[Federal Register Volume 60, Number 201 (Wednesday, October 18, 1995)]
[Proposed Rules]
[Pages 53962-53985]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-25257]
[[Page 53961]]
_______________________________________________________________________
Part II
Department of the Treasury
Office of the Comptroller of the Currency
12 CFR Part 22
Federal Reserve System
12 CFR Part 208
Federal Deposit Insurance Corporation
12 CFR Part 339
Department of the Treasury
Office of Thrift Supervision
12 CFR Parts 563 and 572
Farm Credit Administration
12 CFR Part 614
National Credit Union Administration
12 CFR Part 760
_______________________________________________________________________
Loans in Areas Having Special Flood Hazards; Proposed Rule
Federal Register / Vol. 60, No. 201 / Wednesday, October 18, 1995 /
Proposed Rules
[[Page 53962]]
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 22
[Docket No. 95-24]
RIN 1557-AB47
FEDERAL RESERVE SYSTEM
12 CFR Part 208
[Regulation H, Docket No. R-0897]
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 339
RIN 3064-AB66
DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Parts 563 and 572
[No. 95-179]
RIN 1550-AA82
FARM CREDIT ADMINISTRATION
12 CFR Part 614
RIN 3052-AB57
NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 760
Loans in Areas Having Special Flood Hazards
AGENCIES: Office of the Comptroller of the Currency, Treasury; Board of
Governors of the Federal Reserve System; Federal Deposit Insurance
Corporation; Office of Thrift Supervision, Treasury; Farm Credit
Administration; National Credit Union Administration.
ACTION: Joint notice of proposed rulemaking.
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SUMMARY: The Comptroller of the Currency (OCC), Board of Governors of
the Federal Reserve System (Board), Federal Deposit Insurance
Corporation (FDIC), Office of Thrift Supervision (OTS), and National
Credit Union Administration (NCUA) are proposing to amend their
regulations, and the Farm Credit Administration (FCA) is proposing to
issue new regulations, regarding loans in areas having special flood
hazards. This action is required by statute and is intended to
implement the provisions of the National Flood Insurance Reform Act of
1994. Among other statutorily mandated provisions, the proposal would
establish new escrow requirements for flood insurance premiums,
explicit authority and the requirement for lenders and servicers to
``force-place'' flood insurance under certain circumstances, enhanced
flood hazard notice requirements, and new authority for lenders to
charge fees for determining if a property is located in a special flood
hazard area.
DATES: Comments must be received by December 18, 1995.
ADDRESSES: Comments should be directed to:
OCC: Communications Division, Office of the Comptroller of the
Currency, 250 E Street, SW., Washington, DC 20219, Attention: Docket
No. 95-24. Comments may be inspected and photocopied at the same
location. In addition, comments may be sent by facsimile transmission
to FAX number 202/874-5274 or by electronic mail to
[email protected]
Board: William W. Wiles, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue, NW.,
Washington, DC 20551, Attention: Docket No. R-0897, or delivered to
room B-2222, Eccles Building, between 8:45 a.m. and 5:15 p.m. Comments
may be inspected in Room MP-500 between 9:00 a.m. and 5:00 p.m.
weekdays, except as provided in Sec. 261.8 of the Board of Governors'
rules regarding availability of information, 12 CFR 261.8.
FDIC: Jerry L. Langley, Executive Secretary, Attention: Room F-402,
Federal Deposit Insurance Corporation, 550 17th Street NW., Washington,
DC 20429. Comments may be delivered to Room F-400, 1776 F Street, NW.,
Washington, DC 20429, on business days between 8:30 a.m. and 5:00 p.m.
or sent by facsimile transmission to FAX number 202/898-3838. Internet:
[email protected] Comments will be available for inspection and
photocopying in room 7118, 550 17th Street, NW., Washington, DC 20429,
between 8:30 a.m. and 5:00 p.m. on business days.
OTS: Chief, Dissemination Branch, Records Management and
Information Policy, Office of Thrift Supervision, 1700 G Street NW.,
Washington, DC 20552, Attention: Docket No. 95-179. These submissions
may be hand delivered to 1700 G Street, NW., from 9:00 a.m. to 5:00
p.m. on business days or may be sent by facsimile transmission to FAX
number (202/906-7755). Comments will be available for inspection at
1700 G Street NW., from 1:00 p.m. until 4:00 p.m., on business days.
FCA: Patricia W. DiMuzio, Associate Director, Regulation
Development, Office of Examination, Farm Credit Administration, 1501
Farm Credit Drive, McLean, VA 22102-5090. Copies of all comments will
be available for examination by interested parties in Regulation
Development, Office of Examination, Farm Credit Administration.
NCUA: Becky Baker, Secretary of the Board, National Credit Union
Administration, 1775 Duke Street, Alexandria, VA 22314-3428. Comments
will be available for inspection at the same location. Send comments to
Ms. Baker via the bulletin board by dialing 703/518-6480. Send one copy
by U.S. mail or fax to FAX number 703/518-6319.
FOR FURTHER INFORMATION CONTACT:
OCC: Carol Workman, Compliance Specialist (202/874-4858),
Compliance Management; Margaret Hesse, Attorney, Community and Consumer
Law Division (202/874-5750), Jacqueline Lussier, Senior Attorney, or
Saumya Bhavsar, Attorney, Legislative and Regulatory Activities
Division (202/874-5090), Office of Chief Counsel.
Board: Diane Jackins, Senior Review Examiner, Jennifer Lowe, Review
Examiner (202/452-3946), Division of Consumer and Community Affairs;
Lawranne Stewart, Senior Attorney (202/452-3513), or Rick Heyke,
Attorney (202/452-3688), Legal Division. For the hearing impaired only,
Telecommunication Device for the Deaf (TDD), Earnestine Hill or
Dorothea Thompson (202/452-3544).
FDIC: Mark Mellon, Senior Attorney, Regulation and Legislation
Section (202/898-3854), Legal Division, or Ken Baebel, Senior Review
Examiner (202/942-3086), or Barbara L. Boehm, Consumer Affairs
Specialist (202/942-3631), Division of Compliance and Consumer Affairs.
OTS: Larry Clark, Program Manager, Compliance and Trust, Compliance
Policy (202/906-5628); Catherine Shepard, Senior Attorney, Regulations
and Legislation Division (202/906-7275), Office of Chief Counsel.
FCA: Robert G. Magnuson, Policy Analyst, Regulation Development
(703/883-4498), Office of Examination; or William L. Larsen, Senior
Attorney, Regulatory Operations Division (703/883-4020), Office of
General Counsel. For the hearing impaired only, TDD (703/883-4444).
NCUA: Kimberly Iverson, Program Officer (703/518-6375), Office of
Examination and Insurance; or Jeffrey
[[Page 53963]]
Mooney, Staff Attorney (703/518-6563), Office of General Counsel.
SUPPLEMENTARY INFORMATION:
I. Background
A. Introduction
The Riegle Community Development and Regulatory Improvement Act,
Pub. L. 103-325, 108 Stat. 2160 (CDRI Act), which the President signed
into law on September 23, 1994, comprehensively revised the Federal
flood insurance statutes. The flood insurance provisions of the CDRI
Act require the OCC, Board, FDIC, OTS, and NCUA to revise their current
flood insurance regulations. The FCA is required to promulgate flood
insurance regulations for the first time. The six agencies are issuing
this proposal jointly in order to fulfill these statutory requirements.
All six of the agencies have coordinated and consulted with the Federal
Financial Institutions Examination Council (FFIEC), as is required by
certain of the CDRI Act flood insurance provisions.1
\1\ The heads of five of the six agencies (OCC, Board, FDIC,
OTS, and NCUA) comprise the membership of the FFIEC.
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This preamble first briefly describes the National Flood Insurance
Program (NFIP), then highlights the CDRI Act amendments to it that are
of significance to the institutions supervised by the six agencies.
Institutions are encouraged to consult the CDRI Act for further detail
about the provisions described here as well as for amendments to the
NFIP that do not require rulemaking by the six agencies.2
\2\See, e.g., CDRI Act sections 521 (flood insurance purchase
requirement for Federal disaster relief recipients may not be
waived), 522 (Federal agency lenders subject to provisions of
statute), 573 (increase in maximum flood insurance coverage
amounts), 579 (delay of effective date of flood insurance policies),
and 582 (flood disaster assistance barred in certain circumstances;
duty to provide certain notices on transfer of property).
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Following the description of the statutory background is a
discussion of the substance of the proposed regulations. The agencies'
proposals are substantively consistent, although the format of the
regulatory text varies in order to accommodate the format currently in
use at each agency.3 With respect to flood insurance regulations,
these proposals satisfy the statutory obligations of the OCC, Board,
FDIC, and OTS under section 303(a) of the CDRI Act. That section
requires each of these agencies to review and streamline its
regulations and to work jointly to make uniform all regulations and
guidelines implementing common statutory or supervisory policies.
\3\This proposal is also a component of the OCC's Regulation
Review Program. Each of the agencies involved in this rulemaking is
engaged in a similar effort to reduce unnecessary regulatory burden
and to simplify and clarify its regulations.
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B. The National Flood Insurance Program
The NFIP is administered primarily under two statutes: the National
Flood Insurance Act of 1968 (1968 Act) and the Flood Disaster
Protection Act of 1973 (1973 Act). These statutes are codified at 42
U.S.C. 4001-4129.4 The 1968 Act made Federally subsidized flood
insurance available to owners of improved real estate or mobile homes
located in special flood hazard areas if their community participates
in the NFIP. A special flood hazard area (SFHA) is an area within a
flood plain having a one percent or greater chance of flood occurrence
in any given year.5 SFHAs are delineated on maps issued by FEMA
for individual communities.6 A community establishes its
eligibility to participate in the NFIP by adopting and enforcing
floodplain management measures to regulate new construction and by
making substantial improvements within its SFHAs to eliminate or
minimize future flood damage.7
\4\The Federal Emergency Management Agency (FEMA) administers
the NFIP; its regulations implementing the NFIP appear at 44 CFR
parts 50-79 (1995).
\5\44 CFR 59.1.
\6\44 CFR part 65.
\7\44 CFR part 60.
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The 1973 Act amended the NFIP by requiring the OCC, Board, FDIC,
OTS, and NCUA to issue regulations governing the lending institutions
they supervise. The regulations directed lenders to require flood
insurance on improved real estate or mobile homes serving as collateral
for a loan (security property) if the security property was located in
a SFHA in a participating community. To implement statutory amendments
enacted in 1974, the regulations required lenders to notify borrowers
that security property is located in a SFHA and of the availability of
Federal disaster assistance with respect to the property in the event
of a flood.
C. CDRI Act Amendments
Title V of the CDRI Act, the National Flood Insurance Reform Act of
1994 (Reform Act), comprehensively revises the NFIP. The Reform Act is
intended to increase compliance with flood insurance requirements and
participation in the NFIP in order to provide additional income to the
National Flood Insurance Fund and to decrease the financial burden of
flooding on the Federal government, taxpayers, and flood victims.8
\8\H.R. Conf. Rep. No. 652, 103d Cong., 2d Sess. 195 (1994)
(Conference Report).
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The Reform Act changed some of the terms used to refer to
regulators and entities subject to the NFIP. The Reform Act refers to
the six regulators collectively as the Federal entities for lending
regulation. This preamble discussion refers to the six regulators as
the Federal entities for lending regulation or the agencies. The Reform
Act, and this preamble discussion, refer to the institutions supervised
by the six agencies collectively as regulated lending institutions or
lenders.9
\9\In the statute, the term lender also refers to a Federal
agency lender, which means a Federal agency that makes direct loans
secured by improved real estate or a mobile home. This proposal does
not apply to Federal agency lenders. See CDRI Act sections 511, 512,
522.
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The following provisions of the Reform Act are especially
significant to regulated lending institutions. References to the
appropriate sections of the CDRI Act are given in parentheses.
Scope of coverage (sections 511, 512, 522). The Reform Act expanded
the scope of coverage of the NFIP in several ways. First, it added the
FCA to the list of regulators covered by the NFIP and added Farm Credit
banks and other lenders supervised by the FCA to the list of covered
financial institutions.
Second, the Reform Act directed the Federal National Mortgage
Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation
(Freddie Mac) to implement procedures ``reasonably designed to ensure''
that property securing the residential mortgage loans they purchase is
covered by flood insurance if the security property is located in a
SFHA in a community that participates in the NFIP. Thus, entities not
directly covered by Federal flood insurance laws will indirectly be
required to satisfy the statutory flood insurance requirements if they
sell residential mortgage loans to Fannie Mae or Freddie Mac.
Third, as discussed more fully below, some of the Reform Act's
provisions apply to loan servicers. The Reform Act defines the term
servicer to include any person responsible for receiving any scheduled
periodic payments from a borrower pursuant to the terms of a loan,
including amounts for taxes, insurance premiums, and other charges with
respect to the property securing a loan, and making the payments with
respect to the amounts received from the borrower as may be required
pursuant to the terms of the loan.
Dates of Applicability. Except for the standard flood hazard
determination
[[Page 53964]]
form and escrow provisions described later in this preamble, the flood
insurance provisions in the Reform Act that apply to insured banks,
savings associations, and credit unions took effect on September 23,
1994, the date of enactment of the Reform Act. The Reform Act
specifically provides that the regulations implementing the flood
insurance purchase requirement promulgated by the OCC, Board, FDIC,
OTS, and NCUA that were in effect immediately before the date of
enactment remain in effect until these agencies issue the new rules
that the Reform Act requires. Thus, loans in compliance with the
agencies' existing flood insurance rules that are made before new rules
are finalized do not violate the requirements imposed by Federal flood
insurance laws.
The statutory provisions that apply to Fannie Mae and Freddie Mac
take effect on September 23, 1995. Unlike the regulated lending
institutions supervised by the other Federal entities for lending
regulation, Farm Credit System (System) institutions were not part of
the NFIP before passage of the Reform Act and are not subject to any
current flood insurance regulations. In section 522 of the Reform Act,
Congress made clear that System participation in the NFIP would not be
required for a minimum of one year after enactment of the Reform Act,
thus ensuring a transition period for integration of the System into
the NFIP.
As set forth below, a number of the Reform Act provisions require
agency implementing regulations. These regulations will establish the
basic framework for participation by System institutions in the NFIP.
While it could be argued that System institutions should be required to
comply as of September 23, 1995, with applicable statutory requirements
of the Reform Act that do not require FCA regulations, the FCA believes
that piecemeal applicability of Reform Act requirements before the
fundamental regulatory framework envisioned by Congress is in place
might be unfairly burdensome to institutions and unnecessarily
difficult for the FCA to enforce.
Further, the FCA believes that System lenders should have the
opportunity to comment on NFIP implementing regulations before their
requirements go into effect. Accordingly, the FCA will not criticize
System institutions in examinations for failure to follow the
requirements of the Reform Act until FCA implementing regulations are
effective. Notwithstanding this interpretation of Reform Act
applicability, to ensure a smooth integration of the System into the
NFIP, the FCA encourages System lending institutions to initiate
adequate preparations so that their lending activities will comply with
NFIP requirements by the time final flood insurance regulations are
adopted.
Flood insurance requirement (section 522). Under the 1973 Act,
regulated lending institutions could not ``make, increase, extend, or
renew'' any loan secured by improved real estate or a mobile home
located in a SFHA in a participating community unless the security
property and any personal property securing the loan was covered for
the life of the loan by flood insurance. The Reform Act continues this
basic requirement but adds a new exemption for small, short-term
loans--those with an original principal balance of $5,000 or less and a
repayment term of one year or less.
Escrow of flood insurance payments (section 523). The Reform Act
directs the agencies to issue rules imposing a new escrow requirement
for flood insurance payments. Under these rules, a regulated lending
institution that requires the escrow of taxes, property insurance
premiums, fees, or other charges for a loan secured by residential
improved real estate must require the escrow of flood insurance
premiums and fees as well. Loans secured by commercial property are not
subject to this escrow requirement.
Forced placement of flood insurance (section 524). The 1973 Act did
not expressly authorize lenders to purchase--or force place--flood
insurance on behalf of a borrower. The Reform Act explicitly confers
forced placement authority on both lenders and servicers, and requires
lenders and servicers to force place insurance under certain
circumstances. If, at the time of origination or at any time during the
term of a loan, the lender or servicer determines that the security
property and any personal property securing the loan lack adequate
flood insurance coverage, the lender or servicer must notify the
borrower of the borrower's responsibility to obtain coverage at the
borrower's expense. If the borrower fails to purchase flood insurance
within 45 days after that notification, the lender or servicer must
purchase the insurance on the borrower's behalf.
The forced placement authority and requirement are self-
implementing, and apply to all loans outstanding on or after September
23, 1994.\10\ In forced placement situations, the lender or servicer
may pass the cost of the insurance--premiums and fees--on to the
borrower.
\10\With regard to the timing of the applicability of this
requirement to System institutions, see discussion under ``Dates of
applicability,'' supra.
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The Reform Act also provides procedures for the resolution of
disputed flood hazard determinations that would trigger the mandatory
purchase requirement. At the joint request of the borrower and
regulated lending institution, the Director of FEMA will review the
determination and within 45 days make the final decision whether or not
the building or mobile home is located in an area having special flood
hazards. Review of a flood insurance determination may be requested
whenever a determination occurs, either at origination or at any time
during the term of the loan. FEMA published a notice of proposed
rulemaking with respect to these procedures on June 15, 1995, 60 FR
31442. The comment period closed on August 15, 1995.
Penalties (section 525). The Reform Act authorizes the appropriate
Federal entity for lending regulation to impose civil money penalties
against a regulated lending institution that engages in a pattern or
practice of violating the flood insurance statute or regulations.
Notice and opportunity for hearing are required before civil money
penalties may be imposed. Penalties may be assessed in amounts of up to
$350 for each violation, not to exceed $100,000 per calendar year, for
any single regulated lending institution.
The agencies note that liability for civil money penalties remains
with the regulated lending institution that committed the violation.
Transfer of the loan does not extinguish the liability of the
transferring lender; conversely, the transferee is not liable for
violations committed by another lender that previously held the loan.
The agencies also note that a lender that purchases or renews flood
insurance in the appropriate amount on a borrower's behalf under the
statute's forced placement provisions is deemed by the express language
of the statute to have complied with the agencies' regulations
requiring lenders to ensure adequate coverage on security property
located in a SFHA.
Flood determination fees (section 526). The 1973 Act did not
expressly authorize regulated lending institutions to charge borrowers
for the cost of making a flood insurance determination. The Reform Act
provides that any person making a loan secured by improved real estate
or a mobile home, or any servicer for such a loan, may charge a
reasonable fee for the costs of determining whether the building or
mobile home is located in a SFHA. The
[[Page 53965]]
lender or servicer acting on behalf of the lender may charge the
determination fee to the borrower or, in the case of a loan transfer or
sale, the loan purchaser under prescribed circumstances. These include
when the determination (1) is made in connection with the making,
increasing, extending, or renewing of the loan that the borrower
initiates, (2) is made in response to map changes by FEMA, or (3)
results in the purchase of flood insurance under the forced placement
provisions.
Notice requirements (section 527). The 1968 Act, as amended,
required regulated lending institutions to provide notice to purchasers
or lessees if the property securing the loan is located in a SFHA. The
Reform Act further amends the 1968 Act: (1) to add detail to the
required contents of the notice; (2) to require regulated lending
institutions to give notice of special flood hazards to loan servicers,
as well as to purchasers or lessees; and (3) to require lenders to
notify FEMA of the identity of the servicer of a loan subject to flood
insurance requirements and of the identity of the new servicer if there
is a change in loan servicers.
The Reform Act also requires the Director of FEMA (or the
Director's designee) to provide advance notice of the expiration of any
flood insurance contract to the owner of the property covered by the
contract, the loan servicer of any loan secured by such insured
property, and (if known to the Director) the owner of the loan.
Standard flood hazard determination form (section 528). The Reform
Act requires FEMA to develop a standard form for recording a lender's
determination whether security property for a given loan is located in
a SFHA for which flood insurance is available. The Reform Act mandates
that the form be developed by regulations issued 270 days after
September 23, 1994, the date of enactment. FEMA published a notice of
proposed rulemaking with respect to the form on April 7, 1995, 60 FR
17758, and a final rule on July 6, 1995, 60 FR 35276. FEMA's final rule
was effective upon publication in the Federal Register.
The Reform Act also requires the Federal entities for lending
regulation to issue regulations requiring regulated lending
institutions to use the standard form developed by FEMA. The Reform Act
mandates that the agencies' regulations be issued together with FEMA's
rule establishing the form. The agencies published a final rule that
complies with this statutory requirement on July 6, 1995. 60 FR 35286.
Under this rule, as mandated by the Reform Act, regulated lending
institutions must use the form beginning 180 days after the issuance of
the rule, or January 2, 1996.
Examination regarding compliance (section 529). The Reform Act
requires each appropriate Federal entity for lending regulation to
assess compliance with the NFIP when it conducts examinations of the
regulated lending institutions it supervises. The OCC, Board, FDIC,
OTS, and NCUA are required to report to Congress on compliance by
insured depository institutions and insured credit unions with the
requirements of the NFIP. The FCA has authority under the Farm Credit
Act (12 U.S.C. 2001-2279bb-6) to assess compliance by Farm Credit
System institutions with the NFIP.
Availability of flood maps (section 575). Under the Reform Act,
FEMA must make flood insurance rate maps and related information
available free of charge to the Federal entities for lending regulation
(and certain other governmental entities) and at a reasonable cost to
all other persons. FEMA also must provide notice of any change to flood
insurance map panels, including changes effected by letter of map
amendment or letter of map revision, not later than 30 days after the
map change or revision becomes effective. FEMA must either publish this
notice in the Federal Register or provide notice by another, comparable
method. Finally, every six months FEMA must publish a compendium of all
changes and revisions to flood insurance map panels and all letters of
map amendment and revision for which it published notice during the
preceding six months. These compendia are available free of charge to
the Federal entities for lending regulation (and certain other
governmental entities) and for a fee set by FEMA to all other persons.
II. Description of the Proposal
A. Overview
The Reform Act directs the Federal entities for lending regulation
to write regulations implementing certain of its provisions and
specifies their content. The OCC, Board, FDIC, OTS, and NCUA are
proposing to revise their current flood insurance regulations11 to
reflect the changes required by the Reform Act. The FCA is proposing
new flood insurance regulations for the institutions it regulates. All
of the agencies were mindful of the need to keep regulatory burden to a
minimum as they prepared this proposal, and, accordingly, are proposing
only regulatory requirements necessary to implement the Reform Act.
\11\OTS's current flood insurance regulation is codified at 12
CFR 563.48. For ease of reference, the OTS is creating a new part
572 for its flood insurance regulation and repealing 12 CFR 563.48.
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The purpose of the Reform Act is to strengthen and enhance the
NFIP. It does not focus on the safety and soundness of financial
institutions. Depending on the location and activities of a lender,
adequate flood insurance coverage may be important from a safety and
soundness perspective as a component of prudent underwriting and as a
means of protecting the lender's ongoing interest in its collateral.
Accordingly, this preamble notes issues that may raise safety and
soundness concerns in some circumstances and invites comment on these
issues so that the agencies can consider whether to provide informal
guidance, separate from these implementing regulations, that addresses
safe and sound banking practices with respect to flood insurance.
In deciding whether guidance of this type is appropriate, the
agencies will consider the fact that a lender's needs with respect to
flood insurance vary widely depending on the type of lending the
institution does and the geographic areas it serves. Therefore, each
lender is generally in the best position to tailor its flood insurance
policies and procedures to suit its business. The agencies encourage
lenders to evaluate and, when necessary, modify their flood insurance
programs to comport with both the requirements of Federal flood
insurance laws and regulations and principles of safe and sound
banking.
B. Topic-by-Topic Discussion
Authority, Purpose and Scope
The agencies have expanded this section to add detailed statements
of authority, purpose and scope. The FCA is proposing language similar
to that proposed by the other agencies. The NCUA is proposing to
replace the current question and answer format of its flood insurance
regulations with standard regulation text so that its flood insurance
regulations are consistent with the other agencies.
Loan Servicers
The agencies propose to apply their regulations implementing the
escrow, forced placement, and flood hazard determination fee provisions
of the Reform Act to regulated lending institutions and to loan
servicers acting on behalf of regulated lending institutions. The
agencies propose to cover loan servicers in this way for several
reasons. First, the agencies do
[[Page 53966]]
not have jurisdiction over all servicers. Some servicers are not
regulated lending institutions or their affiliates.
Second, the agencies do not interpret the NFIP to impose
obligations on loan servicers independent from the obligations it
imposes on the owner of a loan.
The NFIP looks to activities that are conducted by lenders rather
than loan servicers--that is, the making, increasing, extending, or
renewing of a loan--as the triggers for ensuring adequate flood
insurance coverage. The mandatory purchase requirement under section
102 of the 1973 Act (42 U.S.C. 4012a(b)) applies only to lenders.
Moreover, the Conference Report indicates that a principal reason
for the adoption of the forced placement provision was to remove any
doubt that lenders have the legal authority to require borrowers to
purchase flood insurance or, if the lender purchases the insurance, to
require the borrower to pay for it. Conference Report at 199. The
agencies conclude that loan servicers were covered by the provision so
that they could perform for the lender the administrative tasks related
to the forced placement of flood insurance--including providing the
requisite notices to borrowers, arranging for the insurance, and
collecting and transmitting insurance premiums--without fear of
liability to the borrower for the imposition of unauthorized charges.
Finally, section 102(f) of the 1973 Act (42 U.S.C. 4012a(f)) as
added by section 525 of the CDRI Act does not authorize the agencies to
seek civil money penalties against loan servicers that are not
regulated lending institutions. The statute's failure to impose
liability on servicers independent of lenders reinforces the conclusion
that a servicer's obligation to comply with NFIP requirements arises
from its contractual relationship with a lender. A lender thus may
fulfill its duties under the NFIP by imposing its responsibilities on
the servicer under a servicing contract. Accordingly, lenders should
include in their loan servicing agreements language ensuring that the
servicer will take all necessary steps with respect to escrow
requirements, forced placement of flood insurance, flood hazard
determinations, and notices if the lender or its servicer should
determine that there are deficiencies in any of these aspects of
servicing agreements.
Definitions
The agencies have added or revised certain definitions, including
definitions of the terms ``building,'' ``designated loan,''12
``mobile home,'' and ``servicer.'' The agencies also added certain
definitions that enable them to streamline the operative provisions of
the regulation, including definitions of the terms ``Director,''
``residential improved real estate,'' and ``special flood hazard
area.''
\12\The definition of the term ``designated loan'' refers to
loans ``secured by a building or mobile home'' because, as a
practical matter, flood insurance is generally available only with
respect to a structure or mobile home and not with respect to the
land on which the structure or mobile home sits. This definition is
unique to the agencies' flood insurance regulations and carries no
implication about the nature or extent of the collateral that a
lender otherwise requires as a matter of prudent underwriting.
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Flood Insurance Requirement
The Reform Act did not change the basic requirement for the
purchase of flood insurance when a security property is located in a
special flood hazard area in a participating community, nor did it
modify the minimum required amount of the insurance.13 The minimum
amount continues to be the lesser of the amount of the outstanding
principal balance of the loan or the maximum limit for coverage under
the 1968 Act.14 Accordingly, the five agencies that currently have
flood insurance regulations are not proposing any substantive amendment
to the text that implements this portion of the statute.
\13\See also section 573 of the CDRI Act, increasing the maximum
flood insurance coverage limits.
\14\In addition to the dollar limits in the 1968 Act, flood
insurance coverage under the NFIP is limited to the overall value of
the property less the value of the land.
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Loan Purchase as Equivalent to Loan Origination
The agencies' current regulations differ in their treatment of the
issue whether the purchase of a loan constitutes the making of a loan
for purposes of flood insurance. The OCC and the Board take the
position that a loan purchase is not an event that triggers the
obligation to make a flood hazard determination. The FDIC has not
previously had an opportunity to express an opinion on the question.
The OTS's current regulations, on the other hand, view the purchase
of a loan as the equivalent of the making of a loan for flood
determination purposes. In an effort to promote uniformity among the
agencies, the OTS is considering aligning its position with that of the
OCC and the Board, so that a loan purchase by a savings association
would not trigger an obligation to make a flood hazard
determination.15 Based on its regulations governing loan
purchasing, NCUA previously took the position that if flood insurance
would have been required for a Federal credit union to grant the loan,
flood insurance would be necessary for the credit union to purchase the
loan.
\15\OTS has historically taken a different position on this
question than the OCC and the Board. Section 102(b) of the 1973 Act
(42 U.S.C. 4012a(b)) provides that regulated lending institutions
may not ``make'' any loan secured by improved real estate or a
mobile home located in a SFHA unless the security property is
covered by an adequate policy of flood insurance. The OTS's
predecessor, the Federal Home Loan Bank Board, considered the word
``make'' to be broad enough to include loan purchases. Otherwise,
savings institutions could evade flood insurance requirements by the
simple expedient of purchasing, rather than originating, loans. See
34 FR 5749 (Feb. 15, 1974). Accordingly, the OTS's regulations
implementing the 1973 Act construe the phrase ``make a loan'' as
including purchased loans, see 12 CFR 563.48(b).
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The OCC and the Board do not propose to revise their current
regulatory language to add a loan purchase as a ``tripwire'' for
determining whether adequate flood insurance exists. The statute
identifies the events--the making, increasing, extending, or renewing
of a loan--that trigger a lender's obligation to review the adequacy of
flood insurance coverage on an affected loan. The Reform Act does not
include loan purchase in this list of specified tripwires. The OCC and
the Board note that a loan purchaser may always require as a condition
of purchase that the seller determine whether the security property is
located in a SFHA. The Reform Act authorizes the seller to charge a fee
to the purchaser for making this determination.
With respect to residential mortgage loans sold in the secondary
market, the inclusion of loan purchase as a tripwire event may be
unnecessary because of the expansion of the scope of the NFIP's
coverage with regard to Fannie Mae and Freddie Mac. Fannie Mae and
Freddie Mac are the largest volume purchasers of residential mortgage
loans. As a practical matter, these entities establish the industry
standards not only for the residential mortgage loans that they buy,
but for all residential mortgage loans that the originator does not
intend to keep in portfolio. The bulk of home loans sold to other
purchasers, including regulated lending institutions, typically conform
with Fannie Mae and Freddie Mac standards. Pursuant to the Reform Act
amendments,16 those standards will include adequate flood
insurance coverage on collateral securing loans sold to these entities.
The OCC and the Board believe that including loan purchase as a
regulatory tripwire could result in the imposition of duplicative (and
potentially
[[Page 53967]]
inconsistent) requirements on the seller and the purchaser of a
residential mortgage loan sold in the secondary market.
\16\Section 522 of the CDRI Act.
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As noted previously, the FDIC has not previously had an opportunity
to express an opinion on the question of whether the purchase of a loan
is equivalent to the making of a loan for purposes of Federal flood
insurance laws. The FDIC now proposes, in the interest of regulatory
consistency, to formally adopt the position adhered to by the OCC and
the Board that a loan purchase is not an event that triggers the
obligation to make a flood hazard determination.
Given the Reform Act's extension of the flood insurance
requirements to Fannie Mae and Freddie Mac, the OTS believes that
coverage of loan purchases may no longer be necessary, especially if
the agencies issue guidance on loan purchases, as discussed below.
Therefore, the OTS, in an effort to promote consistent treatment for
all regulated lending institutions, proposes to remove loan purchases
from its flood insurance regulations. The OTS requests comment on this
proposal.
Prior to the Reform Act, the NCUA took the position that if flood
insurance would have been required for a Federal credit union to grant
the loan, flood insurance would be necessary for the credit union to
purchase the loan. This position is based upon the requirements of 12
CFR 701.23(b)(1) of the NCUA regulations, which state that a Federal
credit union may only purchase a loan if it could have granted that
loan or if the loan is restructured within 60 days after purchase so
that it is a loan the Federal credit union could grant. The NCUA
invites comment on whether it should maintain this position.
All of the agencies are considering whether, as a supervisory
matter, to provide guidance on the flood insurance policies that
institutions should follow when they purchase loans, including
nonconforming home loans, loans secured by commercial property,
portfolios of loans, and loan participations. Loans in these categories
may be subject to underwriting standards that differ significantly from
those established by Fannie Mae, Freddie Mac, or other government-
sponsored enterprises for housing. Institutions with portfolios that
include purchased loans may need to develop procedures to ensure that
such purchases do not result in concentrations of loans secured by
property subject to flood hazards for which insurance is not available
or has not been obtained. The agencies invite comment on the need for
this type of guidance and on what it should include.
Loan Acquisitions Involving Table Funding Arrangements.
The agencies also invite comment regarding whether lenders who
provide table funding to close loans originated by mortgage brokers or
mobile home dealers should be deemed to be ``making'' or ``purchasing''
loans for purposes of the flood insurance requirements. In the typical
table funding situation, the party providing the funding ordinarily
reviews and approves the credit standing of the borrower and issues a
commitment to the broker or dealer to purchase the loan at the time the
loan is originated. Frequently, all loan documentation and other
statutorily mandated notices are supplied by the party providing the
funding, rather than the broker or dealer. The funding party provides
the original funding for the mortgage loan ``at the table'' when the
broker or dealer and the borrower close the loan. Concurrent with the
loan closing, the funding party acquires the loan from the broker or
dealer. Technically, however, the party providing the funding is
purchasing rather than originating the loan.
The Financial Accounting Standards Board (FASB)17 provides
guidance on the issue whether the party providing the funding should
account for a table funding arrangement as a loan purchase or loan
origination, and what criteria should be used to evaluate whether a
table funding arrangement constitutes a loan purchase or a loan
origination. A mortgage loan acquired by the party providing the
funding in a table funding arrangement should be accounted for as a
purchase of the loan by the acquirer if the loan is legally structured
as an origination by the broker or dealer and if the broker or dealer
is independent of the provider of funds. In making these
determinations, the broker or dealer must satisfy each of five
criteria. Those criteria are:
\17\See Financial Accounting Standards Board, EITF Abstracts,
Emerging Issues Task Force Issue No. 92-10, ``Loan Acquisitions
Involving Table Funding Arrangements,'' 1993.
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1. The broker or dealer is registered and licensed to originate
and sell loans under the applicable laws of the states or other
jurisdictions in which it conducts business;
2. The broker or dealer originated, processed, and closed the
loan in its own name and is the first titled owner of the loan, with
the mortgage banking enterprise becoming a holder in due course;
3. The broker or dealer is an independent third party and not an
affiliate of the mortgage banking company. As a nonaffiliate, the
correspondent must bear all of the costs of its place of business,
including the costs of its origination operations;
4. The broker or dealer must sell loans to more than one
mortgage banking enterprise and not have an exclusive relationship
with the acquirer; and
5. The broker or dealer is not directly or indirectly
indemnified by the mortgage banking enterprise for market or credit
risks on loans originated by the broker or dealer. However, a
commitment by the mortgage banking enterprise for the purchase of
loans from the broker or dealer is not considered to be an
indemnification for purposes of this requirement.
If any of the criteria is not met, then the loan should be accounted
for as an originated loan by the provider of the funds.
Under the Real Estate Settlement Procedures Act of 1974, as
amended, (12 U.S.C. 2601-2617) (RESPA), table funding is defined as a
settlement at which a loan is funded by a contemporaneous advance of
loan funds and an assignment of the loan to the person advancing the
funds.18 A table-funded transaction is not a ``secondary market
transaction.'' 24 CFR 3500.2. A bona fide transfer of a loan obligation
in the secondary market is not covered by RESPA or Regulation X, with
certain exceptions. 24 CFR 3500.5(b)(7). The regulation provides that
in determining what constitutes a bona fide transfer of a loan
obligation in the secondary market, HUD will consider the real source
of funding and the real interest of the funding lender. Mortgage broker
transactions that are table-funded are not ``secondary market
transactions.'' Neither the creation of a dealer loan nor the first
assignment of such loan to a lender is a ``secondary market
transaction.''
\18\ Regulations issued by the Department of Housing and Urban
Development (HUD) under RESPA appear in 24 CFR part 3500 (Regulation
X).
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In the agencies' view, a table-funded transaction is more like a
loan origination by the provider of funds than a purchase of a loan in
the secondary market by that entity. Thus, lenders who provide table
funding to close loans originated by a mortgage broker or mobile home
dealer will be considered to be making a loan for purposes of the flood
insurance requirements. The agencies request comment on this position
and whether the FASB or RESPA standard is a more appropriate guideline.
Applicability of Federal Flood Insurance Requirements to Subsidiaries
The question whether Federal flood insurance legislation applies to
mortgage banking subsidiaries of regulated lending institutions is
mooted
[[Page 53968]]
to some extent by the previously noted Reform Act amendment requiring
Fannie Mae and Freddie Mac to ensure that any improved real estate or
mobile home located in a SFHA that secures a mortgage loan these
entities purchase is covered by the legally required amount of flood
insurance. Since mortgage bankers generally securitize their mortgage
loans and then sell them in the secondary market, any such loan that is
sold to either Fannie Mae or Freddie Mac must comply with their
requirements and therefore must be covered by flood insurance.
Fannie Mae and Freddie Mac primarily purchase residential mortgage
loans, however, and then usually for 1- to 4-family residential unit
dwellings. As a result, most mortgage loans secured by commercial
property or by residential property with more than 4 units are not
subject to Fannie Mae or Freddie Mac requirements. Each agency's
discussion with respect to the applicability of Federal flood insurance
requirements to the subsidiaries of the institutions it regulates is
set forth below.
OCC and Board. National banks' operating subsidiaries are subject
to the rules applicable to the operations of their parent banks as
provided under 12 CFR 5.34. Similarly, state member banks' operating
subsidiaries are subject to the rules applicable to the operations of
their parent banks.
FDIC. The FDIC is responsible for the federal supervision of state
chartered banks which are not members of the Federal Reserve System.
The FDIC has been given specific legal authority to fulfill that
function through the prescription of such rules and regulations as the
Board of Directors of the FDIC may deem necessary to carry out the
provisions of the Federal Deposit Insurance Act (FDI Act) or any other
law which the FDIC has the responsibility of administering or enforcing
including Federal flood insurance legislation. See section 9(a)(Tenth)
of the FDI Act (12 U.S.C. 1819(a)(Tenth)). The authority of the FDIC to
regulate insured nonmember banks extends to activities that such
institutions may conduct through subsidiaries. The FDIC therefore
proposes to require by regulation that a subsidiary of an insured
nonmember bank that engages in lending secured by real estate must
comply with Federal flood insurance requirements. The FDIC invites
comment from all interested parties on this proposed interpretation.
The FDIC proposes to make subsidiaries of insured nonmember banks
subject to Federal flood insurance requirements by defining the term
``bank'' to include a subsidiary of such an institution. The FDIC
invites comments on this proposed method.
OTS. Operating subsidiaries of Federal savings associations are
subject to the rules, including flood insurance regulations, applicable
to their parent savings associations. 12 CFR 545.81(e). However, the
current OTS regulations implementing the 1973 Act do not apply to a
service corporation. 12 CFR 563.48(a); discussed in 39 FR 5749 (Feb.
15, 1974). Because the Reform Act defines the term regulated lending
institution to include, among other things, any bank, savings and loan
association, or similar institution subject to the supervision of a
Federal entity for lending regulation, the OTS is proposing to apply
its flood insurance regulations to service corporations that engage in
mortgage lending. The OTS believes this position is consistent with the
statutory language and Congressional intent, and ensures uniform and
consistent treatment for regulated financial institutions. The OTS
requests comment on this proposal.
FCA. Service corporations organized under the Farm Credit Act (12
U.S.C. 2001-2279bb-6) are System institutions subject to the
regulations applicable to the operations of their parent banks. 12
U.S.C. 2213. Since System service corporations have no authority to
extend credit, the applicability of these proposed flood insurance
requirements to such organizations should not be in question. 12 U.S.C.
2211.
NCUA. A credit union, by itself, with other credit unions and/or
with non-credit union parties, may invest in or loan money to a
corporation or limited partnership, called a credit union service
organization (CUSO), which provides services to its credit union
investors. 12 CFR 701.27(d). CUSOs are not directly regulated by the
NCUA; rather, NCUA establishes the conditions for Federal credit union
investments in and loans to such organizations. 12 CFR 701.27(a). Since
NCUA does not exercise direct regulatory or supervisory jurisdiction
over them, NCUA believes that CUSOs are not regulated lending
institutions subject to the Reform Act. However, CUSOs that originate
mortgage loans generally do not warehouse those loans. Their loans are
either sold directly to the secondary market or sold to the credit
union. Therefore, as a practical matter, CUSOs must adhere to the
Federal flood insurance requirements when making loans since, as
described herein, loans purchased by credit unions or sold to Fannie
Mae or Freddie Mac must conform with these requirements.
Exemptions
Before its amendment by the Reform Act, the 1973 Act provided an
exemption to the basic flood insurance requirement for State-owned
property covered under a policy for self-insurance satisfactory to the
Director of FEMA. 42 U.S.C. 4012a. The proposal retains this exemption
and adds the Reform Act's new exemption for loans with an original
principal balance of $5,000 or less and a repayment term of one year or
less.
Escrow of Flood Insurance Payments
The Reform Act requires the agencies to adopt rules providing that
a regulated lending institution must require the escrow of flood
insurance premiums for loans secured by residential properties if the
lender requires the escrow of other funds to cover other charges
associated with the loan, such as taxes, premiums for other types of
insurance, and fees. The proposal implements this new requirement.
Where appropriate, servicing agreements between a lender and loan
servicer also should require a loan servicer to escrow flood insurance
premiums.
Escrow of flood insurance premiums is not required if the regulated
lending institution does not require escrow of taxes, insurance
premiums, or other payments. Thus, if a regulated lending institution
terminates a loan escrow account, the lender is no longer required to
escrow flood insurance premiums.
Under section 523 of the CDRI Act (42 U.S.C. 4012a(d)), escrow
accounts for flood insurance premiums are subject to the applicable
provisions of section 10 of RESPA, 12 U.S.C. 2609. Section 10 generally
limits the amount that may be maintained in an escrow account and
requires certain escrow account statements.19 The regulations
implementing section 10 appear at 24 CFR 3500.17 (1995). See also 60 FR
8812 (Feb. 15, 1995) and 60 FR 24734 (May 9, 1995) (revising
Sec. 3500.17). The requirement to escrow flood insurance premiums will
take effect when the new
[[Page 53969]]
rules implementing the Reform Act are final.
\19\Certain loans are exempt from RESPA, however, including a
loan for any purpose on property of 25 acres or more, or an
extension of credit primarily for a business, commercial, or
agricultural purpose. See 12 U.S.C. 2606; 24 CFR 3500.5. Thus RESPA
is narrower in scope than the Federal flood insurance legislation.
The agencies are of the opinion that section 10 of RESPA applies to
flood insurance escrow accounts only if the underlying loan is
covered by RESPA. For example, a lender that originates a loan in a
special flood hazard area primarily for a business, commercial or
agricultural purpose must escrow flood insurance premiums if it
escrows other types of payments (such as payments for insurance or
taxes) but the escrow account established for that loan need not
comply with the requirements of section 10 of RESPA.
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Forced Placement of Flood Insurance
The Reform Act requires a regulated lending institution or servicer
acting on its behalf to purchase--or ``force place''--flood insurance
for the borrower if the regulated lending institution or servicer
determines that adequate coverage is lacking. The statute does not
prescribe how or when the regulated lending institution or servicer
should make this determination. The Reform Act does say, however, that
the determination may occur at the time of origination or at any time
during the term of the loan. The forced placement provision applies to
all loans outstanding on or after September 23, 1994.20
\20\With regard to the timing of the applicability of this
requirement to System institutions, see discussion under ``Dates of
applicability,'' supra.
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The agencies note that the Reform Act contains provisions designed
to make it easier for lenders and servicers to obtain actual notice of
remappings or of the expiration of coverage of flood insurance. FEMA
must publish notice of all remappings; and FEMA must provide advance
notice of the expiration of insurance coverage to property owners, loan
servicers, and (if known to FEMA) the owners of the loans.
Portfolio Review
The Reform Act and the proposed rules do not require regulated
lending institutions or servicers to undertake a review of all loans in
portfolio as of September 23, 1994, that is, a retroactive portfolio
review. First, the Reform Act does not revise the list of events that
trigger a determination, that is, the making, increasing, renewing, or
extension of a loan. Second, the Reform Act imposes no requirement for
retroactive portfolio review. Finally, a requirement for retroactive
portfolio review would impose a burden on regulated lending
institutions that is both costly and unnecessary in light of the system
of specific tripwires that the Reform Act establishes.
Similarly, the agencies do not believe that the Reform Act requires
regulated lending institutions or servicers to conduct portfolio
reviews on a prospective basis. The 1968 and 1973 Acts as amended by
the Reform Act do not prescribe portfolio review, or any other method,
as the means that lenders or servicers should use to determine whether
security property is adequately covered by flood insurance, nor does it
require that determinations be made at any particular time.
Because the Reform Act does not mandate review of loan portfolios,
the agencies do not propose to establish such a requirement by
regulation. Regulated lending institutions and their servicers will
nonetheless need to develop policies and procedures to ensure that,
where a determination has been made that property securing a loan is
located in a SFHA, they are in compliance with the Reform Act's forced
placement provision.
In addition, it may be appropriate as a matter of safety and
soundness for the agencies to ensure that institutions that are
significantly exposed to the risks for which flood insurance is
designed to compensate determine the adequacy of flood insurance
coverage by (1) periodic reviews, or (2) reviews triggered by remapping
of areas represented in a regulated lending institution's loan
portfolio.
The agencies solicit comment on the advisability of issuing
guidance in this area and on how the guidance should differentiate
among regulated lending institutions based on their levels of exposure
to flood risk. In particular, the agencies invite comment describing
the methods that regulated lending institutions already use or are
considering for determining the adequacy of flood insurance coverage;
the cost (or other burden) associated with portfolio reviews; and on
whether the additional loans for which flood insurance would be
required as a result of portfolio reviews would be significant in
relation to a regulated lending institution's or servicer's portfolio.
Penalties
The penalty provisions of the Reform Act are self-executing. They
do not require the agencies to develop regulations to implement them,
and the agencies are not proposing to do so.
Determination Fees
The Reform Act authorizes a lender or servicer acting on behalf of
a lender to charge a reasonable fee for making a flood hazard
determination, notwithstanding any other Federal or State law. This fee
may be charged to the borrower under certain circumstances specified in
the statute: if the borrower initiates the transaction (the making,
increasing, extending, or renewing of a loan) that triggers a flood
hazard determination; if the determination reflects FEMA's revision of
map areas subject to flooding; or if the determination results in the
purchase of flood insurance under the forced placement provision. In
the case of a sale or transfer of the loan, the fee may be charged to
the purchaser or transferee. The proposal includes the same
authorization to charge reasonable determination fees as the Reform
Act.
Section 526 of the CDRI Act (42 U.S.C. 4012a(h)) constitutes an
authorization to charge fees in certain circumstances, notwithstanding
the provisions of any other Federal or State law. It does not limit the
ability of a lender to provide for determination fees in other
circumstances under its lending contract, provided that such fees are
not in conflict with other Federal or State laws.
Notice Requirements
The proposal revises the current regulation to reflect the
provisions added by the Reform Act that prescribe the minimum contents
of a regulated lending institution's notice concerning special flood
hazards to borrowers and loan servicers.
The 1968 Act (42 U.S.C. 4104a) requires regulated lending
institutions to notify the ``purchaser or lessee (or obtain
satisfactory assurances that the seller or lessor has notified the
purchaser or lessee)'' of special flood hazards. In this context, the
terms ``purchaser'' and ``lessee'' refer to the person who will occupy
a property. The Reform Act did not amend this statutory language. The
current regulation states that the regulated lending institution must
notify the borrower of special flood hazards and states that in lieu of
such notification, a regulated lending institution may obtain
satisfactory written assurance that the seller or lessor has so
notified the borrower prior to the execution of the sale or lease
agreement. Each of the agencies has used the word ``borrower'' in place
of the ``purchaser'' or ``lessee'' designation contained in the
statute, primarily to provide greater clarity. The proposal does not
change this terminology.
The agencies invite comment on the advisability of retaining this
language.
The notification to the borrower and servicer must include a
warning that the building on the improved real estate or the mobile
home is or will be located in an area having special flood hazards, a
description of the flood insurance purchase requirements under section
102(b) of the 1973 Act (42 U.S.C. 4012a(b)), a statement that insurance
may be purchased under the NFIP and is also available from private
insurers, and any other information that the Director of FEMA considers
necessary to carry out the purposes of the NFIP. The proposal follows
the statute and
[[Page 53970]]
requires that these items be included in the notice.21
\21\Readers should be aware that section 1364 of the 1968 Act as
amended by section 527 of the CDRI Act requires that the notice of
special flood hazards also list any other information that the
Director of the FEMA considers necessary to carry out the purposes
of the NFIP. The agencies have been informed by FEMA staff that at
the present time there are no plans to require that any other
information be listed on the notice.
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The current regulatory provision requiring lenders to provide
notice to borrowers of the availability of Federal disaster relief
assistance in the event of flooding implements a portion of the 1973
Act (42 U.S.C. 4106(b)) that has not been amended substantively and,
therefore, remains unchanged.
The 1968 Act requires the lender to provide notice of special flood
hazards within a reasonable period of time in advance of the signing of
the documents involved in the transaction. The proposal reflects the
Reform Act amendment that added the loan servicer to the entities that
must be notified. However, in the agencies' view, it may not be
possible in all cases for a lender to provide such advance notice to a
loan servicer. The agencies request comment on the appropriate timing
of the notification to the loan servicer.
The current regulations require that the borrower, prior to
closing, furnish the lender with a written acknowledgment of the
receipt of the notices. The Reform Act mandates that the agencies'
regulations require lenders to retain a record of the receipt of the
notices by the borrower and the loan servicer. The proposed regulation
reflects this change and deletes the acknowledgment provision.
The agencies request comment on whether the final regulations
should require the lender to retain a copy of each notice in its files.
The substance of the ``safe harbor'' provision in the current
regulations permitting lenders to rely on the language presented in
sample notices that currently appear either in the body of the
regulations or in an appendix to the regulations remains unchanged. The
language in the sample notices is revised to reflect amendments to the
1968 Act (42 U.S.C. 4104a(a)(3)) made by section 527 of the CDRI Act.
The proposal also implements the new requirement that regulated
lending institutions notify the Director of FEMA (or the Director's
designee) of the identity of the loan servicer and of any change in the
servicer with respect to any loan secured by improved real estate or a
mobile home located in a SFHA. The agencies understand that the
Director of FEMA intends to designate the insurance agent that writes
the flood insurance to receive the notice.
The agencies request comment on whether the final regulations
should require the lender to retain a copy of the notice of the
identity of the servicer in its files.
Use of Standard Flood Hazard Determination Form
As mentioned in the Background section of this proposal, each
agency has issued a final rule requiring the institutions they
supervise to use the standard flood hazard determination form developed
by FEMA when they determine whether improved real estate or a mobile
home offered as collateral for a loan is located in a SFHA. For the
convenience of the reader, the sections of the regulatory text
established by those final rules are included in this proposal. The
regulatory text contains nonsubstantive revisions made to reflect
abbreviations and minor word changes to fit the format of the proposed
regulations.
The Reform Act permits lenders to rely on third-party
determinations but only if the third party guarantees the accuracy of
the information provided to the lender. Moreover, the Reform Act
permits a lender to rely on a previous determination whether the
security property is located in a special flood hazard area and exempts
the lender from liability for errors in the previous determination, if
the previous determination is not more than seven years old and the
basis for it was recorded on the standard flood hazard determination
form that FEMA has developed.
There are two clearly defined exceptions to relying on a previous
determination. A lender may not rely on a previous determination if
FEMA's map revisions or updates have caused the security property to be
located in a SFHA, or if the lender contacts FEMA and discovers that
map revisions or updates affecting the security property have been made
after the date of the previous determination.
Recordkeeping Requirements
The rules of the five agencies that currently have flood insurance
regulations include a requirement that an institution keep records
sufficient to show how it has determined whether loans fall within the
coverage of the NFIP and the implementing regulations. The proposal
removes this provision because the proposed provisions on recordkeeping
appear in the substantive sections to which they pertain, including the
required use of the standard flood hazard determination form and the
notification sections.
Agricultural Lending Considerations
System lending institutions have raised preliminary questions
regarding the operation of the NFIP, particularly with respect to the
cost of insuring agricultural structures that secure loans. The FCA
notes that questions regarding the operation and cost structure of the
NFIP should be directed to FEMA as administrator of the NFIP. However,
the FCA recognizes that System institutions are entering the NFIP for
the first time and are concerned about their new administrative
responsibilities under the NFIP as well as the costs of flood insurance
to borrowers. The FCA is not in the position to respond fully to some
of the concerns that have been raised regarding the NFIP, but FEMA
officials indicate that the NFIP does differentiate between non-
residential agricultural buildings and other types of non-residential
buildings for purposes of pricing flood insurance. Thus a barn, storage
shed or other type of agricultural structure at a given elevation in a
SFHA might cost less to insure against flood loss than another type of
commercial structure more susceptible to flood damage. Where required,
borrowers may insure their non-residential buildings using one policy
with a schedule separately listing the buildings\22\ or on a separate
policy for each building. Each building must be covered by flood
insurance.
\22\FEMA also permits use of schedules to list multiple
structures for purposes of the standard flood hazard determination
form. See 60 FR 35276, 35280 (July 6, 1995); 44 CFR part 65, App. A.
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Concern has also been expressed regarding treatment under the NFIP
of improved property securing an agricultural loan that is located
within a SFHA but on high ground making flooding unlikely. FEMA
officials indicate that a borrower in such circumstances could apply to
FEMA for a Letter of Map Amendment, which, if granted would exclude the
building from the SFHA and eliminate the requirement for flood
insurance on the structure. See 44 CFR part 70. As previously noted,
questions regarding the operation of the NFIP generally should be
directed to FEMA and NFIP officials.
III. Regulatory Flexibility Act
Under section 605(b) of the Regulatory Flexibility Act (RFA) (5
U.S.C. 605(b)), the initial regulatory flexibility analysis otherwise
required under section 603 of the RFA (5 U.S.C. 603) is not required if
the head of the agency certifies that the rule will not
[[Page 53971]]
have a significant economic impact on a substantial number of small
entities and the agency publishes such certification and a succinct
statement explaining the reasons for such certification in the Federal
Register along with its general notice of proposed rulemaking.
Pursuant to section 605(b) of the RFA, the OCC, Board, FDIC, OTS,
and NCUA hereby certify that this proposed rule will not have a
significant economic impact on a substantial number of small entities.
The agencies expect that this proposal will not: (1) Have significant
secondary or incidental effects on a substantial number of small
entities, or (2) create any additional burden on small entities.
Moreover, this proposal is required by the Reform Act. Accordingly, a
regulatory flexibility analysis is not required.
As a general matter, the proposed rule does not impose standards
that are in excess of industry standards with respect to flood
insurance, as those standards are reflected in the underwriting
standards for Fannie Mae and Freddie Mac. Further, for those lenders
already covered by existing flood insurance requirements, the proposed
rule does not represent a significant increase over the burden imposed
under the current rules. For such lenders, the proposed rules would
increase burden above that imposed under the current rules in the
following respects: (1) Where the lender escrows other tax and
insurance payments, premiums for required flood insurance must be
escrowed as well; (2) the content of the notices currently provided to
borrowers is modified; and (3) notice to FEMA of the servicer of the
loan on property in a special flood hazard area is required.\23\ Each
of these additions to the current rules is required by the Reform Act.
\23\The provision concerning forced placement of flood insurance
is self-implementing and is included in the proposed rules only to
ensure that lenders are aware of the authority and requirements of
that provision. Including the provision in the proposed rule does
not impose any additional burden on lenders.
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IV. Paperwork Reduction Act of 1995
The OCC, FDIC, OTS, and NCUA invite comment on:
(1) Whether the proposed collection of information contained in
this notice of proposed rulemaking is necessary for the proper
performance of each agency's functions, including whether the
information has practical utility;
(2) The accuracy of each agency's estimate of the burden of the
proposed information collection;
(3) Ways to enhance the quality, utility, and clarity of the
information to be collected; and
(4) Ways to minimize the burden of the information collection on
respondents, including through the use of automated collection
techniques or other forms of information technology.
Respondents/recordkeepers are not required to respond to this
collection of information unless it displays a currently valid OMB
control number.
OCC: The collection of information requirements contained in this
notice of proposed rulemaking have been submitted to the Office of
Management and Budget for review in accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on the collections
of information should be sent to the Office of Management and Budget,
Paperwork Reduction Project (1557), Washington, DC 20503, with copies
to the Legislative and Regulatory Activities Division (1557), Office of
the Comptroller of the Currency, 250 E Street, SW., Washington, DC
20219.
The collection of information requirements in this proposed rule
are found in 12 CFR 22.6, 22.7, 22.9, and 22.10. This information is
required to evidence compliance with the requirements of the National
Flood Insurance Program with respect to lenders (national banks) and
borrowers (anyone who applies for a loan secured by improved real
property or a mobile home which may be located in a special flood
hazard area). The likely respondents/recordkeepers are national banks.
Estimated average annual burden hours per respondent/recordkeeper:
26 hours.
Estimated number of respondents and/or recordkeepers: 3,000.
Estimated total annual reporting and recordkeeping burden: 78,000
hours.
Start-up costs to respondents: None.
Records are to be maintained for the period of time respondent/
recordkeeper owns the loan.
Board: In accordance with section 3506 of the Paperwork Reduction
Act of 1995 (44 U.S.C. Ch. 35; see also 5 CFR 1320 Appendix A Item 1),
the Board reviewed the proposed rule under the authority delegated to
the Board by the Office of Management and Budget. Comments on the
collections of information should be sent to the Office of Management
and Budget, Paperwork Reduction Project (7100-0280), Washington, DC
20503, with copies of such comments to be sent to Mary M. McLaughlin,
Federal Reserve Board Clearance Officer, Division of Research and
Statistics, Mail Stop 97, Board of Governors of the Federal Reserve
System, Washington, DC 20551.
The collection of information requirements in this proposed
regulation will be included in 12 CFR 208.23. This information is
required to evidence compliance with the requirements of the National
Flood Insurance Program with respect to lenders (state chartered member
banks) and borrowers (anyone who applies for a loan secured by improved
real property or a mobile home which may be located in a special flood
hazard area). The respondents/recordkeepers are for-profit financial
institutions, including small businesses.
Respondent/recordkeepers are not required to respond to this
collection of information unless it displays a currently valid OMB
control number. The OMB control number is 7100-0280.
It is estimated that there will be 975 respondent/recordkeepers and
a total of 25,977 hours of annual hour paperwork burden. The estimated
annual hour paperwork burden per respondent/recordkeeper is 26.6 hours,
1 hour for recordkeeping and, when the property is located in a special
flood hazard area, a total of 25.6 hours for: (a) Notifying the
borrower and the servicer; (b) notifying the Director of the initial
servicer; (c) if necessary, notifying the Director when the loan
servicer has changed; and (d) if necessary, notifying the borrower
regarding forced placement. Banks likely will add the required records
to their existing usual and customary loan documentation. Thus there is
estimated to be no significant annual cost burden over the annual hour
burden. Additionally, the Board estimates that there is no associated
capital or start up cost. Based on an hourly cost of $20, the annual
cost to the public is estimated to be $519,540.
Because the records would be maintained at state member banks and
the notices are not provided to the Board, no issue of confidentiality
under the Freedom of Information Act arises.
Comments are invited on: (a) Whether the proposed collection of
information is necessary for the proper performance of the Board's
functions, including whether the information has practical utility; (b)
the accuracy of the Board's estimate of the burden of the proposed
information collection, including the cost of compliance; (c) ways to
enhance the quality, utility, and clarity of the information to be
collected; and (d) ways to minimize the burden of information
collection on respondents, including through the use of automated
collection techniques or other forms of information technology.
FDIC: The collections of information contained in this notice of
proposed rulemaking have been submitted to the
[[Page 53972]]
Office of Management and Budget for review in accordance with the
Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on the
collections of information should be sent to the Office of Management
and Budget, Paperwork Reduction Project (3604-0092), Washington, DC
20503, with copies of such comments to be sent to Steven F. Hanft,
Office of the Executive Secretary, Room F-453, Federal Deposit
Insurance Corporation, 550 17th Street, NW., Washington, DC 20429.
The collections of information requirements in this proposed
regulation are found in 12 CFR 339.6, 339.7, 339.9, and 339.10. This
information is required to evidence compliance with the requirements of
the National Flood Insurance Program with respect to lenders (state
chartered nonmember banks) and borrowers (anyone who applies for a loan
secured by improved real estate or a mobile home which may be located
in a special flood hazard area).
The likely respondents/recordkeepers are insured nonmember banks
and their subsidiaries.
Estimated number of respondents/recordkeepers: 6,250.
Estimated average annual burden hours per respondent/recordkeeper:
26 hours.
Estimated total annual reporting and recordkeeping burden: 162,500
hours.
Start-up costs to respondents: None.
Records are to be maintained for the period of time respondent/
recordkeeper owns the loan.
OTS: The reporting requirements contained in this notice of
proposed rulemaking have been submitted to the Office of Management and
Budget for review in accordance with the Paperwork Reduction Act of
1995 (44 U.S.C. 3507(d)). Comments on the collections of information
should be sent to the Office of Management and Budget, Paperwork
Reduction Project (1550), Washington, DC 20503, with copies to the OTS,
1700 G Street, NW., Washington, DC 20552.
The recordkeeping requirements in this notice of proposed
rulemaking are found in 12 CFR 572.6, 572.7, 572.9, and 572.10. The
recordkeeping requirements set forth in this notice of proposed
rulemaking are needed by the OTS in order to supervise savings
associations and develop regulatory policy. The likely recordkeepers
are OTS-regulated savings associations.
Estimated number of respondents and/or recordkeepers: 1,500.
Estimated average annual burden hours per recordkeeper: 26 hours.
Estimated total annual reporting and recordkeeping burden: 39,000
hours.
Start-up costs to respondents: None.
Records are to be maintained for the period of time respondent/
recordkeeper owns the loan.
NCUA: The collection of information requirements contained in this
notice of proposed rulemaking will be submitted to the Office of
Management and Budget (OMB) for review under the Paperwork Reduction
Act. Written comments on the collection of information should be
forwarded directly to the OMB Desk Officer indicated below at the
following address: OMB Reports Management Branch, New Executive Office
Building, Room 10202, Washington, DC 20503. Attn: Milo Sunderhauf. NCUA
will publish a notice in the Federal Register once OMB action is taken
on the submitted request.
The collection of information requirements in this proposed
regulation are found in 12 CFR 760.6, 760.7, 760.9 and 760.10. This
information is required to evidence compliance with the requirements of
the National Flood Insurance Program with respect to lenders (Federally
insured credit unions) and borrowers (members that apply for a loan
secured by improved real estate or a mobile home which may be located
in a special flood hazard area). The likely recordkeepers are Federally
insured credit unions.
Estimated number of respondents and/or recordkeepers: 700.
Estimated average annual burden hours per respondent/recordkeeper:
26 hours.
Estimated total annual reporting and recordkeeping burden: 16,325
hours.
Start-up costs to respondents: None.
Records are to be maintained for the period of time respondent/
recordkeeper owns the loan.
V. Executive Order 12866
OCC and OTS: The OCC and the OTS have determined that this proposed
rule is not a significant regulatory action as defined in Executive
Order 12866.
VI. Executive Order 12612
NCUA: This proposed rule, like the current 12 CFR part 760 it would
replace, will apply to all Federally insured credit unions. The NCUA
Board, pursuant to Executive Order 12612, has determined, however, that
this proposed rule will not have a substantial direct effect on the
States, on the relationship between the national government and the
States, or on the distribution of power and responsibilities among
various levels of government. Further, this proposed rule will not
preempt provisions of State law or regulations.
VII. Unfunded Mandates Reform Act of 1995
OCC and OTS: Section 202 of the Unfunded Mandates Reform Act of
1995, Pub. L. 104-4, 109 Stat. 48 (1995) (Unfunded Mandates Act),
requires that covered agencies prepare a budgetary impact statement
before promulgating a rule that includes any Federal mandate that may
result in the expenditure by State, local, and tribal governments, in
the aggregate, or by the private sector, of $100 million or more in any
one year. If a budgetary impact statement is required, section 205 of
the Unfunded Mandates Act also requires covered agencies to identify
and consider a reasonable number of regulatory alternatives before
promulgating a rule. As discussed in the preamble, the proposed rule
revises current OCC and OTS flood insurance regulations as prescribed
by Title V of the Riegle Community Development and Regulatory
Improvement Act of 1994, Pub. L. 103-325, Title V, 108 Stat. 2160
(1994) (Reform Act). The Reform Act specifically requires six agencies,
including the OCC and OTS, to implement certain of the Reform Act's
amendments through regulations. Therefore, to the extent that the
proposed rules impose new Federal requirements, such requirements are
statutorily mandated by the Reform Act. Nevertheless, the OCC and OTS
have determined that the proposed rules will not result in expenditures
by State, local, and tribal governments, or by the private sector, of
more than $100 million in any one year. Accordingly, the OCC and OTS
have not prepared a budgetary impact statement or specifically
addressed the regulatory alternatives considered.
List of Subjects
12 CFR Part 22
Flood insurance, Mortgages, National banks, Reporting and
recordkeeping requirements.
12 CFR Part 208
Accounting, Agriculture, Banks, banking, Confidential business
information, Crime, Currency, Federal Reserve System, Flood insurance,
Mortgages, Reporting and recordkeeping requirements, Securities.
12 CFR Part 339
Flood insurance, Reporting and recordkeeping requirements.
12 CFR Part 563
Accounting, Advertising, Crime, Currency, Flood insurance,
Investments, Reporting and recordkeeping
[[Page 53973]]
requirements, Savings associations, Securities, Surety bonds.
12 CFR Part 572
Flood insurance, Reporting and recordkeeping requirements, Savings
associations.
12 CFR Part 614
Agriculture, Banks, banking, Flood insurance, Foreign trade,
Reporting and recordkeeping requirements, Rural areas.
12 CFR Part 760
Credit unions, Mortgages, Flood insurance, Reporting and
recordkeeping requirements.
Office of the Comptroller of the Currency
12 CFR CHAPTER I
Authority and Issuance
For the reasons set forth in the joint preamble, chapter I of title
12 of the Code of Federal Regulations is proposed to be revised to read
as follows:
PART 22--LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS
Sec.
22.1 Authority, purpose, and scope.
22.2 Definitions.
22.3 Requirement to purchase flood insurance where available.
22.4 Exemptions.
22.5 Escrow requirement.
22.6 Required use of standard flood hazard determination form.
22.7 Forced placement of flood insurance.
22.8 Determination fees.
22.9 Notice of special flood hazards and availability of Federal
disaster relief assistance.
22.10 Notice of servicer's identity.
Appendix A to Part 22--Sample Form of Notice of Special Flood Hazards
and Availability of Federal Disaster Relief Assistance
Authority: 12 U.S.C. 93a; 42 U.S.C. 4012a, 4104a, 4104b, 4106,
and 4128.
Sec. 22.1 Authority, purpose, and scope.
(a) Authority. This part is issued pursuant to 12 U.S.C. 93a and 42
U.S.C. 4012a, 4104a, 4104b, 4106, and 4128.
(b) Purpose. The purpose of this part is to implement the
requirements of the National Flood Insurance Act of 1968 and the Flood
Disaster Protection Act of 1973, as amended (42 U.S.C. 4001-4129).
(c) Scope. This part, except for Secs. 22.6 and 22.8, applies to
loans secured by buildings or mobile homes located or to be located in
areas determined by the Director of the Federal Emergency Management
Agency to have special flood hazards. Sections 22.6 and 22.8 apply to
loans secured by buildings or mobile homes, regardless of location.
Sec. 22.2 Definitions.
(a) Act means the National Flood Insurance Act of 1968, as amended
(42 U.S.C. 4001-4129).
(b) Bank means a national bank or a bank located in the District of
Columbia and subject to the supervision of the Comptroller of the
Currency.
(c) Building means a walled and roofed structure, other than a gas
or liquid storage tank, that is principally above ground and affixed to
a permanent site, and a walled and roofed structure while in the course
of construction, alteration, or repair.
(d) Community means a State or a political subdivision of a State
that has zoning and building code jurisdiction over a particular area
having special flood hazards.
(e) Designated loan means a loan secured by a building or mobile
home that is located or to be located in a special flood hazard area in
which flood insurance is available under the Act.
(f) Director means the Director of the Federal Emergency Management
Agency.
(g) Mobile home means a structure, transportable in one or more
sections, that is built on a permanent chassis and designed for use
with or without a permanent foundation when attached to the required
utilities. The term mobile home does not include a recreational
vehicle. For purposes of this part, the term mobile home means a mobile
home on a permanent foundation.
(h) NFIP means the National Flood Insurance Program authorized
under the Act.
(i) Residential improved real estate means real estate upon which a
home or other residential building is located or to be located.
(j) Servicer means the person responsible for:
(1) Receiving any scheduled, periodic payments from a borrower
under the terms of a loan, including amounts for taxes, insurance
premiums, and other charges with respect to the property securing the
loan; and
(2) Making payments of principal and interest and any other
payments from the amounts received from the borrower as may be required
under the terms of the loan.
(k) Special flood hazard area means the land in the flood plain
within a community having at least a one percent chance of flooding in
any given year, as designated by the Director.
Sec. 22.3 Requirement to purchase flood insurance where available.
A bank shall not make, increase, extend, or renew any designated
loan unless the building or mobile home and any personal property
securing the loan is covered by flood insurance for the term of the
loan. The amount of insurance must be at least equal to the lesser of
the outstanding principal balance of the designated loan or the maximum
limit of coverage available for the particular type of property under
the Act.
Sec. 22.4 Exemptions.
The flood insurance requirement prescribed by Sec. 22.3 does not
apply with respect to:
(a) Any State-owned property covered under a policy of self-
insurance satisfactory to the Director, who publishes and periodically
revises the list of States falling within this exemption; or
(b) Property securing any loan with an original principal balance
of $5,000 or less and a repayment term of one year or less.
Sec. 22.5 Escrow requirement.
If a bank requires the escrow of taxes, insurance premiums, fees,
or any other charges for a loan secured by residential improved real
estate or a mobile home that is made, increased, extended, or renewed
after [effective date of final regulation], then the bank shall also
require the escrow of all premiums and fees for any flood insurance
required under Sec. 22.3. The bank, or a servicer acting on behalf of
the bank, shall deposit the flood insurance premiums on behalf of the
borrower in an escrow account. Depending upon the type of loan, such
escrow account may be subject to escrow requirements adopted pursuant
to section 10 of the Real Estate Settlement Procedures Act of 1974 (12
U.S.C. 2609), which generally limits the amount that may be maintained
in escrow accounts for certain types of loans and requires escrow
account statements for those accounts. Upon receipt of a notice from
the Director or other provider of flood insurance that premiums are
due, the bank or its servicer shall pay the amount owed to the
insurance provider from the escrow account.
Sec. 22.6 Required use of standard flood hazard determination form.
(a) Use of form. A bank shall use the standard flood hazard
determination form developed by the Director (as set forth in Appendix
A of 44 CFR part 65) when determining whether the building or mobile
home offered as collateral
[[Page 53974]]
security for a loan is or will be located in a special flood hazard
area in which flood insurance is available under the Act. The standard
flood hazard determination form may be used in a printed, computerized,
or electronic manner.
(b) Retention of form. A bank shall retain a copy of the completed
standard flood hazard determination form, in either hard copy or
electronic form, for the period of time the bank owns the loan.
Sec. 22.7 Forced placement of flood insurance.
If a bank, or a servicer acting on behalf of the bank, determines,
at the time of origination or at any time during the term of a
designated loan, that the building or mobile home and any personal
property securing the designated loan is not covered by flood insurance
or is covered by flood insurance in an amount less than the amount
required under Sec. 22.3, then the bank or its servicer shall notify
the borrower that the borrower should obtain flood insurance, at the
borrower's expense, in an amount at least equal to the amount required
under Sec. 22.3, for the term of the loan. If the borrower fails to
obtain flood insurance within 45 days after notification, then the bank
or its servicer shall purchase insurance on the borrower's behalf. The
bank or its servicer may charge the borrower for the cost of premiums
and fees incurred in purchasing the insurance.
Sec. 22.8 Determination fees.
(a) General. Notwithstanding any Federal or State law other than
the Flood Disaster Protection Act of 1973, as amended (42 U.S.C. 4001-
4129), any bank, or a servicer acting on behalf of the bank, may charge
a reasonable fee for determining whether the building or mobile home
securing the loan is located or will be located in a special flood
hazard area.
(b) Borrower fee. The determination fee may be charged to the
borrower if the determination:
(1) Is made in connection with a making, increasing, extending, or
renewing of the loan that is initiated by the borrower;
(2) Reflects the Director's revision or updating of floodplain
areas or flood-risk zones;
(3) Reflects the Director's publication of a notice or compendium
that:
(i) Affects the area in which the building or mobile home securing
the loan is located; or
(ii) By determination of the Director, may reasonably require a
determination whether the building or mobile home securing the loan is
located in a special flood hazard area; or
(4) Results in the purchase of flood insurance coverage under
Sec. 22.7.
(c) Purchaser or transferee fee. The fee may be charged to the
purchaser or transferee of a loan in the case of the sale or transfer
of the loan.
Sec. 22.9 Notice of special flood hazards and availability of Federal
disaster relief assistance.
(a) Notice requirement. When a bank makes, increases, extends, or
renews a loan secured by a building or a mobile home located or to be
located in a special flood hazard area, the bank shall mail or deliver
a written notice to the borrower and to the servicer in all cases
whether or not flood insurance is available under the Act for the
collateral securing the loan.
(b) Contents of notice. The written notice must include the
following information:
(1) A warning, in a form approved by the Director, that the
building or the mobile home is or will be located in a special flood
hazard area;
(2) A description of the flood insurance purchase requirements set
forth in section 102(b) of the Flood Disaster Protection Act of 1973,
as amended (42 U.S.C. 4012a(b));
(3) A statement, where applicable, that flood insurance coverage is
available under the NFIP and may also be available from private
insurers; and
(4) A statement whether Federal disaster relief assistance may be
available in the event of damage to the building or mobile home caused
by flooding in a Federally-declared disaster.
(c) Timing of notice. The bank shall provide the notice required by
paragraph (a) of this section to the borrower and the servicer within a
reasonable time before the completion of the transaction.
(d) Record of receipt. The bank shall retain a record of the
receipt of the notices by the borrower and the servicer for the period
of time the bank owns the loan.
(e) Alternate method of notice. Instead of providing the notice to
the borrower required by paragraph (a) of this section, a bank may
obtain satisfactory written assurance from the seller or lessor that,
within a reasonable time before the completion of the sale or lease
transaction, the seller or lessor has notified the borrower that the
building or mobile home is or will be located in a special flood hazard
area. The bank shall retain a record of the written assurance from the
seller or lessor for the period of time the bank owns the loan.
(f) Use of prescribed form of notice. A bank may comply with the
notice requirements of this section by providing written notice to a
borrower and to the servicer containing the language presented in
appendix A to this part not less than ten days before the completion of
the transaction (or not later than the bank's commitment if the period
between the commitment and the completion of the transaction is less
than ten days).
Sec. 22.10 Notice of servicer's identity.
(a) Notice requirement. When a bank makes, increases, extends,
renews, sells, or transfers a loan secured by a building or mobile home
located or to be located in a special flood hazard area, the bank shall
notify the Director (or the Director's designee) in writing of the
identity of the servicer of the loan.
(b) Transfer of servicing rights. The bank shall notify the
Director (or the Director's designee) of any change in the servicer of
a loan described in paragraph (a) of this section within 60 days after
the effective date of the change. Upon any change in the servicing of a
loan described in paragraph (a) of this section, the duty to provide
notice under this paragraph (b) shall transfer to the transferee
servicer.
Appendix A to Part 22--Sample Form of Notice of Special Flood Hazards
and Availability of Federal Disaster Relief Assistance
We are giving you this notice to inform you that:
______ The building securing the loan for which you have applied
is or will be located in an area with special flood hazards.
______ The mobile home securing the loan for which you have
applied is or will be located in an area with special flood hazards.
The area has been identified by the Director of the Federal
Emergency Management Agency (FEMA) as a special flood hazard area
using FEMA's Flood Insurance Rate Map or the Flood Hazard Boundary
Map for the following community: ____________. This area has at
least a one percent (1%) chance of being flooded in any given year.
The risk grows each year. For example, during the life of a 30-year
mortgage loan, the risk of a flood in a special flood hazard area is
at least 26%.
Federal law allows a lender and borrower jointly to request the
Director of FEMA to review the determination of whether the property
securing the loan is located in a special flood hazard area. If you
would like to make such a request, please contact us for further
information.
______ The community in which the property securing the loan is
located participates in the National Flood Insurance Program (NFIP).
Federal law will not allow us to make you the loan that you have
applied for if you do not purchase flood insurance. The flood
insurance must be maintained for the life of the loan.
[[Page 53975]]
Flood insurance coverage under the NFIP may be
purchased through an insurance agent who will obtain the policy
either directly through the NFIP or through an insurance company
that participates in the NFIP. Flood insurance also may be available
from private insurers that do not participate in the NFIP.
At a minimum, flood insurance purchased must cover the
lesser of:
(1) The outstanding principal amount of the loan; or
(2) The maximum amount of coverage allowed for the type of
property under the NFIP.
Federal disaster relief assistance (usually in the form
of a low-interest loan) may be available for damages incurred in
excess of your flood insurance if your community's participation in
the NFIP is in accordance with NFIP requirements.
______ Flood insurance coverage under the NFIP is not available
for the property securing the loan because the community in which
the property is located does not participate in the NFIP. In
addition, if the non-participating community has been identified for
at least one year as containing a special flood hazard area,
properties located in the community will not be eligible for Federal
disaster relief assistance in the event of a Federally-declared
flood disaster.
Dated: September 11, 1995.
Eugene A. Ludwig,
Comptroller of the Currency.
Federal Reserve System
12 CFR CHAPTER II
Authority and Issuance
For the reasons set forth in the joint preamble, part 208 of
chapter II of title 12 of the Code of Federal Regulations is proposed
to be amended as set forth below:
PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL
RESERVE SYSTEM (REGULATION H)
1. The authority citation for part 208 continues to read as
follows:
Authority: 12 U.S.C. 36, 248(a), 248(c), 321-338a, 371d, 461,
481-486, 601, 611, 1814, 1823(j), 1828(o), 1831o, 1831p-1, 3105,
3310, 3331-3351, and 3906-3909; 15 U.S.C. 78b, 781(b), 781(g),
781(i), 78o-4(c)(5), 78q, 78q-1, and 78w; 31 U.S.C. 5318; 42 U.S.C.
4012a, 4104a, 4104b, 4106, and 4128.
Sec. 208.8 [Amended]
2. In Sec. 208.8, paragraph (e) is removed and reserved, and
appendix A--Sample Notices is removed.
3. A new Sec. 208.23 is added at the end of subpart A to read as
follows:
Sec. 208.23 Loans in areas having special flood hazards.
(a) Purpose and scope--(1) Purpose. The purpose of this section is
to implement the requirements of the National Flood Insurance Act of
1968 and the Flood Disaster Protection Act of 1973, as amended (42
U.S.C. 4001-4129).
(2) Scope. This section, except for paragraphs (f) and (h) of this
section, applies to loans secured by buildings or mobile homes located
or to be located in areas determined by the Director of the Federal
Emergency Management Agency to have special flood hazards. Paragraphs
(f) and (h) of this section apply to loans secured by buildings or
mobile homes, regardless of location.
(b) Definitions. (1) Act means the National Flood Insurance Act of
1968, as amended (42 U.S.C. 4001-4129).
(2) Building means a walled and roofed structure, other than a gas
or liquid storage tank, that is principally above ground and affixed to
a permanent site, and a walled and roofed structure while in the course
of construction, alteration, or repair.
(3) Community means a State or a political subdivision of a State
that has zoning and building code jurisdiction over a particular area
having special flood hazards.
(4) Designated loan means a loan secured by a building or mobile
home that is located or to be located in a special flood hazard area in
which flood insurance is available under the Act.
(5) Director means the Director of the Federal Emergency Management
Agency.
(6) Mobile home means a structure, transportable in one or more
sections, that is built on a permanent chassis and designed for use
with or without a permanent foundation when attached to the required
utilities. The term mobile home does not include a recreational
vehicle. For purposes of this section, the term mobile home means a
mobile home on a permanent foundation.
(7) NFIP means the National Flood Insurance Program authorized
under the Act.
(8) Residential improved real estate means real estate upon which a
home or other residential building is located or to be located.
(9) Servicer means the person responsible for:
(i) Receiving any scheduled, periodic payments from a borrower
under the terms of a loan, including amounts for taxes, insurance
premiums, and other charges with respect to the property securing the
loan; and
(ii) Making payments of principal and interest and any other
payments from the amounts received from the borrower as may be required
under the terms of the loan.
(10) Special flood hazard area means the land in the flood plain
within a community having at least a one percent chance of flooding in
any given year, as designated by the Director.
(c) Requirement to purchase flood insurance where available. A
state member bank shall not make, increase, extend, or renew any
designated loan unless the building or mobile home and any personal
property securing the loan is covered by flood insurance for the term
of the loan. The amount of insurance must be at least equal to the
lesser of the outstanding principal balance of the designated loan or
the maximum limit of coverage available for the particular type of
property under the Act.
(d) Exemptions. The flood insurance requirement prescribed by
paragraph (c) of this section does not apply with respect to:
(1) Any State-owned property covered under a policy of self-
insurance satisfactory to the Director, who publishes and periodically
revises the list of States falling within this exemption; or
(2) Property securing any loan with an original principal balance
of $5,000 or less and a repayment term of one year or less.
(e) Escrow requirement. If a state member bank requires the escrow
of taxes, insurance premiums, fees, or any other charges for a loan
secured by residential improved real estate or a mobile home that is
made, increased, extended, or renewed after [effective date of final
regulation], then the state member bank shall also require the escrow
of all premiums and fees for any flood insurance required under
paragraph (c) of this section. The state member bank, or a servicer
acting on behalf of the bank, shall deposit the flood insurance
premiums on behalf of the borrower in an escrow account. Depending upon
the type of loan, such escrow account may be subject to escrow
requirements adopted pursuant to section 10 of the Real Estate
Settlement Procedures Act of 1974 (12 U.S.C. 2609), which generally
limits the amount that may be maintained in escrow accounts for certain
types of loans and requires escrow account statements for those
accounts. Upon receipt of a notice from the Director or other provider
of flood insurance that premiums are due, the state member bank or its
servicer shall pay the amount owed to the insurance provider from the
escrow account.
(f) Required use of standard flood hazard determination form--(1)
Use of form. A state member bank shall use the standard flood hazard
determination form developed by the Director (as set forth in Appendix
A of 44 CFR part 65)
[[Page 53976]]
when determining whether the building or mobile home offered as
collateral security for a loan is or will be located in a special flood
hazard area in which flood insurance is available under the Act. The
standard flood hazard determination form may be used in a printed,
computerized, or electronic manner.
(2) Retention of form. A state member bank shall retain a copy of
the completed standard flood hazard determination form, in either hard
copy or electronic form, for the period of time the bank owns the loan.
(g) Forced placement of flood insurance. If a state member bank, or
a servicer acting on behalf of the bank, determines, at the time of
origination or at any time during the term of a designated loan, that
the building or mobile home and any personal property securing the
designated loan is not covered by flood insurance or is covered by
flood insurance in an amount less than the amount required under
paragraph (c) of this section, then the bank or its servicer shall
notify the borrower that the borrower should obtain flood insurance, at
the borrower's expense, in an amount at least equal to the amount
required under paragraph (c) of this section, for the term of the loan.
If the borrower fails to obtain flood insurance within 45 days after
notification, then the state member bank or its servicer shall purchase
insurance on the borrower's behalf. The state member bank or its
servicer may charge the borrower for the cost of premiums and fees
incurred in purchasing the insurance.
(h) Determination fees--(1) General. Notwithstanding any Federal or
State law other than the Flood Disaster Protection Act of 1973, as
amended (42 U.S.C. 4001-4129), any state member bank, or a servicer
acting on behalf of the bank, may charge a reasonable fee for
determining whether the building or mobile home securing the loan is
located or will be located in a special flood hazard area.
(2) Borrower fee. The determination fee may be charged to the
borrower if the determination:
(i) Is made in connection with a making, increasing, extending, or
renewing of the loan that is initiated by the borrower;
(ii) Reflects the Director's revision or updating of floodplain
areas or flood-risk zones;
(iii) Reflects the Director's publication of a notice or compendium
that:
(A) Affects the area in which the building or mobile home securing
the loan is located; or
(B) By determination of the Director, may reasonably require a
determination whether the building or mobile home securing the loan is
located in a special flood hazard area; or
(iv) Results in the purchase of flood insurance coverage under
paragraph (g) of this section.
(3) Purchaser or transferee fee. The fee may be charged to the
purchaser or transferee of a loan in the case of the sale or transfer
of the loan.
(i) Notice of special flood hazards and availability of Federal
disaster relief assistance--(1) Notice requirement. When a state member
bank makes, increases, extends, or renews a loan secured by a building
or mobile home located or to be located in a special flood hazard area,
the bank shall mail or deliver a written notice to the borrower and to
the servicer in all cases whether or not flood insurance is available
under the Act for the collateral securing the loan.
(2) Contents of notice. The written notice must include the
following information:
(i) A warning, in a form approved by the Director, that the
building or the mobile home is or will be located in a special flood
hazard area;
(ii) A description of the flood insurance purchase requirements set
forth in section 102(b) of the Flood Disaster Protection Act of 1973,
as amended (42 U.S.C. 4012a(b));
(iii) A statement, where applicable, that flood insurance coverage
is available under the NFIP and may also be available from private
insurers; and
(iv) A statement whether Federal disaster relief assistance may be
available in the event of damage to the building or mobile home caused
by flooding in a Federally-declared disaster.
(3) Timing of notice. The state member bank shall provide the
notice required by paragraph (i)(1) of this section to the borrower and
the servicer within a reasonable time before the completion of the
transaction.
(4) Record of receipt. The state member bank shall retain a record
of the receipt of the notices by the borrower and the servicer for the
period of time the bank owns the loan.
(5) Alternate method of notice. Instead of providing the notice to
the borrower required by paragraph (i)(1) of this section, a state
member bank may obtain satisfactory written assurance from the seller
or lessor that, within a reasonable time before the completion of the
sale or lease transaction, the seller or lessor has notified the
borrower that the building or mobile home is or will be located in a
special flood hazard area. The state member bank shall retain a record
of the written assurance from the seller or lessor for the period of
time the bank owns the loan.
(6) Use of prescribed form of notice. A state member bank may
comply with the notice requirements of this paragraph (i) by providing
written notice to a borrower and to the servicer containing the
language presented in appendix A to this section not less than ten days
before the completion of the transaction (or not later than the bank's
commitment if the period between the commitment and the completion of
the transaction is less than ten days).
(j) Notice of servicer's identity--(1) Notice requirement. When a
state member bank makes, increases, extends, renews, sells, or
transfers a loan secured by a building or mobile home located or to be
located in a special flood hazard area, the bank shall notify the
Director (or the Director's designee) in writing of the identity of the
servicer of the loan.
(2) Transfer of servicing rights. The state member bank shall
notify the Director (or the Director's designee) of any change in the
servicer of a loan described in paragraph (j)(1) of this section within
60 days after the effective date of the change. Upon any change in the
servicing of a loan described in paragraph (j)(1) of this section, the
duty to provide notice under this paragraph (j)(2) shall transfer to
the transferee servicer.
Appendix A to Sec. 208.23--Sample Form of Notice of Special Flood
Hazards and Availability of Federal Disaster Relief Assistance
We are giving you this notice to inform you that:
______The building securing the loan for which you have applied
is or will be located in an area with special flood hazards.
______The mobile home securing the loan for which you have
applied is or will be located in an area with special flood hazards.
The area has been identified by the Director of the Federal
Emergency Management Agency (FEMA) as a special flood hazard area
using FEMA's Flood Insurance Rate Map or the Flood Hazard Boundary
Map for the following community:____________. This area has at least
a one percent (1%) chance of being flooded in any given year. The
risk grows each year. For example, during the life of a 30-year
mortgage loan, the risk of a flood in a special flood hazard area is
at least 26%.
Federal law allows a lender and borrower jointly to request the
Director of FEMA to review the determination of whether the property
securing the loan is located in a special flood hazard area. If you
would like to make such a request, please contact us for further
information.
______The community in which the property securing the loan is
located
[[Page 53977]]
participates in the National Flood Insurance Program (NFIP). Federal
law will not allow us to make you the loan that you have applied for
if you do not purchase flood insurance. The flood insurance must be
maintained for the life of the loan.
Flood insurance coverage under the NFIP may be
purchased through an insurance agent who will obtain the policy
either directly through the NFIP or through an insurance company
that participates in the NFIP. Flood insurance also may be available
from private insurers that do not participate in the NFIP.
At a minimum, flood insurance purchased must cover the
lesser of:
(1) The outstanding principal amount of the loan; or
(2) The maximum amount of coverage allowed for the type of
property under the NFIP.
Federal disaster relief assistance (usually in the form
of a low-interest loan) may be available for damages incurred in
excess of your flood insurance if your community's participation in
the NFIP is in accordance with NFIP requirements.
______Flood insurance coverage under the NFIP is not available
for the property securing the loan because the community in which
the property is located does not participate in the NFIP. In
addition, if the non-participating community has been identified for
at least one year as containing a special flood hazard area,
properties located in the community will not be eligible for Federal
disaster relief assistance in the event of a Federally-declared
flood disaster.
By order of the Board of Governors of the Federal Reserve
System, October 3, 1995.
William W. Wiles,
Secretary of the Board.
Federal Deposit Insurance Corporation
12 CFR CHAPTER III
Authority and Issuance
For the reasons set forth in the joint preamble, the Board of
Directors of the FDIC proposes to revise part 339 of chapter III of
title 12 of the Code of Federal Regulations to read as follows:
PART 339--LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS
Sec.
339.1 Authority, purpose, and scope.
339.2 Definitions.
339.3 Requirement to purchase flood insurance where available.
339.4 Exemptions.
339.5 Escrow requirement.
339.6 Required use of standard flood hazard determination form.
339.7 Forced placement of flood insurance.
339.8 Determination fees.
339.9 Notice of special flood hazards and availability of Federal
disaster relief assistance.
339.10 Notice of servicer's identity.
Appendix A to Part 339--Sample Form of Notice of Special Flood Hazards
and Availability of Federal Disaster Relief Assistance
Authority: 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128.
Sec. 339.1 Authority, purpose, and scope.
(a) Authority. This part is issued pursuant to 42 U.S.C. 4012a,
4104a, 4104b, 4106, and 4128.
(b) Purpose. The purpose of this part is to implement the
requirements of the National Flood Insurance Act of 1968 and the Flood
Disaster Protection Act of 1973, as amended (42 U.S.C. 4001-4129).
(c) Scope. This part, except for Secs. 339.6 and 339.8, applies to
loans secured by buildings or mobile homes located or to be located in
areas determined by the Director of the Federal Emergency Management
Agency to have special flood hazards. Sections 339.6 and 339.8 apply to
loans secured by buildings or mobile homes, regardless of location.
Sec. 339.2 Definitions.
(a) Act means the National Flood Insurance Act of 1968, as amended
(42 U.S.C. 4001-4129).
(b) Bank means an insured State nonmember bank and an insured State
branch of a foreign bank or any subsidiary of an insured State
nonmember bank.
(c) Building means a walled and roofed structure, other than a gas
or liquid storage tank, that is principally above ground and affixed to
a permanent site, and a walled and roofed structure while in the course
of construction, alteration, or repair.
(d) Community means a State or a political subdivision of a State
that has zoning and building code jurisdiction over a particular area
having special flood hazards.
(e) Designated loan means a loan secured by a building or mobile
home that is located or to be located in a special flood hazard area in
which flood insurance is available under the Act.
(f) Director means the Director of the Federal Emergency Management
Agency.
(g) Mobile home means a structure, transportable in one or more
sections, that is built on a permanent chassis and designed for use
with or without a permanent foundation when attached to the required
utilities. The term mobile home does not include a recreational
vehicle. For purposes of this part, the term mobile home means a mobile
home on a permanent foundation.
(h) NFIP means the National Flood Insurance Program authorized
under the Act.
(i) Residential improved real estate means real estate upon which a
home or other residential building is located or to be located.
(j) Servicer means the person responsible for:
(1) Receiving any scheduled, periodic payments from a borrower
under the terms of a loan, including amounts for taxes, insurance
premiums, and other charges with respect to the property securing the
loan; and
(2) Making payments of principal and interest and any other
payments from the amounts received from the borrower as may be required
under the terms of the loan.
(k) Special flood hazard area means the land in the flood plain
within a community having at least a one percent chance of flooding in
any given year, as designated by the Director.
Sec. 339.3 Requirement to purchase flood insurance where available.
A bank shall not make, increase, extend, or renew any designated
loan unless the building or mobile home and any personal property
securing the loan is covered by flood insurance for the term of the
loan. The amount of insurance must be at least equal to the lesser of
the outstanding principal balance of the designated loan or the maximum
limit of coverage available for the particular type of property under
the Act.
Sec. 339.4 Exemptions.
The flood insurance requirement prescribed by Sec. 339.3 does not
apply with respect to:
(a) Any State-owned property covered under a policy of self-
insurance satisfactory to the Director, who publishes and periodically
revises the list of States falling within this exemption; or
(b) Property securing any loan with an original principal balance
of $5,000 or less and a repayment term of one year or less.
Sec. 339.5 Escrow requirement.
If a bank requires the escrow of taxes, insurance premiums, fees,
or any other charges for a loan secured by residential improved real
estate or a mobile home that is made, increased, extended, or renewed
after [effective date of final regulation], then the bank shall also
require the escrow of all premiums and fees for any flood insurance
required under Sec. 339.3. The bank, or a servicer acting on behalf of
the bank, shall deposit the flood insurance premiums on behalf of the
borrower in an escrow account. Depending upon the type of loan, such
escrow account may be
[[Page 53978]]
subject to escrow requirements adopted pursuant to section 10 of the
Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2609) which
generally limits the amount that may be maintained in escrow accounts
for certain types of loans and requires escrow account statements for
those accounts. Upon receipt of a notice from the Director or other
provider of flood insurance that premiums are due, the bank or its
servicer shall pay the amount owed to the insurance provider from the
escrow account.
Sec. 339.6 Required use of standard flood hazard determination form.
(a) Use of form. A bank shall use the standard flood hazard
determination form developed by the Director (as set forth in Appendix
A of 44 CFR part 65) when determining whether the building or mobile
home offered as collateral security for a loan is or will be located in
a special flood hazard area in which flood insurance is available under
the Act. The standard flood hazard determination form may be used in a
printed, computerized, or electronic manner.
(b) Retention of form. A bank shall retain a copy of the completed
standard flood hazard determination form, in either hard copy or
electronic form, for the period of time the bank owns the loan.
Sec. 339.7 Forced placement of flood insurance.
If a bank, or a servicer acting on behalf of the bank, determines,
at the time of origination or at any time during the term of a
designated loan, that the building or mobile home and any personal
property securing the designated loan is not covered by flood insurance
or is covered by flood insurance in an amount less than the amount
required under Sec. 339.3, then the bank or its servicer shall notify
the borrower that the borrower should obtain flood insurance, at the
borrower's expense, in an amount at least equal to the amount required
under Sec. 339.3, for the term of the loan. If the borrower fails to
obtain flood insurance within 45 days after notification, then the bank
or its servicer shall purchase insurance on the borrower's behalf. The
bank or its servicer may charge the borrower for the cost of premiums
and fees incurred in purchasing the insurance.
Sec. 339.8 Determination fees.
(a) General. Notwithstanding any Federal or State law other than
the Flood Disaster Protection Act of 1973, as amended (42 U.S.C. 4001-
4129), any bank, or a servicer acting on behalf of the bank, may charge
a reasonable fee to the borrower for determining whether a building or
mobile home securing the loan is located or will be located in a
special flood hazard area.
(b) Borrower fee. The determination fee may be charged to the
borrower if the determination:
(1) Is made in connection with a making, increasing, extending, or
renewing of the loan that is initiated by the borrower;
(2) Reflects the Director's revision or updating of floodplain
areas or flood-risk zones;
(3) Reflects the Director's publication of a notice or compendium
that:
(i) Affects the area in which the building or mobile home securing
the loan is located; or
(ii) By determination of the Director, may reasonably require a
determination whether the building or mobile home securing the loan is
located in a special flood hazard area; or
(4) Results in the purchase of flood insurance coverage under
Sec. 339.7.
(c) Purchaser or transferee fee. The fee may be charged to the
purchaser or transferee of a loan in the case of the sale or transfer
of the loan.
Sec. 339.9 Notice of special flood hazards and availability of Federal
disaster relief assistance.
(a) Notice requirement. When a bank makes, increases, extends, or
renews a loan secured by a building or a mobile home located or to be
located in a special flood hazard area, the bank shall mail or deliver
a written notice to the borrower and to the servicer in all cases
whether or not flood insurance is available under the Act for the
collateral securing the loan.
(b) Contents of notice. The written notice must include the
following information:
(1) A warning, in a form approved by the Director, that the
building or the mobile home is or will be located in a special flood
hazard area;
(2) A description of the flood insurance purchase requirements set
forth in section 102(b) of the Flood Disaster Protection Act of 1973,
as amended (42 U.S.C. 4012a(b));
(3) A statement, where applicable, that flood insurance coverage is
available under the NFIP and may also be available from private
insurers; and
(4) A statement whether Federal disaster relief assistance may be
available in the event of damage to the building or mobile home caused
by flooding in a Federally-declared disaster.
(c) Timing of notice. The bank shall provide the notice required by
paragraph (a) of this section to the borrower and the servicer within a
reasonable time before the completion of the transaction.
(d) Record of receipt. The bank shall retain a record of the
receipt of the notices by the borrower and the servicer for the period
of time the bank owns the loan.
(e) Alternate method of notice. Instead of providing the notice to
the borrower required by paragraph (a) of this section, a bank may
obtain satisfactory written assurance from the seller or lessor that,
within a reasonable time before the completion of the sale or lease
transaction, the seller or lessor has notified the borrower that the
building or mobile home is or will be located in a special flood hazard
area. The bank shall retain a record of the written assurance from the
seller or lessor for the period of time the bank owns the loan.
(f) Use of prescribed form of notice. A bank may comply with the
notice requirements of this section by providing written notice to a
borrower and to the servicer containing the language presented in
appendix A to this part not less than ten days before the completion of
the transaction (or not later than the bank's commitment if the period
between the commitment and the completion of the transaction is less
than ten days).
Sec. 339.10 Notice of servicer's identity.
(a) Notice requirement. When a bank makes, increases, extends,
renews, sells, or transfers a loan secured by a building or mobile home
located or to be located in a special flood hazard area, the bank shall
notify the Director (or the Director's designee) in writing of the
identity of the servicer of the loan.
(b) Transfer of servicing rights. The bank shall notify the
Director (or the Director's designee) of any change in the servicer of
a loan described in paragraph (a) of this section within 60 days after
the effective date of the change. Upon any change in the servicing of a
loan described in paragraph (a) of this section, the duty to provide
notice under this paragraph (b) shall transfer to the transferee
servicer.
Appendix A to Part 339--Sample Form of Notice of Special Flood Hazards
and Availability of Federal Disaster Relief Assistance
We are giving you this notice to inform you that:
______ The building securing the loan for which you have applied
is or will be located in an area with special flood hazards.
______ The mobile home securing the loan for which you have
applied is or will be located in an area with special flood hazards.
[[Page 53979]]
The area has been identified by the Director of the Federal
Emergency Management Agency (FEMA) as a special flood hazard area
using FEMA's Flood Insurance Rate Map or the Flood Hazard Boundary
Map for the following community:
________________________________________. This area has at least a
one percent (1%) chance of being flooded in any given year. The risk
grows each year. For example, during the life of a 30-year mortgage
loan, the risk of a flood in a special flood hazard area is at least
26%.
Federal law allows a lender and borrower jointly to request the
Director of FEMA to review the determination of whether the property
securing the loan is located in a special flood hazard area. If you
would like to make such a request, please contact us for further
information.
______ The community in which the property securing the loan is
located participates in the National Flood Insurance Program (NFIP).
Federal law will not allow us to make you the loan that you have
applied for if you do not purchase flood insurance. The flood
insurance must be maintained for the life of the loan.
Flood insurance coverage under the NFIP may be
purchased through an insurance agent who will obtain the policy
either directly through the NFIP or through an insurance company
that participates in the NFIP. Flood insurance also may be available
from private insurers that do not participate in the NFIP.
At a minimum, flood insurance purchased must cover the
lesser of:
(1) The outstanding principal amount of the loan; or
(2) The maximum amount of coverage allowed for the type of
property under the NFIP.
Federal disaster relief assistance (usually in the form
of a low-interest loan) may be available for damages incurred in
excess of your flood insurance if your community's participation in
the NFIP is in accordance with NFIP requirements.
______ Flood insurance coverage under the NFIP is not available
for the property securing the loan because the community in which
the property is located does not participate in the NFIP. In
addition, if the non-participating community has been identified for
at least one year as containing a special flood hazard area,
properties located in the community will not be eligible for Federal
disaster relief assistance in the event of a Federally-declared
flood disaster.
By order of the Board of Directors.
Dated at Washington, D.C., this 26th day of September, 1995.
Federal Deposit Insurance Corporation.
Jerry L. Langley,
Executive Secretary.
Office of Thrift Supervision
12 CFR CHAPTER V
Authority and Issuance
For the reasons set forth in the joint preamble, subchapter D of
chapter V of title 12 of the Code of Federal Regulations is proposed to
be amended, as set forth below:
SUBCHAPTER D--REGULATIONS APPLICABLE TO ALL SAVINGS ASSOCIATIONS PART
563--OPERATIONS
1. The authority citation for part 563 is revised to read as
follows:
Authority: 12 U.S.C. 375b, 1462, 1462a, 1463, 1464, 1467a, 1468,
1817, 1828, 3806.
Sec. 563.48 [Removed]
2. Section 563.48 is removed.
3. A new part 572 is added to read as follows:
PART 572--LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS
Sec.
572.1 Authority, purpose, and scope.
572.2 Definitions.
572.3 Requirement to purchase flood insurance where available.
572.4 Exemptions.
572.5 Escrow requirement.
572.6 Required use of standard flood hazard determination form.
572.7 Forced placement of flood insurance.
572.8 Determination fees.
572.9 Notice of special flood hazards and availability of Federal
disaster relief assistance.
572.10 Notice of servicer's identity.
Appendix A to Part 572--Sample Form of Notice of Special Flood Hazards
and Availability of Federal Disaster Relief Assistance
Authority: 12 U.S.C. 1462, 1462a, 1463, 1464; 42 U.S.C. 4012a,
4104a, 4104b, 4106, and 4128.
Sec. 572.1 Authority, purpose, and scope.
(a) Authority. This part is issued pursuant to 12 U.S.C. 1462,
1462a, 1463, 1464 and 42 U.S.C. 4012a, 4104a, 4104b, 4106, 4128.
(b) Purpose. The purpose of this part is to implement the
requirements of the National Flood Insurance Act of 1968 and the Flood
Disaster Protection Act of 1973, as amended (42 U.S.C.4001-4129).
(c) Scope. This part, except for Secs. 572.6 and 572.8, applies to
loans secured by buildings or mobile homes located or to be located in
areas determined by the Director of the Federal Emergency Management
Agency to have special flood hazards. Sections 572.6 and 572.8 apply to
loans secured by buildings or mobile homes, regardless of location.
Sec. 572.2 Definitions.
(a) Act means the National Flood Insurance Act of 1968, as amended
(42 U.S.C. 4001-4129).
(b) [Reserved]
(c) Building means a walled and roofed structure, other than a gas
or liquid storage tank, that is principally above ground and affixed to
a permanent site, and a walled and roofed structure while in the course
of construction, alteration, or repair.
(d) Community means a State or a political subdivision of a State
that has zoning and building code jurisdiction over a particular area
having special flood hazards.
(e) Designated loan means a loan secured by a building or mobile
home that is located or to be located in a special flood hazard area in
which flood insurance is available under the Act.
(f) Director of FEMA means the Director of the Federal Emergency
Management Agency.
(g) Mobile home means a structure, transportable in one or more
sections, that is built on a permanent chassis and designed for use
with or without a permanent foundation when attached to the required
utilities. The term mobile home does not include a recreational
vehicle. For purposes of this part, the term mobile home means a mobile
home on a permanent foundation.
(h) NFIP means the National Flood Insurance Program authorized
under the Act.
(i) Residential improved real estate means real estate upon which a
home or other residential building is located or to be located.
(j) Servicer means the person responsible for:
(1) Receiving any scheduled, periodic payments from a borrower
under the terms of a loan, including amounts for taxes, insurance
premiums, and other charges with respect to the property securing the
loan; and
(2) Making payments of principal and interest and any other
payments from the amounts received from the borrower as may be required
under the terms of the loan.
(k) Special flood hazard area means the land in the flood plain
within a community having at least a one percent chance of flooding in
any given year, as designated by the Director of FEMA.
Sec. 572.3 Requirement to purchase flood insurance where available.
A savings association shall not make, increase, extend, or renew
any designated loan unless the building or mobile home and any personal
property securing the loan is covered by flood insurance for the term
of the loan. The amount of insurance must be at least equal to the
lesser of the outstanding principal balance of the designated loan or
the maximum limit of coverage available for the particular type of
property under the Act.
[[Page 53980]]
Sec. 572.4 Exemptions.
The flood insurance requirement prescribed by Sec. 572.3 does not
apply with respect to:
(a) Any State-owned property covered under a policy of self-
insurance satisfactory to the Director of FEMA, who publishes and
periodically revises the list of States falling within this exemption;
or
(b) Property securing any loan with an original principal balance
of $5,000 or less and a repayment term of one year or less.
Sec. 572.5 Escrow requirement.
If a savings association requires the escrow of taxes, insurance
premiums, fees, or any other charges for a loan secured by residential
improved real estate or a mobile home that is made, increased,
extended, or renewed after [effective date of final regulation], then
the savings association shall also require the escrow of all premiums
and fees for any flood insurance required under Sec. 572.3. The savings
association or a servicer acting on behalf of the savings association,
shall deposit the flood insurance premiums on behalf of the borrower in
an escrow account. Depending upon the type of loan, such escrow account
may be subject to escrow requirements adopted pursuant to section 10 of
the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2609),
which generally limits the amount that may be maintained in escrow
accounts for certain types of loans and requires escrow account
statements for those accounts. Upon receipt of a notice from the
Director of FEMA or other provider of flood insurance that premiums are
due, the savings association or its servicer shall pay the amount owed
to the insurance provider from the escrow account.
Sec. 572.6 Required use of standard flood hazard determination form.
(a) Use of form. A savings association shall use the standard flood
hazard determination form developed by the Director of FEMA (as set
forth in Appendix A of 44 CFR part 65) when determining whether the
building or mobile home offered as collateral security for a loan is or
will be located in a special flood hazard area in which flood insurance
is available under the Act. The standard flood hazard determination
form may be used in a printed, computerized, or electronic manner.
(b) Retention of form. A savings association shall retain a copy of
the completed standard flood hazard determination form, in either hard
copy or electronic form, for the period of time the savings association
owns the loan.
Sec. 572.7 Forced placement of flood insurance.
If a savings association, or a servicer acting on behalf of the
savings association, determines, at the time of origination or at any
time during the term of a designated loan, that the building or mobile
home and any personal property securing the designated loan is not
covered by flood insurance or is covered by flood insurance in an
amount less than the amount required under Sec. 572.3, then the savings
association or its servicer shall notify the borrower that the borrower
should obtain flood insurance, at the borrower's expense, in an amount
at least equal to the amount required under Sec. 572.3, for the term of
the loan. If the borrower fails to obtain flood insurance within 45
days after notification, then the savings association or its servicer
shall purchase insurance on the borrower's behalf. The savings
association or its servicer may charge the borrower for the cost of
premiums and fees incurred in purchasing the insurance.
Sec. 572.8 Determination fees.
(a) General. Notwithstanding any Federal or State law other than
the Flood Disaster Protection Act of 1973, as amended (42 U.S.C. 4001-
4129), any savings association, or a servicer acting on behalf of the
savings association, may charge a reasonable fee for determining
whether the building or mobile home securing the loan is located or
will be located in a special flood hazard area.
(b) Borrower fee. The determination fee may be charged to the
borrower if the determination:
(1) Is made in connection with a making, increasing, extending, or
renewing of the loan that is initiated by the borrower;
(2) Reflects the Director of FEMA's revision or updating of
floodplain areas or flood-risk zones;
(3) Reflects the Director of FEMA's publication of a notice or
compendium that:
(i) Affects the area in which the building or mobile home securing
the loan is located; or
(ii) By determination of the Director of FEMA, may reasonably
require a determination whether the building or mobile home securing
the loan is located in a special flood hazard area; or
(4) Results in the purchase of flood insurance coverage under
Sec. 572.7.
(c) Purchaser or transferee fee. The fee may be charged to the
purchaser or transferee of a loan in the case of the sale or transfer
of the loan.
Sec. 572.9 Notice of special flood hazards and availability of Federal
disaster relief assistance.
(a) Notice requirement. When a savings association makes,
increases, extends, or renews a loan secured by a building or a mobile
home located or to be located in a special flood hazard area, the
association shall mail or deliver a written notice to the borrower and
to the servicer in all cases whether or not flood insurance is
available under the Act for the collateral securing the loan.
(b) Contents of notice. The written notice must include the
following information:
(1) A warning, in a form approved by the Director of FEMA, that the
building or the mobile home is or will be located in a special flood
hazard area;
(2) A description of the flood insurance purchase requirements set
forth in section 102(b) of the Flood Disaster Protection Act of 1973,
as amended (42 U.S.C. 4012a(b));
(3) A statement, where applicable, that flood insurance coverage is
available under the NFIP and may also be available from private
insurers; and
(4) A statement whether Federal disaster relief assistance may be
available in the event of damage to the building or mobile home caused
by flooding in a Federally-declared disaster.
(c) Timing of notice. The savings association shall provide the
notice required by paragraph (a) of this section to the borrower and
the servicer within a reasonable time before the completion of the
transaction.
(d) Record of receipt. The savings association shall retain a
record of the receipt of the notices by the borrower and the servicer
for the period of time the savings association owns the loan.
(e) Alternate method of notice. Instead of providing the notice to
the borrower required by paragraph (a) of this section, a savings
association may obtain satisfactory written assurance from the seller
or lessor that, within a reasonable time before the completion of the
sale or lease transaction, the seller or lessor has notified the
borrower that the building or mobile home is or will be located in a
special flood hazard area. The savings association shall retain a
record of the written assurance from the seller or lessor for the
period of time the savings association owns the loan.
(f) Use of prescribed form of notice. A savings association may
comply with the notice requirements of this section by providing
written notice to a borrower and to the servicer containing
[[Page 53981]]
the language presented in appendix A to this part not less than ten
days before the completion of the transaction (or not later than the
savings association's commitment if the period between the commitment
and the completion of the transaction is less than ten days).
Sec. 572.10 Notice of servicer's identity.
(a) Notice requirement. When a savings association makes,
increases, extends, renews, sells, or transfers a loan secured by a
building or mobile home located or to be located in a special flood
hazard area, the savings association shall notify the Director of FEMA
(or the Director of FEMA's designee) in writing of the identity of the
servicer of the loan.
(b) Transfer of servicing rights. The savings association shall
notify the Director of FEMA (or the Director of FEMA's designee) of any
change in the servicer of a loan described in paragraph (a) of this
section within 60 days after the effective date of the change. Upon any
change in the servicing of a loan described in paragraph (a) of this
section, the duty to provide notice under this paragraph (b) shall
transfer to the transferee servicer.
Appendix A to Part 572--Sample Form of Notice of Special Flood Hazards
and Availability of Federal Disaster Relief Assistance
We are giving you this notice to inform you that:
______ The building securing the loan for which you have applied
is or will be located in an area with special flood hazards.
______ The mobile home securing the loan for which you have
applied is or will be located in an area with special flood hazards.
The area has been identified by the Director of the Federal
Emergency Management Agency (FEMA) as a special flood hazard area
using FEMA's Flood Insurance Rate Map or the Flood Hazard Boundary
Map for the following community:
________________________________________. This area has at least a
one percent (1%) chance of being flooded in any given year. The risk
grows each year. For example, during the life of a 30-year mortgage
loan, the risk of a flood in a special flood hazard area is at least
26%.
Federal law allows a lender and borrower jointly to request the
Director of FEMA to review the determination of whether the property
securing the loan is located in a special flood hazard area. If you
would like to make such a request, please contact us for further
information.
______ The community in which the property securing the loan is
located participates in the National Flood Insurance Program (NFIP).
Federal law will not allow us to make you the loan that you have
applied for if you do not purchase flood insurance. The flood
insurance must be maintained for the life of the loan.
Flood insurance coverage under the NFIP may be
purchased through an insurance agent who will obtain the policy
either directly through the NFIP or through an insurance company
that participates in the NFIP. Flood insurance also may be available
from private insurers that do not participate in the NFIP.
At a minimum, flood insurance purchased must cover the
lesser of:
(1) The outstanding principal amount of the loan; or
(2) The maximum amount of coverage allowed for the type of
property under the NFIP.
Federal disaster relief assistance (usually in the form
of a low-interest loan) may be available for damages incurred in
excess of your flood insurance if your community's participation in
the NFIP is in accordance with NFIP requirements.
______ Flood insurance coverage under the NFIP is not available
for the property securing the loan because the community in which
the property is located does not participate in the NFIP. In
addition, if the non-participating community has been identified for
at least one year as containing a special flood hazard area,
properties located in the community will not be eligible for Federal
disaster relief assistance in the event of a Federally-declared
flood disaster.
Dated: September 30, 1995.
By the Office of Thrift Supervision.
Jonathan L. Fiechter,
Acting Director.
Farm Credit Administration
12 CFR CHAPTER VI
Authority and Issuance
For the reasons stated in the preamble, part 614 of chapter VI,
title 12 of the Code of Federal Regulations is proposed to be amended
as follows:
PART 614--LOAN POLICIES AND OPERATIONS
1. The authority citation for part 614 continues to read as
follows:
Authority: 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128; secs.
1.3, 1.5, 1.6, 1.7, 1.9, 1.10, 2.0, 2.2, 2.3, 2.4, 2.10, 2.12, 2.13,
2.15, 3.0, 3.1, 3.3, 3.7, 3.8, 3.10, 3.20, 3.28, 4.12, 4.12A, 4.13,
4.13B, 4.14, 4.14A, 4.14C, 4.14D, 4.14E, 4.18, 4.19, 4.36, 4.37,
5.9, 5.10, 5.17, 7.0, 7.2, 7.6, 7.7, 7.8, 7.12, 7.13, 8.0, 8.5 of
the Farm Credit Act (12 U.S.C. 2011, 2013, 2014, 2015, 2017, 2018,
2071, 2073, 2074, 2075, 2091, 2093, 2094, 2096, 2121, 2122, 2124,
2128, 2129, 2131, 2141, 2149, 2183, 2184, 2199, 2201, 2202, 2202a,
2202c, 2202d, 2202e, 2206, 2207, 2219a, 2219b, 2243, 2244, 2252,
2279a, 2279a-2, 2279b, 2279b-1, 2279b-2, 2279f, 2279f-1, 2279aa,
2279aa-5); sec. 413 of Pub. L. 100-233, 101 Stat. 1568, 1639.
2. Part 614 is amended by revising subpart S to read as follows:
Subpart S--Flood Insurance Requirements
Sec.
614.4920 Purpose and scope.
614.4925 Definitions.
614.4930 Requirement to purchase flood insurance where available.
614.4935 Escrow requirement.
614.4940 Required use of Standard Flood Hazard Determination Form.
614.4945 Forced placement of flood insurance.
614.4950 Determination fees.
614.4955 Notice of special flood hazards and availability of
Federal disaster relief assistance.
614.4960 Notice of servicer's identity.
Appendix A to Subpart S of Part 614--Sample Form of Notice of Special
Flood Hazards and Availability of Federal Disaster Relief Assistance
Subpart S--Flood Insurance Requirements
Sec. 614.4920 Purpose and scope.
(a) Purpose. This subpart implements the requirements of the
National Flood Insurance Act of 1968 (1968 Act) and the Flood Disaster
Protection Act of 1973 (1973 Act), as amended (42 U.S.C. 4001-4129).
(b) Scope. This subpart, except for Secs. 614.4940 and 614.4950,
applies to loans of Farm Credit System (System) institutions that are
secured by buildings or mobile homes located or to be located in areas
determined by the Director of the Federal Emergency Management Agency
to have special flood hazards. Sections 614.4940 and 614.4950 apply to
loans secured by buildings or mobile homes, regardless of location.
Sec. 614.4925 Definitions.
(a) Building means a walled and roofed structure, other than a gas
or liquid storage tank, that is principally above ground and affixed to
a permanent site, and a walled and roofed structure while in the course
of construction, alteration, or repair.
(b) Community means a State or a political subdivision of a State
that has zoning and building code jurisdiction over a particular area
having special flood hazards.
(c) Designated loan means a loan secured by a building or a mobile
home that is located or to be located in a special flood hazard area in
which flood insurance is available under the 1968 Act.
(d) Director means the Director of the Federal Emergency Management
Agency.
(e) Mobile home means a structure, transportable in one or more
sections, that is built on a permanent chassis and designed for use
with or without a permanent foundation when attached to the required
utilities. The term mobile home does not include a recreational
vehicle. For purposes of this subpart,
[[Page 53982]]
the term mobile home means a mobile home on a permanent foundation.
(f) NFIP means the National Flood Insurance Program authorized
under the 1968 Act.
(g) Residential improved real estate means real estate upon which a
home or other residential building is located or to be located.
(h) Servicer means the person responsible for:
(1) Receiving any scheduled, periodic payments from a borrower
under the terms of a loan, including amounts for taxes, insurance
premiums, and other charges with respect to the property securing the
loan; and
(2) Making payments of principal and interest and any other
payments from the amounts received from the borrower as may be required
under the terms of the loan.
(i) Special flood hazard area means the land in the flood plain
within a community having at least a one percent chance of flooding in
any given year, as designated by the Director.
Sec. 614.4930 Requirement to purchase flood insurance where available.
(a) General requirement. A System institution shall not make,
increase, extend or renew any designated loan unless the building or
mobile home and any personal property securing the loan are covered by
flood insurance for the term of the loan. The amount of insurance must
be at least equal to the lesser of the outstanding principal balance of
the designated loan or the maximum limit of coverage available for the
particular type of property under the 1968 Act.
(b) Exemptions. The flood insurance requirement of paragraph (a) of
this section does not apply with respect to:
(1) Any State-owned property covered under a policy of self-
insurance satisfactory to the Director, who publishes and periodically
revises the list of States falling within this exemption; or
(2) Property securing any loan with an original principal balance
of $5000 or less and a repayment term of one year or less.
Sec. 614.4935 Escrow requirement.
If a System institution requires the escrow of taxes, insurance
premiums, fees, or any other charges for a loan secured by residential
improved real estate or a mobile home that is made, increased, extended
or renewed after [effective date of final regulation], then the
institution also shall require the escrow of all premiums and fees for
any flood insurance required under Sec. 614.4930. The institution, or a
servicer acting on behalf of the institution, shall deposit the flood
insurance premiums on behalf of the borrower in an escrow account.
Depending upon the type of loan, such escrow account may be subject to
escrow requirements adopted pursuant to section 10 of the Real Estate
Settlement Procedures Act of 1974 (12 U.S.C. 2609), which generally
limits the amount that may be maintained in escrow accounts for certain
types of loans and requires escrow account statements for those
accounts. Upon receipt of a notice from the Director or other provider
of flood insurance that premiums are due, the institution or its
servicer shall pay the amount owed to the insurance provider from the
escrow account.
Sec. 614.4940 Required use of Standard Flood Hazard Determination
Form.
(a) Use of form. System institutions shall use the Standard Flood
Hazard Determination Form developed by the Director (as set forth in
Appendix A of 44 CFR part 65) when determining whether a building or
mobile home offered as collateral security for a loan is or will be
located in a special flood hazard area in which flood insurance is
available under the 1968 Act. The Standard Flood Hazard Determination
Form may be used in a printed, computerized, or electronic manner.
(b) Retention of form. System institutions shall retain a copy of
the completed Standard Flood Hazard Determination Form, in either hard
copy or electronic form, for the period of time the institution owns
the loan.
Sec. 614.4945 Forced placement of flood insurance.
If a System institution, or a servicer acting on behalf of the
institution, determines, at the time of origination or at any time
during the term of a designated loan, that the building or mobile home
and any personal property securing the designated loan are not covered
by flood insurance or are covered by flood insurance in an amount less
than the amount required under Sec. 614.4930(a), then the institution
or its servicer shall notify the borrower that the borrower should
obtain flood insurance, at the borrower's expense, in an amount at
least equal to the amount required under Sec. 614.4930(a), for the term
of the loan. If the borrower fails to obtain flood insurance within 45
days after notification, then the institution or its servicer shall
purchase insurance on the borrower's behalf. The institution or its
servicer may charge the borrower for the premiums and fees incurred in
purchasing the insurance.
Sec. 614.4950 Determination fees.
(a) General. Notwithstanding any Federal or State law other than
the 1973 Act, any System institution, or a servicer acting on behalf of
the institution, may charge a reasonable fee for determining whether
the building or mobile home securing the loan is located or will be
located in a special flood hazard area.
(b) Borrower fee. The determination fee may be charged to the
borrower if the determination:
(1) Is made in connection with a making, increasing, extending, or
renewing of the loan that is initiated by the borrower;
(2) Reflects the Director's revision or updating of floodplain
areas or flood-risk zones;
(3) Reflects the Director's publication of a notice or compendium
that:
(i) Affects the area in which the building or mobile home securing
the loan is located; or
(ii) By determination of the Director, may reasonably require a
determination whether the building or mobile home securing the loan is
located in a special flood hazard area; or
(4) Results in the purchase of flood insurance coverage under
Sec. 614.4945.
(c) Purchaser or transferee fee. The fee may be charged to the
purchaser or transferee of a loan in the case of the sale or transfer
of the loan.
Sec. 614.4955 Notice of special flood hazards and availability of
Federal disaster relief assistance.
(a) Notice requirement. When a System institution makes, increases,
extends, or renews a loan secured by a building or a mobile home
located or to be located in a special flood hazard area, the
institution shall mail or deliver a written notice containing the
information specified in paragraph (b) of this section to the borrower
and to the servicer of the loan. Notice is required whether or not
flood insurance is available under the 1968 Act for the collateral
securing the loan.
(b) Contents of notice. The written notice must include the
following information:
(1) A warning, in a form approved by the Director, that the
building or the mobile home is or will be located in a special flood
hazard area;
(2) A description of the flood insurance purchase requirements set
forth in section 102(b) of the 1973 Act (42 U.S.C. 4012a(b));
(3) A statement, where applicable, that flood insurance coverage is
available under the NFIP and also may be available from private
insurers; and
(4) A statement whether Federal disaster relief assistance may be
[[Page 53983]]
available in the event of damage to the building or the mobile home
caused by flooding in a Federally declared disaster.
(c) Timing of notice. The institution shall provide the notice
required by paragraph (a) of this section to the borrower and the
servicer within a reasonable time before the completion of the
transaction.
(d) Record of receipt. Each institution shall retain a record of
the receipt of the notices by the borrower and the servicer for the
period of time the institution owns the loan.
(e) Alternate method of notice. Instead of providing the notice to
the borrower required by paragraph (a) of this section, an institution
may obtain satisfactory written assurance from the seller or lessor
that, within a reasonable time before the completion of the sale or
lease transaction, the seller or lessor has notified the borrower that
the building or mobile home is or will be located in a special flood
hazard area. The institution shall retain a record of the written
assurance from the seller or lessor for the period of time the
institution owns the loan.
(f) Use of prescribed form of notice. An institution may comply
with the notice requirements of this section by providing written
notice to a borrower and to the servicer containing the language
presented in appendix A to this subpart not less than 10 days before
the completion of the transaction (or not later than the institution's
commitment if the period between the commitment and the completion of
the transaction is less than 10 days).
Sec. 614.4960 Notice of servicer's identity.
(a) Notice requirement. When a System institution makes, increases,
extends, renews, sells, or transfers a loan secured by a building or a
mobile home located or to be located in a special flood hazard area,
the institution shall notify the Director (or the Director's designee)
in writing of the identity of the servicer of the loan.
(b) Transfer of servicing rights. The institution shall notify the
Director (or the Director's designee) of any change in the servicer of
a loan described in paragraph (a) of this section within 60 days after
the effective date of the change. Upon any change in the servicing of a
loan described in paragraph (a) of this section, the duty to provide
notice under this paragraph (b) shall transfer to the transferee
servicer.
Appendix A to Subpart S of Part 614--Sample Form of Notice of
Special Flood Hazards and Availability of Federal Disaster Relief
Assistance
We are giving you this notice to inform you that:
______The building securing the loan for which you have applied
is or will be located in an area with special flood hazards.
______The mobile home securing the loan for which you have
applied is or will be located in an area with special flood hazards.
The area has been identified by the Director of the Federal
Emergency Management Agency (FEMA) as a special flood hazard area
using FEMA's Flood Insurance Rate Map or the Flood Hazard Boundary
Map for the following community:
________________________________________. This area has at least a
1-percent chance of being flooded in any given year. The risk grows
each year.
For example, during the life of a 30-year mortgage loan, the risk of
a flood in a special flood hazard area is at least 26 percent.
Federal law allows a lender and borrower jointly to request the
Director of FEMA to review the determination of whether the property
securing the loan is located in a special flood hazard area. If you
would like to make such a request, please contact us for further
information.
______The community in which the property securing the loan is
located participates in the National Flood Insurance Program (NFIP).
Federal law will not allow us to make you the loan that you have
applied for if you do not purchase flood insurance. The flood
insurance must be maintained for the life of the loan.
Flood insurance coverage under the NFIP may be
purchased through an insurance agent who will obtain the policy
either directly through the NFIP or through an insurance company
that participates in the NFIP. Flood insurance also may be available
from private insurers that do not participate in the NFIP.
At a minimum, flood insurance purchased must cover the
lesser of:
(1) The outstanding principal amount of the loan; or
(2) The maximum amount of coverage allowed for the type of
property under the NFIP.
Federal disaster relief assistance (usually in the form
of a low interest loan) may be available for damages incurred in
excess of your flood insurance if your community's participation in
the NFIP is in accordance with NFIP requirements.
______Flood insurance coverage under the NFIP is not available
for the property securing the loan because the community in which
the property is located does not participate in the NFIP. In
addition, if the non-participating community has been identified for
at least 1 year as containing a special flood hazard area,
properties located in the community will not be eligible for Federal
disaster relief assistance in the event of a Federally declared
flood disaster.
Dated: September 8, 1995.
Floyd Fithian,
Secretary, Farm Credit Administration Board.
National Credit Union Administration
12 CFR CHAPTER VII
Authority and Issuance
For the reasons set forth in the joint preamble, part 760 of
chapter VII of title 12 of the Code of Federal Regulations is proposed
to be revised to read as follows:
PART 760--LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS
Sec.
760.1 Authority, purpose, and scope.
760.2 Definitions.
760.3 Requirement to purchase flood insurance where available.
760.4 Exemptions.
760.5 Escrow requirement.
760.6 Required use of standard flood hazard determination form.
760.7 Forced placement of flood insurance.
760.8 Determination fees.
760.9 Notice of special flood hazards and availability of Federal
disaster relief assistance.
760.10 Notice of servicer's identity.
Appendix A to Part 760--Sample Form of Notice of Special Flood Hazards
and Availability of Federal Disaster Relief Assistance
Authority: 12 U.S.C. 1757, 1789; 42 U.S.C. 4012a, 4104a, 4104b,
4106, and 4128.
Sec. 760.1 Authority, purpose, and scope.
(a) Authority. This part is issued pursuant to 12 U.S.C. 1757, 1789
and 42 U.S.C. 4012a, 4104a, 4104b, 4106, 4128.
(b) Purpose. The purpose of this part is to implement the
requirements of the National Flood Insurance Act of 1968 and the Flood
Disaster Protection Act of 1973, as amended (42 U.S.C. 4001-4129).
(c) Scope. This part, except for Secs. 760.6 and 760.8, applies to
loans secured by buildings or mobile homes located or to be located in
areas determined by the Director of the Federal Emergency Management
Agency to have special flood hazards. Sections 760.6 and 760.8 apply to
loans secured by buildings or mobile homes, regardless of location.
Sec. 760.2 Definitions.
(a) Act means the National Flood Insurance Act of 1968, as amended
(42 U.S.C. 4001-4129).
(b) Credit union means a Federal or State-chartered credit union
that is insured by the National Credit Union Share Insurance Fund.
(c) Building means a walled and roofed structure, other than a gas
or liquid storage tank, that is principally
[[Page 53984]]
above ground and affixed to a permanent site, and a walled and roofed
structure while in the course of construction, alteration, or repair.
(d) Community means a State or a political subdivision of a State
that has zoning and building code jurisdiction over a particular area
having special flood hazards.
(e) Designated loan means a loan secured by a building or mobile
home that is located or to be located in a special flood hazard area in
which flood insurance is available under the Act.
(f) Director means the Director of the Federal Emergency Management
Agency.
(g) Mobile home means a structure, transportable in one or more
sections, that is built on a permanent chassis and designed for use
with or without a permanent foundation when attached to the required
utilities. The term mobile home does not include a recreational
vehicle. For purposes of this part, the term mobile home means a mobile
home on a permanent foundation.
(h) NFIP means the National Flood Insurance Program authorized
under the Act.
(i) Residential improved real estate means real estate upon which a
home or other residential building is located or to be located.
(j) Servicer means the person responsible for:
(1) Receiving any scheduled, periodic payments from a borrower
under the terms of a loan, including amounts for taxes, insurance
premiums, and other charges with respect to the property securing the
loan; and
(2) Making payments of principal and interest and any other
payments from the amounts received from the borrower as may be required
under the terms of the loan.
(k) Special flood hazard area means the land in the flood plain
within a community having at least a one percent chance of flooding in
any given year, as designated by the Director.
Sec. 760.3 Requirement to purchase flood insurance where available.
A credit union shall not make, increase, extend, or renew any
designated loan unless the building or mobile home and any personal
property securing the loan is covered by flood insurance for the term
of the loan. The amount of insurance must be at least equal to the
lesser of the outstanding principal balance of the designated loan or
the maximum limit of coverage available for the particular type of
property under the Act.
Sec. 760.4 Exemptions.
The flood insurance requirement prescribed by Sec. 760.3 does not
apply with respect to:
(a) Any State-owned property covered under a policy of self-
insurance satisfactory to the Director, who publishes and periodically
revises the list of States falling within this exemption; or
(b) Property securing any loan with an original principal balance
of $5,000 or less and a repayment term of one year or less.
Sec. 760.5 Escrow requirement.
If a credit union requires the escrow of taxes, insurance premiums,
fees, or any other charges for a loan secured by residential improved
real estate or a mobile home that is made, increased, extended, or
renewed after [effective date of final regulation], then the credit
union shall also require the escrow of all premiums and fees for any
flood insurance required under Sec. 760.3. The credit union, or a
servicer acting on behalf of the credit union, shall deposit the flood
insurance premiums on behalf of the borrower in an escrow account.
Depending upon the type of loan, such escrow account may be subject to
escrow requirements adopted pursuant to section 10 of the Real Estate
Settlement Procedures Act of 1974 (12 U.S.C. 2609), which generally
limits the amount that may be maintained in escrow accounts for certain
types of loans and requires escrow account statements for those
accounts. Upon receipt of a notice from the Director or other provider
of flood insurance that premiums are due, the credit union or its
servicer shall pay the amount owed to the insurance provider from the
escrow account.
Sec. 760.6 Required use of standard flood hazard determination form.
(a) Use of form. A credit union shall use the standard flood hazard
determination form developed by the Director (as set forth in Appendix
A of 44 CFR part 65) when determining whether the building or mobile
home offered as collateral security for a loan is or will be located in
a special flood hazard area in which flood insurance is available under
the Act. The standard flood hazard determination form may be used in a
printed, computerized, or electronic manner.
(b) Retention of form. A credit union shall retain a copy of the
completed standard flood hazard determination form, in either hard copy
or electronic form, for the period of time the credit union owns the
loan.
Sec. 760.7 Forced placement of flood insurance.
If a credit union, or a servicer acting on behalf of the credit
union, determines, at the time of origination or at any time during the
term of a designated loan, that the building or mobile home and any
personal property securing the designated loan is not covered by flood
insurance or is covered by flood insurance in an amount less than the
amount required under Sec. 760.3, then the credit union or its servicer
shall notify the borrower that the borrower should obtain flood
insurance, at the borrower's expense, in an amount at least equal to
the amount required under Sec. 760.3, for the term of the loan. If the
borrower fails to obtain flood insurance within 45 days after
notification, then the credit union or its servicer shall purchase
insurance on the borrower's behalf. The credit union or its servicer
may charge the borrower for the cost of premiums and fees incurred in
purchasing the insurance.
Sec. 760.8 Determination fees.
(a) General. Notwithstanding any Federal or State law other than
the Flood Disaster Protection Act of 1973, as amended (42 U.S.C. 4001-
4129), any credit union, or a servicer acting on behalf of the credit
union, may charge a reasonable fee for determining whether the building
or mobile home securing the loan is located or will be located in a
special flood hazard area.
(b) Borrower fee. The determination fee may be charged to the
borrower if the determination:
(1) Is made in connection with a making, increasing, extending, or
renewing of the loan that is initiated by the borrower;
(2) Reflects the Director's revision or updating of floodplain
areas or flood-risk zones;
(3) Reflects the Director's publication of a notice or compendium
that:
(i) Affects the area in which the building or mobile home securing
the loan is located; or
(ii) By determination of the Director, may reasonably require a
determination whether the building or mobile home securing the loan is
located in a special flood hazard area; or
(4) Results in the purchase of flood insurance coverage under
Sec. 760.7.
(c) Purchaser or transferee fee. The fee may be charged to the
purchaser or transferee of a loan in the case of the sale or transfer
of the loan.
Sec. 760.9 Notice of special flood hazards and availability of Federal
disaster relief assistance.
(a) Notice requirement. When a credit union makes, increases,
extends, or
[[Page 53985]]
renews a loan secured by a building or a mobile home located or to be
located in a special flood hazard area, the credit union shall mail or
deliver a written notice to the borrower and to the servicer in all
cases whether or not flood insurance is available under the Act for the
collateral securing the loan.
(b) Contents of notice. The written notice must include the
following information:
(1) A warning, in a form approved by the Director, that the
building or the mobile home is or will be located in a special flood
hazard area;
(2) A description of the flood insurance purchase requirements set
forth in section 102(b) of the Flood Disaster Protection Act of 1973,
as amended (42 U.S.C. 4012a(b));
(3) A statement, where applicable, that flood insurance coverage is
available under the NFIP and may also be available from private
insurers; and
(4) A statement whether Federal disaster relief assistance may be
available in the event of damage to the building or mobile home caused
by flooding in a Federally-declared disaster.
(c) Timing of notice. The credit union shall provide the notice
required by paragraph (a) of this section to the borrower and the
servicer within a reasonable time before the completion of the
transaction.
(d) Record of receipt. The credit union shall retain a record of
the receipt of the notices by the borrower and the servicer for the
period of time the credit union owns the loan.
(e) Alternate method of notice. Instead of providing the notice to
the borrower required by paragraph (a) of this section, a credit union
may obtain satisfactory written assurance from the seller or lessor
that, within a reasonable time before the completion of the sale or
lease transaction, the seller or lessor has notified the borrower that
the building or mobile home is or will be located in a special flood
hazard area. The credit union shall retain a record of the written
assurance from the seller or lessor for the period of time the credit
union owns the loan.
(f) Use of prescribed form of notice. A credit union may comply
with the notice requirements of this section by providing written
notice to a borrower and to the servicer containing the language
presented in appendix A to this part not less than ten days before the
completion of the transaction (or not later than the credit union's
commitment if the period between the commitment and the completion of
the transaction is less than ten days).
Sec. 760.10 Notice of servicer's identity.
(a) Notice requirement. When a credit union makes, increases,
extends, renews, sells, or transfers a loan secured by a building or
mobile home located or to be located in a special flood hazard area,
the credit union shall notify the Director (or the Director's designee)
in writing of the identity of the servicer of the loan.
(b) Transfer of servicing rights. The credit union shall notify the
Director (or the Director's designee) of any change in the servicer of
a loan described in paragraph (a) of this section within 60 days after
the effective date of the change. Upon any change in the servicing of a
loan described in paragraph (a) of this section, the duty to provide
notice under this paragraph (b) shall transfer to the transferee
servicer.
Appendix A to Part 760--Sample Form of Notice of Special Flood Hazards
and Availability of Federal Disaster Relief Assistance
We are giving you this notice to inform you that:
______ The building securing the loan for which you have applied
is or will be located in an area with special flood hazards.
______ The mobile home securing the loan for which you have
applied is or will be located in an area with special flood hazards.
The area has been identified by the Director of the Federal
Emergency Management Agency (FEMA) as a special flood hazard area
using FEMA's Flood Insurance Rate Map or the Flood Hazard Boundary
Map for the following community:
________________________________________. This area has at least a
one percent (1%) chance of being flooded in any given year. The risk
grows each year. For example, during the life of a 30-year mortgage
loan, the risk of a flood in a special flood hazard area is at least
26%.
Federal law allows a lender and borrower jointly to request the
Director of FEMA to review the determination of whether the property
securing the loan is located in a special flood hazard area. If you
would like to make such a request, please contact us for further
information.
______ The community in which the property securing the loan is
located participates in the National Flood Insurance Program (NFIP).
Federal law will not allow us to make you the loan that you have
applied for if you do not purchase flood insurance. The flood
insurance must be maintained for the life of the loan.
Flood insurance coverage under the NFIP may be
purchased through an insurance agent who will obtain the policy
either directly through the NFIP or through an insurance company
that participates in the NFIP. Flood insurance also may be available
from private insurers that do not participate in the NFIP.
At a minimum, flood insurance purchased must cover the
lesser of:
(1) The outstanding principal amount of the loan; or
(2) The maximum amount of coverage allowed for the type of
property under the NFIP.
Federal disaster relief assistance (usually in the form
of a low-interest loan) may be available for damages incurred in
excess of your flood insurance if your community's participation in
the NFIP is in accordance with NFIP requirements.
______ Flood insurance coverage under the NFIP is not available
for the property securing the loan because the community in which
the property is located does not participate in the NFIP. In
addition, if the non-participating community has been identified for
at least one year as containing a special flood hazard area,
properties located in the community will not be eligible for Federal
disaster relief assistance in the event of a Federally-declared
flood disaster.
Dated: September 28, 1995.
Becky Baker,
Secretary of the Board, National Credit Union Administration.
[FR Doc. 95-25257 Filed 10-17-95; 8:45 am]
BILLING CODE 4810-33-P, 6210-01-P, 6714-01-P, 6720-01-P, 6705-01-P,
7535-01-P
