Flood Insurance: Proposed Revisions to Interagency Questions and Answers
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FDIC Financial Institution Letters › Flood Insurance: Proposed Revisions to Interagency Questions and Answers
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
[Docket ID OCC-2020-0008]
FEDERAL RESERVE SYSTEM
[Docket No. OP-1720]
FEDERAL DEPOSIT INSURANCE CORPORATION
RIN 3064-ZA16
FARM CREDIT ADMINISTRATION
RIN 3052-AD42
NATIONAL CREDIT UNION ADMINISTRATION
RIN 3133-AF14
Loans in Areas Having Special Flood Hazards; Interagency Questions and Answers
Regarding Flood Insurance
AGENCY: Office of the Comptroller of the Currency, Treasury (OCC); Board of Governors of
the Federal Reserve System (Board); Federal Deposit Insurance Corporation (FDIC); Farm
Credit Administration (FCA); National Credit Union Administration (NCUA).
ACTION: Notice and request for comment.
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SUMMARY: The OCC, Board, FDIC, FCA, and NCUA (collectively, the Agencies) propose to
reorganize, revise, and expand the Interagency Questions and Answers Regarding Flood
Insurance and solicit comment on all aspects of the amendments. To help lenders meet their
responsibilities under Federal flood insurance law and to increase public understanding of their
flood insurance regulations, the Agencies have prepared proposed new and revised guidance
addressing the most frequently asked questions and answers about flood insurance. Significant
topics addressed by the proposed revisions include the effect of major amendments to flood
insurance laws with regard to the escrow of flood insurance premiums, the detached structure
exemption, and force-placement procedures.
DATES: Comments on the proposed questions and answers must be submitted on or before [60
from date of publication in the Federal Register].
ADDRESSES: Interested parties are invited to submit written comments to:
OCC: Commenters are encouraged to submit comments through the Federal eRulemaking Portal
or e-mail, if possible. Please use the title “Loans in Areas Having Special Flood Hazards;
Interagency Questions and Answers Regarding Flood Insurance” to facilitate the organization
and distribution of the comments
deral Register].
ADDRESSES: Interested parties are invited to submit written comments to:
OCC: Commenters are encouraged to submit comments through the Federal eRulemaking Portal
or e-mail, if possible. Please use the title “Loans in Areas Having Special Flood Hazards;
Interagency Questions and Answers Regarding Flood Insurance” to facilitate the organization
and distribution of the comments. You may submit comments by any of the following methods:
• Federal eRulemaking Portal – Regulations.gov Classic or Regulations.gov Beta:
Regulations.gov Classic: Go to https://www.regulations.gov/. Enter “Docket ID OCC-2020-
0008” in the Search Box and click “Search.” Click on “Comment Now” to submit public
comments. For help with submitting effective comments please click on “View Commenter’s
Checklist.” Click on the “Help” tab on the Regulations.gov home page to get information on
using Regulations.gov, including instructions for submitting public comments.
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Regulations.gov Beta: Go to https://beta.regulations.gov/ or click “Visit New Regulations.gov
Site” from the Regulations.gov Classic homepage. Enter “Docket ID OCC-2020-0008” in the
Search Box and click “Search.” Public comments can be submitted via the “Comment” box
below the displayed document information or by clicking on the document title and then clicking
the “Comment” box on the top-left side of the screen. For help with submitting effective
comments please click on “Commenter’s Checklist.” For assistance with the Regulations.gov
Beta site, please call (877) 378-5457 (toll free) or (703) 454-9859 Monday-Friday, 9am-5pm ET
or e-mail regulations@erulemakinghelpdesk.com.
• E-mail: regs.comments@occ.treas.gov.
• Mail: Chief Counsel’s Office, Attention: Comment Processing, Office of the
Comptroller of the Currency, 400 7th Street, SW., suite 3E-218, Washington, DC 20219.
• Hand Delivery/Courier: 400 7th Street, SW., suite 3E-218, Washington, DC 20219.
• Fax: (571) 465-4326
54-9859 Monday-Friday, 9am-5pm ET
or e-mail regulations@erulemakinghelpdesk.com.
• E-mail: regs.comments@occ.treas.gov.
• Mail: Chief Counsel’s Office, Attention: Comment Processing, Office of the
Comptroller of the Currency, 400 7th Street, SW., suite 3E-218, Washington, DC 20219.
• Hand Delivery/Courier: 400 7th Street, SW., suite 3E-218, Washington, DC 20219.
• Fax: (571) 465-4326.
Instructions: You must include “OCC” as the agency name and “Docket ID OCC-2020-
0008” in your comment. In general, the OCC will enter all comments received into the docket
and publish the comments on the Regulations.gov website without change, including any
business or personal information provided such as name and address information, e-mail
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 include 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 notice action
by any of the following methods:
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• Viewing Comments Electronically – Regulations.gov Classic or Regulations.gov
Beta:
Regulations.gov Classic: Go to https://www.regulations.gov/. Enter “Docket ID OCC-2020-
0008” in the Search box and click “Search.” Click on “Open Docket Folder” on the right side of
the screen. Comments and supporting materials can be viewed and filtered by clicking on “View
all documents and comments in this docket” and then 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. The docket may be viewed after the close of the comment period in the
same manner as during the comment period.
Regulations.gov Beta: Go to https://beta.regulations.gov/ or click “Visit New Regulations.gov
Site” from the Regulations.gov Classic homepage
ools 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. The docket may be viewed after the close of the comment period in the
same manner as during the comment period.
Regulations.gov Beta: Go to https://beta.regulations.gov/ or click “Visit New Regulations.gov
Site” from the Regulations.gov Classic homepage. Enter “Docket ID OCC-2020-0008” in the
Search Box and click “Search.” Click on the “Comments” tab. Comments can be viewed and
filtered by clicking on the “Sort By” drop-down on the right side of the screen or the “Refine
Results” options on the left side of the screen. Supporting materials can be viewed by clicking
on the “Documents” tab and filtered by clicking on the “Sort By” drop-down on the right side of
the screen or the “Refine Results” options on the left side of the screen.” For assistance with the
Regulations.gov Beta site, please call (877) 378-5457 (toll free) or (703) 454-9859 Monday-
Friday, 9am-5pm ET or e-mail regulations@erulemakinghelpdesk.com.
The docket may be viewed after the close of the comment period in the same manner as during
the comment period.
• Viewing Comments Personally: You may personally inspect 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 or, for
ghelpdesk.com.
The docket may be viewed after the close of the comment period in the same manner as during
the comment period.
• Viewing Comments Personally: You may personally inspect 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 or, for
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persons who are deaf or hearing impaired, TTY, (202) 649-5597. Upon arrival, visitors will
be required to present valid government-issued photo identification and submit to security
screening in order to inspect comments.
Board: You may submit comments, identified by Docket No. OP-1720, 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.
• E-mail: regs.comments@federalreserve.gov. Include the docket number in the subject
line of the message.
• Fax: (202) 452-3819 or (202) 452-3102.
• Mail: Ann E. Misback, 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 submitted, unless modified
for technical reasons. Accordingly, your comments will not be edited to remove any identifying
or contact information. Public comments may also be viewed electronically or in paper form in
Room 146, 1709 New York Avenue, NW, Washington, DC 20006, between 9:00 a.m. and 5:00
p.m. on weekdays.
FDIC: You may submit comments, identified by RIN 3064-ZA16, by any of the following
methods:
dified
for technical reasons. Accordingly, your comments will not be edited to remove any identifying
or contact information. Public comments may also be viewed electronically or in paper form in
Room 146, 1709 New York Avenue, NW, Washington, DC 20006, between 9:00 a.m. and 5:00
p.m. on weekdays.
FDIC: You may submit comments, identified by RIN 3064-ZA16, by any of the following
methods:
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• Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for
submitting comments.
• Agency Website: https://www.fdic.gov/regulations/laws/federal/. Follow the instructions
for submitting comments.
• Email: comments@fdic.gov. Include RIN 3064-ZA16 in the subject line of the message.
• Mail: Robert E. Feldman, Executive Secretary, Attention: Comments/Legal ESS, Federal
Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC 20429.
• Hand Delivery / Courier: 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 7:00 a.m. and
5:00 p.m.
Instructions: All submissions must include the agency name and RIN 3064-ZA16 for this
rulemaking. Comments received will be posted without change to
https://www.fdic.gov/regulations/laws/federal/, including any personal information provided.
For detailed instructions on sending comments and additional information on the rulemaking
process, see the “Public Participation” heading of the SUPPLEMENTARY INFORMATION
section of this document.
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 e-mail 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 comment multiple times via
different methods
curacy and
efficiency reasons, commenters are encouraged to submit comments by e-mail 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 comment multiple times via
different methods. You may submit comments by any of the following methods:
• E-mail: Send us an e-mail at reg-comm@fca.gov.
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• FCA Web site: http://www.fca.gov. Click inside the "I want to ... " field near the top of
the page; select "comment on a pending regulation " from the dropdown menu; and click "Go."
This takes you to an electronic public comment form.
• Mail: David P. Grahn, 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
from our Web site at http://www.fca.gov. Once you are in the Web site, click inside the "I want
to ... " field near the top of the page; select "find comments on a pending regulation" from the
dropdown menu; and click "Go." This will take you to the Comment Letters page where you can
select the regulation for which you would like to read the 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 e-mail addresses to help reduce Internet spam.
NCUA: You may submit comments identified by RIN 3133-AF14 by any of the following
methods (please send comments by one method only). Please note that the NCUA is now
accepting electronic comments only through the Federal eRulemaking portal, Regulations.gov:
• Federal eRulemaking Portal: http://www.regulations.gov
wever, we will attempt to
remove e-mail addresses to help reduce Internet spam.
NCUA: You may submit comments identified by RIN 3133-AF14 by any of the following
methods (please send comments by one method only). Please note that the NCUA is now
accepting electronic comments only through the Federal eRulemaking portal, Regulations.gov:
• Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for
submitting comments.
• Fax: (703) 518-6319. Use the subject line “[Your name] Comments on Flood Insurance,
Interagency Questions & Answers” on the transmission cover sheet.
• Mail: Address to Gerard S. Poliquin, Secretary of the Board, National Credit Union
Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428.
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• Hand Delivery/Courier: Same as mail address.
Public Inspection: You can view all public comments on the agency’s website
at http://www.ncua.gov/Legal/Regs/Pages/PropRegs.aspx as submitted, except for those we
cannot post for technical reasons. The NCUA will not edit or remove any identifying or contact
information from the public comments. You may inspect paper copies of comments in the
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) 518-6540 or send an e-mail
to OGCMail@ncua.gov.
FOR FURTHER INFORMATION CONTACT:
OCC: Rhonda L. Daniels, Compliance Specialist, Compliance Risk Policy Division, (202) 649-
5405; or Sadia A. Chaudhary, Counsel, Chief Counsel’s Office, (202) 649–6350, or, for persons
who are deaf or hearing impaired, TTY, (202) 649–5597.
Board: Lanette Meister, Senior Supervisory Consumer Financial Services Analyst (202) 452–
2705 or Vivian W. Wong, Senior Counsel (202) 452– 3667, Division of Consumer and
Community Affairs; Daniel Ericson, Senior Counsel (202) 452-3359, Legal Division; for users
of Telecommunications Device for the Deaf (TDD) only, contact (202) 263–4869
s
who are deaf or hearing impaired, TTY, (202) 649–5597.
Board: Lanette Meister, Senior Supervisory Consumer Financial Services Analyst (202) 452–
2705 or Vivian W. Wong, Senior Counsel (202) 452– 3667, Division of Consumer and
Community Affairs; Daniel Ericson, Senior Counsel (202) 452-3359, Legal Division; for users
of Telecommunications Device for the Deaf (TDD) only, contact (202) 263–4869.
FDIC: Navid Choudhury, Counsel, Consumer Compliance Unit, Legal Division, (202) 898–
6526, nchoudhury@FDIC.gov; or Simin Ho, Senior Policy Analyst, Division of Depositor and
Consumer Protection, (202) 898–6907, sho@FDIC.gov.
FCA: Ira D. Marshall, Senior Policy Analyst, Office of Regulatory Policy (703) 883–4379, TTY
(703) 883–4056; or Jennifer Cohn, Senior Counsel, Office of General Counsel (703) 883– 4020,
TTY (703) 883–4056.
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NCUA: Sarah Chung, Senior Staff Attorney, Office of General Counsel, (703) 518–6540, or Lou
Pham, Senior Credit Specialist, Office of Examination and Insurance, (703) 518–6360.
SUPPLEMENTARY INFORMATION:
Background
The National Flood Insurance Act of 1968 created the National Flood Insurance Program
(NFIP), which is administered by the Federal Emergency Management Agency (FEMA).1 The
NFIP enables property owners in participating communities to purchase flood insurance if the
community has adopted floodplain management ordinances and minimum standards for new and
substantially damaged or improved construction. Thus, in participating communities, Federally-
backed flood insurance is available for property owners in flood risk areas.
Congress expanded the NFIP by enacting the Flood Disaster Protection Act of 1973
(FDPA).2 The FDPA made the purchase of flood insurance mandatory in connection with loans
made by Federally-regulated lending institutions when the loans are secured by improved real
estate or mobile homes located in a special flood hazard area (SFHA)
surance is available for property owners in flood risk areas.
Congress expanded the NFIP by enacting the Flood Disaster Protection Act of 1973
(FDPA).2 The FDPA made the purchase of flood insurance mandatory in connection with loans
made by Federally-regulated lending institutions when the loans are secured by improved real
estate or mobile homes located in a special flood hazard area (SFHA). The National Flood
Insurance Reform Act of 1994 (the Reform Act) (Title V of the Riegle Community Development
and Regulatory Improvement Act of 1994) comprehensively revised the Federal flood insurance
statutes.3 The Reform Act required the OCC, Board, FDIC, Office of Thrift Supervision (OTS),
and NCUA to revise their flood insurance regulations, and required the FCA to promulgate a
1 Pub. L. 90–448, 82 Stat. 572 (1968).
2 Pub. L. 93–234, 87 Stat. 975 (1973).
3 Title V of Pub. L. 103-325, 108 Stat. 2255 (1994).
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flood insurance regulation for the first time.4 The OCC, Board, FDIC, OTS, NCUA, and FCA5
fulfilled these requirements by issuing a joint final rule in the summer of 1996.6
In connection with the 1996 joint rulemaking process, commenters asked the Agencies to
clarify specific issues covering a wide spectrum of the proposed rule’s provisions. The Agencies
addressed many of these requests in the preamble to the joint final rule. The Agencies
concluded, however, that given the number, level of detail, and diversity of the requests,
guidance addressing technical compliance issues would be helpful and appropriate. The Federal
Financial Institutions Examination Council (FFIEC) fulfilled that objective through the initial
release of the Interagency Questions and Answers in 1997 (1997 Interagency Questions and
Answers).7
After notice and comment, the Agencies comprehensively updated the 1997 Interagency
Questions and Answers in July 2009 (2009 Interagency Questions and Answers) through
significant revision and reorganization
Institutions Examination Council (FFIEC) fulfilled that objective through the initial
release of the Interagency Questions and Answers in 1997 (1997 Interagency Questions and
Answers).7
After notice and comment, the Agencies comprehensively updated the 1997 Interagency
Questions and Answers in July 2009 (2009 Interagency Questions and Answers) through
significant revision and reorganization. As part of the 2009 effort, the Agencies also proposed
five new Q&As for comment relating to insurable value and force placement of flood insurance.8
As a result, the 2009 Interagency Questions and Answers included a total of 77 final Q&As,
which superseded the 1997 Interagency Questions and Answers.9
4 Title V of Pub. L. 103-325, 108 Stat. 2255 (1994).
5 Throughout this document “the Agencies” includes the OTS with respect to events that occurred prior to July 21,
2011, but does not include OTS with respect to events thereafter. Sections 311 and 312 of the Dodd-Frank Wall
Street Reform and Consumer Protection Act (the Dodd-Frank Act) transferred OTS’s functions to other agencies on
July 21, 2011. The OTS’s supervisory functions relating to Federal savings associations were transferred to the
OCC, while those relating to state savings associations were transferred to the FDIC. See also 76 FR 39246 (Jul. 6,
2011).
6 61 FR 45684 (August 29, 1996).
7 62 FR 39523 (July 23, 1997). Throughout this document, “Questions and Answers” refers to the Interagency
Questions and Answers Regarding Flood Insurance in its entirety; “Q&A” refers to an individual question and
answer within the Questions and Answers.
8 74 FR 35914 (July 21, 2009).
9 74 FR 35914 (July 21, 2009).
See also 76 FR 39246 (Jul. 6,
2011).
6 61 FR 45684 (August 29, 1996).
7 62 FR 39523 (July 23, 1997). Throughout this document, “Questions and Answers” refers to the Interagency
Questions and Answers Regarding Flood Insurance in its entirety; “Q&A” refers to an individual question and
answer within the Questions and Answers.
8 74 FR 35914 (July 21, 2009).
9 74 FR 35914 (July 21, 2009).
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On October 17, 2011, the Agencies finalized two of the five new proposed Q&As from
2009, one relating to insurable value and one relating to force placement, and withdrew one
Q&A regarding insurable value.10 The two finalized Q&As (2011 Interagency Questions and
Answers) supplemented the 2009 Interagency Questions and Answers. As part of the same
Federal Register notice, based on comments received, the Agencies proposed to significantly
revise the remaining two Q&As regarding force placement of flood insurance that were initially
proposed in 2009, and proposed revisions to a previously finalized Q&A on force placement for
consistency with the re-proposed Q&As. These three revised Q&As were re-proposed for
comment in the October 17, 2011, Federal Register notice.
Before the Agencies could finalize the three re-proposed Q&As, the Federal flood
insurance statutes were amended by two major pieces of legislation, the Biggert-Waters Flood
Insurance Reform Act of 2012 (the Biggert-Waters Act) and the 2014 Homeowner Flood
Insurance Affordability Act (HFIAA). The Biggert-Waters Act amended the requirements that
the Agencies have authority to implement and enforce.11 Among other things, the Biggert-
Waters Act: (1) required the Agencies to issue a rule regarding the escrow of premiums and fees
for flood insurance; (2) clarified the requirement to force place insurance; and (3) required the
Agencies to issue a rule to direct regulated lending institutions to accept “private flood
insurance,” as defined by the Biggert-Waters Act, and to notify borrowers of the availability of
private flood insurance
t: (1) required the Agencies to issue a rule regarding the escrow of premiums and fees
for flood insurance; (2) clarified the requirement to force place insurance; and (3) required the
Agencies to issue a rule to direct regulated lending institutions to accept “private flood
insurance,” as defined by the Biggert-Waters Act, and to notify borrowers of the availability of
private flood insurance.
In October 2013, the Agencies jointly issued proposed rules to implement the escrow,
force placement, and private flood insurance provisions of the Biggert-Waters Act.12 In March
10 76 FR 64175. The Agencies finalized Q&As 9 (insurable value) and 61 (force placement) and withdrew Q&A 10
(insurable value).
11 Pub. L. 112–141, 126 Stat. 916 (2012).
12 78 FR 65108 (Oct. 30, 2013).
12
2014, the HFIAA was enacted, which, among other things, amended the Biggert-Waters Act
requirements regarding the escrow of flood insurance premiums and fees and created a new
exemption from the mandatory flood insurance purchase requirements for certain detached
structures.13 The Agencies finalized the regulations to implement provisions in the Biggert-
Waters Act and HFIAA under the Agencies’ jurisdiction, except for the provisions related to
private flood insurance, with a final rule issued in July 2015.14 In February 2019, the Agencies
finalized regulations that implement the private flood insurance related provisions of the Biggert-
Waters Act.15
The Agencies are releasing for public comment proposed revisions and new Interagency
Q&As in light of the significant changes to flood insurance requirements pursuant to the Biggert-
Waters Act and HFIAA as well as regulations issued to implement these laws. Further, over the
years, the lending industry has requested that the Agencies provide additional guidance on flood
insurance compliance issues on many occasions, including at conferences and through
interagency webinars
y
Q&As in light of the significant changes to flood insurance requirements pursuant to the Biggert-
Waters Act and HFIAA as well as regulations issued to implement these laws. Further, over the
years, the lending industry has requested that the Agencies provide additional guidance on flood
insurance compliance issues on many occasions, including at conferences and through
interagency webinars. Finally, pursuant to the Economic Growth and Regulatory Paperwork
Reduction Act of 1996 (EGRPRA), certain Agencies are directed to conduct a joint review of
their regulations every 10 years and consider whether any of those regulations are outdated,
unnecessary, or unduly burdensome.16 As part of the joint review, the Board, FDIC, OCC and
13 Pub. L. 113–89, 128 Stat. 1020 (2014).
14 80 FR 43216 (July 21, 2015). Subsequently, on November 7, 2016, the Agencies re-proposed the private flood
insurance provisions through a joint notice of proposed rulemaking (81 FR 78063).
15 84 FR 4953 (Feb. 20, 2019).
16 Pub. L. 104-208, 110 Stat. 3001 (1996) (codified at 12 U.S.C. 3311). The most recent report to Congress required
by EGRPRA was published by the Board, FDIC, OCC, and NCUA under the FFIEC in March 2017. The NCUA,
although an FFIEC member, is not a “federal banking agency” within the meaning of EGRPRA and so is not
required to participate in the review process. Nevertheless, NCUA elected to participate in the EGRPRA review and
conducted its own parallel review of its regulations. The FCA is not subject to EGRPRA; however, it is directed by
the Farm Credit System Reform Act of 1996 to conduct a regulatory review (see 12 U.S.C. 2252 note) and conducts
such review every four years. The CFPB, although an FFIEC member, is not a “federal banking agency” within the
meaning of EGRPRA and so is not required to participate in the review process.
llel review of its regulations. The FCA is not subject to EGRPRA; however, it is directed by
the Farm Credit System Reform Act of 1996 to conduct a regulatory review (see 12 U.S.C. 2252 note) and conducts
such review every four years. The CFPB, although an FFIEC member, is not a “federal banking agency” within the
meaning of EGRPRA and so is not required to participate in the review process.
13
NCUA received comments on the Agencies’ flood insurance rules. Several commenters asked
for more guidance to the industry on flood insurance requirements, particularly with respect to
renewal notices for force-placed insurance policies, the required amount of flood insurance, and
flood insurance requirements for tenant-owned buildings and detached structures. One
commenter specifically requested that the Interagency Flood Questions and Answers be updated.
In the FFIEC’s EGRPRA Joint Report to Congress, the Board, FDIC, and OCC indicated that
they:
“agree with these EGRPRA commenters that additional agency guidance on flood
insurance requirements would be helpful to the banking industry and that the Interagency Flood
Q&As should be updated to address recent amendments to the flood insurance statutes. In fact,
the agencies have begun work on revising the Interagency Flood Q&As to reflect the agencies’
recently issued final rules implementing the Biggert-Waters Act and HFIAA requirements and to
address other issues that have arisen since the last update in 2011. As part of this revision, the
agencies also plan to address many of the flood insurance issues raised by EGRPRA
commenters.”17
Accordingly, the Agencies, in proposing these Interagency Questions and Answers for
public comment, are addressing the commitment made in the EGRPRA Joint Report to
Congress.
This 2020 proposal to reorganize, revise, and introduce new Interagency Q&As includes
the introduction of new Q&As on escrow of flood insurance premiums, force placement of flood
insurance, and the detached structures exemption
gly, the Agencies, in proposing these Interagency Questions and Answers for
public comment, are addressing the commitment made in the EGRPRA Joint Report to
Congress.
This 2020 proposal to reorganize, revise, and introduce new Interagency Q&As includes
the introduction of new Q&As on escrow of flood insurance premiums, force placement of flood
insurance, and the detached structures exemption. The Agencies are also proposing to revise and
reorganize the existing Q&As into new categories by subject to enhance clarity and
understanding for users, and improve efficiencies by making it easier to find information related
to technical flood insurance topics. Once finalized, the new Interagency Questions and Answers
will supersede the 2009 and the 2011 Interagency Questions and Answers and supplement other
guidance or interpretations issued by the Agencies relative to loans in areas having special flood
17 https://www.ffiec.gov/pdf/2017_FFIEC_EGRPRA_Joint-Report_to_Congress.pdf
14
hazards. Along with the finalized new Interagency Questions and Answers, the Agencies plan to
issue separately for notice and comment another set of proposed Q&As relating to the private
flood insurance rule. In the interim, the Agencies have provided information regarding the
private flood insurance rule that may serve as a resource in a webinar dated June 18, 2019.18 In
addition to guidance and interpretations issued by the Agencies, lenders should be aware of
information related to the NFIP provided by FEMA that may address questions pertaining to
NFIP requirements.
Public Comments
The Agencies invite specific public comment on the proposed new and revised
Interagency Questions and Answers. If lenders, community groups, or other parties have
unanswered questions or comments about the Agencies’ flood insurance regulations, they should
submit them to the Agencies. The Agencies will consider including these Q&As in future
guidance
NFIP requirements.
Public Comments
The Agencies invite specific public comment on the proposed new and revised
Interagency Questions and Answers. If lenders, community groups, or other parties have
unanswered questions or comments about the Agencies’ flood insurance regulations, they should
submit them to the Agencies. The Agencies will consider including these Q&As in future
guidance. Comments are also invited on whether the proposed Q&As are stated clearly and how
they might be revised to be easier to read.
Reorganization of Interagency Questions and Answers
For ease of reference and in light of the increased number of subjects covered that
address complex issues, the Agencies propose to reorganize the Interagency Questions and
Answers to provide a more logical flow of questions through the flood insurance process for
lenders, servicers, regulators, and policyholders. The table below sets forth the current
categories and the corresponding new, reorganized categories for purposes of comparison:
Table of Contents
Category from Current Table
(from 2009 Q&A)
Reorganized Category
18 https://consumercomplianceoutlook.org/outlook-live/2019/interagency-flood-insurance-regulation-update/
15
I.
Determining When Certain Loans Are
Designated Loans for Which Flood Insurance Is
Required Under the Act and Regulation
Determining the Applicability of
Flood Insurance Requirements for
Certain Loans [Applicability]
II.
Determining the Appropriate Amount of Flood
Insurance Required Under the Act and
Regulation
Exemptions From the Mandatory
Flood Insurance Purchase
Requirements [Exemptions]
III.
Exemptions From the Mandatory Flood
Insurance Requirements
Coverage –NFIP/Private Flood
Insurance [Coverage]
IV.
Flood Insurance Requirements for Construction
Loans
Required Use of Standard Flood
Hazard Determination Form
[SFHDF]
V.
Flood Insurance Requirements for
Nonresidential Buildings
Flood Insurance Determination
Fees [Fees]
VI
urance Purchase
Requirements [Exemptions]
III.
Exemptions From the Mandatory Flood
Insurance Requirements
Coverage –NFIP/Private Flood
Insurance [Coverage]
IV.
Flood Insurance Requirements for Construction
Loans
Required Use of Standard Flood
Hazard Determination Form
[SFHDF]
V.
Flood Insurance Requirements for
Nonresidential Buildings
Flood Insurance Determination
Fees [Fees]
VI.
Flood Insurance Requirements for Residential
Condominiums
Flood Zone Discrepancies [Zone]
VII.
Flood Insurance Requirements for Home Equity
Loans, Lines of Credit, Subordinate Liens, and
Other Security Interests in Collateral Located in
an SHFA
Notice of Special Flood Hazards
and Availability of Federal
Disaster Relief [Notice]
VIII.
Flood Insurance Requirements in the Event of
the Sale or Transfer of a Designated Loan
and/or Its Servicing Rights
Determining the Appropriate
Amount of Flood Insurance
Required [Amount]
IX.
Escrow Requirements
Flood Insurance Requirements for
Construction Loans
[Construction]
X.
Force Placement
Flood Insurance Requirements for
Residential Condominiums and
Co-Ops [Condo and Co-Op ]
XI.
Private Flood Insurance
Flood Insurance Requirements for
Home Equity Loans, Lines of
Credit, Subordinate Liens, and
Other Security Interests in
Collateral Located in an SFHA
[Other Security Interests]
XII.
Required Use of Standard Flood Hazard
Determination Form (SFHDF)
Requirement to Escrow Flood
Insurance Premiums and Fees –
General [Escrow]
XIII.
Flood Determination Fees
Requirement to Escrow Flood
Insurance Premiums and Fees –
Small Lender Exception [Small
Lender Exception]
XIV.
Flood Zone Discrepancies
Requirement to Escrow Flood
Insurance Premiums and Fees –
ty Interests]
XII.
Required Use of Standard Flood Hazard
Determination Form (SFHDF)
Requirement to Escrow Flood
Insurance Premiums and Fees –
General [Escrow]
XIII.
Flood Determination Fees
Requirement to Escrow Flood
Insurance Premiums and Fees –
Small Lender Exception [Small
Lender Exception]
XIV.
Flood Zone Discrepancies
Requirement to Escrow Flood
Insurance Premiums and Fees –
16
Loan Exceptions [Loan
Exceptions]
XV.
Notice of Special Flood Hazards and
Availability of Federal Disaster Relief
Force Placement of Flood
Insurance [Force Placement]
XVI.
Mandatory Civil Money Penalties
Flood Insurance Requirements in
the Event of the Sale or Transfer
of a Designated Loan and/or Its
Servicing Rights [Servicing]
XVII.
Mandatory Civil Money Penalties
[Penalty]
Moreover, the Agencies also propose a new system of designation for the Q&As. Rather
than numbering the Q&As successively through all the categories, each Q&A will be designated
by the category to which it belongs and then designated in numerical order for that particular
category. For example, Q&As in the first category, Determining the Applicability of Flood
Insurance Requirements for Certain Loans, would be re-designated as Applicability 1,
Applicability 2, etc. This numbering system would enable the Agencies to add or delete Q&As
in the future without needing to significantly renumber or reorganize all of the Q&As. The
Agencies specifically solicit comment as to the proposed re-designations, whether they would
promote ease of reference and whether some other designation system might be more preferable.
For ease of reference, the following terms are used throughout this document: “Act”
refers to the National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of
1973, as revised by the National Flood Insurance Reform Act of 1994, Biggert-Waters Flood
Insurance Reform Act of 2012 and Homeowner Flood Insurance Affordability Act (codified at
42 U.S.C. 4001 et seq)
more preferable.
For ease of reference, the following terms are used throughout this document: “Act”
refers to the National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of
1973, as revised by the National Flood Insurance Reform Act of 1994, Biggert-Waters Flood
Insurance Reform Act of 2012 and Homeowner Flood Insurance Affordability Act (codified at
42 U.S.C. 4001 et seq). “Regulation” refers to each agency’s current final rule.19
Section-by-Section Analysis
19 The Agencies’ rules are codified at 12 CFR part 22 (OCC), 12 CFR part 208 (Board), 12 CFR part 339 (FDIC), 12
CFR part 614 (FCA), and 12 CFR part 760 (NCUA).
17
Section I. Determining the Applicability of Flood Insurance Requirements for Certain Loans
The heading to proposed section I has been streamlined to provide greater clarity with no
intended change in substance or meaning. This new proposed general applicability section
would include current Q&As 1-7 relating to residential buildings and, for organizational
purposes, would incorporate current section V’s Q&As 24 and 25, which address flood insurance
requirements for nonresidential buildings. The Agencies propose to re-designate current Q&A 1
as proposed Q&A Applicability 1 with only minor language modifications, with no intended
change in substance or meaning. Current Q&A 24 would be re-designated as proposed Q&A
Applicability 2 and revised so that the proposed answer depends on whether buildings with
limited utility meet the detached structure exemption for purposes of mandating flood insurance
for such buildings. Current Q&A 25 would be re-designated as proposed Q&A Applicability 3
and current Q&As 2, 3, 5-7 would be re-designated as proposed Q&As Applicability 4, 5, 6-8,
respectively. Current Q&A 4 would be re-designated as proposed Q&A Applicability 9
depends on whether buildings with
limited utility meet the detached structure exemption for purposes of mandating flood insurance
for such buildings. Current Q&A 25 would be re-designated as proposed Q&A Applicability 3
and current Q&As 2, 3, 5-7 would be re-designated as proposed Q&As Applicability 4, 5, 6-8,
respectively. Current Q&A 4 would be re-designated as proposed Q&A Applicability 9.
The Agencies are proposing revisions to proposed Q&A Applicability 3 to include an
example to provide greater clarity and to improve readability, with no intended change in
substance or meaning. Proposed Q&A Applicability 4 would be revised from current Q&A 2 to
also address a lender’s responsibility if a building or mobile home that secures a loan is not
located within an SFHA. The proposed answer would be expanded to state that a lender may, at
its discretion and subject to applicable State law, require flood insurance for property outside of
SFHAs for risk management purposes as a condition of a loan being made. Proposed Q&As
Applicability 5, 7, 8, and 9 would have only minor language modifications for greater clarity,
with no intended change in substance or meaning. Proposed Q&A Applicability 6 would remain
unchanged from current Q&A 5.
18
Lastly, the Agencies propose to add three new Q&As, Applicability 10, 11, and 12.
Proposed new Q&A Applicability 10 would address a lender’s obligations when participating in
a multi-tranche credit facility, specifically whether a lender is expected to consider any triggering
event and any cashless roll of which it becomes aware in any tranche
ld remain
unchanged from current Q&A 5.
18
Lastly, the Agencies propose to add three new Q&As, Applicability 10, 11, and 12.
Proposed new Q&A Applicability 10 would address a lender’s obligations when participating in
a multi-tranche credit facility, specifically whether a lender is expected to consider any triggering
event and any cashless roll of which it becomes aware in any tranche. The proposed answer
would provide that a multi-tranche credit facility is analogous to a loan syndication or
participation and that the Agencies do not expect a lender participating in one tranche in a multi-
tranche credit facility to be responsible for taking action to comply with flood insurance
requirements in connection with a triggering event or cashless roll that occurs in a tranche in
which the lender does not participate. Furthermore, the proposed answer clarifies that the
Agencies expect a lender participating in a multi-tranche credit facility to perform upfront due
diligence to determine whether the lead lender has adequate controls to monitor the loan on an
ongoing basis for compliance with flood insurance requirements. Proposed new Q&A
Applicability 11 would clarify that an automatic extension of a credit facility agreed upon by the
borrower and lender in the original loan agreement would not constitute a triggering event for
purposes of the federal flood insurance requirements. Proposed new Q&A Applicability 12,
which would be based on guidance previously issued by the Agencies,20 would address the
applicability of the mandatory purchase requirement during a period of time when coverage
under the NFIP is unavailable, such as due to a lapse in authorization or in appropriations
ot constitute a triggering event for
purposes of the federal flood insurance requirements. Proposed new Q&A Applicability 12,
which would be based on guidance previously issued by the Agencies,20 would address the
applicability of the mandatory purchase requirement during a period of time when coverage
under the NFIP is unavailable, such as due to a lapse in authorization or in appropriations. The
proposed answer would clarify that during a period when NFIP coverage is not available, lenders
may continue to make loans subject to the Regulation without flood insurance coverage, but
20 See Guidance Regarding Lapse and Extension of FEMA’s Authority to Issue Flood Insurance Contracts, OCC
Bulletin 2010-20 (OCC); Informal Guidance on the Lapse of FEMA’s Authority to Issue Flood Insurance Contracts,
CA Letter 10-3 (Board); Lapse of FEMA Authority to Issue Flood Insurance Policies, FIL-23-2010 (FDIC); Lapse
and Extension of FEMA’s Authority to Issue Flood Insurance Contracts, Informational Memorandum June 3, 2010
(FCA), and Guidance on the Lapse of FEMA’s Authority to Issue Flood Insurance Contracts, Letter No. 10-CU-08
(NCUA).
19
must continue to make flood determinations, provide timely, complete and accurate notices to
borrowers, and comply with other aspects of the Regulation. Lenders also should evaluate the
safety and soundness and legal risks, and prudently manage those risks, during such periods
when the NFIP is unavailable.
Section II. Exemptions from the Mandatory Flood Insurance Purchase Requirements
Current section III would be moved to proposed section II and significantly expanded
with the addition of six new proposed Q&As pertaining to the exemption from the mandatory
flood insurance purchase requirements for certain detached structures created by HFIAA. The
heading to proposed section II has been revised to provide greater clarity with no intended
change in substance or meaning
ents
Current section III would be moved to proposed section II and significantly expanded
with the addition of six new proposed Q&As pertaining to the exemption from the mandatory
flood insurance purchase requirements for certain detached structures created by HFIAA. The
heading to proposed section II has been revised to provide greater clarity with no intended
change in substance or meaning. Current Q&A 18 would be included in this section, re-
designated as proposed Q&A Exemptions 1, and would be revised to include the detached
structure exemption in addition to the exemptions for State-owned property, and loans with a
principal balance of less than $5,000 and an original repayment term of one year or less. The
revised Q&A also would note that although an exemption may apply, a borrower may still elect
to purchase flood insurance or a lender may still require flood insurance as a condition of making
the loan for purposes of safety and soundness, depending on its risk analysis.
As stated above, the Agencies propose to add six new Q&As to address the application of
the detached structure exemption and related lender obligations. The new proposed Q&As
would be designated as Exemptions 2-7. This set of Q&As on the detached structure exemption
responds to a request for more guidance related to this exemption in the EGRPRA report.
Proposed new Q&A Exemptions 2 would be added to address whether a lender must take a
security interest in the primary residential structure for a detached structure to be eligible for the
detached structure exemption. The proposed answer would provide that although a lender does
ached structure exemption
responds to a request for more guidance related to this exemption in the EGRPRA report.
Proposed new Q&A Exemptions 2 would be added to address whether a lender must take a
security interest in the primary residential structure for a detached structure to be eligible for the
detached structure exemption. The proposed answer would provide that although a lender does
20
not have to take a security interest in the primary residential structure, it would need to evaluate
the uses of the detached structures to confirm each is eligible for the exemption. Proposed new
Q&A Exemptions 3 would clarify that a flood hazard determination is required for a detached
structure even though flood insurance coverage is not required on such structure because it is
used to identify the number and type of structures present on the property. Proposed new Q&A
Exemptions 4 would provide that a lender or its servicer may cancel its flood insurance
requirement on an eligible detached structure that is currently insured, but that a lender
alternatively may want to continue to require flood insurance coverage for detached structures of
relatively high value if such coverage would be beneficial to the borrower and the lender.
Proposed new Q&A Exemptions 5 would address whether a property being re-mapped into an
SFHA triggers a review of the intended use of each detached structure. Specifically, the
proposed answer states that although there is no duty to monitor the status of a detached structure
following the lender’s initial determination, sound risk management practices may lead a lender
to conduct scheduled periodic reviews that track the need for flood insurance on properties
securing loans in its portfolio.
Proposed new Q&A Exemptions 6 would discuss whether a lender, following a review of
its loan portfolio, may determine it would no longer require flood insurance on a detached
structure in an SFHA if the structure does not provide contributory value
es may lead a lender
to conduct scheduled periodic reviews that track the need for flood insurance on properties
securing loans in its portfolio.
Proposed new Q&A Exemptions 6 would discuss whether a lender, following a review of
its loan portfolio, may determine it would no longer require flood insurance on a detached
structure in an SFHA if the structure does not provide contributory value. The Agencies propose
to clarify that, while a lender or servicer could initiate such a review, the Regulation does not
permit the exemption of structures from the mandatory flood insurance purchase requirement
based solely on their contributory value, but instead on whether a specific exemption applies.
Lastly, proposed new Q&A Exemptions 7 would address whether a building would qualify as a
detached structure if it is joined to another building by a stairway or covered walkway. The
21
proposed answer would provide that for purposes of the detached structure exemption, a
structure is “detached” from the primary residential structure if it is not joined by any structural
connection to that structure.
Section III. Coverage (NFIP/Private Flood Insurance)
For organizational purposes, current section XI would be moved to proposed section III,
logically following the discussions of applicability and exemptions from flood insurance
requirements. The heading to proposed section III would be expanded to cover the various types
of flood insurance policies available to borrowers. Proposed section III would cover questions
related to flood insurance policy coverage issues under the NFIP and private flood insurance
proposed section III,
logically following the discussions of applicability and exemptions from flood insurance
requirements. The heading to proposed section III would be expanded to cover the various types
of flood insurance policies available to borrowers. Proposed section III would cover questions
related to flood insurance policy coverage issues under the NFIP and private flood insurance.
Current Q&A 63 would be deleted because it is inconsistent with the Agencies’ final rule
implementing the private flood insurance provision of the Biggert-Waters Act.21 A new
proposed Q&A Coverage 1 would be included to assist lenders in complying with the
discretionary acceptance provision and mutual aid societies provision in the Agencies’ final rule
implementing the private flood insurance provision of the Biggert-Waters Act. Current Q&A 64,
addressing the use of private flood insurance for portfolio-wide coverage, would be re-
designated as proposed Coverage 2 and revised given that FEMA withdrew the Mandatory
Purchase of Flood Insurance Guidelines, which is cross-referenced in current Q&A 64, with no
intended change in substance or meaning. Additionally, a new proposed Q&A Coverage 3
would address when mandatory flood insurance is required to be in place.
Specifically, proposed new Coverage 1 would list several factors a lender may consider
in determining whether a flood insurance policy issued by a private insurer or mutual aid plan
provides sufficient protection of the loan. These factors may include whether: 1) a policy’s
21 84 FR 4953 (Feb. 20, 2019).
Coverage 3
would address when mandatory flood insurance is required to be in place.
Specifically, proposed new Coverage 1 would list several factors a lender may consider
in determining whether a flood insurance policy issued by a private insurer or mutual aid plan
provides sufficient protection of the loan. These factors may include whether: 1) a policy’s
21 84 FR 4953 (Feb. 20, 2019).
22
deductibles are reasonable based on the borrower’s financial condition; 2) the insurer provides
adequate notice of cancellation to the mortgagor and mortgagee to allow for timely force
placement of flood insurance, if necessary; 3) the terms and conditions of the policy with respect
to payment per occurrence or per loss and aggregate limits are adequate to protect the regulated
lending institution’s interest in the collateral; 4) the flood insurance policy complies with
applicable State insurance laws; and 5) the private insurance company has the financial solvency,
strength, and ability to satisfy claims. A lender may include its analysis of such factors in
documenting its conclusion of sufficient protection of the loan when accepting flood insurance
coverage issued by a private insurer or mutual aid society in satisfaction of the mandatory
purchase requirement.
Proposed Q&A Coverage 2 would be slightly revised to address when a lender may rely
on a private insurance policy providing portfolio-wide coverage. The proposed answer would be
revised by removing the reference to criteria set forth by FEMA and including language
addressing a lender’s reliance on a policy that provides portfolio-wide coverage. Lastly,
proposed new Q&A Coverage 3 would explain when mandatory flood insurance on a designated
loan needs to be in place during the closing process. The proposed answer would clarify that a
lender should use the loan “closing date” to determine the date by which flood insurance should
be in place for a designated loan
g a lender’s reliance on a policy that provides portfolio-wide coverage. Lastly,
proposed new Q&A Coverage 3 would explain when mandatory flood insurance on a designated
loan needs to be in place during the closing process. The proposed answer would clarify that a
lender should use the loan “closing date” to determine the date by which flood insurance should
be in place for a designated loan. FEMA deems the “closing date” as the date the ownership of
the property transfers to the new owner based on State law. The proposed answer further
explains the difference between “wet funding” and “dry funding” States and how it impacts the
“closing date” for purposes of flood insurance.
23
IV. Required Use of Standard Flood Hazard Determination Form (SFHDF)
For organizational purposes, current section XII would be moved to proposed section IV.
Accordingly, current Q&As 65-68 would be re-designated as proposed Q&As SFHDF 1-4,
respectively, with only minor language modifications and no intended change in substance or
meaning.
V. Flood Insurance Determination Fees
For organizational purposes, current section XIII would be moved to proposed section V.
Current Q&As 69 and 70 would be re-designated as proposed Q&As Fees 1 and 2 with only
minor changes and no intended change in substance or meaning.
VI. Flood Zone Discrepancies
For organizational purposes, current section XIV would be moved to proposed section
VI. Current Q&As 71 and 72 would be re-designated as proposed Q&As Zone 1 and 2. The
Agencies propose to revise current Q&A 71, re-designated as proposed Q&A Zone 1, to reflect a
change in the Agencies’ expectations regarding a lender’s obligation when there is a discrepancy
between the flood determination form and the flood insurance policy. A lender no longer would
be required to attempt to resolve the discrepancy, but the lender should consider documenting the
discrepancy in the loan file
to revise current Q&A 71, re-designated as proposed Q&A Zone 1, to reflect a
change in the Agencies’ expectations regarding a lender’s obligation when there is a discrepancy
between the flood determination form and the flood insurance policy. A lender no longer would
be required to attempt to resolve the discrepancy, but the lender should consider documenting the
discrepancy in the loan file. If the flood determination form indicates that the building securing
the loan is in an SFHA, the lender must require the appropriate amount of insurance coverage
and would not otherwise be required to attempt to resolve the discrepancy as previously
indicated in current Q&A 71. The Agencies note in the proposed answer that the issue of flood
zone discrepancies is an insurance rating issue, not a coverage issue. Proposed Q&A Zone 2
would clarify that a lender is not in violation of the Regulation if there is a discrepancy between
the flood zone on the flood determination form and the flood zone on the policy declarations
24
page. Lastly, proposed new Q&A Zone 3 would explain what a lender should do when a
borrower disputes the lender’s flood zone determination that a building securing the loan is
located in an SFHA requiring mandatory flood insurance coverage.
VII. Notice of Special Flood Hazards and Availability of Federal Disaster Relief
For organizational purposes, current section XV would be moved to proposed section
VII. This section would include current Q&As 73-76 and 78-80 and would be re-designated as
proposed Q&As Notice 1-7, respectively. Proposed Q&A Notice 1 would have minor language
modifications for purposes of clarity with no change in meaning or substance. Proposed Q&A
Notice 2 would be amended to conform more closely to the Regulation
, current section XV would be moved to proposed section
VII. This section would include current Q&As 73-76 and 78-80 and would be re-designated as
proposed Q&As Notice 1-7, respectively. Proposed Q&A Notice 1 would have minor language
modifications for purposes of clarity with no change in meaning or substance. Proposed Q&A
Notice 2 would be amended to conform more closely to the Regulation. As modified, the answer
to proposed Q&A Notice 2 would state that a lender must provide the Notice of Special Flood
Hazards to the borrower within a reasonable time before the completion of the transaction, even
if the lender only learns where the mobile home will be located just prior to closing and delivery
of the Notice of Special Flood Hazards would delay closing. Proposed Q&A Notice 3 would
remain unchanged from current Q&A 75. For organizational purposes, current Q&As 76 and 77
would be consolidated, with no substantive changes, into proposed Q&A Notice 4 in this section.
Current Q&A 78 would be re-designated as Notice 5 and revised to list examples of what
constitutes an acceptable record of receipt. Current Q&As 79 and 80 would be re-designated as
Q&As Notice 6 and 7, respectively, and would be revised nonsubstantively to provide additional
clarity.
Section VIII. Determining the Appropriate Amount of Flood Insurance Required
The Agencies propose to move current section II to proposed section VIII. The heading
to proposed section VIII would be amended for streamlining purposes. Current Q&As 8, 9, and
11-17 would be re-designated as Amount 1, Amount 2, and Amount 3-9 respectively. Proposed
substantively to provide additional
clarity.
Section VIII. Determining the Appropriate Amount of Flood Insurance Required
The Agencies propose to move current section II to proposed section VIII. The heading
to proposed section VIII would be amended for streamlining purposes. Current Q&As 8, 9, and
11-17 would be re-designated as Amount 1, Amount 2, and Amount 3-9 respectively. Proposed
25
Q&A Amount 1 would discuss NFIP coverage limits more fully to include coverage for
condominiums and contents coverage. The proposed answer would provide that for single-
family and two-to-four family or individually-owned condominium units insured under the
Dwelling Form policy, the maximum limit is $250,000. For a residential condominium building
insured under the Residential Condominium Building Association Policy (RCBAP) form, the
maximum amount of insurance available is $250,000 multiplied by the number of units. For all
other buildings insured under the General Property Form, the maximum limit of building
coverage available is $500,000. The maximum limit for contents insured under the Dwelling
Form and RCBAP is $100,000 total (not per unit) and $500,000 for contents insured under the
General Property Form. Proposed Q&A Amount 2, which defines “insurable value,” would be
revised to remove references to the rescinded FEMA Mandatory Purchase of Flood Insurance
Guidelines and to provide greater clarity with no intended change in substance or meaning.
Proposed Q&A Amount 3 would be revised to include more detailed definitions from the
NFIP Flood Insurance Manual of the terms: single family dwelling, 2-4 family residential
building, and other residential building. Proposed Q&A Amount 4 would similarly be revised to
provide a more detailed definition of nonresidential building as defined in the NFIP Flood
Insurance Manual. Proposed Q&As Amount 5-9 would be revised to provide greater clarity
with no intended change in substance or meaning.
IX
Manual of the terms: single family dwelling, 2-4 family residential
building, and other residential building. Proposed Q&A Amount 4 would similarly be revised to
provide a more detailed definition of nonresidential building as defined in the NFIP Flood
Insurance Manual. Proposed Q&As Amount 5-9 would be revised to provide greater clarity
with no intended change in substance or meaning.
IX. Flood Insurance Requirements for Construction Loans
Current section IV would be moved to proposed section IX and would include current
Q&As 19-23, which would be re-designated as proposed Q&As Construction 1-5, respectively.
The Agencies propose minor changes to proposed Q&As Construction 1 and Construction 2 for
purposes of clarification. The Agencies would revise proposed Q&A Construction 3 to
26
accurately cite to the NFIP Flood Insurance Manual. Proposed Q&A Construction 4 would
address when a lender must require flood insurance in connection with a loan secured by a
building in the course of construction and would be revised to incorporate the NFIP’s change in
policy regarding the 30-day waiting period. In particular, the Agencies propose that if a lender
requires a borrower to have flood insurance in place at the time of loan origination, a borrower
should obtain a provisional rating based on the construction designs and intended use of the
building to enable the placement of coverage prior to receipt of the Elevation Certificate (EC),
based on FEMA guidance. The proposed Q&A would state that in accordance with the NFIP
requirement, it is expected that an EC will be secured and a full-risk rating completed within 60
days of the policy effective date. Under the proposed Q&A, failure to obtain the EC could result
in reduced coverage limits at the time of loss
nt of coverage prior to receipt of the Elevation Certificate (EC),
based on FEMA guidance. The proposed Q&A would state that in accordance with the NFIP
requirement, it is expected that an EC will be secured and a full-risk rating completed within 60
days of the policy effective date. Under the proposed Q&A, failure to obtain the EC could result
in reduced coverage limits at the time of loss. Alternatively, if the lender requires the borrower
to have flood insurance in place before the lender disburses funds to pay for building
construction, the lender should have adequate controls in place to ensure the borrower obtains
flood insurance no later than 30 days prior to disbursement of funds to the borrower due to
FEMA’s removal of the 30-day waiting period waiver. Proposed Q&A Construction 5,
addressing the 30-day waiting period in connection with a construction loan, also would be
revised to reflect this change. Proposed new Q&A Construction 6 would explain that if a lender
allows a borrower to defer the purchase of flood insurance until either the foundation slab has
been poured and/or an EC has been issued, or if the building to be constructed will have its
lowest floor below Base Flood Elevation when the building is walled and roofed, the lender will
need to begin escrowing flood insurance premiums and fees at the time of purchase of the flood
insurance.
27
X. Flood Insurance Requirements for Residential Condominiums and Co-Ops
The heading to proposed section X would be expanded to include other multi-family
dwellings such as cooperatives. This section would include current Q&As 26-33, which would
be re-designated as proposed Q&As Condo and Co-Op 1-8, respectively. Proposed Q&As
Condo and Co-Op 1, Condo and Co-Op 2, and Condo and Co-Op 7 would remain generally
unchanged. Proposed Q&As Condo and Co-Op 3, 4, 5, 6, and 8 would have minor revisions to
provide greater clarity or accurate references with no intended changes in substance or meaning
uld include current Q&As 26-33, which would
be re-designated as proposed Q&As Condo and Co-Op 1-8, respectively. Proposed Q&As
Condo and Co-Op 1, Condo and Co-Op 2, and Condo and Co-Op 7 would remain generally
unchanged. Proposed Q&As Condo and Co-Op 3, 4, 5, 6, and 8 would have minor revisions to
provide greater clarity or accurate references with no intended changes in substance or meaning.
A new proposed Q&A Condo and Co-Op 9 would be added to proposed section X to address
flood insurance requirements for loans secured by a unit in a cooperative building located in an
SFHA. The proposed answer provides that a loan to a cooperative unit owner is not a designated
loan subject to the Act or Regulation because the unit owner does not own a title to the building
but simply the right to occupy a particular unit based on the cooperative ownership structure.
XI. Flood Insurance Requirements for Home Equity Loans, Lines of Credit, Subordinate Liens,
and Other Security Interests in Collateral (Contents) Located in an SFHA
The heading to section XI would be amended for purposes of clarity. This section would
include current Q&As 34, 35 and 36-43, which would be re-designated as Other Security
Interests 1, Other Security Interests 2, and Other Security Interests 4-9 and 11-12, respectively.
Proposed Q&As Other Security Interests 1, 2, 5, 6, 8, 11, and 12 would remain substantively
unchanged. A new proposed Q&A Other Security Interests 3 would be added to address flood
insurance coverage requirements for a line of credit secured by improved real property located in
an SFHA. The proposed answer would provide alternative approaches depending on when the
lender requires flood insurance to be in place. Proposed Q&A Other Security Interests 4 would
be amended slightly with no intended changes in substance or meaning. Proposed Q&A Other
added to address flood
insurance coverage requirements for a line of credit secured by improved real property located in
an SFHA. The proposed answer would provide alternative approaches depending on when the
lender requires flood insurance to be in place. Proposed Q&A Other Security Interests 4 would
be amended slightly with no intended changes in substance or meaning. Proposed Q&A Other
28
Security Interests 7 would be revised to clarify the application of Federal flood insurance
requirements when both a building and its contents secure a loan. Proposed Q&A Other Security
Interests 9 would be revised to clarify the impact of including language regarding contents taken
as security for a loan in the loan agreement. Proposed new Q&A Other Security Interests 10
would indicate that flood insurance is required if the lender takes a security interest in contents
regardless of whether that security interest is perfected.
XII. Requirement to Escrow Flood Insurance Premiums and Fees – General
With the passage of HFIAA, the escrow requirements for flood insurance premiums have
been significantly revised through the introduction of new escrow requirements that are not
dependent on whether other insurance or taxes are escrowed, lender and loan-related exceptions
to those requirements, and the requirement for an escrow notice. Accordingly, the Agencies
propose to revise the discussion of escrow requirements by designating four sections to address
escrow considerations. The first section, proposed section XII, would include Q&As covering
the general escrow requirement for flood insurance premiums and fees. The second section,
proposed section XIII, would include Q&As related to the small lender exception to flood
insurance escrow requirements. Proposed section XIV, the third section, would include Q&As
related to loan-related exceptions to the requirement to escrow flood insurance premiums and
fees
uld include Q&As covering
the general escrow requirement for flood insurance premiums and fees. The second section,
proposed section XIII, would include Q&As related to the small lender exception to flood
insurance escrow requirements. Proposed section XIV, the third section, would include Q&As
related to loan-related exceptions to the requirement to escrow flood insurance premiums and
fees. These sets of Q&As on the escrow of flood insurance premiums and fees respond to a
request for more guidance related to the escrow requirement in the EGRPRA report.
Proposed new section XII would contain two Q&As from current section IX and five new
proposed Q&As. Specifically, current Q&As 51 and 52 would be included in proposed section
XII and re-designated as Escrow 5 and Escrow 1, respectively. Proposed Q&A Escrow 1 would
be significantly revised from current Q&A 52 to address the general question of when escrow
29
accounts for flood insurance premiums and fees must be established. The proposed revised
answer would explain that the new escrow requirement applies only upon a triggering event and
would not apply if either the small lender exception or any of the loan-related exceptions apply.
The proposed revised answer also would address a lender’s escrow obligations if the lender no
longer qualifies for the small lender exception. Proposed new Q&A Escrow 2 would clarify that
a lender must escrow flood insurance premium payments even if it does not escrow for taxes or
homeowner’s insurance. Proposed new Q&A Escrow 3 would state that a lender must escrow
force-placed flood insurance premium payments because there is no exception for force-placed
insurance under the Act or Regulation
ifies for the small lender exception. Proposed new Q&A Escrow 2 would clarify that
a lender must escrow flood insurance premium payments even if it does not escrow for taxes or
homeowner’s insurance. Proposed new Q&A Escrow 3 would state that a lender must escrow
force-placed flood insurance premium payments because there is no exception for force-placed
insurance under the Act or Regulation. Proposed new Q&A Escrow 4 would discuss whether
flood insurance premium payments must be escrowed when a loan has not experienced a
triggering event (a making, increase, renewal, or extension) but the loan has experienced a non-
triggering event, such as a loan modification, a FEMA remapping, or the assumption of the loan
by a new borrower. The Agencies explain in the proposed answer that, subject to certain
exceptions, until a loan experiences a triggering event, the lender is not required to escrow flood
insurance premiums and fees unless: (i) a borrower requests the escrow in connection with the
requirement that the lender provide an option to escrow for outstanding loans; or (ii) the lender
determines that a loan exception to the escrow requirement no longer applies.
The Agencies propose revisions to current Q&A 51, which has been re-designated as
proposed Q&A Escrow 5, to reflect updates to clarify that multi-family buildings or mixed-use
properties are included in the definition of “residential improved real estate” and therefore are
subject to the escrow requirement unless an exception applies. New proposed Q&A Escrow 6
would address the situation in which a junior lienholder determines that the primary lienholder
does not have sufficient flood insurance coverage in place and is also not escrowing for flood
ngs or mixed-use
properties are included in the definition of “residential improved real estate” and therefore are
subject to the escrow requirement unless an exception applies. New proposed Q&A Escrow 6
would address the situation in which a junior lienholder determines that the primary lienholder
does not have sufficient flood insurance coverage in place and is also not escrowing for flood
30
insurance. The proposed answer would clarify that if the primary lienholder has not obtained
adequate flood insurance, the junior lienholder would need to ensure adequate flood insurance is
in place and also would need to escrow for that flood insurance. The proposed answer also
would indicate that the escrow requirements would not apply to a junior lien that is a home
equity line of credit (HELOC), since HELOCs have a separate escrow exception under the Act
and Regulation. New proposed Q&A Escrow 7 addresses whether a lender or its servicer must
escrow when real property securing the loan is not located in an SFHA, but the borrower chooses
to buy flood insurance, by clarifying that a lender or its servicer is not required to escrow
premium payments but may choose to do so. Current Q&As 53 and 54 would be removed
because they are no longer applicable.
XIII. Requirement to Escrow Flood Insurance Premiums and Fees – Small Lender Exception
As previously discussed, new section XIII would include seven new proposed Q&As
related to the small lender exception to the requirement to escrow flood insurance premiums.
New proposed Q&A Small Lender Exception 1 would specify that the $1 billion threshold for
the small lender exception would be based on assets held at the regulated financial institution
level and not at the holding company level
viously discussed, new section XIII would include seven new proposed Q&As
related to the small lender exception to the requirement to escrow flood insurance premiums.
New proposed Q&A Small Lender Exception 1 would specify that the $1 billion threshold for
the small lender exception would be based on assets held at the regulated financial institution
level and not at the holding company level. New proposed Q&A Small Lender Exception 2
would discuss whether a qualifying lender must escrow flood insurance premiums if it was
previously required to escrow only under the Higher-Priced Mortgage Loan (HPML) rules22 or
under specific Federal housing programs prior to July 6, 2012. The proposed answer would
clarify that the applicability of the first criterion of the small lender exception is dependent on
22 Pursuant to the Dodd-Frank Act, an HPML loan is one where the Annual Percentage Rate exceeds certain
specified thresholds with the result that certain consumer protections must be observed, such as the escrow of
property taxes and insurance premiums. See section 129D of the Truth in Lending Act as amended by section
1461(a) of the Dodd-Frank Act, 15 U.S.C. 1639D. See also HPML escrow rules at 12 CFR 226.35(b)(3) (Board)
and 12 CFR 1026.35(b) (Bureau of Consumer Financial Protection).
31
whether the Federal or State law requirement to escrow was for the entire term of the loan. New
proposed Q&A Small Lender Exception 3 would address whether a lender would be disqualified
from the exemption if it escrowed funds on behalf of a third party. The Agencies’ proposed
answer would draw a distinction based on whether the lender established an individual escrow
account for the loan
whether the Federal or State law requirement to escrow was for the entire term of the loan. New
proposed Q&A Small Lender Exception 3 would address whether a lender would be disqualified
from the exemption if it escrowed funds on behalf of a third party. The Agencies’ proposed
answer would draw a distinction based on whether the lender established an individual escrow
account for the loan. Specifically, the proposed answer would provide that if a lender collected
escrow funds at closing and servicing of the loan was maintained by the lender, the lender would
not qualify for the small lender exception because the lender would have had a policy of
consistently and uniformly requiring the deposit of funds in an escrow account by establishing
escrow accounts that the lender would service. However, if the lender collected the escrow
funds at closing at the behest of a third party and then transferred those funds to the third party
servicing that loan, the lender would qualify for the small lender exception under the proposed
answer, provided the lender did not establish an individual escrow account and the lender
transferred the escrow funds to the third party as soon as reasonably practicable. New proposed
Q&A Small Lender Exception 4 would cover whether a lender would be eligible for the
exception if it only escrows upon a borrower’s request. As noted in the preamble to the 2015
Final Rule, the proposed answer would reiterate that a lender maintaining escrow accounts only
on a borrower’s request does not constitute a consistent or uniform policy of requiring escrow
and therefore a lender could be eligible for the small lender exception if the other requirements
are met.
New proposed Q&A Small Lender Exception 5 would discuss whether the option to
escrow is required for: (1) all outstanding loans not excepted from the escrow requirement and
secured by residential real estate and (2) outstanding loans not secured by buildings located in an
SHFA
g escrow
and therefore a lender could be eligible for the small lender exception if the other requirements
are met.
New proposed Q&A Small Lender Exception 5 would discuss whether the option to
escrow is required for: (1) all outstanding loans not excepted from the escrow requirement and
secured by residential real estate and (2) outstanding loans not secured by buildings located in an
SHFA. The proposed answer would clarify that the option to escrow notice requirement only
32
applies to lenders who have a change in status and no longer qualify for the small lender
exception. Such lenders will be required to provide the option to escrow notice by September 30
of the first calendar year in which the lender has had a change in status for all outstanding
designated loans secured by residential improved real estate or a mobile home as of July 1 of the
first calendar year in which the lender no longer qualifies for the small lender exception. The
proposed answer would also clarify that the option to escrow requirement does not apply to loans
or lenders that are excepted by the Regulation from the escrow requirement nor does the notice
requirement apply to loans not subject to the mandatory flood insurance purchase requirement.
New proposed Q&A Small Lender Exception 6 would explain that a lender must send to a
borrower a notice of the option to escrow flood insurance premium payments when the borrower
has previously waived escrow for flood insurance because it is possible the borrower’s
circumstances have changed and, if offered another chance to escrow, the borrower may desire to
do so. Lastly, new proposed Q&A Small Lender Exception 7 would make clear that lenders who
qualify for the small lender exception are not required to provide borrowers with either the
escrow notice or the option to escrow notice.
XIV
escrow for flood insurance because it is possible the borrower’s
circumstances have changed and, if offered another chance to escrow, the borrower may desire to
do so. Lastly, new proposed Q&A Small Lender Exception 7 would make clear that lenders who
qualify for the small lender exception are not required to provide borrowers with either the
escrow notice or the option to escrow notice.
XIV. Requirement to Escrow Flood Insurance Premiums and Fees – Loan Exceptions
New section XIV would include five Q&As regarding the loan-related exceptions to the
escrow requirement. Current Q&A 55 would be re-designated as proposed Q&A Loan
Exceptions 1 and revised to address whether escrow accounts must be set up for commercial
loans secured by residential buildings based on the new loan-related exceptions. Specifically,
the proposed answer would clarify that extensions of credit primarily for business, commercial,
or agricultural purposes are not subject to the escrow requirement even if such loans are secured
by residential improved real estate or a mobile home. New proposed Q&A Loan Exceptions 2
33
would indicate that construction-permanent loans that have a construction phase before the loan
converts into permanent financing do not qualify for the 12-month exception from escrow even if
one phase of the loan is for 12 months or less. New proposed Q&A Loan Exceptions 3 would
clarify that a subordinate lienholder must begin to escrow as soon as reasonably practicable after
it becomes aware that it has moved into the primary lien position on a designated loan subject to
the escrow requirement. Current Q&A 56 would be re-designated as proposed Q&A Loan
Exceptions 4 and revised to address an escrow account for insured real property covered by an
RCBAP
ptions 3 would
clarify that a subordinate lienholder must begin to escrow as soon as reasonably practicable after
it becomes aware that it has moved into the primary lien position on a designated loan subject to
the escrow requirement. Current Q&A 56 would be re-designated as proposed Q&A Loan
Exceptions 4 and revised to address an escrow account for insured real property covered by an
RCBAP. The proposed answer would note that while escrow is not required for property
covered by an RCBAP, if the RCBAP coverage is inadequate and the borrower obtains a
separate dwelling policy, escrow would be required for such a policy unless an escrow exception
applies. Lastly, new proposed Q&A Loan Exceptions 5 would discuss whether there is an
exception to the escrow requirement for loans secured by multi-family buildings. The Agencies
would make clear in the proposed answer that escrow requirements do not apply to a loan that is
an extension of credit primarily for business, commercial, or agricultural purposes, even if the
loan is secured by residential real estate such as a multi-family building, nor would it apply to a
loan secured by a particular unit in a multi-family residential building if a condominium
association, cooperative, homeowners association, or other applicable group provides an
adequate policy and pays for the insurance as a common expense. Otherwise, under the
proposed answer, the escrow requirements generally would apply to loans for units in multi-
family residential buildings.
XV. Force Placement of Flood Insurance
For organizational purposes, the Agencies propose to move current section X to proposed
section XV. This section would include current Q&As 57-62 and add ten new Q&As. This set
insurance as a common expense. Otherwise, under the
proposed answer, the escrow requirements generally would apply to loans for units in multi-
family residential buildings.
XV. Force Placement of Flood Insurance
For organizational purposes, the Agencies propose to move current section X to proposed
section XV. This section would include current Q&As 57-62 and add ten new Q&As. This set
34
of Q&As responds to a request for more guidance related to force placement of flood insurance
from commenters through the EGRPRA process. Current Q&A 57, re-proposed in 2011 but not
finalized, would be re-designated as proposed Q&A Force Placement 1 and would discuss the
requirements that must be fulfilled before force placement can occur, as well as the notice
requirements a lender must follow prior to force placing flood insurance. The Agencies explain
in the proposed answer that if a lender, 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, then the lender 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. The proposed answer further provides that before
the lender or service must force place insurance, if the lender or servicer is aware that a borrower
has obtained insurance that otherwise satisfies the flood insurance requirements but in an
insufficient amount, the lender or servicer should inform the borrower an additional amount of
insurance is needed in order to comply with the Regulation. Finally, the proposed answer would
specify that if the borrower fails to obtain flood insurance within 45 days after notification, then
the lender or its servicer must purchase insurance on the borrower’s behalf at that time
ments but in an
insufficient amount, the lender or servicer should inform the borrower an additional amount of
insurance is needed in order to comply with the Regulation. Finally, the proposed answer would
specify that if the borrower fails to obtain flood insurance within 45 days after notification, then
the lender or its servicer must purchase insurance on the borrower’s behalf at that time. The
proposed answer explains that the lender must force place flood insurance for the full amount
required under the Regulation, or if the borrower purchases flood insurance that otherwise
satisfies the flood insurance requirements, but in an insufficient amount, the lender would be
required to force place only for the “insufficient amount,” that is, the difference between the
amount the borrower insured and the amount of flood insurance required under the Regulation.
35
Additionally, while not required under the Act or the Regulation, the Agencies indicate
that a lender or its servicer could include in the notice to the borrower the amount of flood
insurance needed to satisfy the statutory requirement. By providing this information, the lender
or its servicer can help ensure that a borrower obtains the appropriate amount of insurance.
New proposed Q&A Force Placement 2 would clarify that the Regulation requires the
lender, or its servicer, to send the borrower the force-placement notice upon making a
determination 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 Regulation.
Current Q&A 58 would be re-designated as proposed Q&A Force Placement 3 and would
remain unchanged
to send the borrower the force-placement notice upon making a
determination 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 Regulation.
Current Q&A 58 would be re-designated as proposed Q&A Force Placement 3 and would
remain unchanged. Proposed Q&A 60, re-proposed in 2011 but not finalized, would be re-
designated as proposed Q&A Force Placement 4 and would discuss whether a lender can satisfy
its notice requirement by sending the force-placement notice to the borrower prior to the
expiration of the flood insurance policy. The Agencies would specifically state in the proposed
answer that a lender or servicer must send a notice upon determining that the collateral property
securing the loan is either not covered by flood insurance or the insurance is inadequate.
Although the proposed answer provides that a lender may send notice prior to the expiration date
as a courtesy, the lender or servicer is still required to send notice upon determining the flood
insurance policy has actually lapsed or is determined to be insufficient in order to meet the
statutory requirement. Current Q&A 61 would be re-designated as proposed Q&A Force
Placement 5 and would contain minor revisions for clarity with no change in meaning or
substance. New proposed Force Placement 6 would clarify that, once a lender makes a
determination that a designated loan has no or insufficient flood insurance coverage, the lender
ed to be insufficient in order to meet the
statutory requirement. Current Q&A 61 would be re-designated as proposed Q&A Force
Placement 5 and would contain minor revisions for clarity with no change in meaning or
substance. New proposed Force Placement 6 would clarify that, once a lender makes a
determination that a designated loan has no or insufficient flood insurance coverage, the lender
36
must notify the borrower and, if the borrower fails to obtain sufficient flood insurance coverage
within 45 days after the original notice, the lender must purchase coverage on the borrower’s
behalf and may not extend the period for obtaining force-placed coverage by sending another
force-placement notice during that time. New proposed Q&A Force Placement 7 would address
when a force-placed policy should begin to provide coverage and give an example. Specifically,
the proposed answer would state that a lender’s new force-placed policy should begin to provide
coverage the day after the borrower’s existing policy expires. The proposed answer would also
state that a lender or its servicer may not require the borrower to pay for double coverage and
that the Regulation requires a lender or servicer to refund the borrower for any periods of overlap
between the borrower’s policy and the force-placed policy.
Current Q&A 59 would be re-designated as proposed Q&A Force Placement 8 and would
be significantly revised to discuss more fully the minimum amount of flood insurance coverage
that is statutorily required and to illustrate this point through a hypothetical example.
Specifically, the proposed answer would illustrate that if the outstanding principal balance is the
basis for the minimum amount of required flood insurance, the lender must ensure that the force-
placed policy amount covers the existing loan balance plus any additional force-placed premium
and fees that will be added to the loan balance
to illustrate this point through a hypothetical example.
Specifically, the proposed answer would illustrate that if the outstanding principal balance is the
basis for the minimum amount of required flood insurance, the lender must ensure that the force-
placed policy amount covers the existing loan balance plus any additional force-placed premium
and fees that will be added to the loan balance.
Current Q&A 62 would be re-designated as proposed Q&A Force Placement 9 and would
clarify that a lender or servicer may charge a borrower for the cost of force-placed insurance
beginning on the date of lapse or insufficient coverage, and would not have to wait 45 days after
providing notification to force place insurance. Lenders that monitor loans secured by property
located in an SFHA for continuous coverage of flood insurance help ensure that they complete
the force placement of flood insurance in a timely manner and minimize any gaps in coverage
37
and any charge to the borrower for coverage for a timeframe prior to the lender’s or its servicer’s
date of discovery and force placement. The proposed answer would explain that if a lender or
its servicer, despite its monitoring efforts, discovers a loan with no or insufficient coverage, it
may charge for the cost of premiums and fees incurred by the lender or servicer in purchasing the
flood insurance on the borrower’s behalf, including premiums and fees incurred for coverage
beginning on the date of lapse, if the lender has purchased a policy on the borrower’s behalf and
that policy was effective as of the date of the insufficient coverage.
The Agencies propose to add new Q&A Force Placement 10 to discuss whether the
addition of the amount of force-placed insurance policy premiums and fees to the outstanding
balance of a loan would constitute an “increase” that would trigger the applicability of flood
insurance regulatory requirements
e borrower’s behalf and
that policy was effective as of the date of the insufficient coverage.
The Agencies propose to add new Q&A Force Placement 10 to discuss whether the
addition of the amount of force-placed insurance policy premiums and fees to the outstanding
balance of a loan would constitute an “increase” that would trigger the applicability of flood
insurance regulatory requirements. In the answer to proposed Q&A Force Placement 10, the
Agencies discuss three options that the Agencies understand lenders currently use to charge a
borrower for force-placed flood insurance and the impact of each option on the amount of
coverage. Under the proposed Q&A, the subsequent treatment of the flood insurance premiums
and fees would depend on which method the lender chooses. Specifically, the proposed answer
provides that if the lender chooses to add the premium and fees to the mortgage balance and the
lender’s loan contract includes a provision permitting the lender or servicer to advance funds to
pay for flood insurance premiums and fees as additional debt, such an advancement would be
considered part of the loan and not an “increase” in the loan amount, and therefore would not be
considered a triggering event. The proposed Q&A continues to explain that if, however, there is
no explicit provision permitting such advancement in the loan contract, the addition of the force-
placed premiums and fees would be considered an “increase” in the loan amount and would be a
triggering event because no advancement of funds was contemplated as part of the loan. If the
would not be
considered a triggering event. The proposed Q&A continues to explain that if, however, there is
no explicit provision permitting such advancement in the loan contract, the addition of the force-
placed premiums and fees would be considered an “increase” in the loan amount and would be a
triggering event because no advancement of funds was contemplated as part of the loan. If the
38
premiums and fees are added to an unsecured account or billed directly to the borrower, the
proposed Q&A states that these approaches would not result in an increase in the loan balance
and therefore would not be considered triggering events.
New proposed Q&A Force Placement 11 would address the sufficiency of evidence of
flood insurance in connection with refunding premiums paid by a borrower for force-placed
insurance during any period of overlap with borrower-purchased insurance. The proposed
answer would provide that as stated in the Regulation, a lender is required to refund premiums
paid by a borrower for force-placed insurance during any period of overlap with borrower-
purchased insurance. The proposed answer would state that in that scenario, a lender must
accept a 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 and that the
Regulation does not require that the declarations page include any additional information. In
addition, the proposed answer would note that in situations not involving a lender’s refund of
premiums for force-placed insurance, the Regulation does not specify what documentation would
be sufficient. The proposed answer also provides that generally, it is appropriate, although not
required by the Regulation, for lenders to accept a copy of the flood insurance application and
premium payment as evidence of proof of purchase for new policies
uations not involving a lender’s refund of
premiums for force-placed insurance, the Regulation does not specify what documentation would
be sufficient. The proposed answer also provides that generally, it is appropriate, although not
required by the Regulation, for lenders to accept a copy of the flood insurance application and
premium payment as evidence of proof of purchase for new policies.
New proposed Q&A Force Placement 12 would reinforce the requirement that a lender is
to refund any premiums and fees paid for by the borrower for force-placed insurance for any
overlap period within 30 days of receipt of a confirmation of a borrower’s existing flood
insurance coverage without exception. Such refund is required even in situations in which a
lender cannot obtain a refund from the insurance company because the borrower did not provide
39
proof of coverage in a timely manner, or when the insurance company fails to provide the refund
within 30 days.
New proposed Q&A Force Placement 13 would explain that a lender can rely on a force-
placed insurance policy to satisfy the mandatory purchase requirement for a refinance or loan
modification if the borrower does not purchase his or her own policy. Assuming the force-
placed policy is in effect and otherwise satisfies the regulatory coverage standards, then that
policy may satisfy the mandatory purchase requirement. The Agencies suggest in the proposed
answer that lenders could encourage the borrower to purchase his or her own policy, likely at a
reduced cost, prior to the loan closing.
In response to an issue raised in the EGRPRA report, new proposed Q&A Force
Placement 14 would explain the process for renewal of force-placed coverage by requiring the
lender to follow its normal communications practice with its insurance provider to renew the
flood insurance policy on the borrower’s behalf to ensure that flood insurance coverage remains
in place
, prior to the loan closing.
In response to an issue raised in the EGRPRA report, new proposed Q&A Force
Placement 14 would explain the process for renewal of force-placed coverage by requiring the
lender to follow its normal communications practice with its insurance provider to renew the
flood insurance policy on the borrower’s behalf to ensure that flood insurance coverage remains
in place. Under the proposed answer, the lender is not required to send a notice prior to force-
placing insurance at the expiration of a force-placed policy. However, the proposed answer
provides that the lender or its servicer, at its discretion, may notify the borrower about its plan to
renew the force-placed policy.
New proposed Q&A Force Placement 15 would indicate that, although there is no
explicit duty to monitor flood insurance coverage over the life of the loan in the Act or
Regulation, for purposes of safety and soundness, many lenders obtain “life-of-loan” monitoring.
The Agencies believe such a practice could help ensure that lenders complete the force
placement of flood insurance in a timely manner upon lapse of a policy, that there is continuous
coverage, and that lenders are promptly made aware of flood map changes.
40
New proposed Q&A Force Placement 16 would address what the Act and Regulation
require a lender or its servicer to do if a lender or servicer receives a notice of remapping that
states that a property will be remapped into an SFHA as of a future effective date. The proposed
answer would clarify that if a lender or its servicer determines at any time during the term of a
designated loan that the building or mobile home and any personal property securing the loan is
uninsured or underinsured, the lender or servicer must begin the force-placement process. For a
loan secured by a property subject to a remapping that was not previously located in an SFHA,
such a loan does not become a designated loan until the effective date of the map change
during the term of a
designated loan that the building or mobile home and any personal property securing the loan is
uninsured or underinsured, the lender or servicer must begin the force-placement process. For a
loan secured by a property subject to a remapping that was not previously located in an SFHA,
such a loan does not become a designated loan until the effective date of the map change.
Therefore, when a lender or its servicer receives advance notice of a map change, the effective
date of the map change is the date the lender or servicer must determine whether the property is
covered by sufficient flood insurance. If the borrower does not purchase a flood insurance policy
that begins on the effective date of the map change, the lender or its servicer must send the force-
placement notice to the borrower.
XVI. Flood Insurance Requirements in the Event of the Sale or Transfer of a Designated Loan
and/or Its Servicing Rights
The Agencies propose to move current section VIII to proposed section XVI as part of
the overall reorganization of the Interagency Questions and Answers. Current Q&As 44 through
50 would be re-designated as proposed Q&As Servicing 1-7, respectively, with minor
nonsubstantive modifications to account for the change in the title of the head of FEMA from
“Director” to “Administrator” and for purposes of clarity.
XVII. Mandatory Civil Money Penalties
For organizational purposes, the Agencies propose to move current section XVI to
proposed section XVII. Current Q&As 81 and 82 would be included in this section and re–
cing 1-7, respectively, with minor
nonsubstantive modifications to account for the change in the title of the head of FEMA from
“Director” to “Administrator” and for purposes of clarity.
XVII. Mandatory Civil Money Penalties
For organizational purposes, the Agencies propose to move current section XVI to
proposed section XVII. Current Q&As 81 and 82 would be included in this section and re–
41
designated as proposed Q&As Penalty 1 and 2, respectively. The changes proposed to the Q&As
are for purposes of clarity and accuracy with no intended change in meaning or substance.
The Agencies solicit comments on all aspects of the revised and new proposed Q&As.
The following re-designation table is provided as an aid to assist the public in reviewing
the proposed revisions to the 2009 and 2011 Interagency Questions and Answers.
2009 & 2011 Interagency Q&A
Proposed Interagency Q&A
Section I. Determining When Certain Loans Are
Designated Loans for Which Flood Insurance Is
Required Under the Act and Regulation
Section 1, Question 1
Section 1, Question 2
Section 1, Question 3
Section 1, Question 4
Section 1, Question 5
Section 1, Question 6
Section 1, Question 7
Section I. Determining the Applicability of
Flood Insurance Requirements for Certain
Loans
Section I, Applicability 1
Section I, Applicability 4
Section I, Applicability 5
Section I, Applicability 9
Section I, Applicability 6
Section I, Applicability 7
Section I, Applicability 8
Section II. Determining the Appropriate Amount
of Flood Insurance Required Under the Act and
Regulation
Section II, Question 8
Section II, Question 9
Section II, Question 10
Section II, Question 11
Section II, Question 12
Section II, Question 13
Section II, Question 14
Section II, Question 15
Section II, Question 16
Section II, Question 17
Section VIII
y 7
Section I, Applicability 8
Section II. Determining the Appropriate Amount
of Flood Insurance Required Under the Act and
Regulation
Section II, Question 8
Section II, Question 9
Section II, Question 10
Section II, Question 11
Section II, Question 12
Section II, Question 13
Section II, Question 14
Section II, Question 15
Section II, Question 16
Section II, Question 17
Section VIII. Determining the Appropriate
Amount of Flood Insurance Required
Section VIII, Amount 1
Section VIII, Amount 2
Deleted
Section VIII, Amount 3
Section VIII, Amount 4
Section VIII, Amount 5
Section VIII, Amount 6
Section VIII, Amount 7
Section VIII, Amount 8
Section VIII, Amount 9
Section III. Exemptions from the Mandatory Flood
Insurance Requirements
Section III, Question 18
Section II. Exemptions from the Mandatory
Flood Insurance Purchase Requirements
Section II, Exemptions 1
42
2009 & 2011 Interagency Q&A
Proposed Interagency Q&A
Section IV. Flood Insurance Requirements for
Construction Loans
Section IV, Question 19
Section IV, Question 20
Section IV, Question 21
Section IV, Question 22
Section IV, Question 23
Section IX. Flood Insurance Requirements
for Construction Loans
Section IX. Construction 1
Section IX. Construction 2
Section IX. Construction 3
Section IX. Construction 4
Section IX. Construction 5
Section V. Flood Insurance Requirements for
Nonresidential Buildings
Section V, Question 24
Section V, Question 25
Section I, Applicability 2
Section I, Applicability 3
Section VI. Flood Insurance Requirements for
Residential Condominiums
Section VI, Question 26
Section VI, Question 27
Section VI, Question 28
Section VI, Question 29
Section VI, Question 30
Section VI, Question 31
Section VI, Question 32
Section VI, Question 33
Section X
ildings
Section V, Question 24
Section V, Question 25
Section I, Applicability 2
Section I, Applicability 3
Section VI. Flood Insurance Requirements for
Residential Condominiums
Section VI, Question 26
Section VI, Question 27
Section VI, Question 28
Section VI, Question 29
Section VI, Question 30
Section VI, Question 31
Section VI, Question 32
Section VI, Question 33
Section X. Flood Insurance Requirements for
Residential Condominiums and Co-Ops
Section X, Condo and Co-Op 1
Section X, Condo and Co-Op 2
Section X, Condo and Co-Op 3
Section X, Condo and Co-Op 4
Section X, Condo and Co-Op 5
Section X, Condo and Co-Op 6
Section X, Condo and Co-Op 7
Section X, Condo and Co-Op 8
Section VII. Flood Insurance Requirements for
Home Equity Loans, Lines of Credit, Subordinate
Liens, and Other Security Interests in Collateral
Located in an SHFA
Section VII, Question 34
Section VII, Question 35
Section VII, Question 36
Section VII, Question 37
Section VII, Question 38
Section VII, Question 39
Section VII, Question 40
Section VII, Question 41
Section VII, Question 42
Section VII, Question 43
Section XI. Flood Insurance Requirements
for Home Equity Loans, Lines of Credit,
Subordinate Liens, and Other Security
Interests in Collateral Located in an SFHA
Section XI, Other Security Interests 1
Section XI, Other Security Interests 2
Section XI, Other Security Interests 4
Section XI, Other Security Interests 5
Section XI, Other Security Interests 6
Section XI, Other Security Interests 7
Section XI, Other Security Interests 8
Section XI, Other Security Interests 9
Section XI, Other Security Interests 11
Section XI, Other Security Interests 12
Section VIII. Flood Insurance Requirements in the
Event of the Sale or Transfer of a Designated Loan
and/or Its Servicing Rights
Section VII, Question 44
Section VII, Question 45
Section VII, Question 46
Section VII, Question 47
Section VII, Question 48
Section VII, Question 49
Section XVI
urity Interests 9
Section XI, Other Security Interests 11
Section XI, Other Security Interests 12
Section VIII. Flood Insurance Requirements in the
Event of the Sale or Transfer of a Designated Loan
and/or Its Servicing Rights
Section VII, Question 44
Section VII, Question 45
Section VII, Question 46
Section VII, Question 47
Section VII, Question 48
Section VII, Question 49
Section XVI. Flood Insurance Requirements
in the Event of the Sale or Transfer of a
Designated Loan and/or Its Servicing Rights
Section XVI, Servicing 1
Section XVI, Servicing 2
Section XVI, Servicing 3
Section XVI, Servicing 4
Section XVI, Servicing 5
Section XVI, Servicing 6
43
2009 & 2011 Interagency Q&A
Proposed Interagency Q&A
Section VII, Question 50
Section XVI, Servicing 7
Section IX. Escrow Requirements
Section IX, Question 51
Section IX, Question 52
Section IX, Question 53
Section IX, Question 54
Section IX, Question 55
Section IX, Question 56
Section XII-VX. Requirement to Escrow
Flood Insurance Premiums and Fees
Section XII, Escrow 5
Section XII, Escrow 1
Deleted
Deleted
Section XIV, Loan Exception 1
Section XIV, Loan Exception 4
Section X. Force Placement
Section X, Question 57
Section X, Question 58
Section X, Question 59
Section X, Question 60
Section X, Question 61
Section X, Question 62
Section XV. Force Placement of Flood
Insurance
Section XV, Force Placement 1
Section XV, Force Placement 3
Section XV, Force Placement 8
Section XV, Force Placement 4
Section XV, Force Placement 5
Section XV, Force Placement 9
Section XI. Private Flood Insurance
Section XI, Question 63
Section XI, Question 64
Section III, Coverage – NFIP/Private Flood
Insurance
Section III, Coverage 1
Section III, Coverage 2
Section XII. Required Use of Standard Flood
Hazard Determination Form (SFHDF)
Section XII, Question 65
Section XII, Question 66
Section XII, Question 67
Section XII, Question 68
Section IV
acement 9
Section XI. Private Flood Insurance
Section XI, Question 63
Section XI, Question 64
Section III, Coverage – NFIP/Private Flood
Insurance
Section III, Coverage 1
Section III, Coverage 2
Section XII. Required Use of Standard Flood
Hazard Determination Form (SFHDF)
Section XII, Question 65
Section XII, Question 66
Section XII, Question 67
Section XII, Question 68
Section IV. Required Use of Standard Flood
Hazard Determination Form (SFHDF)
Section IV, SFHDF 1
Section IV, SFHDF 2
Section IV, SFHDF 3
Section IV, SFHDF 4
Section XIII. Flood Determination Fees
Section XIII, Question 69
Section XIII, Question 70
Section V. Flood Insurance Determination
Fees
Section V, Fees 1
Section V, Fees 2
Section XIV. Flood Zone Discrepancies
Section XIV, Question 71
Section XIV, Question 72
Section VI. Flood Zone Discrepancies
Section VI, Zone 1
Section VI, Zone 2
Section XV. Notice of Special Flood Hazards and
Availability of Federal Disaster Relief
Section XV, Question 73
Section XV, Question 74
Section XV, Question 75
Section XV, Question 76
Section XV, Question 77
Section XV, Question 78
Section XV, Question 79
Section VII. Notice of Special Flood Hazards
and Availability of Federal Disaster Relief
Section VII, Notice 1
Section VII, Notice 2
Section VII, Notice 3
Section VII, Notice 4
Section VII, Notice 4
Section VII, Notice 5
Section VII, Notice 6
44
2009 & 2011 Interagency Q&A
Proposed Interagency Q&A
Section XV, Question 80
Section VII, Notice 7
Section XVI. Mandatory Civil Money Penalties
Section XVI, Question 81
Section XVI, Question 82
Section XVII. Mandatory Civil Money
Penalties
Section XVII, Penalty 1
Section XVII, Penalty 2
Interagency Questions and Answers Regarding Flood Insurance
The Interagency Questions and Answers are organized by topic. Each topic addresses a
major area of flood insurance law and regulations
Section XVI. Mandatory Civil Money Penalties
Section XVI, Question 81
Section XVI, Question 82
Section XVII. Mandatory Civil Money
Penalties
Section XVII, Penalty 1
Section XVII, Penalty 2
Interagency Questions and Answers Regarding Flood Insurance
The Interagency Questions and Answers are organized by topic. Each topic addresses a
major area of flood insurance law and regulations. For ease of reference, the following terms are
used throughout this document: “Act” refers to the National Flood Insurance Act of 1968 and the
Flood Disaster Protection Act of 1973, as revised. “Regulation” refers to each agency’s current
final rule.1 “Lenders” refers only to regulated lending institutions as defined in the Act.2
“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. The
OCC, Board, FDIC, FCA, and NCUA, (collectively, “the Agencies”) are providing answers to
questions pertaining to the following topics:
I.
Determining the Applicability of Flood Insurance Requirements for Certain Loans
II.
Exemptions from the Mandatory Flood Insurance Purchase Requirements
III.
Coverage – NFIP/Private Flood Insurance
IV.
Required Use of Standard Flood Hazard Determination Form (SFHDF)
V.
Flood Insurance Determination Fees
VI.
Flood Zone Discrepancies
VII.
Notice of Special Flood Hazards and Availability of Federal Disaster Relief
VIII. Determining the Appropriate Amount of Flood Insurance Required
IX.
Flood Insurance Requirements for Construction Loans
X.
Flood Insurance Requirements for Residential Condominiums and Co-Ops
1 The Agencies’ rules are codified at 12 CFR part 22 (OCC), 12 CFR section 208.25 (Board), 12 CFR part 339
(FDIC), 12 CFR part 614, subpart S (FCA) and 12 CFR part 760 (NCUA).
2 42 U.S. Code § 4003 (a)(10).
ng the Appropriate Amount of Flood Insurance Required
IX.
Flood Insurance Requirements for Construction Loans
X.
Flood Insurance Requirements for Residential Condominiums and Co-Ops
1 The Agencies’ rules are codified at 12 CFR part 22 (OCC), 12 CFR section 208.25 (Board), 12 CFR part 339
(FDIC), 12 CFR part 614, subpart S (FCA) and 12 CFR part 760 (NCUA).
2 42 U.S. Code § 4003 (a)(10).
45
XI.
Flood Insurance Requirements for Home Equity Loans, Lines of Credit, Subordinate
Liens, and Other Security Interests in Collateral Located in an SFHA
XII.
Requirement to Escrow Flood Insurance Premiums and Fees – General
XIII. Requirement to Escrow Flood Insurance Premiums and Fees – Small Lender
Exception
XIV. Requirement to Escrow Flood Insurance Premiums and Fees – Loan Exceptions
XV.
Force Placement of Flood Insurance
XVI. Flood Insurance Requirements in the Event of the Sale or Transfer of a Designated
Loan and/or Its Servicing Rights
XVII. Mandatory Civil Money Penalties
I. DETERMINING THE APPLICABILITY OF FLOOD INSURANCE REQUIREMENTS FOR
CERTAIN LOANS
APPLICABILITY 1. Does the Regulation apply to a loan where the building or mobile
home securing such loan is located in a community that does not participate in the National
Flood Insurance Program (NFIP)?
Yes, the Regulation does apply; however, a lender need not require borrowers to obtain flood
insurance for a building or mobile home located in a community that does not participate in the
NFIP, even if the building or mobile home securing the loan is located in a Special Flood Hazard
Area (SFHA). Nonetheless, a lender, using the standard Special Flood Hazard Determination
Form (SFHDF), must still determine whether the building or mobile home is located in an
SFHA.3 If the building or mobile home is determined to be located in an SFHA, a lender is
required to mail or deliver a written notice to the borrower.4 In this case, a lender, generally,
may make a conventional loan without requiring flood insurance
, using the standard Special Flood Hazard Determination
Form (SFHDF), must still determine whether the building or mobile home is located in an
SFHA.3 If the building or mobile home is determined to be located in an SFHA, a lender is
required to mail or deliver a written notice to the borrower.4 In this case, a lender, generally,
may make a conventional loan without requiring flood insurance. However, because Federal
agencies such as the Small Business Administration, Veterans Administration, or Federal
Housing Administration are prohibited from guaranteeing or insuring a loan secured by a
building or mobile home located in an SFHA in a community that does not participate in the
3 12 CFR 22.6(a) (OCC); 12 CFR 208.25(f)(1) (Board); 12 CFR 339.6(a) (FDIC); 12 CFR 614.4940(a) (FCA); and
12 CFR 760.6(a) (NCUA).
4 12 CFR 22.9(a) (OCC); 12 CFR 208.25(i) (Board); 12 CFR 339.9(a) (FDIC); 12 CFR 614.4955(a) (FCA); and 12
CFR 760.9(a) (NCUA).
46
NFIP, a lender would not be able to make a federally guaranteed or insured loan. See 42 U.S.C.
4106(a). Also, a lender is responsible for exercising sound risk management practices to avoid
making a loan secured by a building or mobile home located in an SFHA where no flood
insurance is available, if doing so would pose an unacceptable risk to the lender.
APPLICABILITY 2. Some borrowers have buildings with limited utility or value and, in
many cases, the borrower would not replace them if lost in a flood
ender is responsible for exercising sound risk management practices to avoid
making a loan secured by a building or mobile home located in an SFHA where no flood
insurance is available, if doing so would pose an unacceptable risk to the lender.
APPLICABILITY 2. Some borrowers have buildings with limited utility or value and, in
many cases, the borrower would not replace them if lost in a flood. Must a lender require
flood insurance for such buildings?
Lenders must require flood insurance on a building or mobile home when those structures are
part of the property securing the loan and are located in an SFHA in a participating community.5
However, flood insurance is not required on a structure that is part of a residential property but is
detached from the primary residential structure of such property and does not serve as a
residence.6 If the limited utility or value structure does not qualify for the detached structure
exemption, a lender may consider “carving out” the building from the security it takes on the
loan to avoid having to require flood insurance on the structure. However, the lender should
fully analyze the risks of this option. In particular, a lender should consider whether and how it
would be able to market and sell the property securing its loan in the event of foreclosure.
APPLICABILITY 3. What are a lender’s requirements under the Regulation for a loan
secured by multiple buildings when some of the buildings are located in an SFHA in which
flood insurance is available and other buildings are not? What if the buildings are located
in different communities and some of the communities participate in the NFIP and others
do not?
5 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) (FCA); and
12 CFR 760.3(a) (NCUA).
6 12 CFR 22.4(c) (OCC); 12 CFR 208.25(d)(3) (Board); 12 CFR 339.4(c) (FDIC); 12 CFR 614.4932(c) (FCA); and
12 CFR 760.4(c) (NCUA).
at if the buildings are located
in different communities and some of the communities participate in the NFIP and others
do not?
5 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) (FCA); and
12 CFR 760.3(a) (NCUA).
6 12 CFR 22.4(c) (OCC); 12 CFR 208.25(d)(3) (Board); 12 CFR 339.4(c) (FDIC); 12 CFR 614.4932(c) (FCA); and
12 CFR 760.4(c) (NCUA).
47
A lender must determine whether any improved real property securing the loan is in an SFHA.7
In cases in which the loan is secured by multiple buildings and some of the buildings are located
in an SFHA in which flood insurance is available under the Act, but other buildings are not
located in an SFHA (or are located in an SFHA, but not in a participating community), a lender
is required to obtain flood insurance only on the buildings securing the loan that are located in an
SFHA in which flood insurance is available under the Act.8 For example, assume a loan is
secured by five buildings as follows:
• Buildings 1 and 2 are located in an SFHA and the community participates in the NFIP;
• Building 3 is not located in an SFHA; and
• Buildings 4 and 5 are located in an SFHA, but the communities do not participate in the
NFIP.
In this scenario, the lender is required to obtain insurance only on buildings 1 and 2. As a matter
of safety and soundness, however, a lender may decide to require the purchase of flood insurance
(from a private insurer) on buildings 4 and 5 because these buildings are located in an SFHA.
Further, depending on the risk factors of building 3, the lender may elect to require flood
insurance as a matter of safety and soundness, even if the building is not located in an SFHA.
APPLICABILITY 4
of safety and soundness, however, a lender may decide to require the purchase of flood insurance
(from a private insurer) on buildings 4 and 5 because these buildings are located in an SFHA.
Further, depending on the risk factors of building 3, the lender may elect to require flood
insurance as a matter of safety and soundness, even if the building is not located in an SFHA.
APPLICABILITY 4. What is a lender’s responsibility if a particular building or mobile
home that secures a loan is not located within an SFHA, or is no longer located within an
SFHA due to a map change?
Although a lender is not obligated to require mandatory flood insurance on a building or mobile
home securing a loan that is not located within an SFHA or is no longer located within an SFHA,
7 12 CFR 22.6(a) (OCC); 12 CFR 208.25(f)(1) (Board); 12 CFR 339.6(a) (FDIC); 12 CFR 614.4940(a) (FCA); and
12 CFR 760.6(a) (NCUA).
8 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) (FCA); and
12 CFR 760.3(a) (NCUA).
48
a lender may, at its discretion and taking into consideration State law, as appropriate, require
flood insurance for property outside of SFHAs for safety and soundness purposes as a condition
of a loan being made. Each lender should tailor its own flood insurance policies and procedures
to suit its business needs and protect its ongoing interest in the collateral. For loans in which the
property is no longer located in an SFHA, the borrower can elect to convert the existing NFIP
standard-rated policy to a lower cost NFIP Preferred Risk Policy, if available.
APPLICABILITY 5. Does a lender’s purchase from another lender of a loan secured by a
building or mobile home located in an SFHA in which flood insurance is available under
the Act trigger any requirements under the Regulation?
No
no longer located in an SFHA, the borrower can elect to convert the existing NFIP
standard-rated policy to a lower cost NFIP Preferred Risk Policy, if available.
APPLICABILITY 5. Does a lender’s purchase from another lender of a loan secured by a
building or mobile home located in an SFHA in which flood insurance is available under
the Act trigger any requirements under the Regulation?
No. A lender’s purchase of a loan, secured by a building or mobile home located in an SFHA in
which flood insurance is available under the Act, alone, is not an event that triggers the
Regulation’s requirements, such as making a new flood determination or requiring a borrower to
purchase flood insurance. Requirements under the Regulation are triggered when a lender
makes, increases, extends, or renews a designated loan.9 A lender’s purchase of a loan does not
fall within any of those categories.
However, if a lender becomes aware at any point during the life of a designated loan that flood
insurance is required, the requirements of the Regulation apply, including force placing
insurance, if necessary.10 Depending on the circumstances, the lender may need to conduct due
diligence for safety and soundness reasons, which could include determining whether flood
insurance on purchased loans is required. Additionally, if the purchasing lender subsequently
9 12 CFR 22.2(e), 22.3(a) (OCC); 12 CFR 208.25(b)(5), 208.25(c)(1) (Board); 12 CFR 339.2, 339.3(a) (FDIC); 12
CFR 614.4925, 614.4930 (FCA); and 12 CFR 760.2, 760.3(a) (NCUA).
10 12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) (Board); 12 CFR 339.7(a) (FDIC); 12 CFR 614.4945(a) (FCA); and
12 CFR 760.7(a) (NCUA).
on purchased loans is required. Additionally, if the purchasing lender subsequently
9 12 CFR 22.2(e), 22.3(a) (OCC); 12 CFR 208.25(b)(5), 208.25(c)(1) (Board); 12 CFR 339.2, 339.3(a) (FDIC); 12
CFR 614.4925, 614.4930 (FCA); and 12 CFR 760.2, 760.3(a) (NCUA).
10 12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) (Board); 12 CFR 339.7(a) (FDIC); 12 CFR 614.4945(a) (FCA); and
12 CFR 760.7(a) (NCUA).
49
refinances, extends, increases, or renews a designated loan, it must comply with the
Regulation.11
APPLICABILITY 6. Does the Regulation apply to loans that are being restructured or
modified?
It depends. If the loan otherwise meets the definition of a designated loan and if the lender
increases the amount of the loan, or extends or renews the terms of the original loan, then the
Regulation applies.12
APPLICABILITY 7. Are table funded loans treated as new loan originations?
Yes. Table funding, as defined in the Regulation, 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.13 A loan made through a table funding process is treated as though the
party advancing the funds has originated the loan.14 The funding party is required to comply
with the Regulation. The table funding lender can meet the administrative requirements of the
Regulation by requiring the party processing and underwriting the application to perform those
functions on its behalf.
APPLICABILITY 8. Is a lender required by the Act or the Regulation to perform a review
of its, or of its servicer’s, existing loan portfolio for compliance with the flood insurance
requirements under the Act and Regulation?
11 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930 (FCA); and 12
CFR 760.3(a) (NCUA).
12 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930 (FCA); and 12
CFR 760.3(a) (NCUA)
of its, or of its servicer’s, existing loan portfolio for compliance with the flood insurance
requirements under the Act and Regulation?
11 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930 (FCA); and 12
CFR 760.3(a) (NCUA).
12 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930 (FCA); and 12
CFR 760.3(a) (NCUA).
13 12 CFR 22.2(m) (OCC); 12 CFR 208.25(b)(11) (Board); 12 CFR 339.2 (FDIC); 12 CFR 614.4925 (FCA); and 12
CFR 760.2 (NCUA).
14 12 CFR 22.3(b) (OCC); 12 CFR 208.25(c)(2) (Board); 12 CFR 339.3(b) (FDIC); 12 CFR 614.4930(b) (FCA); and
12 CFR 760.3(b) (NCUA).
50
No. Apart from the requirements mandated when a loan is made, increased, extended, or
renewed, a lender need only review and take action on any part of its existing portfolio for safety
and soundness purposes, or if it knows or has reason to know of the need for NFIP coverage.15
Regardless of the lack of such requirement in the Act and Regulation, however, sound risk
management practices may lead a lender to conduct scheduled periodic reviews that track the
need for flood insurance on a loan portfolio.
APPLICABILITY 9. Do the mandatory purchase requirements under the Act and
Regulation apply when a lender participates in a loan syndication or participation?
The acquisition by a lender of an interest in a loan either by participation or syndication after that
loan has been made does not trigger the requirements of the Act or the Regulation, such as
making a new flood determination or requiring a borrower to purchase flood insurance.
Nonetheless, as with purchased loans, depending upon the circumstances, the lender may
undertake due diligence for safety and soundness purposes to protect itself against the risk of
flood or other types of loss
that
loan has been made does not trigger the requirements of the Act or the Regulation, such as
making a new flood determination or requiring a borrower to purchase flood insurance.
Nonetheless, as with purchased loans, depending upon the circumstances, the lender may
undertake due diligence for safety and soundness purposes to protect itself against the risk of
flood or other types of loss.
Lenders who pool or contribute funds that will be simultaneously advanced to a borrower or
borrowers as a loan secured by improved real estate would be making a loan that triggers the
requirements of the Act and Regulation.16 Federal flood insurance requirements also would
apply when a group of lenders refinances, extends, renews or increases a loan.17 Although the
15 12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) (Board); 12 CFR 339.7(a) (FDIC); 12 CFR 614.4945(a) (FCA); and
12 CFR 760.7(a) (NCUA).
16 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) (FCA); and
12 CFR 760.3(a) (NCUA).
17 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) (FCA); and
12 CFR 760.3(a) (NCUA).
51
agreement among the lenders may assign compliance duties to a lead lender or agent, and include
clauses in which the lead lender or agent indemnifies participating lenders against flood losses,
each participating lender remains individually responsible for compliance with the Act and
Regulation. Therefore, the Agencies will examine whether the regulated institution/participating
lender has performed upfront due diligence to determine whether the lead lender or agent has
undertaken the necessary activities to ensure that the borrower obtains appropriate flood
insurance and that the lead lender or agent has adequate controls to monitor the loan(s) on an
ongoing basis for compliance with the flood insurance requirements
ine whether the regulated institution/participating
lender has performed upfront due diligence to determine whether the lead lender or agent has
undertaken the necessary activities to ensure that the borrower obtains appropriate flood
insurance and that the lead lender or agent has adequate controls to monitor the loan(s) on an
ongoing basis for compliance with the flood insurance requirements. Further, the Agencies
expect the participating lender to have adequate controls to monitor the activities of the lead
lender or agent for compliance with flood insurance requirements over the term of the loan.
APPLICABILITY 10. Is a lender expected to consider any triggering event or any cashless
roll of which it becomes aware in any tranche of a multi-tranche credit facility, regardless
of whether the lender participates in the affected tranche?
No. Consistent with Q&A Applicability 9, the Agencies expect that a lender participating in a
multi-tranche credit facility will perform upfront due diligence to determine whether the lead
lender has adequate controls to monitor the loan on an ongoing basis for compliance with the
flood insurance requirements. Even though each lender participating in a tranche in a multi-
tranche credit facility remains individually responsible for compliance with the flood insurance
requirements relating to structures securing the tranche in which it participates, this obligation
can be achieved through the upfront due diligence process when determining the lead
lender/administrative agent’s ongoing monitoring for compliance with flood insurance
requirements.
nche in a multi-
tranche credit facility remains individually responsible for compliance with the flood insurance
requirements relating to structures securing the tranche in which it participates, this obligation
can be achieved through the upfront due diligence process when determining the lead
lender/administrative agent’s ongoing monitoring for compliance with flood insurance
requirements.
52
A multi-tranche credit facility is analogous in many respects to a loan syndication or
participation. Q&A Applicability 9 addresses applicability of the mandatory purchase
requirements when a lender participates in a loan syndication or participation. Similar to a loan
syndication or participation, a multi-tranche credit facility involves one credit agreement that
describes and governs all the tranches. In addition, similar to a loan syndication or participation,
a multi-tranche credit facility typically has one lead lender that acts as the administrative agent
for the credit facility and its tranches. Thus, the Agencies do not expect a lender participating in
one tranche in a multi-tranche credit facility to be responsible for taking direct steps to comply
with flood insurance requirements in connection with a triggering event (i.e., making, increasing,
extending or renewing) or cashless roll that occurs in a tranche in which the lender does not
participate.
A multi-tranche commercial credit facility is a loan arrangement containing more than one type
of loan or tranche. Each loan within the overall credit facility is made to the same borrower or
group of related borrowers, but the loans may have different lenders and different terms and
conditions. For example, a credit facility might have one tranche that is a revolving line of credit
with a one-year maturity date and one or more additional tranches that are fixed rate loans with
different interest rates and different maturity dates. Various lenders may participate in each
tranche
group of related borrowers, but the loans may have different lenders and different terms and
conditions. For example, a credit facility might have one tranche that is a revolving line of credit
with a one-year maturity date and one or more additional tranches that are fixed rate loans with
different interest rates and different maturity dates. Various lenders may participate in each
tranche. Generally, the tranches share the same collateral and there is one credit agreement that
describes and governs all the tranches.
Under most multi-tranche credit facility agreements, a triggering event can occur within a
particular tranche without any requirement to notify and obtain the consent of the lenders not
participating in that tranche. Lenders may also participate in a “cashless roll,” which is an
exchange of an existing loan for a new or amended loan without any transfer of cash. A cashless
53
roll may be used to replace or supplement existing tranches, but not to increase the total amount
of committed debt; therefore, this is not considered a triggering event.
APPLICABILITY 11. Does an automatic extension of a credit facility, that was agreed
upon by the borrower and the lender at loan origination and memorialized in the loan
agreement, constitute a triggering event (i.e., making, increasing, extending or renewing)
that would trigger the federal flood insurance requirements?
No. An automatic extension of a credit facility that was agreed upon by the lender and the
borrower at loan origination and memorialized in the loan agreement does not constitute a
triggering event (i.e., making, increasing, extending or renewing) that would trigger the federal
flood insurance requirements, because the automatic extension was agreed to in the original loan
contract.
APPLICABILITY 12
automatic extension of a credit facility that was agreed upon by the lender and the
borrower at loan origination and memorialized in the loan agreement does not constitute a
triggering event (i.e., making, increasing, extending or renewing) that would trigger the federal
flood insurance requirements, because the automatic extension was agreed to in the original loan
contract.
APPLICABILITY 12. What is the applicability of the mandatory purchase requirement
during a period of time when coverage under the NFIP is not available?
During a period when coverage under the NFIP is not available, such as due to a lapse in
authorization or in appropriations, lenders may continue to make loans subject to the Regulation
without requiring flood insurance coverage. However, lenders must continue to make flood
determinations,18 provide timely, complete, and accurate notices to borrowers,19 and comply
with other applicable parts of the Regulation.
In addition, lenders should evaluate safety and soundness and legal risks and prudently manage
those risks during a period when coverage under the NFIP is not available. Lenders should take
18 12 CFR 22.6(a) (OCC); 12 CFR 208.25(f)(1) (Board); 12 CFR 339.6(a) (FDIC); 12 CFR 614.4940(a) (FCA); and
12 CFR 760.6(a) (NCUA).
19 12 CFR 22.9(a) (OCC); 12 CFR 208.25(i) (Board); 12 CFR 339.9(a) (FDIC); 12 CFR 614.4955(a) (FCA); and 12
CFR 760.9(a) (NCUA).
54
appropriate measures or consider possible options in consultation with the borrower to mitigate
loss exposures in the event of a flood during such periods. For example,
• Lenders may determine the risk of loss is sufficient to justify a postponement in closing
the loan until the NFIP coverage is available again.
• Lenders may require the borrower to obtain private flood insurance if available, as a
condition of closing the loan
ble options in consultation with the borrower to mitigate
loss exposures in the event of a flood during such periods. For example,
• Lenders may determine the risk of loss is sufficient to justify a postponement in closing
the loan until the NFIP coverage is available again.
• Lenders may require the borrower to obtain private flood insurance if available, as a
condition of closing the loan. However, after considering the cost of the private flood
policy, a lender or the borrower may decide to postpone closing rather than incur a long-
term obligation to address a possible short-term lapse.
• Lenders may make the loan without requiring the borrower to apply for flood insurance
and pay the premium while NFIP coverage is unavailable. However, this option poses a
number of risks that should be carefully evaluated. Moreover, once NFIP coverage
becomes available again, the Agencies expect that flood insurance will be obtained for
these loans, including, if necessary, by force placement.20 Before making such loans,
lenders should make borrowers aware of the flood insurance requirements and that force-
placed insurance is typically more costly than borrower-obtained insurance. Lenders also
should have a process to identify these loans to ensure that insurance is promptly
purchased when NFIP coverage becomes available subsequent to their closing.
II. EXEMPTIONS FROM THE MANDATORY FLOOD INSURANCE PURCHASE
REQUIREMENTS
EXEMPTIONS 1. What are the exemptions from the mandatory purchase requirement?
20 12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) (Board); 12 CFR 339.7(a) (FDIC); 12 CFR 614.4945(a) (FCA); and
12 CFR 760.7(a) (NCUA).
e that insurance is promptly
purchased when NFIP coverage becomes available subsequent to their closing.
II. EXEMPTIONS FROM THE MANDATORY FLOOD INSURANCE PURCHASE
REQUIREMENTS
EXEMPTIONS 1. What are the exemptions from the mandatory purchase requirement?
20 12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) (Board); 12 CFR 339.7(a) (FDIC); 12 CFR 614.4945(a) (FCA); and
12 CFR 760.7(a) (NCUA).
55
There are only three exemptions from the mandatory requirement to purchase flood insurance on
a designated loan. The first applies to State-owned property covered under a policy of self-
insurance satisfactory to the Administrator of FEMA.21 The second applies if both the original
principal balance of the loan is $5,000 or less, and the original repayment term is one year or
less.22 The third applies to any structure that is a part of any residential property but is detached
from the primary residential structure of such property and does not serve as a residence. For
purposes of the detached structure exemption, a “structure that is a part of residential property” is
a structure used primarily for personal, family, or household purposes, and not used primarily for
agricultural, commercial, industrial, or other business purposes. In addition, a structure is
“detached” from the primary residential structure if it is not joined by any structural connection
to that structure. Furthermore, whether a structure “does not serve as a residence” is based upon
the good faith determination of the lender that the structure is not intended for use or actually
used as a residence, which generally includes sleeping, bathroom, or kitchen facilities.23 If one
of these exemptions applies, a borrower may still elect to purchase flood insurance. Also, a
lender may require flood insurance as a condition of making the loan, as a matter of safety and
soundness.
EXEMPTIONS 2
determination of the lender that the structure is not intended for use or actually
used as a residence, which generally includes sleeping, bathroom, or kitchen facilities.23 If one
of these exemptions applies, a borrower may still elect to purchase flood insurance. Also, a
lender may require flood insurance as a condition of making the loan, as a matter of safety and
soundness.
EXEMPTIONS 2. Does a lender have to take a security interest in the primary residential
structure for detached structures to be eligible for the detached structure exemption? For
example, suppose the house on a farm is not collateral, but all of the outbuildings including
the barn, the equipment storage shed, and the silo (which are used for farm production),
and a detached garage where the homeowner keeps his car, are taken as collateral. May
the lender apply the detached structure exemption to the outbuildings?
21 12 CFR 22.4(a) (OCC); 12 CFR 208.25(d)(1) (Board); 12 CFR 339.4(a) (FDIC); 12 CFR 614.4932(a) (FCA); and
12 CFR 760.4(a) (NCUA).
22 12 CFR 22.4(b) (OCC); 12 CFR 208.25(d)(2) (Board); 12 CFR 339.4(b) (FDIC); 12 CFR 614.4932(b) (FCA); and
12 CFR 760.4(b) (NCUA).
23 12 CFR 22.4(c) (OCC); 12 CFR 208.25(d)(3) (Board); 12 CFR 339.4(c) (FDIC); 12 CFR 614.4932(c) (FCA); and
12 CFR 760.4(c) (NCUA).
56
The lender does not have to take a security interest in the primary residential structure for
detached structures to be eligible for the exemption, but the lender needs to evaluate the uses of
detached structures to determine if they are eligible.24 The term “a structure that is part of a
residential property” in the detached structure exemption applies only to structures for which
there is a residential use and not to structures for which there is a commercial, agricultural, or
other business use.25 In this example, only the garage is serving a residential use, so it could
qualify for the exemption
to determine if they are eligible.24 The term “a structure that is part of a
residential property” in the detached structure exemption applies only to structures for which
there is a residential use and not to structures for which there is a commercial, agricultural, or
other business use.25 In this example, only the garage is serving a residential use, so it could
qualify for the exemption. The barn, equipment storage shed, and silo, which are used for farm
production, would not qualify for the exemption.
EXEMPTIONS 3. Do detached structures require a flood hazard determination to be
performed even if coverage is not required?
Because a flood hazard determination is often needed to identify the number and types of
structures on the property, conducting a flood hazard determination remains necessary for the
lender to be able to comply with the flood insurance requirements.26
EXEMPTIONS 4. If a borrower currently has a flood insurance policy on a detached
structure that is part of residential property and the detached structure does not serve as a
residence, may the lender or its servicer cancel its requirement to carry flood insurance on
that structure?
Yes. If a borrower has a flood insurance policy on a detached structure that is part of a
residential property and does not serve as a residence, the lender is no longer mandated by the
24 12 CFR 22.4(c) (OCC); 12 CFR 208.25(d)(3) (Board); 12 CFR 339.4(c) (FDIC); 12 CFR 614.4932(c) (FCA); and
12 CFR 760.4(c) (NCUA).
25 12 CFR 22.4(c)(1) (OCC); 12 CFR 208.25(d)(3)(i) (Board); 12 CFR 339.4(c)(1)(FDIC); 12 CFR 614.4932(c)(1)
(FCA); and 12 CFR 760.4(c)(1) (NCUA).
26 12 CFR 22.6(a) (OCC); 12 CFR 208.25(f)(1) (Board); 12 CFR 339.6(a) (FDIC); 12 CFR 614.4940(a) (FCA); and
12 CFR 760.6(a) (NCUA).
(OCC); 12 CFR 208.25(d)(3) (Board); 12 CFR 339.4(c) (FDIC); 12 CFR 614.4932(c) (FCA); and
12 CFR 760.4(c) (NCUA).
25 12 CFR 22.4(c)(1) (OCC); 12 CFR 208.25(d)(3)(i) (Board); 12 CFR 339.4(c)(1)(FDIC); 12 CFR 614.4932(c)(1)
(FCA); and 12 CFR 760.4(c)(1) (NCUA).
26 12 CFR 22.6(a) (OCC); 12 CFR 208.25(f)(1) (Board); 12 CFR 339.6(a) (FDIC); 12 CFR 614.4940(a) (FCA); and
12 CFR 760.6(a) (NCUA).
57
Act to require flood insurance on that structure.27 The lender may allow the borrower to cancel
the policy. If warranted as a matter of safety and soundness, the lender may continue to require
flood insurance coverage on the detached structure.
EXEMPTIONS 5. If a property is remapped into an SFHA, does that trigger a review of
the intended use of each detached structure?
No. A lender must examine the status of a detached structure upon a qualifying triggering event
– i.e., making, increasing, extending, or renewing a loan.28 A remapping is not a triggering
event. There is no duty to monitor the status of a detached structure following the lender’s initial
determination. However, regardless of the absence of such requirement in the Regulation, sound
risk management practices may lead a lender to conduct scheduled periodic reviews that track
the need for flood insurance on a loan portfolio. Consistent with existing obligations under the
Regulation, if a lender determines at any time that a property has become subject to the
mandatory flood insurance purchase requirement and, as a result, the collateral is uninsured or
underinsured, the lender has a duty to inform the borrower of the obligation to obtain or increase
insurance coverage and to purchase flood insurance on the borrower’s behalf, as necessary.29
EXEMPTIONS 6
the
Regulation, if a lender determines at any time that a property has become subject to the
mandatory flood insurance purchase requirement and, as a result, the collateral is uninsured or
underinsured, the lender has a duty to inform the borrower of the obligation to obtain or increase
insurance coverage and to purchase flood insurance on the borrower’s behalf, as necessary.29
EXEMPTIONS 6. May a lender review current loans in its portfolio as the flood insurance
policies renew and determine that it will no longer require flood insurance on a detached
structure in an SFHA if the structure does not contribute to the value of the property
securing the loan?
27 12 CFR 22.4(c) (OCC); 12 CFR 208.25(d)(3) (Board); 12 CFR 339.4(c) (FDIC); 12 CFR 614.4932(c) (FCA); and
12 CFR 760.4(c) (NCUA).
28 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) (FCA); and
12 CFR 760.3(a) (NCUA).
29 12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) (Board); 12 CFR 339.7(a) (FDIC); 12 CFR 614.4945(a) (FCA); and
12 CFR 760.7(a) (NCUA).
58
A lender or servicer could initiate such a review; however, the Regulation does not permit the
exemption of structures from the mandatory flood insurance purchase requirement based solely
on whether the detached structure contributes value to the overall residential property securing
the loan.30 In the case of any residential property, flood insurance is not required on any
structure that is part of such property as long as it is detached from the primary residential
structure and does not serve as a residence.31 In addition, there are other exemptions that could
apply: the exemption for State-owned property covered under a policy of self-insurance
satisfactory to the Administrator of FEMA or the exemption for property securing any loan with
an original principal balance of $5,000 or less and a repayment term of one year or less.32
EXEMPTIONS 7
sidential
structure and does not serve as a residence.31 In addition, there are other exemptions that could
apply: the exemption for State-owned property covered under a policy of self-insurance
satisfactory to the Administrator of FEMA or the exemption for property securing any loan with
an original principal balance of $5,000 or less and a repayment term of one year or less.32
EXEMPTIONS 7. If a loan is secured by a residential property and is joined to another
building by a stairway or covered walkway, for purposes of Federal flood insurance
requirements, would the other building qualify as a detached structure?
For purposes of the detached structure exemption, a structure is “detached” from the primary
residential structure if it is not joined by any structural connection to that structure.33 That is, a
structure is “detached” if it stands alone. This definition is consistent with the coverage
provision of the NFIP’s Standard Flood Insurance Policy (SFIP) for additions and extensions to
the dwelling unit. In this case, the connected structure would not qualify as a detached structure
because it is attached to the primary residence.
30 12 CFR 22.4 (OCC); 12 CFR 208.25(d) (Board); 12 CFR 339.4 (FDIC); 12 CFR 614.4932 (FCA); and 12 CFR
760.4 (NCUA).
31 12 CFR 22.4(c) (OCC); 12 CFR 208.25(d)(3) (Board);12 CFR 339.4(c) (FDIC); 12 CFR 614.4932(c) (FCA); and
12 CFR 760.4(c) (NCUA).
32 12 CFR 22.4(a) and (b) (OCC); 12 CFR 208.25(d)(1) and (2) (Board); 12 CFR 339.4(a) and (b) (FDIC); 12 CFR
614.4932(a) and (b) (FCA); and 12 CFR 760.4(a) and (b) (NCUA).
3312 CFR 22.4(c)(2) (OCC); 12 CFR 208.25(d)(3)(ii) (Board); 12 CFR 339.4(c)(2) (FDIC); 12 CFR 614.4932(c)(2)
(FCA); and 12 CFR 760.4(c)(2) (NCUA).
CFR 339.4(c) (FDIC); 12 CFR 614.4932(c) (FCA); and
12 CFR 760.4(c) (NCUA).
32 12 CFR 22.4(a) and (b) (OCC); 12 CFR 208.25(d)(1) and (2) (Board); 12 CFR 339.4(a) and (b) (FDIC); 12 CFR
614.4932(a) and (b) (FCA); and 12 CFR 760.4(a) and (b) (NCUA).
3312 CFR 22.4(c)(2) (OCC); 12 CFR 208.25(d)(3)(ii) (Board); 12 CFR 339.4(c)(2) (FDIC); 12 CFR 614.4932(c)(2)
(FCA); and 12 CFR 760.4(c)(2) (NCUA).
59
For purposes of insurance coverage under the NFIP, FEMA provides that if one building is
attached to another through a covered breezeway or similar connection, it may be insured as one
building under one policy or may be insured separately under two policies. See the FEMA NFIP
Flood Insurance Manual for guidance.
III. COVERAGE – NFIP/PRIVATE FLOOD INSURANCE
COVERAGE 1. What are some factors to consider when determining whether a flood
insurance policy issued by a private insurer provides sufficient protection of a loan secured
by improved real property located in an SFHA, consistent with general safety and
soundness principles?
Some factors, among others, that a lender could consider in determining whether a policy
provides sufficient protection of a loan include whether: 1) a policy’s deductibles are reasonable
based on the borrower’s financial condition; 2) the insurer provides adequate notice of
cancellation to the mortgagor and mortgagee to allow for timely force placement of flood
insurance, if necessary; 3) the terms and conditions of the policy with respect to payment per
occurrence or per loss and aggregate limits are adequate to protect the regulated lending
institution’s interest in the collateral; 4) the flood insurance policy complies with applicable State
insurance laws; and 5) the private insurance company has the financial solvency, strength, and
ability to satisfy claims.
COVERAGE 2
3) the terms and conditions of the policy with respect to payment per
occurrence or per loss and aggregate limits are adequate to protect the regulated lending
institution’s interest in the collateral; 4) the flood insurance policy complies with applicable State
insurance laws; and 5) the private insurance company has the financial solvency, strength, and
ability to satisfy claims.
COVERAGE 2. May a lender rely on a private insurance policy providing portfolio-wide
coverage to meet the flood insurance purchase requirement or the force placement
requirement under the Regulation?
No. A private insurance policy that provides a lender portfolio-wide coverage may provide
protection to the lender in certain circumstances. For example, when a flood insurance policy
60
has expired and the borrower has failed to renew coverage, private insurance policies providing
portfolio-wide coverage may be useful protection for the lender for a gap in coverage in the
period of time before a force-placed policy takes effect. However, even if a lender has portfolio-
wide coverage to address gaps, the lender must still ensure the flood insurance purchase
requirement is satisfied at the time a loan is made, increased, renewed or extended, and the
lender must still force place coverage on the borrower’s behalf in a timely manner, as required,34
and may not rely on a private insurance policy that provides portfolio-wide coverage as a
substitute for a force-placed policy.
COVERAGE 3. When does mandatory flood insurance on a designated loan need to be in
place during the closing process?
The Regulation states that a lender cannot “make” a loan secured by a property in an SFHA
without adequate flood insurance coverage being in place.35 A lender should use the loan
“closing date” to determine the date by which flood insurance must be in place for a designated
loan. FEMA deems the “closing date” as the day the ownership of the property transfers to the
new owner based on State law
Regulation states that a lender cannot “make” a loan secured by a property in an SFHA
without adequate flood insurance coverage being in place.35 A lender should use the loan
“closing date” to determine the date by which flood insurance must be in place for a designated
loan. FEMA deems the “closing date” as the day the ownership of the property transfers to the
new owner based on State law.
“Wet funding” and “dry funding,” which varies by State, refer to when a mortgage is considered
officially closed. In a “wet” settlement State, the signing of closing documents, funding, and
transfer of title occur all on the same day. By contrast, in a “dry” settlement State, documents
are signed on one date, but loan funding and/or transfer of title/recording occur on subsequent
34 12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) (Board); 12 CFR 339.7(a) (FDIC); 12 CFR 614.4945(a) (FCA); and
12 CFR 760.7(a) (NCUA).
35 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) (FCA); and
12 CFR 760.3(a) (NCUA).
61
date(s). Therefore, in “dry” settlement States, the “closing date” is the date of property transfer,
regardless of loan signing or funding date.
It is also important to note that the application and premium payment for NFIP flood insurance
must be provided at or prior to the closing date since this impacts the FEMA flood insurance
effective date and any resulting 30-day waiting period for new policies not made in connection
with a triggering event. This application requirement applies for properties located in both dry
and wet settlement States. See NFIP Flood Insurance Manual.
IV. REQUIRED USE OF STANDARD FLOOD HAZARD DETERMINATION FORM
(SFHDF)
SFHDF 1. Does the SFHDF replace the borrower notification form?
No
ce
effective date and any resulting 30-day waiting period for new policies not made in connection
with a triggering event. This application requirement applies for properties located in both dry
and wet settlement States. See NFIP Flood Insurance Manual.
IV. REQUIRED USE OF STANDARD FLOOD HAZARD DETERMINATION FORM
(SFHDF)
SFHDF 1. Does the SFHDF replace the borrower notification form?
No. The SFHDF is used by the lender to determine whether the building or mobile home offered
as collateral security for a loan is or will be located in an SFHA in which flood insurance is
available under the Act.36 The notification form, on the other hand, is used to notify the
borrower(s) that the building or mobile home is or will be located in an SFHA and to inform the
borrower(s) about flood insurance requirements and the availability of Federal disaster relief
assistance.37
SFHDF 2. May a lender provide the SFHDF to the borrower?
36 12 CFR 22.6(a) (OCC); 12 CFR 208.25(f)(1) (Board); 12 CFR 339.6 (FDIC); 12 CFR 614.4940 (FCA); and 12
CFR 760.6 (NCUA).
37 12 CFR 22.9 (OCC); 12 CFR 208.25(i) (Board); 12 CFR 339.9 (FDIC); 12 CFR 614.4955 (FCA); and 12 CFR
760.9 (NCUA).
62
Yes. Although not a statutory requirement, a lender may provide a copy of the flood
determination to the borrower so they can better understand their flood risk. The Agencies note
that under the FEMA process for a Letter of Determination Review (LODR), a lender would also
need to make the determination available to the borrower. FEMA requires that the lender and
the borrower request the LODR jointly within 45-days of the notification of the requirement to
purchase flood insurance for a fee. In the event a lender provides the SFHDF to the borrower,
the signature of the borrower is not required to acknowledge receipt of the form.
SFHDF 3
), a lender would also
need to make the determination available to the borrower. FEMA requires that the lender and
the borrower request the LODR jointly within 45-days of the notification of the requirement to
purchase flood insurance for a fee. In the event a lender provides the SFHDF to the borrower,
the signature of the borrower is not required to acknowledge receipt of the form.
SFHDF 3. May the SFHDF be used in electronic format?
Yes.38 In the final rule adopting the SFHDF, FEMA stated: “If an electronic format is used, the
format and exact layout of the Standard Flood Hazard Determination Form is not required, but
the fields and elements listed on the form are required. Any electronic format used by lenders
must contain all mandatory fields indicated on the form.” It should be noted that the lender must
be able to reproduce the form upon receiving a document request by its Federal supervisory
agency.
SFHDF 4. May a lender rely on a previous determination for a refinancing or assumption
of a loan or multiple loans to the same borrower secured by the same property?
It depends. The Act (42 U.S.C. 4104b(e)) permits a lender to rely on a previous flood
determination using the SFHDF when it increases, extends, renews, or purchases a loan secured
by a building or a mobile home. Under the Act, the “making” of a loan is not listed as a
permissible event that permits a lender to rely on a previous determination. When the loan
38 12 CFR 22.6(b) (OCC); 12 CFR 208.25(f)(2) (Board); 12 CFR 339.6(b) (FDIC); 12 CFR 614.4940(a) (FCA); and
12 CFR 760.6(b) (NCUA).
using the SFHDF when it increases, extends, renews, or purchases a loan secured
by a building or a mobile home. Under the Act, the “making” of a loan is not listed as a
permissible event that permits a lender to rely on a previous determination. When the loan
38 12 CFR 22.6(b) (OCC); 12 CFR 208.25(f)(2) (Board); 12 CFR 339.6(b) (FDIC); 12 CFR 614.4940(a) (FCA); and
12 CFR 760.6(b) (NCUA).
63
involves a refinancing or assumption by the same lender who obtained the original flood
determination on the same property, the lender may rely on the previous determination only if
the original determination was made not more than seven years before the date of the transaction,
the basis for the determination was set forth on the SFHDF, and there were no map revisions or
updates affecting the security property since the original determination was made. Further, if the
same lender makes multiple loans to the same borrower secured by the same improved real
estate, the lender may rely on its previous determination if the original determination was made
not more than seven years before the date of the transaction, the basis for the determination was
set forth on the SFHDF, and there were no map revisions or updates affecting the security
property since the original determination was made. These loans are extended by the same
lender, to the same borrower, and are secured by the same improved real estate, and, therefore,
these types of transactions are the functional equivalent of an increase of a loan.
When the loan involves a refinancing or assumption made by a lender different from the one who
obtained the original determination, this would constitute the making of a new loan, thereby
requiring a new determination.
V. FLOOD INSURANCE DETERMINATION FEES
FEES 1. When can lenders or servicers charge the borrower a fee for making a
determination?
There are four instances under the Act and Regulation when the borrower can be charged a fee
for a flood determination:
om the one who
obtained the original d
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