2014-29761. Loans in Areas Having Special Flood Hazards

AGENCY:

Federal Deposit Insurance Corporation (FDIC).

ACTION:

Final rule.

SUMMARY:

The Federal Deposit Insurance Corporation (“FDIC”) is adopting a final rule to rescind and remove regulations entitled “Loans in Areas Having Flood Hazards” and to amend regulations entitled “Loans in Areas Having Flood Hazards.” The final rule will integrate the flood insurance regulations for State nonmember banks and State savings associations in accordance with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The integration of the regulations was originally proposed as part of an interagency joint notice of proposed rulemaking issued in October 2013 pursuant to the Biggert-Waters Flood Insurance Reform Act of 2012 (the BW Act). The FDIC has decided to integrate the flood insurance regulations by means of an individual final rule.

DATES:

The final rule is effective on January 20, 2015.

FOR FURTHER INFORMATION CONTACT:

Mark Mellon, Counsel, Consumer Compliance Section [phone], Legal Division; or John Jackwood, Senior Policy Analyst [phone], Division of Depositor and Consumer Protection, Federal Deposit Insurance Corporation, 550 17th Street NW., Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

I. Background

A. The Dodd-Frank Act

The Dodd-Frank Act ^[1] provided for a substantial reorganization of the regulation of State and Federal savings associations and their holding companies. Beginning July 21, 2011, the transfer date established by section 311 of the Dodd-Frank Act, codified at 12 U.S.C. 5411, (“Transfer Date”), the powers, duties, and functions formerly performed by the OTS were respectively divided among the FDIC, as to State savings associations, the Office of the Comptroller of the Currency (“OCC”), as to Federal savings associations, and the Board of Governors of the Federal Reserve System (“FRB”), as to savings and loan holding companies. Section 316(b) of the Dodd-Frank Act, codified at 12 U.S.C. 5414(b), provides the manner of treatment for all orders, resolutions, determinations, regulations, and advisory materials that had been issued, made, prescribed, or allowed to become effective by the OTS. The section provides that if such materials were in effect on the day before the Transfer Date, they continue to be in effect and are enforceable by or against the appropriate successor agency until they are modified, terminated, set aside, or superseded in accordance with applicable law by such successor agency, by any court of competent jurisdiction, or by operation of law.

Section 316(c) of the Dodd-Frank Act, codified at 12 U.S.C. 5414(c), further directed the FDIC and the OCC to consult with one another and to publish a list of the continued OTS regulations which would be enforced by the FDIC and the OCC, respectively. On June 14, 2011, the FDIC's Board of Directors approved a “List of OTS Regulations to be Enforced by the OCC and the FDIC Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act.” This list was published by the FDIC and the OCC as a Joint Notice in the Federal Register on July 6, 2011.^[2]

Although section 312(b)(2)(B)(i)(II) of the Dodd-Frank Act, codified at 12 U.S.C. 5412(b)(2)(B)(i)(II), granted the OCC rulemaking authority relating to both State and Federal savings associations, the Dodd-Frank Act did not affect the FDIC's existing authority to issue regulations under the Federal Deposit Insurance Act (“FDI Act”) and other laws as the “appropriate Federal banking agency” or under similar statutory terminology. Section 312(c) of the Dodd-Frank Act amended the definition of “appropriate Federal banking agency” contained in section 3(q) of the FDI Act, 12 U.S.C. 1813(q), to add State savings associations to the list of entities for which the FDIC is designated as the “appropriate Federal banking agency.” As a result, when the FDIC acts as the designated “appropriate Federal banking agency,” or under similar terminology, for State savings associations, as it does here, the FDIC is authorized to issue, modify and rescind regulations involving such associations, as well as for State nonmember banks and insured branches of foreign banks.

Pursuant to this authority, the FDIC's Board of Directors reissued and re-designated certain transferring regulations of the former OTS on June 14, 2011, as noted earlier. These transferred OTS regulations were published as new FDIC regulations in the Federal Register on August 5, 2011.^[3] When it republished the transferred OTS regulations as new FDIC regulations, the FDIC specifically noted that its staff would evaluate the transferred OTS rules and might later recommend incorporating the transferred OTS regulations into other FDIC rules, amending them, or rescinding them, as appropriate.

B. The BW Act

The BW Act,^[4] signed into law by the President on July 6, 2012, significantly revised Federal flood insurance statutes. Pursuant to the BW Act, the FDIC along with the OCC, the FRB, the Farm Credit Administration, and the National Credit Union Administration published a Notice of Proposed Rulemaking on October 30, 2013 (the “NPR”).^[5] Among other topics, the NPR discussed the OCC and FDIC's proposals to integrate their flood insurance regulations for national banks and Federal savings associations and for State non-member banks and State savings associations, respectively, pursuant to the previously discussed requirements of the Dodd-Frank Act. Specifically, the OCC proposed to add language to its flood insurance regulation for national banks, 12 CFR part 22, to make it applicable to both national banks and Federal savings associations, and to remove its flood insurance regulation for Federal savings associations, 12 CFR part 172. Similarly, the FDIC proposed to add language to 12 CFR part 339, its flood regulation for State nonmember banks, to make it applicable to both State nonmember banks and State savings associations and to remove its flood insurance regulation for State savings associations, 12 CFR part 391 subpart D. The NPR noted that Parts 22, 172, 339, and 391 subpart D, are nearly identical and contain no substantive differences, as they were originally adopted through an interagency rulemaking process.

II. Comments

The NPR had a sixty-day comment period, which closed on December 29, 2013. No comments were received on the FDIC's proposed integration of its flood insurance rules. Consequently this final rule pertaining solely to the integration of FDIC and OTS flood insurance rules is adopted basically as proposed in the interagency NPR.

III. Explanation of the Final Rule

As discussed in the NPR, part 391, subpart D is almost identical to part 339, and the designation of part 339 as the single regulation for depository institutions supervised by the FDIC will serve to streamline the FDIC's rules and eliminate unnecessary regulations. To that effect, the final rule removes and rescinds 12 CFR part 391, subpart D in its entirety.

Consistent with the NPR, the final rule also amends part 339 by deleting the definition of “bank,” inserting a definition of “FDIC-supervised institution” that includes both non-member banks and State savings associations, and replacing the term “bank” with the term “FDIC-supervised institution” throughout the rule. The amendments make it plain that the rule applies to both non-member banks and State savings associations.

IV. Administrative Law Matters

A. Paperwork Reduction Act

Pursuant to the NPR, the FDIC will rescind and remove from its regulations 12 CFR part 391, subpart D. This rule was transferred with only nominal changes to the FDIC from the OTS when the OTS was abolished by Title III of the Dodd-Frank Act. Part 391, subpart D is redundant and duplicative of the FDIC's rule at part 339 regarding loans in areas having special flood hazards. Removing part 391, subpart D and adding a definition of FDIC-supervised institution to part 339 will not involve any new collections of information pursuant to the Paperwork Reduction Act (44 U.S.C. 3501 et seq.). Consequently, no information collection has been submitted to the Office of Management and Budget for review.

B. The Regulatory Flexibility Act

The Regulatory Flexibility Act, 5 U.S.C. 601, et seq. (RFA), requires that each federal agency either (1) certify that a proposed rule would not, if adopted in final form, have a significant economic impact on a substantial number of small entities, or (2) prepare an initial regulatory flexibility analysis of the rule and publish the analysis for comment. The proposal to integrate the FDIC's flood insurance regulations makes no substantive changes to the requirements set forth pursuant to that rule. It instead would only merge two nearly identical regulations, thus reducing redundancy and the potential for confusion as to which regulation applies. On this basis, the FDIC certifies that the present rule revision will not have a significant impact on a substantial number of small entities, within the meaning of those terms as used in the RFA.

C. The Economic Growth and Regulatory Paperwork Reduction Act

Under section 2222 of the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (“EGRPRA”), the FDIC is required to review all of its regulations, at least once every 10 years, in order to identify any outdated or otherwise unnecessary regulations imposed on insured depository institutions.^[6] The FDIC completed the last comprehensive review of its regulations under EGRPRA in 2006 and is commencing the next decennial review, which is expected to be completed by 2016. The NPR solicited comments on the proposed rescission of part 391, subpart D and amendments to part 339. No comments on this issue were received. Upon review, the FDIC does not believe that part 339, as amended by the Final Rule, imposes any outdated or unnecessary regulatory requirements on any insured depository institutions.

D. Plain Language

Section 722 of the Gramm-Leach-Bliley Act, 12 U.S.C. 4809, requires each Federal banking agency to use plain language in all of its proposed and final rules published after January 1, 2000. Although the FDIC did not receive any comments, the FDIC sought to present the final rule in a simple and straightforward manner.

List of Subjects

12 CFR Part 339

• Flood insurance
• Reporting and recordkeeping requirements
• Savings associations

12 CFR Part 391

• Savings associations

Authority and Issuance

For the reasons set forth in the Supplementary Information, the Federal Deposit Insurance Corporation amends Parts 339 and 391 of Chapter III of Title 12, Code of Federal Regulations as follows:

1. Part 339 is revised to read as follows:

PART 339—LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS

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: 12 U.S.C. 1462, 1462a, 1463, 1464, 1819 (Tenth), 5412(b)(2)(C) and 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128.

§ 339.1

Authority, purpose, and scope.

(a) Authority. This part is issued pursuant to 12 U.S.C. 1462, 1462a, 1463, 1464, 1819 (Tenth), 5412(b)(2)(C) 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 §§ 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.

§ 339.2

Definitions.

(a) Act means the National Flood Insurance Act of 1968, as amended (42 U.S.C. 4001-4129).

(b) 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.

(c) 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.

(d) 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.

(e) Director of FEMA means the Director of the Federal Emergency Management Agency.

(f) FDIC-supervised institution means any insured depository institution for which the Federal Deposit Insurance Corporation is the appropriate Federal banking agency pursuant to section 3(g) of the Federal Deposit Insurance Act, 12 U.S.C. 1813(g).

(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. The term mobile home includes a manufactured home as that term is used in the NFIP.

(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.

(l) Table funding means a settlement at which a loan is funded by a contemporaneous advance of loan funds and an assignment of the loan to the person advancing the funds.

§ 339.3

Requirement to purchase flood insurance where available.

(a) In general. An FDIC-supervised institution shall not make, increase, extend, or renew any designated loan unless the building or mobile home and any personal property securing the loan is covered by flood insurance for the term of the loan. The amount of insurance must be at least equal to the lesser of the outstanding principal balance of the designated loan or the maximum limit of coverage available for the particular type of property under the Act. Flood insurance coverage under the Act is limited to the overall value of the property securing the designated loan minus the value of the land on which the property is located.

(b) Table funded loans. An FDIC-supervised institution that acquires a loan from a mortgage broker or other entity through table funding shall be considered to be making a loan for the purpose of this part.

§ 339.4

Exemptions.

The flood insurance requirement prescribed by § 339.3 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.

§ 339.5

Escrow requirement.

If an FDIC-supervised 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 on or after October 1, 1996, the FDIC-supervised institution shall also require the escrow of all premiums and fees for any flood insurance required under § 339.3. The FDIC-supervised institution, or a servicer acting on behalf of the FDIC-supervised institution, shall deposit the flood insurance premiums on behalf of the borrower in an escrow account. This escrow account will be subject to escrow requirements adopted pursuant to section 10 of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2609) (RESPA), 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, only if the loan is otherwise subject to RESPA. Following receipt of a notice from the Director of FEMA or other provider of flood insurance that premiums are due, the FDIC-supervised institution, or a servicer acting on behalf of the FDIC-supervised institution, shall pay the amount owed to the insurance provider from the escrow account by the date when such premiums are due.

§ 339.6

Required use of standard flood hazard determination form.

(a) Use of form. An FDIC-supervised institution shall use the standard flood hazard determination form developed by the Director of FEMA 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. An FDIC-supervised institution may obtain the standard flood hazard determination form by written request to FEMA, P.O. Box 2012, Jessup, MD 20794-2012.

(b) Retention of form. An FDIC-supervised institution 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 FDIC-supervised institution owns the loan.

§ 339.7

Forced placement of flood insurance.

If an FDIC-supervised institution, or a servicer acting on behalf of the FDIC-supervised institution, determines, at any time during the term of a designated loan, that the building or mobile home and any personal property securing the designated loan is not covered by flood insurance or is covered by flood insurance in an amount less than the amount required under § 339.3, then the FDIC-supervised 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 § 339.3, for the remaining term of the loan. If the borrower fails to obtain flood insurance within 45 days after notification, then the FDIC-supervised institution or its servicer shall purchase insurance on the borrower's behalf. The FDIC-supervised institution or its servicer may charge the borrower for the cost of premiums and fees incurred in purchasing the insurance.

§ 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 FDIC-supervised institution, or a servicer acting on behalf of the FDIC-supervised 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. A determination fee may also include, but is not limited to, a fee for life-of-loan monitoring.

(b) Borrower fee. The determination fee authorized by paragraph (a) of this section 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 by the lender or its servicer on behalf of the borrower under § 339.7.

(c) Purchaser or transferee fee. The determination fee authorized by paragraph (a) of this section may be charged to the purchaser or transferee of a loan in the case of the sale or transfer of the loan.

§ 339.9

Notice of special flood hazards and availability of federal disaster relief assistance.

(a) Notice requirement. When an FDIC-supervised 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 FDIC-supervised institution 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 FDIC-supervised institution shall provide the notice required by paragraph (a) of this section to the borrower within a reasonable time before the completion of the transaction, and to the servicer as promptly as practicable after the FDIC-supervised institution provides notice to the borrower and in any event no later than the time the FDIC-supervised institution provides other similar notices to the servicer concerning hazard insurance and taxes. Notice to the servicer may be made electronically or may take the form of a copy of the notice to the borrower.

(d) Record of receipt. The FDIC-supervised institution shall retain a record of the receipt of the notices by the borrower and the servicer for the period of time the FDIC-supervised 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 FDIC-supervised institution may obtain satisfactory written assurance from a seller or lessor that, within a reasonable time before the completion of the sale or lease transaction, the seller or lessor has provided such notice to the purchaser or lessee. The FDIC-supervised institution shall retain a record of the written assurance from the seller or lessor for the period of time the FDIC-supervised institution owns the loan.

(f) Use of prescribed form of notice. An FDIC-supervised institution will be considered to be in compliance with the requirement for notice to the borrower of this section by providing written notice to the borrower containing the language presented in appendix A to this part within a reasonable time before the completion of the transaction. The notice presented in appendix A to this part satisfies the borrower notice requirements of the Act.

§ 339.10

Notice of servicer's identity.

(a) Notice requirement. When an FDIC-supervised institution 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 FDIC-supervised institution shall notify the Director of FEMA (or the Director of FEMA's designee) in writing of the identity of the servicer of the loan. The Director of FEMA has designated the insurance provider to receive the FDIC-supervised institution's notice of the servicer's identity. This notice may be provided electronically if electronic transmission is satisfactory to the Director of FEMA's designee.

(b) Transfer of servicing rights. The FDIC-supervised institution 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. This notice may be provided electronically if electronic transmission is satisfactory to the Director of FEMA's designee. 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 or 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 a flood equal to or exceeding the base flood elevation (a 100-year flood) in any given year. During the life of a 30-year mortgage loan, the risk of a 100-year flood in a special flood hazard area is 26 percent (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. If you fail to purchase or renew flood insurance on the property, federal law authorizes and requires us to purchase the flood insurance for you at your expense.

• 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 balance of the loan; or

(2) the maximum amount of coverage allowed for the type of property under the NFIP. Flood insurance coverage under the NFIP is limited to the overall value of the property securing the loan minus the value of the land on which the property is located.

• 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.

PART 391—FORMER OFFICE OF THRIFT SUPERVISION REGULATIONS

2. The authority citation for Part 391 is revised to read as follows:

Authority: 12 U.S.C. 1819.

Subpart A also issued under 12 U.S.C. 1462a; 1463; 1464; 1828; 1831p-1; 1881-1884; 15 U.S.C. 1681w; 15 U.S.C. 6801; 6805.

Subpart B also issued under 12 U.S.C. 1462a; 1463; 1464; 1828; 1831p-1; 1881-1884; 15 U.S.C.1681w; 15 U.S.C. 6801; 6805.

Subpart C also issued under 12 U.S.C. 1462a; 1463; 1464; 1828; 1831p-1; and 1881-1884; 15 U.S.C. 1681m; 1681w.

Subpart E also issued under 12 U.S.C. 1467a; 1468; 1817; 1831i.

Subpart D—[Removed and Reserved]

3. Remove and reserve Subpart D consisting of §§ 391.30 through 391.39 and the Appendix to Subpart D.

Dated at Washington, DC, this 16th day of December 2014.

By Order of the Board of Directors, Federal Deposit Insurance Corporation.

Robert E. Feldman,

Executive Secretary.

Footnotes

1.  Public Law 111-203, 124 Stat. 1376 (2010) (codified at 12 U.S.C. 5301 et seq.).

2.  76 FR 39247 (July 6, 2011).

3.  76 FR 47652 (Aug. 5, 2011).

4.  Public Law 112-141, 126 Stat. 916 (2012).

5.  78 FR 65108.

6.  Pub. L. 104-208, 110 Stat. 3009 (Sept. 30, 1996).