
Secretary, Attention: Comments/Legal
ESS, Federal Deposit Insurance
Corporation, 550 17th Street NW.,
Washington, DC 20429.
• Hand Delivered/Courier: The guard
station at the rear of the 550 17th Street
Building (located on F Street), on
business days between 7:00 a.m. and
5:00 p.m.
• Email: comments@FDIC.gov.
Comments submitted must include
‘‘FDIC’’ and ‘‘Loans in Areas Having
Special Flood Hazards.’’ Comments
received will be posted without change
to http://www.fdic.gov/regulations/laws/
federal/propose.html, including any
personal information provided.
FCA: We offer a variety of methods for
you to submit your comments. For
accuracy and efficiency reasons,
commenters are encouraged to submit
comments by email or through the
FCA’s Web site. As facsimiles (fax) are
difficult for us to process and achieve
compliance with section 508 of the
Rehabilitation Act, we are no longer
accepting comments submitted by fax.
Regardless of the method you use,
please do not submit your comments
multiple times via different methods.
You may submit comments by any of
the following methods:
• Email: Send us an email at reg-
comm@fca.gov.
• Agency Web site: http://
www.fca.gov. Select ‘‘Law &
Regulations,’’ then ‘‘FCA Regulations,’’
then ‘‘Public Comments,’’ and follow
the directions for ‘‘Submitting a
Comment.’’
• Federal eRulemaking Portal: http://
www.regulations.gov. Follow the
instructions for submitting comments.
• Mail: Barry F. Mardock, Deputy
Director, Office of Regulatory Policy,
Farm Credit Administration, 1501 Farm
Credit Drive, McLean, VA 22102–5090
lect ‘‘Law &
Regulations,’’ then ‘‘FCA Regulations,’’
then ‘‘Public Comments,’’ and follow
the directions for ‘‘Submitting a
Comment.’’
• Federal eRulemaking Portal: http://
www.regulations.gov. Follow the
instructions for submitting comments.
• Mail: Barry F. Mardock, Deputy
Director, Office of Regulatory Policy,
Farm Credit Administration, 1501 Farm
Credit Drive, McLean, VA 22102–5090.
You may review copies of all
comments we receive at our office in
McLean, Virginia or on our Web site at
http://www.fca.gov. Once you are in the
Web site, Select ‘‘Law & Regulations,’’
then ‘‘FCA Regulations,’’ then ‘‘Public
Comments,’’ and follow the directions
for ‘‘Reading Submitted Public
Comments.’’ We will show your
comments as submitted, including any
supporting data provided, but for
technical reasons we may omit items
such as logos and special characters.
Identifying information that you
provide, such as phone numbers and
addresses, will be publicly available.
However, we will attempt to remove
email addresses to help reduce Internet
spam.
NCUA: You may submit comments,
identified by RIN 3133–AE18 by any of
the following methods (Please send
comments by one method only):
• Federal eRulemaking Portal: http://
www.regulations.gov. Follow the
instructions for submitting comments.
• Agency Web site: http://
www.ncua.gov/Legal/Regs/Pages/
PropRegs.aspx. Follow the instructions
for submitting comments.
• Email: Address to regcomments@
ncua.gov. Include [Your name]
Comments on ‘‘Loans in Areas Having
Special Flood Hazards’’ in the email
subject line.
• Fax: (703) 518–6319. Use the
subject line described above for email.
• Mail: Address to Gerard Poliquin,
Secretary of the Board, National Credit
Union Administration, 1775 Duke
Street, Alexandria, Virginia 22314–
3428.
• Hand Delivery/Courier: Same as
mail address
nts@
ncua.gov. Include [Your name]
Comments on ‘‘Loans in Areas Having
Special Flood Hazards’’ in the email
subject line.
• Fax: (703) 518–6319. Use the
subject line described above for email.
• Mail: Address to Gerard Poliquin,
Secretary of the Board, National Credit
Union Administration, 1775 Duke
Street, Alexandria, Virginia 22314–
3428.
• Hand Delivery/Courier: Same as
mail address.
You can view all public comments on
NCUA’s Web site at http://
www.ncua.gov/Legal/Regs/Pages/
PropRegs.aspx as submitted, except for
those we cannot post for technical
reasons. NCUA will not edit or remove
any identifying or contact information
from the public comments submitted.
You may inspect paper copies of
comments in NCUA’s law library at
1775 Duke Street, Alexandria, Virginia
22314, by appointment weekdays
between 9:00 a.m. and 3:00 p.m. To
make an appointment, call (703) 518–
6546 or send an email to OGCMail@
ncua.gov.
FOR FURTHER INFORMATION CONTACT:
OCC: Rhonda L. Daniels, Compliance
Specialist, Compliance Policy Division,
(202) 649–5405; Margaret C. Hesse,
Senior Counsel, Community and
Consumer Law Division, (202) 649–
6350, or Heidi M. Thomas, Special
Counsel, Legislative and Regulatory
Activities Division, (202) 649–5490,
Office of the Chief Counsel.
Board: Lanette Meister, Senior
Supervisory Consumer Financial
Services Analyst (202) 452–2705; Vivian
W. Wong, Counsel (202) 452–3667,
Division of Consumer and Community
Affairs; or Daniel Ericson, Counsel (202)
452–3359, Legal Division; for users of
Telecommunications Device for the Deaf
(TDD) only, contact (202) 263–4869.
FDIC: Navid Choudhury, Senior
Attorney, Consumer Compliance
Section (202) 898–6526, Legal Division;
or John Jackwood, Senior Policy Analyst
(202) 898–3991, Division of Depositor
and Consumer Protection.
FCA: Paul K. Gibbs, Senior
Accountant, Office of Regulatory Policy
202)
452–3359, Legal Division; for users of
Telecommunications Device for the Deaf
(TDD) only, contact (202) 263–4869.
FDIC: Navid Choudhury, Senior
Attorney, Consumer Compliance
Section (202) 898–6526, Legal Division;
or John Jackwood, Senior Policy Analyst
(202) 898–3991, Division of Depositor
and Consumer Protection.
FCA: Paul K. Gibbs, Senior
Accountant, Office of Regulatory Policy
(703) 883–4203, TTY (703) 883–4056; or
Mary Alice Donner, Senior Counsel,
Office of General Counsel (703) 883–
4020, TTY (703) 883–4056.
NCUA: Sarah Chung, Staff Attorney,
(703) 518–1178, Office of General
Counsel.
SUPPLEMENTARY INFORMATION:
I. Background
A. Introduction
The Biggert-Waters Flood Insurance
Reform Act of 2012 1 (the Act), signed
into law by the President on July 6,
2012, significantly revised Federal flood
insurance statutes. Section 100209 of
the Act, relating to the escrow of flood
insurance payments, and section 100239
of the Act, relating to the acceptance of
private flood insurance coverage,
amended provisions of the Flood
Disaster Protection Act (FDPA) 2 that
require the Agencies to issue
implementing regulations. Section
100244 of the Act, relating to force-
placed insurance, necessitates
conforming revisions to the Agencies’
current flood insurance regulations. The
Agencies jointly are issuing this
proposal to revise their regulations
accordingly. In connection with the
issuance of this proposal, the Agencies
have coordinated and consulted with
the Federal Financial Institutions
Examination Council (FFIEC), as is
required by certain provisions of the
flood insurance statutes.3 The Agencies’
proposal would implement only certain
provisions of the Act over which the
Agencies have jurisdiction.
Accordingly, the Agencies encourage
lenders to consult the Act for further
information about revisions to the flood
insurance statutes that will not be
implemented through this rulemaking
uncil (FFIEC), as is
required by certain provisions of the
flood insurance statutes.3 The Agencies’
proposal would implement only certain
provisions of the Act over which the
Agencies have jurisdiction.
Accordingly, the Agencies encourage
lenders to consult the Act for further
information about revisions to the flood
insurance statutes that will not be
implemented through this rulemaking.
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Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules
4 Public Law 90–448, 82 Stat. 572 (1968).
5 These statutes are codified at 42 U.S.C. 4001–
4129. The Federal Emergency Management Agency
(FEMA) administers the NFIP; its regulations
implementing the NFIP appear at 44 CFR parts 59–
77.
6 44 CFR 59.1.
7 44 CFR part 65.
8 44 CFR part 60.
9 Title III of the Dodd-Frank Wall Street Reform
and Consumer Protection Act, Public Law 111–203,
124 Stat. 1376 (2010), (Dodd-Frank Act), transferred
the powers, duties, and functions formerly
performed by the OTS among the FDIC, as to State
savings associations, the OCC, as to Federal savings
associations, and the Board as to savings and loan
holding companies. The OTS was abolished 90 days
after the transfer date.
10 Public Law 103–325, 108 Stat. 2255 (1994)
(codified as amended at 42 U.S.C. 4001 et seq.
(Dodd-Frank Act), transferred
the powers, duties, and functions formerly
performed by the OTS among the FDIC, as to State
savings associations, the OCC, as to Federal savings
associations, and the Board as to savings and loan
holding companies. The OTS was abolished 90 days
after the transfer date.
10 Public Law 103–325, 108 Stat. 2255 (1994)
(codified as amended at 42 U.S.C. 4001 et seq.
(1994)).
11 61 FR 45684 (Aug. 29, 1996).
12 The Agencies note, for example, that section
100222 of the Act mandates a revision to the
Special Information Booklet required under section
5 of the Real Estate Settlement Procedures Act of
1974 (RESPA) (12 U.S.C. 2604(b)) to include a
notice to the borrower of the availability of flood
insurance under the NFIP or from a private
insurance company, whether or not the real estate
is located in an area having special flood hazards.
The requirement to revise the Special Information
Booklet is the responsibility of the Bureau of
Consumer Financial Protection (CFPB) under
RESPA. In addition, section 100204 of the Act
directs the Administrator of FEMA to make flood
insurance available to cover residential properties
of five or more residences. The maximum coverage
made available to such residential properties will
be equal to the coverage made available to
commercial properties. Policies for such properties
will be made available by FEMA at a later date.
13 Section 100208 of the Act, amending section
102(f)(5) of the FDPA (42 U.S.C. 4012a(f)(5)).
14 Section 100209 of the Act, amending section
102(d) of the FDPA (42 U.S.C. 4012a(d)). Congress
further amended section 42 U.S.C. 4012a(d)
subsequent to the enactment of the Act to clarify
that the flood insurance escrow requirement applies
only to loans secured by residential improved real
estate. See Public Law 112–281, 125 Stat. 2485 (Jan.
14, 2013).
15 Section 100239 of the Act, amending section
102(b) of the FDPA (42 U.S.C. 4012a(b)) and section
1364(a)(3)(C) of the 1968 Act (42 U.S.C
r amended section 42 U.S.C. 4012a(d)
subsequent to the enactment of the Act to clarify
that the flood insurance escrow requirement applies
only to loans secured by residential improved real
estate. See Public Law 112–281, 125 Stat. 2485 (Jan.
14, 2013).
15 Section 100239 of the Act, amending section
102(b) of the FDPA (42 U.S.C. 4012a(b)) and section
1364(a)(3)(C) of the 1968 Act (42 U.S.C.
4104a(a)(3)(C)).
16 Section 100244 of the Act, amending section
102(e) of the FDPA (42 U.S.C. 4012a(e)).
17 Some of the Agencies have revised their
regulations to incorporate these increased civil
money penalties. See OCC: 77 FR 66529 (Nov. 11,
2012) and 77 FR 76354 (Dec. 28, 2012); Board: 77
FR 68680 (Nov. 16, 2012); FDIC: 77 FR 74573 (Dec.
17, 2012); and FCA: 78 FR 24336 (April 25, 2013).
The NCUA is in the process of updating its rule to
reflect this civil money penalty change.
18 ‘‘Interagency Statement on the Impact of
Biggert-Waters Act,’’ March 29, 2013 (Board: CA
13–2; OCC: Bulletin 2013–10; FDIC: FIL 14–2013,
FCA: Information Memorandum, March 29, 2013;
NCUA: 13–RA–03).
B. Flood Insurance Statutes
The National Flood Insurance Act of
1968 (1968 Act) 4 and the FDPA govern
the National Flood Insurance Program
(NFIP).5 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 the community where
the improved real estate or mobile home
is located participates in the NFIP
Insurance Statutes
The National Flood Insurance Act of
1968 (1968 Act) 4 and the FDPA govern
the National Flood Insurance Program
(NFIP).5 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 the community where
the improved real estate or mobile home
is located participates in the NFIP. A
special flood hazard area (SFHA) is an
area within a floodplain having a one
percent or greater chance of flood
occurrence in any given year.6 SFHAs
are delineated on maps issued by FEMA
for individual communities.7 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.8
Until the adoption of the FDPA in
1973, the purchase of flood insurance
was voluntary. The FDPA required the
mandatory purchase of flood insurance
and directed the OCC, Board, FDIC,
NCUA, and the former Office of Thrift
Supervision (OTS) 9 to issue regulations
governing the lending institutions that
they supervised. The resulting
regulations directed these lending
institutions to require flood insurance
on improved real estate or mobile
homes serving as collateral for a loan
(secured property) if the secured
property was located in a SFHA in a
participating community. The
regulations also required lenders to
notify borrowers that the secured
property is located in a SFHA and that
Federal disaster assistance is available
with respect to the property in the event
of a flood
ood insurance
on improved real estate or mobile
homes serving as collateral for a loan
(secured property) if the secured
property was located in a SFHA in a
participating community. The
regulations also required lenders to
notify borrowers that the secured
property is located in a SFHA and that
Federal disaster assistance is available
with respect to the property in the event
of a flood.
Title V of the Riegle Community
Development and Regulatory
Improvement Act of 1994, also known
as the National Flood Insurance Reform
Act of 1994 (Reform Act),
comprehensively amended the Federal
flood insurance statutes.10 The Reform
Act established new requirements on
Federally regulated lending institutions,
such as the escrow for flood insurance
premiums under certain conditions and
mandatory force-placement of flood
insurance coverage. The Reform Act was
intended to increase compliance with
the mandatory flood insurance purchase
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. In addition, the Reform Act
broadened the definition of ‘‘Federal
entity for lending regulation’’ to include
the FCA, thereby increasing the number
of regulated lending institutions subject
to the mandatory flood insurance
purchase requirement to include lenders
regulated by the FCA.
The Reform Act required the Agencies
to revise their flood insurance
regulations and required the FCA to
promulgate flood insurance regulations
for the first time. The Agencies fulfilled
these requirements by issuing a joint
final rule in August 1996.11
C. The Biggert-Waters Act Amendments
Among other changes,12 the Act
significantly amends the NFIP
requirements, over which the Agencies
have jurisdiction. Specifically, the Act:
vise their flood insurance
regulations and required the FCA to
promulgate flood insurance regulations
for the first time. The Agencies fulfilled
these requirements by issuing a joint
final rule in August 1996.11
C. The Biggert-Waters Act Amendments
Among other changes,12 the Act
significantly amends the NFIP
requirements, over which the Agencies
have jurisdiction. Specifically, the Act:
(i) Increases the maximum civil money
penalty (CMP) that the Agencies may
impose per violation when there is a
pattern or practice of flood violations
and eliminates the limit on the total
amount of penalties that the Agencies
may assess against a regulated lending
institution during any calendar year; 13
(ii) requires regulated lending
institutions to escrow premiums and
fees for flood insurance on residential
improved real estate, unless the
regulated lending institution meets the
statutory small institution exception; 14
(iii) directs regulated lending
institutions to accept private flood
insurance, as defined by the Act, and to
notify borrowers of the availability of
private flood insurance; 15 and (iv)
amends the force-placement
requirement to clarify that regulated
lending institutions may charge a
borrower for the cost of premiums and
fees incurred for coverage beginning on
the date on which the flood insurance
coverage lapsed or did not provide
sufficient coverage and to prescribe the
procedures for terminating force-placed
insurance.16
The civil money penalty provisions,17
and the force-placement requirements
were effective upon enactment. In
contrast, both the escrow and private
flood insurance provisions will become
effective when the Agencies finalize
implementing regulations. The Agencies
previously published guidance
regarding the effective dates of these
amendments.18
II
or terminating force-placed
insurance.16
The civil money penalty provisions,17
and the force-placement requirements
were effective upon enactment. In
contrast, both the escrow and private
flood insurance provisions will become
effective when the Agencies finalize
implementing regulations. The Agencies
previously published guidance
regarding the effective dates of these
amendments.18
II. Summary of the Proposal
As indicated above, the Agencies
propose to revise their respective flood
insurance regulations to implement the
Act’s amendments addressing the
escrow of flood insurance payments,
private flood insurance, and force-
placed insurance. These provisions, and
other amendments, proposed by this
rulemaking are summarized below and
more specifically described in IV.
Section-by-Section Analysis of this
preamble. Although the Agencies’
proposals are substantively consistent,
the format of the regulatory text varies
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19 6 U.S.C. 313.
20 The OCC republished the former OTS rule as
an OCC rule with respect to Federal savings
associations and the FDIC republished the former
OTS rule with respect to State savings associations
in 2011, with only nomenclature changes. See 76
FR 49140 (Aug. 9, 2011) (OCC) and 76 FR 47811
(Aug. 5, 2011) (FDIC).
21 See 12 U.S.C. 1 and 93a; 12 U.S.C. 321
(granting the Board authority to impose conditions
for membership in the Federal Reserve System); 12
U.S.C. 1820(g) (granting the FDIC authority to
prescribe regulations to carry out the FDI Act; See
also section 39 of the Federal Deposit Insurance Act
(12 U.S.C. 1831p–1)
22 The Federal Credit Union Act (12 U.S.C. 1751
et seq.) and section 5.17 of the Farm Credit Act of
1971, as amended, (12 U.S.C. 2252)
oard authority to impose conditions
for membership in the Federal Reserve System); 12
U.S.C. 1820(g) (granting the FDIC authority to
prescribe regulations to carry out the FDI Act; See
also section 39 of the Federal Deposit Insurance Act
(12 U.S.C. 1831p–1)
22 The Federal Credit Union Act (12 U.S.C. 1751
et seq.) and section 5.17 of the Farm Credit Act of
1971, as amended, (12 U.S.C. 2252). Sections 106,
201, and 206 of the Federal Credit Union Act (12
U.S.C. 1756, 1781, and 1786) provide NCUA with
the authority to examine and supervise Federally
insured credit unions to protect the credit union
system and the safety and soundness of the
National Credit Union Share Insurance Fund.
to conform to each Agency’s current
regulation.
First, the Agencies’ proposal generally
would require regulated lending
institutions, or servicers acting on their
behalf, to escrow premiums and fees for
flood insurance for any loans secured by
residential improved real estate or a
mobile home, unless the institutions
qualify for the statutory exception.
Except as may be required under
applicable State law, a regulated lending
institution is not required to escrow if
it has total assets of less than $1 billion
and, as of the Act’s date of enactment,
July 6, 2012, was not required by
Federal or State law to escrow taxes or
insurance for the term of the loan and
did not have a policy to require escrow
of taxes and insurance. The Agencies
are proposing to implement the
exception substantially as set forth in
the statute.
Second, consistent with the Act, the
Agencies’ proposal would require that
regulated lending institutions accept
private flood insurance that meets the
statutory definition to satisfy the
mandatory purchase requirement
loan and
did not have a policy to require escrow
of taxes and insurance. The Agencies
are proposing to implement the
exception substantially as set forth in
the statute.
Second, consistent with the Act, the
Agencies’ proposal would require that
regulated lending institutions accept
private flood insurance that meets the
statutory definition to satisfy the
mandatory purchase requirement. The
proposal also specifically requests
comment on whether the Agencies
should use their authority under the
FDPA to include a provision in the final
rules that expressly permits regulated
lending institutions to accept a flood
insurance policy issued by a private
insurer that does not meet the Act’s
definition of ‘‘private flood insurance’’
to satisfy the FDPA’s general mandatory
purchase requirement. The Agencies are
also soliciting comment on what criteria
the Agencies might require for such a
policy. Alternatively, the Agencies
solicit comment on whether it is
appropriate to include a provision in the
final rules that specifically requires
regulated lending institutions to accept
only policies issued by private insurers
that meet the statutory definition, and if
included, what would be the effect of
such a provision on the availability of
privately issued flood insurance.
Third, the Agencies’ proposal
includes new and revised sample notice
forms and clauses. Specifically, the
proposal amends the current Sample
Form of Notice of Special Flood Hazards
and Availability of Federal Disaster
Relief Assistance, set forth as Appendix
A in the Agencies’ respective
regulations, to add language concerning
the availability of private flood
insurance coverage (pursuant to the
notice requirements under section
100239 of the Act) and the escrow
requirement
pecifically, the
proposal amends the current Sample
Form of Notice of Special Flood Hazards
and Availability of Federal Disaster
Relief Assistance, set forth as Appendix
A in the Agencies’ respective
regulations, to add language concerning
the availability of private flood
insurance coverage (pursuant to the
notice requirements under section
100239 of the Act) and the escrow
requirement. The proposal also adds an
additional sample notice form, Notice of
Requirement to Escrow for Outstanding
Loans, as Appendix B to assist
institutions in complying with the
proposal’s requirement to inform
existing borrowers about the new
escrow requirement. An institution
would provide this notice for existing
loans when neither the Notice of Special
Flood Hazards and Availability of
Federal Disaster Relief Assistance nor
the notice of force-placement is
provided. Finally, as Appendix C, the
Agencies are proposing a sample clause
regarding the new escrow requirement
that may be included with the force-
placement notice.
Fourth, the proposal would amend
the force-placement of flood insurance
provisions to clarify that a lender or its
servicer has the authority to charge a
borrower for the cost of flood insurance
coverage commencing on the date on
which the borrower’s coverage lapsed or
became insufficient. The proposal also
would stipulate the circumstances
under which a lender or its servicer
must terminate force-placed flood
insurance coverage and refund
payments to a borrower. It also sets forth
the documentary evidence a lender
must accept to confirm that a borrower
has obtained an appropriate amount of
flood insurance coverage.
Fifth, the Agencies propose needed
technical corrections. For example, the
Agencies’ current flood insurance
regulations refer to the ‘‘Director’’ of the
FEMA. The correct title for the head of
that agency is ‘‘Administrator.’’ 19 The
Agencies’ proposal would correct all
references to the head of FEMA
confirm that a borrower
has obtained an appropriate amount of
flood insurance coverage.
Fifth, the Agencies propose needed
technical corrections. For example, the
Agencies’ current flood insurance
regulations refer to the ‘‘Director’’ of the
FEMA. The correct title for the head of
that agency is ‘‘Administrator.’’ 19 The
Agencies’ proposal would correct all
references to the head of FEMA.
Finally, the OCC and the FDIC
propose to integrate their flood
insurance regulations for national banks
and Federal savings associations and for
State non-member banks and State
savings associations, respectively.
Specifically, the OCC proposes to add
language to its flood insurance
regulation for national banks, 12 CFR
part 22, to make it applicable to both
national banks and Federal savings
associations, and to remove its
regulation for Federal savings
associations, 12 CFR part 172. Similarly,
the FDIC proposes to add language to 12
CFR part 339, its flood regulation for
State non-member banks, to make it
applicable to both State non-member
banks and State savings associations
and to remove its flood regulation for
State savings associations, 12 CFR part
391 subpart D. Parts 22, 172, 339, and
391 subpart D, are nearly identical and
contain no substantive differences, as
they were originally adopted through an
interagency rulemaking process.20
III. Legal Authority
Section 102(b) of the FDPA (42 U.S.C
to both State non-member
banks and State savings associations
and to remove its flood regulation for
State savings associations, 12 CFR part
391 subpart D. Parts 22, 172, 339, and
391 subpart D, are nearly identical and
contain no substantive differences, as
they were originally adopted through an
interagency rulemaking process.20
III. Legal Authority
Section 102(b) of the FDPA (42 U.S.C.
4012a(b)), as amended by the Act,
provides that the Agencies (after
consultation and coordination with the
FFIEC) shall by regulation direct
regulated lending institutions not to
make, increase, extend, or renew any
loan secured by improved real estate or
a mobile home located or to be located
in an area that has been identified by
the Administrator of FEMA as an area
having special flood hazards and in
which flood insurance has been made
available under the NFIP, unless the
building or mobile home and any
personal property securing such loan is
covered for the term of the loan by flood
insurance. Thus, section 102(b) of the
FDPA grants the Agencies rulemaking
authority to implement this mandatory
flood insurance purchase requirement
as it pertains to regulated lending
institutions.
Furthermore, under section 102(b) of
the FDPA, as amended by section
100239 of the Act, the Agencies (after
consultation and coordination with the
FFIEC) must by regulation direct
regulated lending institutions to accept
private flood insurance as satisfaction of
the mandatory flood insurance purchase
requirement, described above. Section
102(b) of the FDPA, as amended by
section 100239 of the Act, also
authorizes the Agencies to implement
the definition of private flood insurance
under section 102(b) of the FDPA, as
amended by the Act, as well as the
requirement that the lender disclose to
the borrower the availability of flood
insurance from private insurance
companies
nce purchase
requirement, described above. Section
102(b) of the FDPA, as amended by
section 100239 of the Act, also
authorizes the Agencies to implement
the definition of private flood insurance
under section 102(b) of the FDPA, as
amended by the Act, as well as the
requirement that the lender disclose to
the borrower the availability of flood
insurance from private insurance
companies.
The OCC, Board, and FDIC have
general authority to issue regulations
assuring the safety and soundness of
depository institutions.21 The NCUA
and FCA have similar authority with
respect to the institutions that they
supervise.22 In addition, section
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23 126 Stat. 2485 (Jan. 14, 2013).
24 The Agencies note that with respect to alien
(non-U.S.) surplus lines insurers, States may not
prohibit a surplus lines broker from placing non-
admitted insurance with, or procuring non-
admitted insurance from, a non-U.S., non-admitted
insurer that is listed on the Quarterly Listing of
Alien Insurers maintained by the National
Association of Insurance Commissioners’ (NAIC)
International Insurer’s Department (IID List). See
The Nonadmitted and Reinsurance Reform Act of
(NRRA), Title V of the Dodd-Frank Act, Public Law
111–203 (July 21, 2011).
25 OCC: 12 CFR 22.2(e); Board: 12 CFR
208.25(b)(4); FDIC: 12 CFR 339.2(e); FCA: 12 CFR
614.4925(e); NCUA: 12 CFR 760.2(f).
100239(a)(1), which amended section
102(b) of the FDPA, provides that
nothing in that subsection shall be
construed to supersede or limit the
Agencies’ authority to establish
requirements relating to the financial
solvency, strength, or claims-paying
ability of private insurance companies
from which a regulated lending
institution will accept private flood
insurance
UA: 12 CFR 760.2(f).
100239(a)(1), which amended section
102(b) of the FDPA, provides that
nothing in that subsection shall be
construed to supersede or limit the
Agencies’ authority to establish
requirements relating to the financial
solvency, strength, or claims-paying
ability of private insurance companies
from which a regulated lending
institution will accept private flood
insurance.
Finally, section 102(d) of the FDPA
(42 U.S.C. 4012a(d)), as amended by
section 100209 of the Act and Public
Law No. 112–281,23 states that the
Agencies (after consultation and
coordination with the FFIEC) must by
regulation require all premiums and fees
for flood insurance under the 1968 Act
for residential improved real estate or a
mobile home be paid to the regulated
lending institution or servicer for any
loan secured by the improved real estate
or mobile home with the same
frequency as payments on the loan are
made for the duration of the loan. The
statute requires that such funds be
deposited in an escrow account on
behalf of the borrower and used to pay
the flood insurance provider when
premiums are due. Section 102(d) of the
FDPA, as amended, also authorizes the
Agencies to implement the exception to
this requirement for certain regulated
lending institutions with assets less
than $1 billion.
IV. Section-by-Section Analysis
___.___ Authority, purpose, and scope
Since the Agencies last revised their
regulations in 1996, the title of the head
of FEMA has changed from ‘‘Director’’
to ‘‘Administrator.’’ In accordance with
this change, the Agencies are proposing
an amendment to the reference to the
head of FEMA in the scope section.
As part of the OCC’s and FDIC’s
consolidation of their flood insurance
rules, the OCC and FDIC also are
proposing to insert the term ‘‘Federal
savings association’’ or ‘‘FDIC-
supervised institution’’ where necessary
throughout their flood insurance rules.
___.___ Definitions
Private flood insurance
es are proposing
an amendment to the reference to the
head of FEMA in the scope section.
As part of the OCC’s and FDIC’s
consolidation of their flood insurance
rules, the OCC and FDIC also are
proposing to insert the term ‘‘Federal
savings association’’ or ‘‘FDIC-
supervised institution’’ where necessary
throughout their flood insurance rules.
___.___ Definitions
Private flood insurance. The Agencies
are proposing to add a new definition
for ‘‘private flood insurance’’ consistent
with section 100239 of the Act, which
added a new section 102(b)(7) to the
FDPA. Under section 102(b)(7) of the
FDPA, ‘‘private flood insurance’’ means
an insurance policy that: (i) Is issued by
an insurance company that is licensed,
admitted or otherwise approved to
engage in the business of insurance in
the State or jurisdiction in which the
insured building is located by the
insurance regulator of the State or
jurisdiction or, in the case of a policy of
difference in condition, multiple peril,
all risk, or other blanket coverage
insuring nonresidential commercial
property, is recognized, or not
disapproved, as a surplus lines insurer
by the insurance regulator of the State
or jurisdiction; 24 (ii) provides flood
coverage at least as broad as the
coverage provided by a standard flood
insurance policy (SFIP) under the NFIP,
including when considering
deductibles, exclusions, and conditions
offered by the insurer; (iii) includes a
requirement for the insurer to give 45
days’ written notice of cancellation or
non-renewal of flood insurance coverage
to the insured and the regulated lending
institution; (iv) includes information
about the availability of flood insurance
coverage under the NFIP; (v) includes a
mortgage interest clause similar to the
clause contained in an SFIP; (vi)
includes a provision requiring an
insured to file suit not later than one
year after the date of a written denial for
all or part of a claim under a policy; and
insured and the regulated lending
institution; (iv) includes information
about the availability of flood insurance
coverage under the NFIP; (v) includes a
mortgage interest clause similar to the
clause contained in an SFIP; (vi)
includes a provision requiring an
insured to file suit not later than one
year after the date of a written denial for
all or part of a claim under a policy; and
(vii) contains cancellation provisions
that are as restrictive as the provisions
contained in an SFIP.
Other definitions. The Agencies also
are proposing technical amendments to
change the references to the head of
FEMA from Director to Administrator in
the definitions and to renumber the
definitions to accommodate the
inclusion of the new definition for
‘‘private flood insurance.’’
OCC-only definitions. The OCC also
proposes the following amendments to
the definition section for purposes of
integrating its national bank and Federal
savings association flood insurance
rules. First, the proposed rule provides
that the term ‘‘Federal savings
association’’ means a Federal savings
association as defined in 12 U.S.C.
1813(b)(2) and any service corporations
thereof. This definition is identical to
the definition of ‘‘Federal savings
association’’ in 12 CFR part 172, except
that part 172 specifically referenced
‘‘subsidiaries.’’ Current 12 CFR part 22
does not specifically include a reference
to bank operating subsidiaries because
such subsidiaries are subject to the rules
applicable to the operations of their
parent bank pursuant to 12 CFR 5.34.
Because Federal savings association
operating subsidiaries also are subject to
the same rules applicable to the parent
savings association, as provided by 12
CFR 159.3(h), the inclusion of
‘‘subsidiary’’ in this definition is
unnecessary and its removal will not
affect the applicability of 12 CFR part 22
to Federal savings association operating
subsidiaries
bank pursuant to 12 CFR 5.34.
Because Federal savings association
operating subsidiaries also are subject to
the same rules applicable to the parent
savings association, as provided by 12
CFR 159.3(h), the inclusion of
‘‘subsidiary’’ in this definition is
unnecessary and its removal will not
affect the applicability of 12 CFR part 22
to Federal savings association operating
subsidiaries.
Second, the OCC proposes to remove
the definition of ‘‘bank,’’ which the rule
currently defines as meaning a national
bank. Instead, the term ‘‘bank’’ is
replaced with ‘‘national bank’’
throughout the rule.
FDIC-only definition. The FDIC also
proposes the following amendments to
the definitional section for purposes of
integrating its State nonmember bank
and State savings association flood
insurance rules. The FDIC proposes to
remove the definition of ‘‘bank’’ and
replace it with ‘‘FDIC-supervised
institution’’ which would be defined to
mean any insured depository institution
for which the Federal Deposit Insurance
Corporation is the appropriate Federal
banking agency pursuant to section 3(g)
of the Federal Deposit Insurance Act, 12
U.S.C. 1813(g).
___.___ Requirement to purchase flood
insurance where available.
In General.
The current regulation provides that a
regulated lending institution 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. This
provision further provides that flood
insurance coverage is limited to the
overall value of the property securing
the designated loan minus the value of
the land on which the property is
located
t
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. This
provision further provides that flood
insurance coverage is limited to the
overall value of the property securing
the designated loan minus the value of
the land on which the property is
located. A ‘‘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
1968 Act, as amended.25 The Agencies
are proposing to revise the language
relating to the coverage limit to reflect
more accurately what is actually
covered under Federal flood insurance
statutes. Specifically, the Agencies are
proposing that the language be amended
to state that flood insurance coverage is
limited to the building or mobile home
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26 The Act’s reforms were designed to improve
the NFIP’s financial integrity and stability as well
as to ‘‘increase the role of private markets in the
management of flood insurance risk.’’ H. Rep. No.
112–102, at 1 (2011); see also 158 Cong. Rec. H4622
(daily ed. June 29, 2012) (statement of Rep. Biggert).
27 See 42 U.S.C. 4012a(b).
28 As discussed above in the SUPPLEMENTARY
INFORMATION accompanying the definition of
‘‘private flood insurance’’ in ___.___ Definitions,
with respect to alien (non-U.S.) surplus lines
insurers, States may not prohibit a surplus lines
broker from placing non-admitted insurance with,
or procuring non-admitted insurance from, a non-
U.S., non-admitted insurer that is listed on the
Quarterly Listing of Alien Insurers maintained by
the NAIC’s IID List
mpanying the definition of
‘‘private flood insurance’’ in ___.___ Definitions,
with respect to alien (non-U.S.) surplus lines
insurers, States may not prohibit a surplus lines
broker from placing non-admitted insurance with,
or procuring non-admitted insurance from, a non-
U.S., non-admitted insurer that is listed on the
Quarterly Listing of Alien Insurers maintained by
the NAIC’s IID List.
and any personal property securing the
loan and not the land itself.
Private flood insurance
The Agencies also are proposing to
amend this section to implement section
102(b)(1)(B) of the FDPA, as added by
section 100239(a)(1) of the Act, which
requires that all regulated lending
institutions accept private flood
insurance if certain conditions are met.
Specifically, the proposal would require
a regulated lending institution to accept
private flood insurance that meets the
definition of this term to satisfy the
FDPA’s insurance requirement,
provided that the private flood
insurance policy also meets the
conditions set forth in the general
mandatory purchase requirement.
Therefore, a regulated lending
institution may only accept private
flood insurance coverage under this
provision if the building or mobile
home and any personal property that
secures the mortgage loan is covered for
the term of that loan by the amount of
flood insurance required by section
102(b)(1)(A) of the FDPA. As described
above in ___.___ Definitions, this
proposal also would amend the
Agencies’ regulations to include the
statutory definition of ‘‘private flood
insurance.’’
The Agencies understand that there
have been concerns regarding the ability
of regulated lending institutions to
evaluate whether a flood insurance
policy meets the definition of ‘‘private
flood insurance’’ set forth in the Act
because some regulated lending
institutions lack the necessary technical
expertise
egulations to include the
statutory definition of ‘‘private flood
insurance.’’
The Agencies understand that there
have been concerns regarding the ability
of regulated lending institutions to
evaluate whether a flood insurance
policy meets the definition of ‘‘private
flood insurance’’ set forth in the Act
because some regulated lending
institutions lack the necessary technical
expertise. To facilitate compliance in
this regard, the Agencies are proposing
a safe harbor to allow lenders to rely on
the expertise of State insurance
regulators. Under the proposed safe
harbor, if a State insurance regulator
makes a written determination that a
flood insurance policy issued by a
private insurer meets the definition of
‘‘private flood insurance’’ set forth in
the Act, then the Agencies will deem
such policy to meet the statutory
definition of ‘‘private flood insurance.’’
The Agencies note that regulating
insurance providers is generally the
domain of State insurance regulators. As
a result, State insurance regulators may
be the appropriate parties to determine
whether a flood insurance policy meets
all the criteria set forth in the statutory
definition of ‘‘private flood insurance.’’
The Agencies solicit comment on
whether: (i) Any mechanism exists or
may be developed by State regulators to
make such a determination; (ii) a
written determination would facilitate
lenders’ acceptance of flood insurance
by private insurers; (iii) such a safe
harbor would alleviate the concerns of
regulated lending institutions in
evaluating private flood policies; and
lood insurance.’’
The Agencies solicit comment on
whether: (i) Any mechanism exists or
may be developed by State regulators to
make such a determination; (ii) a
written determination would facilitate
lenders’ acceptance of flood insurance
by private insurers; (iii) such a safe
harbor would alleviate the concerns of
regulated lending institutions in
evaluating private flood policies; and
(iv) a safe harbor would enable the
growth of the private flood insurance
market.
Although section 102(b)(1)(B) of the
FDPA, as added by section 100239(a)(1)
of the Act, requires a regulated lending
institution to accept private flood
insurance that meets the statutory
definition, the Agencies note that the
statute is silent about whether a
regulated lending institution may accept
a flood insurance policy issued by a
private insurer that does not meet the
statutory definition. The Agencies
believe that the Congressional intent of
the statute was to stimulate the private
flood insurance market.26 Consequently,
in addition to requiring regulated
lending institutions to accept private
flood insurance policies that comply
with the statutory definition of ‘‘private
flood insurance,’’ the Agencies are
considering whether to include a
provision in the final rules that
expressly permits regulated lending
institutions to accept, as satisfaction of
the FDPA’s mandatory purchase
requirement, a flood insurance policy
issued by a private insurer that does not
meet the Act’s definition of ‘‘private
flood insurance.’’ The Agencies would
include this provision pursuant to their
authority under the FDPA to issue
regulations directing lending
institutions not to make, increase,
extend, or renew any loan secured by
property in a SFHA unless the property
is covered by ‘‘flood insurance.’’ 27
To assist with determining whether
the Agencies should include this
provision, the Agencies solicit comment
on whether policies issued by private
insurers that do not meet the statutory
definition of ‘‘private
regulations directing lending
institutions not to make, increase,
extend, or renew any loan secured by
property in a SFHA unless the property
is covered by ‘‘flood insurance.’’ 27
To assist with determining whether
the Agencies should include this
provision, the Agencies solicit comment
on whether policies issued by private
insurers that do not meet the statutory
definition of ‘‘private flood insurance’’
should be permitted to satisfy the
mandatory purchase requirement.
Alternatively, the Agencies solicit
comment on whether it is appropriate to
include a provision in the final rules
that specifically requires regulated
lending institutions to accept only
policies issued by private insurers that
meet the statutory definition and, if
included, what would be the effect of
such a provision on the availability of
privately issued flood insurance.
Furthermore, if the Agencies decide to
include a provision in the final rules
that expressly permits regulated lending
institutions, at their discretion, to accept
policies issued by private insurers that
do not meet the statutory definition of
‘‘private flood insurance’’ to satisfy the
mandatory purchase requirement, the
Agencies are requesting comment on
whether they should require the
following criteria for such discretionary
policies pursuant to the Agencies’
authority to implement the FDPA’s
general mandatory purchase
requirement.
First, State insurance regulators, as
the functional regulator of insurance
companies, may be in the best position
to evaluate the condition and ability of
a private insurer to issue a flood
insurance policy. Accordingly, the
Agencies could require that flood
insurance issued by a private insurer
that a regulated lending institution may
accept at its discretion must be issued
by an insurer that is licensed, admitted,
or otherwise approved to engage in the
business of insurance in the State or
jurisdiction in which the insured
building is located by the insurance
regulator of the State
policy. Accordingly, the
Agencies could require that flood
insurance issued by a private insurer
that a regulated lending institution may
accept at its discretion must be issued
by an insurer that is licensed, admitted,
or otherwise approved to engage in the
business of insurance in the State or
jurisdiction in which the insured
building is located by the insurance
regulator of the State. Further, in the
case of a policy of difference in
condition, multiple peril, all risk, or
other blanket coverage insuring
nonresidential commercial property, the
Agencies could require that the private
insurance provider must be recognized,
or not disapproved, as a surplus lines
insurer by the insurance regulator of the
State or jurisdiction where the property
to be insured is located.28
Second, the Agencies could require
that the coverage provided under any
flood insurance policy issued by a
private insurer that a regulated lending
institution accepts at its discretion must
be at least as broad as the coverage
provided by a SFIP under the NFIP,
including when considering
deductibles, exclusions, and conditions
offered by the insurer. For example, the
private flood insurance policy must
provide coverage for the foundation of
a building in addition to the above-
ground portion of the building. This
criterion could ensure that a private
flood insurance policy accepted by a
regulated lending institution provides
the institution and the borrower with
appropriate and sufficient coverage for
the property securing the loan.
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ing. This
criterion could ensure that a private
flood insurance policy accepted by a
regulated lending institution provides
the institution and the borrower with
appropriate and sufficient coverage for
the property securing the loan.
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29 ‘‘Any loss payable under Coverage A—Building
Property will be paid to any mortgagee of whom we
have actual notice as well as any other mortgagee
or loss payee determined to exist at the time of loss,
and you, as interests appear.’’ NFIP Dwelling Form.
30 Additionally, as indicated above, nothing in
the Act can be construed to supersede or limit the
Agencies’ authority to establish requirements
relating to the financial solvency, strength, or
claims-paying ability of private insurance
companies from which a regulated lending
institution will accept private flood insurance. See
42 U.S.C. 4012a(b)(5).
31 158 Cong. Rec. H4616–01, H4621–H4622 (daily
ed. June 29, 2012) (statement of Rep. Biggert).
32 FEMA Letter, February 4, 2013. See http://
www.fema.gov/library/
viewRecord.do?fromSearch=fromsearch&id=2954.
33 126 Stat. 2485 (Jan. 14, 2013).
34 The Agencies note that CFPB’s mortgage
servicing rule promulgated the new escrow
requirements set forth in section 6 of RESPA, which
were enacted in the Dodd-Frank Act. The CFPB’s
rule excludes flood insurance that is required under
the FDPA from the new escrow requirements. 78 FR
10696, 10880 (Feb. 14, 2013). That is, the CFPB rule
exempts from the definition of force-placed
insurance, insurance required by the FDPA. Ibid
gage
servicing rule promulgated the new escrow
requirements set forth in section 6 of RESPA, which
were enacted in the Dodd-Frank Act. The CFPB’s
rule excludes flood insurance that is required under
the FDPA from the new escrow requirements. 78 FR
10696, 10880 (Feb. 14, 2013). That is, the CFPB rule
exempts from the definition of force-placed
insurance, insurance required by the FDPA. Ibid.
The CFPB’s rule requires a servicer to advance
funds to a borrower’s escrow account and to
disburse such funds in a timely manner to pay the
premium charge on a borrower’s hazard insurance
(unless the servicer has a reasonable basis to believe
that a borrower’s hazard insurance has been
canceled or not renewed for reasons other than
nonpayment of premium charges). Thus, even if a
borrower were delinquent by more than 31 days, a
servicer would be required under the CFPB’s rule
to advance funds to continue the borrower’s hazard
insurance policy. In promulgating this rule, the
CFPB relied on its authority under section 19(a) of
RESPA to prescribe such rules and to make such
interpretations as may be necessary to achieve the
consumer protection purposes of RESPA. The
Agencies do not have a similar grant of consumer
protection authority under any of the Federal flood
statutes.
35 In a floor statement on January 1, 2013, in
support of S. 3677, which was adopted as Public
Law No. 112–281, Congresswoman Biggert stated
that the bill is ‘‘necessary to clarify that this
escrowing provision only applies to ‘residential’
mortgage loans and not commercial and
multifamily loans.’’ The statement further provides
that the bill does not impose new escrow
obligations on commercial and multifamily real
estate servicers.
36 See 12 U.S.C. 2606(a).
37 See 15 U.S.C. 1603(1)
aw No. 112–281, Congresswoman Biggert stated
that the bill is ‘‘necessary to clarify that this
escrowing provision only applies to ‘residential’
mortgage loans and not commercial and
multifamily loans.’’ The statement further provides
that the bill does not impose new escrow
obligations on commercial and multifamily real
estate servicers.
36 See 12 U.S.C. 2606(a).
37 See 15 U.S.C. 1603(1).
Finally, the Agencies could require
that any flood insurance policy issued
by a private insurer that a regulated
lending institution accepts at its
discretion must include a mortgage
interest clause similar to the clause
contained in a SFIP.29 Therefore, the
Agencies could require the mortgage
interest clause to cover the interests of
both the insured (whether such insured
is a mortgagor/borrower or another
entity that purchased the policy, such as
a condominium owners’ association)
and the mortgagee (the lender). Having
both the insured and the mortgagee
covered in the mortgage interest clause
would mean that, in the event of a loss,
the interests of both the regulated
lending institution and the insured
would be protected.
The Agencies solicit comment as to
whether requiring the above criteria for
any flood insurance policy issued by a
private insurer that a lender accepts at
its discretion would be inconsistent
with State legal requirements and
industry practice with respect to private
flood insurance
t of a loss,
the interests of both the regulated
lending institution and the insured
would be protected.
The Agencies solicit comment as to
whether requiring the above criteria for
any flood insurance policy issued by a
private insurer that a lender accepts at
its discretion would be inconsistent
with State legal requirements and
industry practice with respect to private
flood insurance. The Agencies also
solicit comment as to whether criteria,
additional to those discussed above,
should be imposed if the Agencies
permit regulated lending institutions to
accept a private flood insurance policy
issued by a private insurer that does not
meet the statutory definition of ‘‘private
flood insurance.’’ 30 The Agencies
believe that the proposed mandatory
acceptance approach is consistent with
both the statutory language and
Congressional intent.31 Additionally,
the Agencies request comment on
whether allowing discretionary
acceptance of flood insurance policies
issued by private insurers not meeting
the statutory definition of private flood
insurance but requiring that such
discretionary policies meet certain
criteria could encourage development of
the private flood insurance market
while also ensuring that regulated
lending institutions and borrowers are
properly protected. The Agencies also
seek comment regarding the experience
of both lenders and their borrowers with
respect to policies issued by private
insurers that do not meet the statutory
definition of ‘‘private flood insurance’’
as compared to policies issued by
private insurers that meet the statutory
definition of ‘‘private flood insurance.’’
Regulated lending institutions have
previously relied upon FEMA’s
‘‘Mandatory Purchase of Flood
Insurance Guidelines’’ (Guidelines) for
guidance when determining whether a
private insurance policy conforms to the
flood insurance requirements
of ‘‘private flood insurance’’
as compared to policies issued by
private insurers that meet the statutory
definition of ‘‘private flood insurance.’’
Regulated lending institutions have
previously relied upon FEMA’s
‘‘Mandatory Purchase of Flood
Insurance Guidelines’’ (Guidelines) for
guidance when determining whether a
private insurance policy conforms to the
flood insurance requirements. FEMA
had advised that, to the extent that the
private policy differs from the NFIP’s
policy, the differences should be
carefully examined before accepting the
policy. On February 4, 2013, FEMA
rescinded the Guidelines and advised
lenders to ‘‘consult their respective
regulatory agency for information
regarding compliance with the
mandatory purchase requirements.’’ 32
The Agencies note that currently
institutions continue to have the
discretion to accept flood insurance
issued by a private insurer pursuant to
section 102(b)(1)(A) of the FDPA.
___.___ Exemptions
The Agencies are proposing a
technical amendment to change the
reference to the head of FEMA from
Director to Administrator.
___.___ Escrow requirement
In General
Pursuant to section 102(d) of the
FDPA, as amended by section 100209(a)
of the Act and Public Law 112–281,33
the Agencies are proposing to revise
their regulations to require regulated
lending institutions, or servicers acting
on behalf of a regulated lending
institution, to escrow all premiums and
fees for flood insurance required for any
loans secured by residential improved
real estate or a mobile home unless the
lending institutions qualify for the
statutory exception.34 In addition, these
premiums and fees must be payable
with the same frequency as payments on
the loan are made for the duration of the
loan. Consistent with section 102(d) of
the FDPA, as amended, the proposed
provision applies to any loan secured by
residential improved real estate or a
mobile home that is made or is
outstanding on or after July 6, 2014
ify for the
statutory exception.34 In addition, these
premiums and fees must be payable
with the same frequency as payments on
the loan are made for the duration of the
loan. Consistent with section 102(d) of
the FDPA, as amended, the proposed
provision applies to any loan secured by
residential improved real estate or a
mobile home that is made or is
outstanding on or after July 6, 2014.
The Agencies are proposing to
implement amended section 102(d) of
the FDPA with some clarifications.
First, as noted above, Public Law 112–
281 amended section 102(d) of the
FDPA, as amended by section 100209 of
the Act, to insert the word ‘‘residential’’
prior to every mention of ‘‘improved
real estate.’’ The Agencies’ understand
that Congress’s intent was to apply the
escrow requirement to residential loans
and exclude commercial loans.35
Consequently, the Agencies are
proposing that regulated lending
institutions need not escrow flood
insurance premiums and fees for loans
that are an extension of credit for a
business, commercial, or agricultural
purpose even if secured by residential
real estate. This exception is consistent
with similar exceptions in the RESPA 36
and the Truth in Lending Act.37
Second, the Agencies are proposing
that when a regulated lending
institution has determined that a
borrower has obtained flood insurance
coverage that meets the mandatory
purchase requirement for the residential
improved real estate or mobile home
securing the loan and is currently
paying premiums and fees into an
escrow account that has been
established by another lender, the
institution need not establish another
escrow account for the same purpose
institution has determined that a
borrower has obtained flood insurance
coverage that meets the mandatory
purchase requirement for the residential
improved real estate or mobile home
securing the loan and is currently
paying premiums and fees into an
escrow account that has been
established by another lender, the
institution need not establish another
escrow account for the same purpose.
Such circumstances may arise, for
example, when the regulated lending
institution takes a second lien position
on a particular property and the
borrower is already paying flood
insurance premiums and fees on such
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property into an escrow account
established by the first lienholder. It is
the Agencies’ understanding that, in
such cases, the lender in the second
lienholder position will generally
request the borrower to increase the
current flood insurance policy coverage
amount to satisfy the flood insurance
purchase requirement for the second
loan. The Agencies believe that the
increase in premiums and fees due to
the expanded coverage would then be
paid into the escrow that was previously
established by the first lienholder.
Therefore, requiring a second escrow
account to be established would not be
necessary. However, if the first
lienholder is not required to or
otherwise does not escrow flood
insurance premiums and fees for
adequate insurance coverage for the
residential improved real estate or a
mobile home, the proposed rule would
require the regulated lending institution
in the second lienholder position to
escrow required flood insurance
premiums and fees, unless such
regulated lending institution qualifies
for an exception from the escrowing
provisions
not escrow flood
insurance premiums and fees for
adequate insurance coverage for the
residential improved real estate or a
mobile home, the proposed rule would
require the regulated lending institution
in the second lienholder position to
escrow required flood insurance
premiums and fees, unless such
regulated lending institution qualifies
for an exception from the escrowing
provisions.
Third, the Agencies recognize that
when flood insurance coverage for a
residential improved real estate or a
mobile home is provided by a policy
purchased by a common interest
community, such as a condominium
owners’ association, the borrower is not
the purchaser of the policy. If that
policy is purchased by a common
interest community in an amount that is
sufficient to meet the mandatory flood
insurance purchase requirement, then
escrowing flood insurance premiums
and fees on behalf of the borrower
would not be necessary because the
borrower would not be directly
responsible for paying the flood
insurance premiums or fees. As a result,
the Agencies are proposing that a
regulated lending institution need not
establish an escrow account for flood
insurance premiums and fees when the
institution has determined that flood
insurance coverage is provided by a
policy purchased by a common interest
community instead of the borrower,
such as an NFIP Residential
Condominium Building Association
Policy (RCBAP), that meets the
mandatory flood insurance purchase
requirement, including coverage for the
proper amount. If the amount of the
policy purchased by a common interest
community is insufficient to meet the
mandatory flood insurance purchase
requirement, however, the borrower
would be required to obtain a
supplemental policy to cover the
deficiency, and the proposed rule would
require that the regulated lending
institution escrow the premiums and
fees for the supplemental policy
proper amount. If the amount of the
policy purchased by a common interest
community is insufficient to meet the
mandatory flood insurance purchase
requirement, however, the borrower
would be required to obtain a
supplemental policy to cover the
deficiency, and the proposed rule would
require that the regulated lending
institution escrow the premiums and
fees for the supplemental policy. For
example, if a condominium owners’
association purchases an RCBAP or a
private flood insurance policy for less
than the maximum amount of insurance
available under the NFIP, the borrower
may be required to obtain a dwelling
policy for supplemental coverage. If the
borrower is required to obtain a
dwelling policy, the proposed rule
would require the regulated lending
institution to escrow the premiums and
fees for such policy.
Timing
The Agencies’ proposal sets forth
timing provisions that stipulate when
regulated lending institutions must
begin escrowing premiums and fees for
required flood insurance. Section
100209(b) of the Act (42 U.S.C. 4012a
note) provides that the escrow
provisions apply to any mortgage
outstanding or entered into on or after
the expiration of the two-year period
beginning on the date of enactment of
the Act. Therefore, loans secured by
residential improved real estate or a
mobile home that are outstanding or
entered into on or after July 6, 2014 are
covered by this requirement, provided
the loan is required to have flood
insurance. Consequently, the Agencies
propose that for any designated loans
made on or after July 6, 2014, the
regulated lending institution must begin
escrowing upon loan consummation.
With respect to designated loans that
are outstanding on July 6, 2014, the
proposed rule would require regulated
lending institutions to begin escrowing
with the first loan payment after the first
renewal date of the borrower’s flood
insurance policy that occurs on or after
July 6, 2014
or after July 6, 2014, the
regulated lending institution must begin
escrowing upon loan consummation.
With respect to designated loans that
are outstanding on July 6, 2014, the
proposed rule would require regulated
lending institutions to begin escrowing
with the first loan payment after the first
renewal date of the borrower’s flood
insurance policy that occurs on or after
July 6, 2014. For example, if a
borrower’s current flood insurance
policy will renew on March 15, 2015,
and the borrower’s loan payments are
generally due the first of each month,
the institution must begin escrowing
with the loan payment due on April 1,
2015. The borrower would be
responsible for paying the premium to
renew the policy on March 15, 2015,
however. Payments that are escrowed
beginning April 1, 2015 will be used by
the lender to pay the premiums for
subsequent years.
The Agencies’ proposal is intended to
alleviate the potential burden to lenders
and borrowers of establishing an escrow
account for an outstanding loan for
which a borrower was not previously
escrowing flood insurance premiums
and fees. By tying the establishment of
the escrow to the time of flood
insurance policy renewal, the proposal
would allow regulated lending
institutions to comply with the
requirement on a staggered basis, rather
than requiring them to establish escrow
accounts for all outstanding designated
loans at one time.
The Agencies believe this proposal
will also benefit borrowers. Delaying the
establishment of the escrow until
immediately after their flood insurance
policy is renewed will ensure that all
borrowers will have the maximum
amount of time to escrow for their
subsequent flood insurance policy
renewal
uiring them to establish escrow
accounts for all outstanding designated
loans at one time.
The Agencies believe this proposal
will also benefit borrowers. Delaying the
establishment of the escrow until
immediately after their flood insurance
policy is renewed will ensure that all
borrowers will have the maximum
amount of time to escrow for their
subsequent flood insurance policy
renewal. If the Agencies were to require
regulated lending institutions to
establish escrow accounts for all
outstanding designated loans at one
time, some borrowers may be burdened
with larger escrow payments to cover
the premium for the full term over a
shorter period of time than other
borrowers. For example, if the Agencies
required all regulated lending
institutions to establish escrow accounts
for all outstanding loans on July 6, 2014,
then a borrower whose yearly flood
insurance policy renewal date is
September 15, 2014, would have only
approximately two months to escrow for
a full year of flood insurance premiums
and fees while a borrower whose yearly
flood insurance policy renewal date is
March 15, 2015, would have
approximately eight months to escrow
for a full year of flood insurance
premiums and fees. Consequently, the
borrower with the March 15, 2015,
renewal date would have smaller
escrow payments each payment period
than the borrower with the September
15, 2014 renewal date. Requiring
regulated lending institutions to begin
escrowing with the first loan payment
after the borrower renews the existing
policy would mean that all borrowers
will have the maximum amount of time
to escrow for the next flood insurance
payment, regardless of when their
policies renew.
The Agencies request comment on the
timing proposed for complying with the
escrow requirement for outstanding
loans and whether regulated lending
institutions should be provided the
option of complying with the escrow
requirement earlier than the dates set
forth in the proposal
aximum amount of time
to escrow for the next flood insurance
payment, regardless of when their
policies renew.
The Agencies request comment on the
timing proposed for complying with the
escrow requirement for outstanding
loans and whether regulated lending
institutions should be provided the
option of complying with the escrow
requirement earlier than the dates set
forth in the proposal. Lenders with a
small number of designated loans that
are not otherwise excepted from the
escrow requirement may prefer to
establish all required escrow accounts
for outstanding designated loans in their
portfolio at one time, prior to the
insurance policy renewal dates.
Permitting institutions to comply with
the escrow requirement earlier,
however, may mean that some
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borrowers will have less time to make
escrow payments for flood insurance
premiums and fees associated with the
first insurance policy payment to be
paid out of the funds in the escrow than
other borrowers, depending on when
the regulated lending institution, or its
servicer, decides to comply with the
escrow requirement. Although
borrowers would ultimately pay the
same amount regardless of when the
escrow begins, the Agencies request
comment on whether lenders’ early
compliance with the escrow
requirements would be otherwise
detrimental to borrowers, and if so, how
it may be detrimental.
The Agencies are also proposing to
address the timing applicable to loans
that were not designated loans at the
time that they were made, but become
designated loans after July 6, 2014. This
may occur, for example, when there is
a FEMA map change, and a building
that was not previously located in an
SFHA is now located in an SFHA
mental to borrowers, and if so, how
it may be detrimental.
The Agencies are also proposing to
address the timing applicable to loans
that were not designated loans at the
time that they were made, but become
designated loans after July 6, 2014. This
may occur, for example, when there is
a FEMA map change, and a building
that was not previously located in an
SFHA is now located in an SFHA. In
those instances, the loan secured by
such building may be required to have
flood insurance under the FDPA. If
flood insurance is required, a regulated
lending institution, or a servicer acting
on its behalf, also would be required to
establish an escrow account to comply
with the FDPA, as amended by the Act.
The proposed rule would require
regulated lending institutions to begin
escrowing premiums and fees for
required flood insurance with the first
loan payment after the flood insurance
policy is established. Under the
proposal, this initial flood insurance
policy may either be purchased by the
borrower or, if the borrower failed to
purchase a policy, force-placed by the
regulated lending institution.
The following explanation illustrates
how this provision would operate.
Under the Agencies’ proposal, in the
situation in which a lender determines
that a loan that was not originally a
designated loan, but has become a
designated loan, for example, due to
remapping, the lender would notify the
borrower that flood insurance is
required, as provided in the force-
placement provision of the rule. After
the required notification, either the
borrower would purchase and pay for a
flood insurance policy or the lender
would force-place a policy and charge
the borrower for the cost of coverage.
The lender also would commence
escrowing payments to cover premiums
and fees, which would be applied to the
next annual policy renewal, upon the
borrower’s next loan payment
ovision of the rule. After
the required notification, either the
borrower would purchase and pay for a
flood insurance policy or the lender
would force-place a policy and charge
the borrower for the cost of coverage.
The lender also would commence
escrowing payments to cover premiums
and fees, which would be applied to the
next annual policy renewal, upon the
borrower’s next loan payment.
The Agencies solicit comment on
whether the requirement to begin
escrowing for a loan that becomes a
designated loan after July 6, 2014,
should be limited only to when a
borrower-purchased flood insurance
policy is established and exclude
instances in which a lender-placed
flood insurance policy is established. If
the rule were to be limited only to when
a borrower-purchased flood insurance is
established, a regulated lending
institution would not be required to
escrow flood insurance premiums and
fees when it force-places an initial flood
insurance policy. In this instance, after
the expiration of such a force-placed
insurance policy, there would be no
funds escrowed for any policy that may
be purchased at that time, whether it is
borrower-purchased or lender-placed.
Under the proposed rule, a regulated
lending institution would be required to
escrow flood insurance premiums and
fees following the establishment of a
force-placed policy for a loan that
becomes a designated loan after July 6,
2014. If a borrower fails to purchase the
requisite flood insurance upon the
expiration of such force-placed
insurance, then the lender would use
the escrowed funds to renew or
purchase a new force-placed policy.
Notice
In order to ensure that borrowers are
well-informed about the escrow
requirement to collect premiums and
fees for required flood insurance, the
Agencies are proposing that regulated
lending institutions provide borrowers
with a written notice
he
expiration of such force-placed
insurance, then the lender would use
the escrowed funds to renew or
purchase a new force-placed policy.
Notice
In order to ensure that borrowers are
well-informed about the escrow
requirement to collect premiums and
fees for required flood insurance, the
Agencies are proposing that regulated
lending institutions provide borrowers
with a written notice. Specifically, the
proposed rule would mandate that a
regulated lending institution, or a
servicer acting on its behalf, mail or
deliver a written notice informing a
borrower that it is required to escrow all
premiums and fees for required flood
insurance on residential improved real
estate. In order to facilitate compliance
with the proposed notice requirement,
the Agencies are proposing model
language for this notice as discussed in
more detail below in the SUPPLEMENTARY
INFORMATION to Appendices A, B, and C.
To minimize the burden to regulated
lending institutions of providing this
notice and to ensure that borrowers
receive the notice at a time when they
are considering the purchase of flood
insurance, the proposal takes advantage
of flood insurance notices that already
are required under current law.
Specifically, the proposal adds language
regarding the escrow requirement to the
existing Notice of Special Flood Hazards
and Availability of Federal Disaster
Relief Assistance, included in the
Agencies’ current rules as Appendix A.
The proposal would require that, for
designated loans made on or after July
6, 2014, a regulated lending institution,
or a servicer acting on its behalf, must
provide a notice that contains language
substantially similar to model clauses
on the escrow requirement in the
revised sample notice provided in
Appendix A with or on the Notice of
Special Flood Hazards and Availability
of Federal Disaster Relief Assistance
that, for
designated loans made on or after July
6, 2014, a regulated lending institution,
or a servicer acting on its behalf, must
provide a notice that contains language
substantially similar to model clauses
on the escrow requirement in the
revised sample notice provided in
Appendix A with or on the Notice of
Special Flood Hazards and Availability
of Federal Disaster Relief Assistance.
Similarly, under the proposal, for a loan
that becomes a designated loan after
July 6, 2014, a regulated lending
institution, or a servicer acting on its
behalf, must provide notice concerning
the escrow requirement with the force-
placement notice, using language that is
substantially similar to the sample
language proposed in Appendix C.
However, for loans that are
outstanding on July 6, 2014, there are no
required notices under current law that
the regulated lending institution would
be certain to provide before the
institution would be required to begin
escrowing under the proposal.
Consequently, the Agencies are
proposing that a regulated lending
institution, or a servicer acting on its
behalf, provide a separate notice
describing the escrow requirement,
substantially similar to the sample
notice proposed by the Agencies in
Appendix B, at least 90 days before the
regulated lending institution must begin
escrowing. The Agencies believe that 90
days’ advance notice would give
borrowers sufficient time to gather the
necessary funds for the escrow.
However, the Agencies solicit comment
on whether 90 days is an appropriate
time period to provide notice for loans
outstanding on July 6, 2014.
Exception
This proposal implements the
statutory exception to the escrow
requirement substantially as included in
the Act with some clarifications
advance notice would give
borrowers sufficient time to gather the
necessary funds for the escrow.
However, the Agencies solicit comment
on whether 90 days is an appropriate
time period to provide notice for loans
outstanding on July 6, 2014.
Exception
This proposal implements the
statutory exception to the escrow
requirement substantially as included in
the Act with some clarifications. The
statute states that, except as provided by
State law, regulated lending institutions
that have total assets of less than $1
billion are exempt from this escrow
requirement if, on or before July 6, 2012,
the institution: (i) in the case of a loan
secured by residential improved real
estate or a mobile home, was not
required under Federal or State law to
deposit taxes, insurance premiums, fees,
or any other charges in an escrow
account for the entire term of the loan;
and (ii) did not have a policy of
consistently and uniformly requiring the
deposit of taxes, insurance premiums,
fees, or any other charges in an escrow
account for loans secured by residential
improved real estate or a mobile home.
Because the Act does not specify a
point in time to measure the asset size
of an institution to determine whether
such institution qualifies for the
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account for loans secured by residential
improved real estate or a mobile home.
Because the Act does not specify a
point in time to measure the asset size
of an institution to determine whether
such institution qualifies for the
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38 See 12 CFR 25.12(u); 12 CFR 195.12(u); 12 CFR
228.12(u); and 12 CFR 345.12(u).
39 See 12 CFR 235.5(a)(3).
exception, the Agencies are proposing
that a regulated lending institution may
qualify for the exception if it has total
assets of less than $1 billion as of
December 31 of either of the two prior
calendar years. Thus, a regulated
lending institution would only be
subject to the escrow requirement if it
has assets of $1 billion or more as of
December 31 for at least two
consecutive years. Consequently, if the
proposal is finalized and becomes
effective in 2014, regulated lending
institutions with assets of $1 billion or
more as of both December 31, 2012, and
December 31, 2013, would not qualify
for the exception. In contrast, a
regulated lending institution with assets
of less than $1 billion as of either
December 31, 2012 or December 31,
2013, may qualify for the exception,
provided the other conditions for the
exception are met.
This measurement method is similar
to how the OCC, the Board, and the
FDIC have measured asset size in
relation to the definitions for small
entities under the Community
Reinvestment Act (CRA).38 The
Agencies believe the asset measurement
method these agencies have used with
respect to CRA is an appropriate model
in this case as it ensures an institution
is definitively over the size threshold
before requiring the institution to
expend the resources needed to
establish a new escrow program
elation to the definitions for small
entities under the Community
Reinvestment Act (CRA).38 The
Agencies believe the asset measurement
method these agencies have used with
respect to CRA is an appropriate model
in this case as it ensures an institution
is definitively over the size threshold
before requiring the institution to
expend the resources needed to
establish a new escrow program.
Moreover, the Agencies are proposing
transition rules for a change in status of
a regulated lending institution that may
initially qualify for the exception, but
later grows to exceed the $1 billion asset
size threshold. Similar to the Board’s
Regulation II, the Agencies propose to
give regulated lending institutions
approximately six months to begin
complying with the escrow
requirement.39 The proposed rules
would mirror the proposed rules
concerning the timing requirements for
when regulated lending institutions
must begin to escrow for loans
outstanding or entered into on or after
July 6, 2014. Therefore, for any
designated loans outstanding on July 1
of the succeeding calendar year after a
regulated lending institution has a
change in status, the proposal would
require the institution to begin
escrowing with the first loan payment
on or after the first renewal date of the
borrower’s flood insurance policy on or
after July 1 of the succeeding calendar
year. For any designated loan made after
July 1 of the succeeding calendar year
after a regulated lending institution has
a change in status, the proposed rule
would require the institution to begin
escrowing upon loan consummation.
Finally, for any loan that becomes a
designated loan after July 1 of the
succeeding calendar year after a
regulated lending institution has a
change in status, the proposed rule
would require the institution to begin
escrowing with the first loan payment
after the flood insurance policy is
established
proposed rule
would require the institution to begin
escrowing upon loan consummation.
Finally, for any loan that becomes a
designated loan after July 1 of the
succeeding calendar year after a
regulated lending institution has a
change in status, the proposed rule
would require the institution to begin
escrowing with the first loan payment
after the flood insurance policy is
established.
For example, assume a regulated
lending institution qualified for the
exception in 2014, but had assets of $1
billion or more as of December 31, 2014,
and December 31, 2015. In that case,
2016 would be the succeeding calendar
year. Under the proposal, such regulated
lending institution would be required to
begin escrowing with the first loan
payment on or after the first renewal
date of the borrower’s flood insurance
policy on or after July 1, 2016, for any
loan outstanding on July 1, 2016. For
any designated loan made after July 1,
2016, the proposal would require such
institution to begin escrowing upon loan
consummation. For any loan that
becomes a designated loan after July 1,
2016, the proposal would require such
institution to begin escrowing with the
first loan payment after the flood
insurance policy is established.
In addition, the Agencies are
proposing the same notice obligation for
regulated lending institutions after a
change in status with similar timing
requirements as would apply to other
regulated lending institutions that are
subject to the escrow requirement. As a
result, for loans that are outstanding on
July 1 of the succeeding calendar year
after a regulated lending institution has
a change in status, the proposal would
require a regulated lending institution to
provide notice on the escrow
requirement at least 90 days before the
regulated lending institution must begin
escrowing, using language that is
substantially similar to the language
provided in Appendix B
hat are outstanding on
July 1 of the succeeding calendar year
after a regulated lending institution has
a change in status, the proposal would
require a regulated lending institution to
provide notice on the escrow
requirement at least 90 days before the
regulated lending institution must begin
escrowing, using language that is
substantially similar to the language
provided in Appendix B. For designated
loans that are made on or after July 1 of
the succeeding calendar year after a
regulated lending institution has a
change in status, the Agencies propose
that notice concerning the escrow
requirement be provided with the notice
of special flood hazards, using language
that is substantially similar to the
escrow requirement language provided
in the sample form of notice contained
in Appendix A. Finally, for a loan that
becomes a designated loan after July 1
of the succeeding calendar year after a
regulated lending institution has a
change in status, notice concerning the
escrow requirement would be provided
with the force-placement notice under
the proposal, using language
substantially similar to the sample
language provided in Appendix C.
Change in Ownership
The Agencies also are proposing a
provision to address situations in which
a regulated lending institution that is
required to comply with the escrow
requirement acquires a designated loan
that is covered by FDPA-required flood
insurance that becomes subject to the
escrow requirement as a result of the
acquisition. For example, this may
occur if a lender that qualifies for the
statutory exception sells the loan to or
merges with a regulated lending
institution that must comply with the
escrow requirement
ired to comply with the escrow
requirement acquires a designated loan
that is covered by FDPA-required flood
insurance that becomes subject to the
escrow requirement as a result of the
acquisition. For example, this may
occur if a lender that qualifies for the
statutory exception sells the loan to or
merges with a regulated lending
institution that must comply with the
escrow requirement. In these cases, the
Agencies are proposing that the
regulated lending institution must begin
escrowing premiums and fees for flood
insurance with the first loan payment
on or after the first renewal date of the
borrower’s flood insurance policy on or
after the date that is six months from the
transfer date of the loan. For instance,
suppose a regulated lending institution
that is required to comply with the
escrow requirement purchases loans
from an institution that is not subject to
the escrow requirement, and the transfer
date for the loans is February 1, 2015.
Under the proposal, for any designated
loan that is transferred on February 1,
2015, the regulated lending institution
that acquires the loan must begin
escrowing premiums and fees for flood
insurance with the first loan payment
on or after the first renewal date of the
borrower’s flood insurance policy on or
after August 1, 2015.
This proposed timing is similar to the
timing the Agencies have proposed for
regulated lending institutions that no
longer qualify for the statutory
exception. Furthermore, as with the
notice requirement proposed for other
outstanding designated loans, the
Agencies are proposing that a regulated
lending institution provide notice at
least 90 days before the institution must
begin to escrow for a designated loan
that becomes subject to the escrow
requirement as a result of a change in
loan ownership.
l.l Required use of standard flood
hazard determination form
with the
notice requirement proposed for other
outstanding designated loans, the
Agencies are proposing that a regulated
lending institution provide notice at
least 90 days before the institution must
begin to escrow for a designated loan
that becomes subject to the escrow
requirement as a result of a change in
loan ownership.
l.l Required use of standard flood
hazard determination form.
The Agencies are proposing technical
amendments in this section to change
the reference to the head of FEMA from
Director to Administrator and to update
how a lending institution may obtain
the standard flood hazard insurance
form by directing the institution to
FEMA’s Web site.
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40 The Agencies note that section 1463(a) of the
Dodd-Frank Act sets forth requirements relating to
the force placement of hazard insurance. The CFPB
has excluded flood insurance required under the
FDPA from the force placement requirements in its
rule implementing this provision. 78 FR 10696,
10880 (February 14, 2013).
l.l Force placement of flood
insurance.
Pursuant to section 102(e) of the
FDPA, as amended by section 100244 of
the Act, the Agencies are proposing to
amend their rules for the force-
placement of flood insurance.40 The
proposal implements section 100244 of
the Act by setting forth when a
regulated lending institution or its
servicer may begin to charge the
borrower for force-placed insurance, the
circumstances under which a regulated
lending institution or its servicer must
terminate force-placed insurance and
refund payments, and what
documentary evidence is sufficient to
demonstrate a borrower has flood
insurance coverage
tion 100244 of
the Act by setting forth when a
regulated lending institution or its
servicer may begin to charge the
borrower for force-placed insurance, the
circumstances under which a regulated
lending institution or its servicer must
terminate force-placed insurance and
refund payments, and what
documentary evidence is sufficient to
demonstrate a borrower has flood
insurance coverage.
Notice and Purchase of Coverage
Under current regulations, if a
regulated lending institution, or a
servicer acting on its behalf, determines
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 the
FDPA, then the regulated lending
institution or its servicer must 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 the
mandatory purchase requirements, for
the remaining term of the designated
loan. If the borrower fails to obtain
adequate flood insurance within 45 days
after notification, then the regulated
lending institution or its servicer must
purchase flood insurance on behalf of
the borrower. The regulated lending
institution or servicer may charge the
borrower for the cost of the premiums
and fees incurred in purchasing the
insurance. Pursuant to section 102(e) of
the FDPA, as amended by section
100244 of the Act, the Agencies propose
to amend their regulations to provide
that the regulated lending institution or
its servicer may charge the borrower for
the cost of premiums and fees incurred
for coverage beginning on the date on
which flood insurance coverage lapsed
or did not provide a sufficient coverage
amount. The Agencies’ understanding is
that the date on which the flood
insurance coverage lapsed is the
expiration date provided in the policy
provide
that the regulated lending institution or
its servicer may charge the borrower for
the cost of premiums and fees incurred
for coverage beginning on the date on
which flood insurance coverage lapsed
or did not provide a sufficient coverage
amount. The Agencies’ understanding is
that the date on which the flood
insurance coverage lapsed is the
expiration date provided in the policy.
The Agencies seek comment on whether
the Agencies’ interpretation of the term
‘‘lapsed’’ is consistent with the
insurance industry’s use of the term and
as to whether further clarification is
necessary on when a lender or servicer
may begin to charge for force-placed
flood insurance.
For purposes of safety and soundness,
regulated lending institutions should
monitor the continuous coverage of
flood insurance for the building or
mobile home and any personal property
securing a designated loan.
Additionally, the Agencies interpret the
Act to permit a regulated lending
institution to force-place a flood
insurance policy purchased on behalf of
a borrower that is effective the day after
expiration of a borrower’s original
insurance policy to ensure that it is
continuous. Such a practice will ensure
that institutions complete the force-
placement of flood insurance in a timely
manner upon lapse of the policy and
that there is continuous insurance
coverage to protect both the borrower
and the institution
cy purchased on behalf of
a borrower that is effective the day after
expiration of a borrower’s original
insurance policy to ensure that it is
continuous. Such a practice will ensure
that institutions complete the force-
placement of flood insurance in a timely
manner upon lapse of the policy and
that there is continuous insurance
coverage to protect both the borrower
and the institution.
Termination of Force-Placed Insurance
As provided in section 102(e)(3) of the
FDPA, as added by section 100244 of
the Act, the Agencies propose that
within 30 days of receipt by a regulated
lending institution, or a servicer acting
on its behalf, of a confirmation of a
borrower’s existing flood insurance
coverage, a regulated lending institution
is required to: (i) Notify the insurer to
terminate any force-placed insurance
purchased by the regulated lending
institution or its servicer; and (ii) refund
to the borrower all premiums paid by
the borrower for any insurance
purchased by the regulated lending
institution or its servicer under this
section for any period during which the
borrower’s flood insurance coverage and
the insurance coverage purchased by the
regulated lending institution or its
servicer were each in effect (overlap
period), and any related fees charged to
the borrower with respect to the
insurance purchased by the regulated
lending institution or its servicer during
such overlap period.
The Agencies realize that, although
regulated lending institutions and
servicers can request that a force-placed
insurance policy be terminated, the
insurer is the party that actually cancels
the policy. The Agencies’ proposal
therefore clarifies the statutory language
in section 102(e)(3) of the FDPA, as
amended by section 100244 of the Act,
to require the institution only to notify
the insurer to terminate the force-placed
policy and to fully refund to the
borrower the premiums and fees for the
overlap period within the 30-day period
required by the statute
actually cancels
the policy. The Agencies’ proposal
therefore clarifies the statutory language
in section 102(e)(3) of the FDPA, as
amended by section 100244 of the Act,
to require the institution only to notify
the insurer to terminate the force-placed
policy and to fully refund to the
borrower the premiums and fees for the
overlap period within the 30-day period
required by the statute.
In addition, the Agencies note that
section 102(e)(3) of the FDPA, as
amended, and the Agencies’ proposed
regulations, do not specify a party from
which a regulated lending institution
must receive confirmation of a
borrower’s existing flood insurance
coverage. Therefore, regulated lending
institutions may receive the
confirmation from either the borrower
or a third party, such as an insurance
agent or insurer with whom the
institution has direct contact.
Sufficiency of Demonstration
Pursuant to section 102(e)(4) of the
FDPA, as amended by section 100244 of
the Act, the Agencies propose that for
the purposes of confirming a borrower’s
existing flood insurance coverage, a
regulated lending institution or its
servicer must accept from the borrower
an insurance policy declarations page
that includes the existing flood
insurance policy number and the
identity of, and contact information for,
the insurance company or its agent, as
confirmation of the existence of
coverage. A lender is responsible for
making all necessary inquiries into the
adequacy of the borrower’s insurance
policy to ensure the policy complies
with the mandatory purchase
requirement. If the lender determines
the coverage amount or any terms and
conditions fail to meet applicable
requirements, the lender should notify
the borrower and request the borrower
to obtain an adequate flood insurance
policy.
l.l Determination fees.
The Agencies are proposing technical
amendments in this section to change
the references to the head of FEMA from
Director to Administrator
ment. If the lender determines
the coverage amount or any terms and
conditions fail to meet applicable
requirements, the lender should notify
the borrower and request the borrower
to obtain an adequate flood insurance
policy.
l.l Determination fees.
The Agencies are proposing technical
amendments in this section to change
the references to the head of FEMA from
Director to Administrator.
l.l Notice of special flood hazards
and availability of Federal disaster relief
assistance.
Section 100239 of the Act adds a new
section 102(b)(6) to the FDPA (42 U.S.C.
4012a(b)(6)) requiring regulated lending
institutions to disclose to a borrower
that: (i) Flood insurance is available
from private insurance companies that
issue SFIPs on behalf of the NFIP or
directly from the NFIP; (ii) flood
insurance that provides the same level
of coverage as an SFIP under the NFIP
may be available from a private
insurance company that issues policies
on behalf of the company; and (iii) the
borrower is encouraged to compare the
flood insurance coverage, deductibles,
exclusions, conditions, and premiums
associated with flood insurance policies
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41 See 5 U.S.C. 601 et seq.
42 We base our estimate of the number of active
small entities on the SBA’s size thresholds for
commercial banks and savings institutions, and
trust companies, which are $500 million and $35.5
million, respectively. Consistent with the General
Principles of Affiliation 13 CFR § 121.103(a), we
count the assets of affiliated financial institutions
when determining if we should classify a bank we
supervise as a small entity
umber of active
small entities on the SBA’s size thresholds for
commercial banks and savings institutions, and
trust companies, which are $500 million and $35.5
million, respectively. Consistent with the General
Principles of Affiliation 13 CFR § 121.103(a), we
count the assets of affiliated financial institutions
when determining if we should classify a bank we
supervise as a small entity. We use December 31,
2012 to determine size because a ‘‘financial
institution’s assets are determined by averaging the
assets reported on its four quarterly financial
statements for the preceding year.’’ See footnote 8
of the U.S. Small Business Administration’s Table
of Size Standards.
43 Because the OCC does not have the information
to determine whether a small institutions would
meet the exception for the escrow requirement
provided by proposed § 22.5(c), we have not
applied this exception in our calculations.
Therefore, our estimated costs per small bank may
be overstated.
issued on behalf of the NFIP and
policies issued on behalf of private
insurance companies and to direct
inquiries regarding the availability, cost,
and comparisons of flood insurance
coverage to an insurance agent.
Furthermore, section 100239(b) of the
Act amends section 1364(a)(3)(C) of the
1968 Act (42 U.S.C. 4104a(a)(3)(C)) to
require that the disclosures in section
102(b)(6) of the FDPA be provided in
the Notice of Special Flood Hazards and
Availability of Federal Disaster Relief
Assistance. Therefore, the proposal
requires the disclosures set forth in
section 102(b)(6) of the FDPA to be
included in the Notice of Special Flood
Hazards and Availability of Federal
Disaster Relief Assistance, and the
Agencies have proposed model language
to include in the sample form of notice
contained in Appendix A.
l.l Notice of servicer’s identity.
The Agencies are proposing technical
amendments in this section to change
the references to the head of FEMA from
Director to Administrator
included in the Notice of Special Flood
Hazards and Availability of Federal
Disaster Relief Assistance, and the
Agencies have proposed model language
to include in the sample form of notice
contained in Appendix A.
l.l Notice of servicer’s identity.
The Agencies are proposing technical
amendments in this section to change
the references to the head of FEMA from
Director to Administrator.
Appendices A, B, & C
As noted above in the SUPPLEMENTARY
INFORMATION accompanying the
revisions to l.l Notice of special flood
hazards and availability of Federal
disaster relief assistance, the Agencies
are proposing to amend the sample form
of notice contained in Appendix A to
include the disclosures required by
section 102(b)(6) of the FDPA, as added
by section 100239 of the Act, regarding
the availability of private flood
insurance coverage. The proposed
additions to the sample form closely
track the statutory language. The
Agencies also are proposing to revise
the language relating to the coverage
limit to more accurately reflect what is
actually covered under the Federal flood
statutes, as discussed in the
SUPPLEMENTARY INFORMATION
accompanying the revisions to l.l
Requirement to purchase flood
insurance coverage where available.
Specifically, the Agencies are proposing
that the language be amended to state
that flood insurance coverage is
available only on the building or mobile
home and any personal property that
secures the loan and not the land itself.
The Agencies propose other technical
amendments to the sample form of
notice contained in Appendix A, to
change the references to the head of
FEMA from Director to Administrator.
In addition, as discussed in the
SUPPLEMENTARY INFORMATION
accompanying the revisions to l.l
Escrow requirement, the Agencies are
proposing that regulated lending
institutions mail or deliver a written
notice informing borrowers about the
requirement to escrow premiums and
fees for required flood insurance
x A, to
change the references to the head of
FEMA from Director to Administrator.
In addition, as discussed in the
SUPPLEMENTARY INFORMATION
accompanying the revisions to l.l
Escrow requirement, the Agencies are
proposing that regulated lending
institutions mail or deliver a written
notice informing borrowers about the
requirement to escrow premiums and
fees for required flood insurance. To
facilitate compliance with the proposed
notice requirement, the Agencies are
proposing model language that may be
included, if applicable, in the Notice of
Special Flood Hazards and Availability
of Federal Disaster Relief Assistance as
set forth in the sample form of notice
contained in Appendix A. The Agencies
also are proposing a sample form of
notice in new Appendix B that may be
used for designated loans that are
outstanding as of the date a regulated
lending institution becomes subject to
the escrow requirement or acquires a
designated loan that becomes subject to
the escrow requirement. Finally, new
Appendix C provides a proposed
Sample Clause with respect to the
escrow requirement notice that
regulated lending institutions could
include in a notice of force-placement
for a loan that becomes a designated
loan after a regulated lending institution
becomes subject to the escrow
requirement.
V. Regulatory Analysis
Regulatory Flexibility Act
OCC: In general, the Regulatory
Flexibility Act (RFA) requires that in
connection with a notice of proposed
rulemaking an agency prepare and make
available for public comment an initial
regulatory flexibility analysis that
describes the impact of a proposed rule
on small entities.41 Under section 605(b)
of the RFA, this analysis is not required
if an agency certifies that the rule would
not have a significant economic impact
on a substantial number of small entities
and publishes its certification and a
short explanatory statement in the
Federal Register along with its rule
ulatory flexibility analysis that
describes the impact of a proposed rule
on small entities.41 Under section 605(b)
of the RFA, this analysis is not required
if an agency certifies that the rule would
not have a significant economic impact
on a substantial number of small entities
and publishes its certification and a
short explanatory statement in the
Federal Register along with its rule. We
have concluded that the proposed rule
does not have a significant economic
impact on a substantial number of small
entities supervised by the OCC.
The OCC currently supervises
approximately 1,257 small national
banks, Federal savings associations,
trust companies, and branches or
agencies of foreign banks.42 If
implemented, the draft NPRM would
impact approximately 871 of these small
institutions. Thus, the proposed rule
impacts a substantial number of small
institutions. The OCC classifies the
economic impact of total costs on an
institution as significant if the total
costs in a single year are greater than 5
percent of total salaries and benefits, or
greater than 2.5 percent of total non-
interest expense. The OCC estimates
that the average cost per small
institution is approximately $23,000 per
year.43 Using this cost estimate, we
believe the proposed rule will have a
significant economic impact on eleven
small institutions supervised by the
OCC, which is not a substantial number.
Therefore, pursuant to section 605(b) of
the RFA, the OCC hereby certifies that
this proposal would not have a
significant economic impact on a
substantial number of small entities.
Accordingly, an initial regulatory
flexibility analysis is not required.
Board: The RFA requires an agency to
publish an initial regulatory flexibility
analysis with a proposed rule or certify
that the proposed rule will not have a
significant economic impact on a
substantial number of small entities
would not have a
significant economic impact on a
substantial number of small entities.
Accordingly, an initial regulatory
flexibility analysis is not required.
Board: The RFA requires an agency to
publish an initial regulatory flexibility
analysis with a proposed rule or certify
that the proposed rule will not have a
significant economic impact on a
substantial number of small entities.
The Board is publishing an initial
regulatory flexibility analysis and
requests public comment on all aspects
of its analysis. The Board will conduct
a final regulatory flexibility analysis
after considering the comments received
during the public comment period.
1. Statement of the need for, and
objectives of, the proposed rule. The
Board is proposing revisions to
Regulation H to implement certain
provisions of the Act over which the
Agencies, including the Board, have
jurisdiction. Consistent with the Act,
the proposal would require a regulated
lending institution (or its servicer) to
escrow the premiums and fees for
required flood insurance for any loan
secured by residential improved real
estate or a mobile home, unless the
lender qualifies under the statutory
exception for certain small lenders.
The proposal also would implement
the Act’s requirement that regulated
lending institutions accept any private
insurance policy that meets the Act’s
definition of ‘‘private flood insurance’’
in satisfaction of the mandatory
purchase requirement. The proposed
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the Act’s requirement that regulated
lending institutions accept any private
insurance policy that meets the Act’s
definition of ‘‘private flood insurance’’
in satisfaction of the mandatory
purchase requirement. The proposed
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44 5 U.S.C. 603(a).
45 Interpretive Ruling and Policy Statement 03–2,
68 FR 31949 (May 29, 2003), as amended by
Interpretative Ruling and Policy Statement 13–1, 78
FR 4032 (Jan. 18, 2013).
rule would also include a safe harbor
allowing lenders to rely on a State
insurance regulator’s written
determination that a particular private
insurance policy satisfies the Act’s
definition. Regulated lending
institutions would also be required to
provide disclosures on the availability
of private flood insurance, as mandated
by the Act.
The Act also includes provisions
related to the force placement of flood
insurance, which the proposal would
implement. These provisions clarify that
regulated lending institutions may
charge a borrower for the cost of
premiums and fees incurred in the
purchase of force-placed flood
insurance from the date coverage lapsed
or did not provide a sufficient amount
of coverage. The provisions also provide
that within 30 days of receipt of a
confirmation of a borrower’s existing
flood insurance coverage, a regulated
lending institution is required to
terminate any force-placed insurance
purchased by the regulated lending
institution, and refund to the borrower
all premiums paid by the borrower for
lender-placed coverage for any period
during which the borrower’s flood
insurance coverage and the lender-place
coverage overlapped.
2. Small entities affected by the
proposed rule. All State member banks
that are subject to Regulation H would
be subject to the proposed rule
purchased by the regulated lending
institution, and refund to the borrower
all premiums paid by the borrower for
lender-placed coverage for any period
during which the borrower’s flood
insurance coverage and the lender-place
coverage overlapped.
2. Small entities affected by the
proposed rule. All State member banks
that are subject to Regulation H would
be subject to the proposed rule. As of
June 30, 2013, there were 844 State
member banks. Under regulations
issued by the Small Business
Administration (SBA), banks and other
depository institutions with total assets
of $500 million or less are considered
small. Of the 844 State member banks
subject to Regulation H, approximately
634 State member banks would be
considered small entities by the SBA.
As discussed in detail above in the
SUPPLEMENTARY INFORMATION, regulated
lending institutions with total assets
less than $1 billion would generally be
exempt from the proposed rules
implementing the escrow provisions of
the Act. Therefore, the escrow
provisions of the proposed rule would
generally not affect small entities.
Furthermore, the Act’s force placement
provisions already went into effect upon
passage of the Act on July 6, 2012. As
a result, the proposed rules
implementing the Act’s force placement
provisions should not have any impact
on small entities who were required to
comply with the provisions as of July 6,
2012. Even prior to the Act’s passage,
regulated lending institutions, including
those that are considered small entities,
would have had mechanisms in place to
refund premiums and fees to borrowers
for any period of overlap between a
force placed policy and a borrower’s
policy. Consequently, the Act’s force
placement provisions, which set forth
procedures for terminating force placed
insurance and refunding premiums and
fees to the borrower, nevertheless would
have had minimal impact on regulated
lending institutions
had mechanisms in place to
refund premiums and fees to borrowers
for any period of overlap between a
force placed policy and a borrower’s
policy. Consequently, the Act’s force
placement provisions, which set forth
procedures for terminating force placed
insurance and refunding premiums and
fees to the borrower, nevertheless would
have had minimal impact on regulated
lending institutions.
With respect to the proposed rules
regarding the acceptance of private
flood insurance, the Board believes the
rules will not have a significant impact
on small entities because regulated
lending institutions, including those
that are considered small entities,
currently are permitted to accept private
flood insurance policies. Moreover, as
discussed in the SUPPLEMENTARY
INFORMATION, the proposed rule would
seek to alleviate the burden on regulated
lending institutions, including those
that are considered small entities, of
evaluating whether a flood insurance
policy issued by a private insurer meets
the definition of ‘‘private flood
insurance’’ by providing a safe harbor
permitting lenders to rely on the
determination of a State insurance
regulator. Small entities will be required
under the proposal to amend their
notices of special flood hazards to
include information on the availability
of private flood insurance. The proposal
provides sample forms to facilitate
compliance and reduce burden upon
small institutions.
3. Other Federal rules. The Board has
not identified any likely duplication,
overlap and/or potential conflict
between the proposed rule and any
Federal rule.
4. Significant alternatives to the
proposed revisions. The Board solicits
comment on any significant alternatives
that would reduce the regulatory burden
associated with this proposed rule on
small entities
on
small institutions.
3. Other Federal rules. The Board has
not identified any likely duplication,
overlap and/or potential conflict
between the proposed rule and any
Federal rule.
4. Significant alternatives to the
proposed revisions. The Board solicits
comment on any significant alternatives
that would reduce the regulatory burden
associated with this proposed rule on
small entities.
FDIC: The RFA generally requires
that, in connection with a notice of
proposed rulemaking, an agency prepare
and make available for public comment
an initial regulatory flexibility analysis
that describes the impact of a proposed
rule on small entities. A regulatory
flexibility analysis is not required,
however, if the agency certifies that the
rule will not have a significant
economic impact on a substantial
number of small entities (defined in
regulations promulgated by the Small
Business Administration to include
banking organizations with total assets
of less than or equal to $500 million)
and publishes its certification and a
short, explanatory statement in the
Federal Register together with the rule.
As of March 31, 2013, there were
approximately 3,711 small FDIC-
supervised banks which include 3,398
State nonmember banks and 259 State-
chartered savings banks, and 54 savings
associations.
It is the opinion of the FDIC that the
proposed rule will not have a significant
economic impact on a substantial
number of the small entities, which the
FDIC supervises. The FDIC reaches this
conclusion in reliance upon the fact that
the only requirements that the Act
requires the Agencies to impose upon
supervised entities as a matter of
regulation are the escrow requirement
and the requirement to accept private
flood insurance. The Act provides that
generally a depository institution with
assets of less than $1 billion is not
required to comply with the escrow
requirement
conclusion in reliance upon the fact that
the only requirements that the Act
requires the Agencies to impose upon
supervised entities as a matter of
regulation are the escrow requirement
and the requirement to accept private
flood insurance. The Act provides that
generally a depository institution with
assets of less than $1 billion is not
required to comply with the escrow
requirement. As a result, due to this
statutory exclusion, by law the escrow
requirement cannot have a significant
economic impact on a substantial
number of small entities. The
requirement to accept private flood
insurance also cannot have a significant
economic impact on a substantial
number of small entities since
depository institutions were permitted
to accept private flood insurance for
NFIP purposes even before the Act’s
amendments. For these reasons, the
FDIC certifies that this proposed rule
will not have a significant economic
impact on a substantial number of small
entities that it supervises.
FCA:
Pursuant to section 605(b) of the RFA,
the FCA hereby certifies that the
proposed rule will not have a significant
economic impact on a substantial
number of small entities. Each of the
banks in the Farm Credit System,
considered together with its affiliated
associations, has assets and annual
income in excess of the amounts that
would qualify them as small entities.
Therefore, Farm Credit System
institutions are not ‘‘small entities’’ as
defined in the RFA.
NCUA:
The RFA requires NCUA to prepare
an analysis to describe any significant
economic impact a regulation may have
on a substantial number of small
entities.44 For purposes of this analysis,
NCUA considers small credit unions to
be those having under $50 million in
assets.45 As of June 30, 2013, there are
1,803 small, federally insured credit
unions
entities’’ as
defined in the RFA.
NCUA:
The RFA requires NCUA to prepare
an analysis to describe any significant
economic impact a regulation may have
on a substantial number of small
entities.44 For purposes of this analysis,
NCUA considers small credit unions to
be those having under $50 million in
assets.45 As of June 30, 2013, there are
1,803 small, federally insured credit
unions. The proposed rule would
require a credit union to escrow the
premiums and fees for required flood
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46 The FCA has determined that the proposed rule
does not involve a collection of information
pursuant to the PRA for System institutions because
System institutions are Federally chartered
instrumentalities of the United States and
instrumentalities of the United States are
specifically excepted from the definition of
‘‘collection of information’’ contained in 44 U.S.C.
3502(3).
47 NCUA’s part 760 contains various information
collection requirements as described in the PRA
and previously submitted by NCUA.
insurance for any loan secured by
residential improved real estate or a
mobile home. The proposed rule would
also implement the requirement that
credit unions accept any private
insurance policy that meets the
statutory definition of ‘‘private flood
insurance’’, and includes provisions
related to the force placement of flood
insurance.
Under this proposed rule, credit
unions with total assets less than $1
billion would generally be exempt from
the escrow provisions. Therefore, the
escrow provisions of the proposed rule
would not affect small credit unions
ivate
insurance policy that meets the
statutory definition of ‘‘private flood
insurance’’, and includes provisions
related to the force placement of flood
insurance.
Under this proposed rule, credit
unions with total assets less than $1
billion would generally be exempt from
the escrow provisions. Therefore, the
escrow provisions of the proposed rule
would not affect small credit unions.
For private flood insurance, NCUA does
not believe the proposed rule will have
a significant impact on small credit
unions since credit unions are currently
allowed to accept private flood
insurance. In addition, the proposed
rule provides a safe harbor for regulated
lending institutions (which includes
credit unions), including small entities,
for evaluating whether a flood insurance
policy issued by a private insurer meets
the definition of ‘‘private flood
insurance’’. Lastly, the force placement
provisions in the proposed rule were
effective on July 6, 2012, and credit
unions have been enforcing force
placement provisions already. In
addition, credit unions currently have
the tools to refund premiums and fees
whenever a borrower’s policy overlaps a
force-placed policy, as required in the
proposed rule.
NCUA finds that this proposed rule
would affect relatively few federally
insured, small credit unions and the
associated cost is minimal. Accordingly,
NCUA certifies the rule will not have a
significant economic impact on small
entities.
Unfunded Mandates Reform Act of 1995
Section 202 of the Unfunded
Mandates Reform Act of 1995 (UMRA)
(2 U.S.C. 1501 et seq.) requires certain
agencies, including the OCC, to prepare
a budgetary impact statement before
promulgating a rule that includes a
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
Section 202 of the Unfunded
Mandates Reform Act of 1995 (UMRA)
(2 U.S.C. 1501 et seq.) requires certain
agencies, including the OCC, to prepare
a budgetary impact statement before
promulgating a rule that includes a
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
UMRA also requires an agency to
identify and consider a reasonable
number of regulatory alternatives before
promulgating a rule.
The OCC has estimated that the total
cost associated with this NPRM, if
implemented, would be approximately
$72 million and the average cost per
institution would be $55,000. However,
pursuant to section 201 of the UMRA,
a regulation does not impose a mandate
to the extent it incorporates
requirements ‘‘specifically set forth in
the law.’’ Therefore, we exclude from
our UMRA estimate costs specifically
related to requirements set forth in the
Act, such as costs related to establishing
escrow accounts, amendments to the
force placement provisions, and the
acceptance of private flood insurance
policies. Furthermore, under Title II of
the UMRA, indirect costs, foregone
revenues and opportunity costs are not
included when determining if a
mandate meets or exceeds UMRA’s cost
threshold. Therefore, based on these
exclusions, our UMRA cost estimate for
the NPRM, if implemented, is zero.
Accordingly, because the OCC has
determined that this proposed rule
would not result in expenditures by
State, local, and tribal governments, or
by the private sector, of $100 million or
more, we have not prepared a budgetary
impact statement or specifically
addressed the regulatory alternatives
considered
n these
exclusions, our UMRA cost estimate for
the NPRM, if implemented, is zero.
Accordingly, because the OCC has
determined that this proposed rule
would not result in expenditures by
State, local, and tribal governments, or
by the private sector, of $100 million or
more, we have not prepared a budgetary
impact statement or specifically
addressed the regulatory alternatives
considered.
Paperwork Reduction Act of 1995
The OCC, Board, FDIC, and NCUA
(the Agencies) 46 have determined that
this proposed rule involves a collection
of information pursuant to the
provisions of the Paperwork Reduction
Act of 1995 (the PRA) (44 U.S.C. 3501
et seq.).
In accordance with the PRA (44
U.S.C. 3506; 5 CFR 1320 Appendix A.1),
the Board reviewed the proposed rule
under the authority delegated to the
Board by the Office of Management and
Budget (OMB). The collection of
information that is subject to the PRA by
this proposed rule is found in 12 CFR
22.5, 208.25(e), 339.5, and 760.5. In
addition, as permitted by the PRA, the
OCC, Board, and FDIC also propose to
extend for three years their respective
information collections.
The Agencies may not conduct or
sponsor, and an organization is not
required to respond to, this information
collection unless the information
collection displays a currently valid
OMB control number. The OMB control
numbers are 1557–0202 (OCC), 7100–
0280 (Board), and 3064–0120 (FDIC).47
The proposed rule adds a notice
requirement stating that institutions or
services that are required to escrow all
premiums and fees for required flood
insurance must issue a written notice to
the borrower.
This information collection is
required to evidence compliance with
the requirements of the Federal flood
insurance statutes with respect to
lenders and servicers. Because the
Agencies do not collect any information,
no issue of confidentiality arises. The
respondents are for-profit and non-profit
financial institutions, including small
businesses
issue a written notice to
the borrower.
This information collection is
required to evidence compliance with
the requirements of the Federal flood
insurance statutes with respect to
lenders and servicers. Because the
Agencies do not collect any information,
no issue of confidentiality arises. The
respondents are for-profit and non-profit
financial institutions, including small
businesses.
Entities subject to the Agencies’
existing flood insurance rules will have
to review and revise disclosures that are
currently provided to ensure that such
disclosures accurately reflect the
disclosure requirements in this
proposed rule. Entities subject to the
rule may also need to develop new
disclosures to meet the proposed rule’s
timing requirements.
The total estimated burden increase,
as well as the estimates of the burden
increase associated with each major
section of the proposed rule as set forth
below, represents averages for all
respondents regulated by the Agencies.
The Agencies expect that the amount of
time required to implement each of the
proposed changes for a given institution
may vary based on the size and
complexity of the respondent.
The Agencies estimate that
respondents would take, on average, 40
hours to update their systems in order
to comply with the disclosure
requirements and the one-time escrow
notice under the proposed rule. In an
effort to minimize the compliance cost
and burden, particularly for small
entities that do not meet the
requirement for the statutory exception,
the proposed rule contains model
disclosures in appendices A, B, and C
that may be used to satisfy the
requirements.
Burden Estimates
OCC:
Number of Respondents: 1,316.
Burden for Existing Recordkeeping
Requirements: 196,907 hours.
Burden for Existing Disclosure
Requirements: 244,208 hours.
Burden for Proposed Rule: 52,640
hours.
Total Burden for Collection: 493,755
hours.
Board:
Number of Respondents: 843.
Burden for Existing Recordkeeping
Requirements: 14,191 hours
to satisfy the
requirements.
Burden Estimates
OCC:
Number of Respondents: 1,316.
Burden for Existing Recordkeeping
Requirements: 196,907 hours.
Burden for Existing Disclosure
Requirements: 244,208 hours.
Burden for Proposed Rule: 52,640
hours.
Total Burden for Collection: 493,755
hours.
Board:
Number of Respondents: 843.
Burden for Existing Recordkeeping
Requirements: 14,191 hours.
Burden for Existing Disclosure
Requirements: 17,632 hours.
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Burden for Proposed Rule: 33,720
hours.
Total Burden for Collection: 65,543
hours.
FDIC:
Number of Respondents: 4,421.
Burden for Existing Recordkeeping
Requirements: 61,894 hours.
Burden for Existing Disclosure
Requirements: 76,999 hours.
Burden for Proposed Rule: 176,840
hours.
Total Burden for Collection: 315,733
hours.
NCUA:
Number of Respondents: 4,192.
Burden for Existing Recordkeeping
Requirements: 57,230.85 hours.
Burden for Existing Disclosure
Requirements: 70,966.26 hours.
Burden for Proposed Rule: 8,240
hours.
Total Burden for Collection:
136,437.11 hours.
These collections are available to the
public at www.reginfo.gov.
Comments are invited on: (1) Whether
the proposed collection of information
is necessary for the proper performance
of the Agencies’ functions; including
whether the information has practical
utility; (2) the accuracy of the Agencies’
estimate of the burden of the proposed
information collection, including the
cost of compliance; (3) ways to enhance
the quality, utility, and clarity of the
information to be collected; and (4)
ways to minimize the burden of
information collection on respondents,
including through the use of automated
collection techniques or other forms of
information technology
curacy of the Agencies’
estimate of the burden of the proposed
information collection, including the
cost of compliance; (3) ways to enhance
the quality, utility, and clarity of the
information to be collected; and (4)
ways to minimize the burden of
information collection on respondents,
including through the use of automated
collection techniques or other forms of
information technology.
Comments on the collection of
information should be sent to:
OCC: Because paper mail in the
Washington, DC area and at the OCC is
subject to delay, commenters are
encouraged to submit comments by
email if possible. Comments may be
sent to: Legislative and Regulatory
Activities Division, Office of the
Comptroller of the Currency, Attention:
[1557–0202], 400 7th Street SW., Suite
3E–218, Mail Stop 9W–11, Washington,
DC 20219. In addition, comments may
be sent by fax to (571) 465–4326 or by
electronic mail to regs.comments@
occ.treas.gov. You may personally
inspect and photocopy comments at the
OCC, 400 7th Street SW., Washington,
DC 20219. For security reasons, the OCC
requires that visitors make an
appointment to inspect comments. You
may do so by calling (202) 649–6700.
Upon arrival, visitors will be required to
present valid government-issued photo
identification and to submit to security
screening in order to inspect and
photocopy comments.
All comments received, including
attachments and other supporting
materials, are part of the public record
and subject to public disclosure. Do not
enclose any information in your
comment or supporting materials that
you consider confidential or
inappropriate for public disclosure.
Board: Cynthia Ayouch, Federal
Reserve Clearance Officer, Office of the
Chief Data Officer, Mail Stop 95, Board
of Governors of the Federal Reserve
System, Washington, DC 20551, with
copies of such comments sent to the
Office of Management and Budget,
Paperwork Reduction Project (7100–
0280), Washington, DC 20503
als that
you consider confidential or
inappropriate for public disclosure.
Board: Cynthia Ayouch, Federal
Reserve Clearance Officer, Office of the
Chief Data Officer, Mail Stop 95, Board
of Governors of the Federal Reserve
System, Washington, DC 20551, with
copies of such comments sent to the
Office of Management and Budget,
Paperwork Reduction Project (7100–
0280), Washington, DC 20503.
FDIC: You may submit comments,
which should refer to ‘‘Interagency
Flood Insurance, 3064–0120’’ by any of
the following methods:
• Agency Web site: http://
www.fdic.gov/regulations/laws/federal/
propose.html. Follow the instructions
for submitting comments on the FDIC
Web site.
• Federal eRulemaking Portal: http://
www.regulations.gov. Follow the
instructions for submitting comments.
• Email: comments@FDIC.gov.
Include ‘‘Interagency Flood Insurance,
3064–0120’’ in the subject line of the
message.
• Mail: Gary A. Kuiper, Counsel,
Attn: Comments, Room NYA–5046,
Federal Deposit Insurance Corporation,
550 17th Street NW., Washington, DC
20429.
• Hand Delivery: Comments may be
hand delivered to the guard station at
the rear of the 550 17th Street Building
(located on F Street) on business days
between 7 a.m. and 5 p.m.
Public Inspection: All comments
received will be posted without change
to http://www.fdic.gov/regulations/laws/
federal/propose.html including any
personal information provided.
NCUA: Tracy Crews, National Credit
Union Administration, 1775 Duke
Street, Alexandria, Virginia 22314–
3428, Fax No. 703–837–2861, Email:
OCIOPRA@ncua.gov.
Additionally, commenters may send a
copy of their comments to the OMB
desk officer for the agencies by mail to
the Office of Information and Regulatory
Affairs, U.S. Office of Management and
Budget, New Executive Office Building,
Room 10235, 725 17th Street NW.,
Washington, DC 20503; by fax to (202)
395–6974; or by email to oira_
submission@omb.eop.gov
–837–2861, Email:
OCIOPRA@ncua.gov.
Additionally, commenters may send a
copy of their comments to the OMB
desk officer for the agencies by mail to
the Office of Information and Regulatory
Affairs, U.S. Office of Management and
Budget, New Executive Office Building,
Room 10235, 725 17th Street NW.,
Washington, DC 20503; by fax to (202)
395–6974; or by email to oira_
submission@omb.eop.gov.
List of Subjects
12 CFR Part 22
Flood insurance, Mortgages, National
banks, Reporting and recordkeeping
requirements, Savings associations.
12 CFR Part 172
Flood insurance, Reporting and
recordkeeping requirements, Savings
associations.
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, Savings
associations.
12 CFR Part 391
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 and under the authority of 12
U.S.C. 93a and 5412(b)(2)(B), the OCC
proposes to amend Part 12 Chapter I as
follows:
■1. Revise Part 22 to read as follows::
PART 22—LOANS IN AREAS HAVING
SPECIAL FLOOD HAZARDS
Sec.
22.1
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
Force-placement of flood insurance.
22.8
Determination fees
I as
follows:
■1. Revise Part 22 to read as follows::
PART 22—LOANS IN AREAS HAVING
SPECIAL FLOOD HAZARDS
Sec.
22.1
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
Force-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
Appendix B to Part 22—Sample Form of
Notice of Requirement to Escrow For
Outstanding Loans
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Appendix C to Part 22—Sample Escrow
Requirement Clause for Loans That
Become Designated Loans
Authority: 12 U.S.C. 93a, 1462a, 1463,
1464, and 5412(b)(2)(B); 42 U.S.C. 4012a,
4104a, 4104b, 4106, and 4128.
§ 22.1
Purpose and scope.
(a) 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).
(b) Scope. This part, except for §§ 22.6
and 22.8, applies to loans secured by
buildings or mobile homes located or to
be located in areas determined by the
Administrator 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.
§ 22.2
Definitions.
For the purposes of this part:
(a) Act means the National Flood
Insurance Act of 1968, as amended (42
U.S.C. 4001–4129).
e homes located or to
be located in areas determined by the
Administrator 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.
§ 22.2
Definitions.
For the purposes of this part:
(a) Act means the National Flood
Insurance Act of 1968, as amended (42
U.S.C. 4001–4129).
(b) Administrator of FEMA means the
Administrator of the Federal Emergency
Management Agency.
(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) 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. The term
mobile home includes a manufactured
home as that term is used in the NFIP.
(g) NFIP means the National Flood
Insurance Program authorized under the
Act.
(h) Private flood insurance means an
insurance policy that:
(1) Is issued by an insurance company
that is:
a recreational
vehicle. For purposes of this part, the
term mobile home means a mobile home
on a permanent foundation. The term
mobile home includes a manufactured
home as that term is used in the NFIP.
(g) NFIP means the National Flood
Insurance Program authorized under the
Act.
(h) Private flood insurance means an
insurance policy that:
(1) Is issued by an insurance company
that is:
(i) Licensed, admitted, or otherwise
approved to engage in the business of
insurance in the State or jurisdiction
which the insured building is located,
by the insurance regulator of that State
or jurisdiction; or
(ii) Recognized, or not disapproved, as
a surplus lines insurer by the insurance
regulator of the State or jurisdiction
where the property to be insured is
located in the case of a policy of
difference in conditions, multiple peril,
all risk, or other blanket coverage;
(2) Provides flood insurance coverage
which is at least as broad as the
coverage provided under a standard
flood insurance policy under the NFIP,
including when considering
deductibles, exclusions, and conditions
offered by the insurer;
(3) Includes all of the following:
(i) A requirement for the insurer to
give 45 days’ written notice of
cancellation or non-renewal of flood
insurance coverage to:
(A) The insured; and
(B) The national bank or Federal
savings association that made the
designated loan secured by the property
for which the insurance is providing
coverage;
(ii) Information about the availability
of flood insurance coverage under the
NFIP;
(iii) A mortgage interest clause similar
to the clause contained in the standard
flood insurance policy under the NFIP;
and
(iv) A provision requiring an insured
to file suit not later than one year after
the date of a written denial of all or part
of a claim under the policy; and
(4) Contains cancellation provisions
that are as restrictive as the provisions
contained in a standard flood insurance
policy under the NFIP.
milar
to the clause contained in the standard
flood insurance policy under the NFIP;
and
(iv) A provision requiring an insured
to file suit not later than one year after
the date of a written denial of all or part
of a claim under the policy; and
(4) Contains cancellation provisions
that are as restrictive as the provisions
contained in a standard flood insurance
policy under the NFIP.
(i) Residential improved real estate
means real estate upon which a home or
other residential building is located or
to be located.
(j) Federal savings association means,
for purposes of this part, a Federal
savings association as that term is
defined in 12 U.S.C. 1813(b)(2) and any
service corporations thereof.
(k) 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.
(l) 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 Administrator of
FEMA.
(m) Table funding means 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.
§ 22.3
Requirement to purchase flood
insurance where available.
and in the flood plain within a
community having at least a one percent
chance of flooding in any given year, as
designated by the Administrator of
FEMA.
(m) Table funding means 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.
§ 22.3
Requirement to purchase flood
insurance where available.
(a) In general. A national bank or
Federal 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. Flood insurance
coverage under the Act is limited to the
building or mobile home and any
personal property that secures a loan
and not the land itself.
(b) Table funded loans. A national
bank or Federal savings association that
acquires a loan from a mortgage broker
or other entity through table funding
shall be considered to be making a loan
for the purposes of this part.
(c) Private flood insurance. (1)
Mandatory acceptance. A national bank
or Federal savings association must
accept private flood insurance, as
defined in § 22.2(h), as satisfaction of
the flood insurance coverage
requirement, provided that coverage
under the flood insurance policy meets
the requirement for coverage under
paragraph (a) of this section.
loan
for the purposes of this part.
(c) Private flood insurance. (1)
Mandatory acceptance. A national bank
or Federal savings association must
accept private flood insurance, as
defined in § 22.2(h), as satisfaction of
the flood insurance coverage
requirement, provided that coverage
under the flood insurance policy meets
the requirement for coverage under
paragraph (a) of this section.
(2) Safe harbor. A flood insurance
policy shall be deemed to meet the
definition of private flood insurance in
§ 22.2(h) for purposes of paragraph (a) of
this section if a State insurance
regulator makes a determination in
writing that the policy meets the
definition of private flood insurance in
§ 22.2(h).
§ 22.4
Exemptions.
The flood insurance requirement
prescribed by § 22.3 does not apply with
respect to:
(a) Any State-owned property covered
under a policy of self-insurance
satisfactory to the Administrator 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.
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Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules
§ 22.5
Escrow requirement.
(a) In general. (1) Applicability.
Except as provided in paragraph (c) of
this section, a national bank or Federal
savings association, or a servicer acting
on its behalf, shall require the escrow of
all premiums and fees for any flood
insurance required under § 22.3(a) for
any loan secured by residential
improved real estate or a mobile home
that is outstanding or entered into on or
after July 6, 2014, payable with the same
frequency as payments on the loan are
made for the duration of the loan, unless
the national bank or Federal savings
association has determined that:
escrow
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