Loans in Areas Having Special Flood Hazards, 65107-65144 [2013-24724]

Download as PDF Vol. 78 Wednesday, No. 210 October 30, 2013 Part III Department of the Treasury Office of the Comptroller of the Currency 12 CFR Parts 22 and 172 Federal Reserve System 12 CFR Part 208 Federal Deposit Insurance Corporation 12 CFR Parts 339 and 391 Farm Credit Administration 12 CFR Part 614 emcdonald on DSK67QTVN1PROD with PROPOSALS2 National Credit Union Administration 12 CFR Part 760 Loans in Areas Having Special Flood Hazards; Proposed Rule VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 PO 00000 Frm 00001 Fmt 4717 Sfmt 4717 E:\FR\FM\30OCP2.SGM 30OCP2 65108 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules corrections. Furthermore, the OCC and the FDIC are proposing to integrate their flood insurance regulations for national banks and Federal savings associations and for State non-member banks and State savings associations, respectively. DATES: Comments must be received on or before December 10, 2013, except that comments on the Paperwork Reduction Act analysis in part V of the SUPPLEMENTARY INFORMATION must be received on or before December 30, 2013. DEPARTMENT OF THE TREASURY Office of the Comptroller of the Currency 12 CFR Parts 22, 172 [Docket ID OCC–2013–0015] RIN 1557–AD67 FEDERAL RESERVE SYSTEM 12 CFR Part 208 [Regulation H, Docket No. R–1462] FEDERAL DEPOSIT INSURANCE CORPORATION 12 CFR Parts 339, 391 RIN 3064–AE03 FARM CREDIT ADMINISTRATION 12 CFR Part 614 RIN 3052–AC93 NATIONAL CREDIT UNION ADMINISTRATION 12 CFR Part 760 RIN 3133–AE18 Loans in Areas Having Special Flood Hazards Office of the Comptroller of the Currency, Treasury; Board of Governors of the Federal Reserve System; Federal Deposit Insurance Corporation; Farm Credit Administration; National Credit Union Administration. ACTION: Joint notice of proposed rulemaking. AGENCY: The Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (Board), Federal Deposit Insurance Corporation (FDIC), the Farm Credit Administration (FCA), and the National Credit Union Administration (NCUA) (collectively, the Agencies) are proposing to amend their regulations regarding loans in areas having special flood hazards to implement provisions of the Biggert-Waters Flood Insurance Reform Act of 2012. Specifically, the proposal would establish requirements with respect to the escrow of flood insurance payments, the acceptance of private flood insurance coverage, and the force-placement of flood insurance. The proposal also would clarify the Agencies’ flood insurance regulations with respect to other amendments made by the Act and make technical emcdonald on DSK67QTVN1PROD with PROPOSALS2 SUMMARY: VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 Interested parties are encouraged to submit written comments jointly to all of the Agencies. Commenters are encouraged to use the title ‘‘Loans in Areas Having Special Flood Hazards’’ to facilitate the organization and distribution of comments among the Agencies. Interested parties are invited to submit written comments to: OCC: Because paper mail in the Washington, DC area and at the OCC is subject to delay, commenters are encouraged to submit comments by the Federal eRulemaking Portal or email, if possible. Please use the title ‘‘Loans in Areas Having Special Flood Hazards’’ to facilitate the organization and distribution of the comments. You may submit comments by any of the following methods: • Federal eRulemaking Portal— ‘‘regulations.gov’’: Go to https:// www.regulations.gov. Enter ‘‘Docket ID OCC–2013–0015’’ in the Search Box and click ‘‘Search.’’ Results can be filtered using the filtering tools on the left side of the screen. Click on ‘‘Comment Now’’ to submit public comments. Click on the ‘‘Help’’ tab on the Regulations.gov home page to get information on using Regulations.gov, including instructions for submitting public comments. • Email: regs.comments@ occ.treas.gov. • Mail: Legislative and Regulatory Activities Division, Office of the Comptroller of the Currency, 400 7th Street SW., Suite 3E–218, Mail Stop 9W–11, Washington, DC 20219. • Hand Delivery/Courier: 400 7th Street SW., Suite 3E–218, Mail Stop 9W–11, Washington, DC 20219. • Fax: (571) 465–4326. Instructions: You must include ‘‘OCC’’ as the agency name and ‘‘Docket ID OCC–2013–0015’’ in your comment. In general, OCC will enter all comments received into the docket and publish them on the Regulations.gov Web site without change, including any business or personal information that you provide such as name and address information, email addresses, or phone numbers. Comments received, including ADDRESSES: RIN 7100 AE–00 PO 00000 Frm 00002 Fmt 4701 Sfmt 4702 attachments and other supporting materials, are part of the public record and subject to public disclosure. Do not enclose any information in your comment or supporting materials that you consider confidential or inappropriate for public disclosure. You may review comments and other related materials that pertain to this rulemaking action by any of the following methods: • Viewing Comments Electronically: Go to https://www.regulations.gov. Enter ‘‘Docket ID OCC–2013–0015’’ in the Search box and click ‘‘Search.’’ Comments can be filtered by Agency using the filtering tools on the left side of the screen. Click on the ‘‘Help’’ tab on the Regulations.gov home page to get information on using Regulations.gov, including instructions for viewing public comments, viewing other supporting and related materials, and viewing the docket after the close of the comment period. • Viewing Comments Personally: You may personally inspect and photocopy comments at the OCC, 400 7th Street SW., Washington, DC. For security reasons, the OCC requires that visitors make an appointment to inspect comments. You may do so by calling (202) 649–6700. Upon arrival, visitors will be required to present valid government-issued photo identification and to submit to security screening in order to inspect and photocopy comments. • Docket: You may also view or request available background documents and project summaries using the methods described above. Board: You may submit comments, identified by Docket No. R–1462 or RIN 7100 AE–00, by any of the following methods: • Agency Web site: https:// www.federalreserve.gov. Follow the instructions for submitting comments at https://www.federalreserve.gov/ generalinfo/foia/ProposedRegs.cfm. • Federal eRulemaking Portal: https:// www.regulations.gov. Follow the instructions for submitting comments. • Email: regs.comments@ federalreserve.gov. Include the docket number in the subject line of the message. • Fax: (202) 452–3819 or (202) 452– 3102. • Mail: Address to Robert deV. Frierson, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue NW., Washington, DC 20551. All public comments will be made available on the Board’s Web site at https://www.federalreserve.gov/ generalinfo/foia/ProposedRegs.cfm as E:\FR\FM\30OCP2.SGM 30OCP2 emcdonald on DSK67QTVN1PROD with PROPOSALS2 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules submitted, unless modified for technical reasons. Accordingly, comments will not be edited to remove any identifying or contact information. Public comments may also be viewed electronically or in paper in Room MP– 500 of the Board’s Martin Building (20th and C Streets NW.) between 9:00 a.m. and 5:00 p.m. on weekdays. FDIC: You may submit comments by any of the following methods: • Federal eRulemaking Portal: https:// www.regulations.gov. Follow the instructions for submitting comments. • Agency Web site: https:// www.fdic.gov/regulations/laws/federal/ propose.html • Mail: Robert E. Feldman, Executive Secretary, Attention: Comments/Legal ESS, Federal Deposit Insurance Corporation, 550 17th Street NW., Washington, DC 20429. • Hand Delivered/Courier: The guard station at the rear of the 550 17th Street Building (located on F Street), on business days between 7:00 a.m. and 5:00 p.m. • Email: comments@FDIC.gov. Comments submitted must include ‘‘FDIC’’ and ‘‘Loans in Areas Having Special Flood Hazards.’’ Comments received will be posted without change to https://www.fdic.gov/regulations/laws/ federal/propose.html, including any personal information provided. FCA: We offer a variety of methods for you to submit your comments. For accuracy and efficiency reasons, commenters are encouraged to submit comments by email or through the FCA’s Web site. As facsimiles (fax) are difficult for us to process and achieve compliance with section 508 of the Rehabilitation Act, we are no longer accepting comments submitted by fax. Regardless of the method you use, please do not submit your comments multiple times via different methods. You may submit comments by any of the following methods: • Email: Send us an email at regcomm@fca.gov. • Agency Web site: https:// www.fca.gov. Select ‘‘Law & Regulations,’’ then ‘‘FCA Regulations,’’ then ‘‘Public Comments,’’ and follow the directions for ‘‘Submitting a Comment.’’ • Federal eRulemaking Portal: https:// www.regulations.gov. Follow the instructions for submitting comments. • Mail: Barry F. Mardock, Deputy Director, Office of Regulatory Policy, Farm Credit Administration, 1501 Farm Credit Drive, McLean, VA 22102–5090. You may review copies of all comments we receive at our office in McLean, Virginia or on our Web site at https://www.fca.gov. Once you are in the VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 Web site, Select ‘‘Law & Regulations,’’ then ‘‘FCA Regulations,’’ then ‘‘Public Comments,’’ and follow the directions for ‘‘Reading Submitted Public Comments.’’ We will show your comments as submitted, including any supporting data provided, but for technical reasons we may omit items such as logos and special characters. Identifying information that you provide, such as phone numbers and addresses, will be publicly available. However, we will attempt to remove email addresses to help reduce Internet spam. NCUA: You may submit comments, identified by RIN 3133–AE18 by any of the following methods (Please send comments by one method only): • Federal eRulemaking Portal: https:// www.regulations.gov. Follow the instructions for submitting comments. • Agency Web site: https:// www.ncua.gov/Legal/Regs/Pages/ PropRegs.aspx. Follow the instructions for submitting comments. • Email: Address to regcomments@ ncua.gov. Include [Your name] Comments on ‘‘Loans in Areas Having Special Flood Hazards’’ in the email subject line. • Fax: (703) 518–6319. Use the subject line described above for email. • Mail: Address to Gerard Poliquin, Secretary of the Board, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314– 3428. • Hand Delivery/Courier: Same as mail address. You can view all public comments on NCUA’s Web site at https:// www.ncua.gov/Legal/Regs/Pages/ PropRegs.aspx as submitted, except for those we cannot post for technical reasons. NCUA will not edit or remove any identifying or contact information from the public comments submitted. You may inspect paper copies of comments in NCUA’s law library at 1775 Duke Street, Alexandria, Virginia 22314, by appointment weekdays between 9:00 a.m. and 3:00 p.m. To make an appointment, call (703) 518– 6546 or send an email to OGCMail@ ncua.gov. FOR FURTHER INFORMATION CONTACT: OCC: Rhonda L. Daniels, Compliance Specialist, Compliance Policy Division, (202) 649–5405; Margaret C. Hesse, Senior Counsel, Community and Consumer Law Division, (202) 649– 6350, or Heidi M. Thomas, Special Counsel, Legislative and Regulatory Activities Division, (202) 649–5490, Office of the Chief Counsel. Board: Lanette Meister, Senior Supervisory Consumer Financial PO 00000 Frm 00003 Fmt 4701 Sfmt 4702 65109 Services Analyst (202) 452–2705; Vivian W. Wong, Counsel (202) 452–3667, Division of Consumer and Community Affairs; or Daniel Ericson, Counsel (202) 452–3359, Legal Division; for users of Telecommunications Device for the Deaf (TDD) only, contact (202) 263–4869. FDIC: Navid Choudhury, Senior Attorney, Consumer Compliance Section (202) 898–6526, Legal Division; or John Jackwood, Senior Policy Analyst (202) 898–3991, Division of Depositor and Consumer Protection. FCA: Paul K. Gibbs, Senior Accountant, Office of Regulatory Policy (703) 883–4203, TTY (703) 883–4056; or Mary Alice Donner, Senior Counsel, Office of General Counsel (703) 883– 4020, TTY (703) 883–4056. NCUA: Sarah Chung, Staff Attorney, (703) 518–1178, Office of General Counsel. SUPPLEMENTARY INFORMATION: I. Background A. Introduction The Biggert-Waters Flood Insurance Reform Act of 2012 1 (the Act), signed into law by the President on July 6, 2012, significantly revised Federal flood insurance statutes. Section 100209 of the Act, relating to the escrow of flood insurance payments, and section 100239 of the Act, relating to the acceptance of private flood insurance coverage, amended provisions of the Flood Disaster Protection Act (FDPA) 2 that require the Agencies to issue implementing regulations. Section 100244 of the Act, relating to forceplaced insurance, necessitates conforming revisions to the Agencies’ current flood insurance regulations. The Agencies jointly are issuing this proposal to revise their regulations accordingly. In connection with the issuance of this proposal, the Agencies have coordinated and consulted with the Federal Financial Institutions Examination Council (FFIEC), as is required by certain provisions of the flood insurance statutes.3 The Agencies’ proposal would implement only certain provisions of the Act over which the Agencies have jurisdiction. Accordingly, the Agencies encourage lenders to consult the Act for further information about revisions to the flood insurance statutes that will not be implemented through this rulemaking. 1 Public Law 112–141, 126 Stat. 916 (2012). Law 93–234, 87 Stat. 975 (1973). 3 See 42 U.S.C. 4012a(b)(1). The heads of four of the five Agencies (OCC, Board, FDIC, and NCUA) comprise part of the membership of the FFIEC. 2 Public E:\FR\FM\30OCP2.SGM 30OCP2 65110 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules B. Flood Insurance Statutes The National Flood Insurance Act of 1968 (1968 Act) 4 and the FDPA govern the National Flood Insurance Program (NFIP).5 The 1968 Act made Federally subsidized flood insurance available to owners of improved real estate or mobile homes located in special flood hazard areas if the community where the improved real estate or mobile home is located participates in the NFIP. A special flood hazard area (SFHA) is an area within a floodplain having a one percent or greater chance of flood occurrence in any given year.6 SFHAs are delineated on maps issued by FEMA for individual communities.7 A community establishes its eligibility to participate in the NFIP by adopting and enforcing floodplain management measures to regulate new construction and by making substantial improvements within its SFHAs to eliminate or minimize future flood damage.8 Until the adoption of the FDPA in 1973, the purchase of flood insurance was voluntary. The FDPA required the mandatory purchase of flood insurance and directed the OCC, Board, FDIC, NCUA, and the former Office of Thrift Supervision (OTS) 9 to issue regulations governing the lending institutions that they supervised. The resulting regulations directed these lending institutions to require flood insurance on improved real estate or mobile homes serving as collateral for a loan (secured property) if the secured property was located in a SFHA in a participating community. The regulations also required lenders to notify borrowers that the secured property is located in a SFHA and that Federal disaster assistance is available with respect to the property in the event of a flood. Title V of the Riegle Community Development and Regulatory Improvement Act of 1994, also known as the National Flood Insurance Reform Act of 1994 (Reform Act), 4 Public Law 90–448, 82 Stat. 572 (1968). statutes are codified at 42 U.S.C. 4001– 4129. The Federal Emergency Management Agency (FEMA) administers the NFIP; its regulations implementing the NFIP appear at 44 CFR parts 59– 77. 6 44 CFR 59.1. 7 44 CFR part 65. 8 44 CFR part 60. 9 Title III of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111–203, 124 Stat. 1376 (2010), (Dodd-Frank Act), transferred the powers, duties, and functions formerly performed by the OTS among the FDIC, as to State savings associations, the OCC, as to Federal savings associations, and the Board as to savings and loan holding companies. The OTS was abolished 90 days after the transfer date. emcdonald on DSK67QTVN1PROD with PROPOSALS2 5 These VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 comprehensively amended the Federal flood insurance statutes.10 The Reform Act established new requirements on Federally regulated lending institutions, such as the escrow for flood insurance premiums under certain conditions and mandatory force-placement of flood insurance coverage. The Reform Act was intended to increase compliance with the mandatory flood insurance purchase requirements and participation in the NFIP in order to provide additional income to the National Flood Insurance Fund and to decrease the financial burden of flooding on the Federal government, taxpayers, and flood victims. In addition, the Reform Act broadened the definition of ‘‘Federal entity for lending regulation’’ to include the FCA, thereby increasing the number of regulated lending institutions subject to the mandatory flood insurance purchase requirement to include lenders regulated by the FCA. The Reform Act required the Agencies to revise their flood insurance regulations and required the FCA to promulgate flood insurance regulations for the first time. The Agencies fulfilled these requirements by issuing a joint final rule in August 1996.11 fees for flood insurance on residential improved real estate, unless the regulated lending institution meets the statutory small institution exception; 14 (iii) directs regulated lending institutions to accept private flood insurance, as defined by the Act, and to notify borrowers of the availability of private flood insurance; 15 and (iv) amends the force-placement requirement to clarify that regulated lending institutions may charge a borrower for the cost of premiums and fees incurred for coverage beginning on the date on which the flood insurance coverage lapsed or did not provide sufficient coverage and to prescribe the procedures for terminating force-placed insurance.16 The civil money penalty provisions,17 and the force-placement requirements were effective upon enactment. In contrast, both the escrow and private flood insurance provisions will become effective when the Agencies finalize implementing regulations. The Agencies previously published guidance regarding the effective dates of these amendments.18 C. The Biggert-Waters Act Amendments Among other changes,12 the Act significantly amends the NFIP requirements, over which the Agencies have jurisdiction. Specifically, the Act: (i) Increases the maximum civil money penalty (CMP) that the Agencies may impose per violation when there is a pattern or practice of flood violations and eliminates the limit on the total amount of penalties that the Agencies may assess against a regulated lending institution during any calendar year; 13 (ii) requires regulated lending institutions to escrow premiums and As indicated above, the Agencies propose to revise their respective flood insurance regulations to implement the Act’s amendments addressing the escrow of flood insurance payments, private flood insurance, and forceplaced insurance. These provisions, and other amendments, proposed by this rulemaking are summarized below and more specifically described in IV. Section-by-Section Analysis of this preamble. Although the Agencies’ proposals are substantively consistent, the format of the regulatory text varies 10 Public Law 103–325, 108 Stat. 2255 (1994) (codified as amended at 42 U.S.C. 4001 et seq. (1994)). 11 61 FR 45684 (Aug. 29, 1996). 12 The Agencies note, for example, that section 100222 of the Act mandates a revision to the Special Information Booklet required under section 5 of the Real Estate Settlement Procedures Act of 1974 (RESPA) (12 U.S.C. 2604(b)) to include a notice to the borrower of the availability of flood insurance under the NFIP or from a private insurance company, whether or not the real estate is located in an area having special flood hazards. The requirement to revise the Special Information Booklet is the responsibility of the Bureau of Consumer Financial Protection (CFPB) under RESPA. In addition, section 100204 of the Act directs the Administrator of FEMA to make flood insurance available to cover residential properties of five or more residences. The maximum coverage made available to such residential properties will be equal to the coverage made available to commercial properties. Policies for such properties will be made available by FEMA at a later date. 13 Section 100208 of the Act, amending section 102(f)(5) of the FDPA (42 U.S.C. 4012a(f)(5)). PO 00000 Frm 00004 Fmt 4701 Sfmt 4702 II. Summary of the Proposal 14 Section 100209 of the Act, amending section 102(d) of the FDPA (42 U.S.C. 4012a(d)). Congress further amended section 42 U.S.C. 4012a(d) subsequent to the enactment of the Act to clarify that the flood insurance escrow requirement applies only to loans secured by residential improved real estate. See Public Law 112–281, 125 Stat. 2485 (Jan. 14, 2013). 15 Section 100239 of the Act, amending section 102(b) of the FDPA (42 U.S.C. 4012a(b)) and section 1364(a)(3)(C) of the 1968 Act (42 U.S.C. 4104a(a)(3)(C)). 16 Section 100244 of the Act, amending section 102(e) of the FDPA (42 U.S.C. 4012a(e)). 17 Some of the Agencies have revised their regulations to incorporate these increased civil money penalties. See OCC: 77 FR 66529 (Nov. 11, 2012) and 77 FR 76354 (Dec. 28, 2012); Board: 77 FR 68680 (Nov. 16, 2012); FDIC: 77 FR 74573 (Dec. 17, 2012); and FCA: 78 FR 24336 (April 25, 2013). The NCUA is in the process of updating its rule to reflect this civil money penalty change. 18 ‘‘Interagency Statement on the Impact of Biggert-Waters Act,’’ March 29, 2013 (Board: CA 13–2; OCC: Bulletin 2013–10; FDIC: FIL 14–2013, FCA: Information Memorandum, March 29, 2013; NCUA: 13–RA–03). E:\FR\FM\30OCP2.SGM 30OCP2 emcdonald on DSK67QTVN1PROD with PROPOSALS2 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules to conform to each Agency’s current regulation. First, the Agencies’ proposal generally would require regulated lending institutions, or servicers acting on their behalf, to escrow premiums and fees for flood insurance for any loans secured by residential improved real estate or a mobile home, unless the institutions qualify for the statutory exception. Except as may be required under applicable State law, a regulated lending institution is not required to escrow if it has total assets of less than $1 billion and, as of the Act’s date of enactment, July 6, 2012, was not required by Federal or State law to escrow taxes or insurance for the term of the loan and did not have a policy to require escrow of taxes and insurance. The Agencies are proposing to implement the exception substantially as set forth in the statute. Second, consistent with the Act, the Agencies’ proposal would require that regulated lending institutions accept private flood insurance that meets the statutory definition to satisfy the mandatory purchase requirement. The proposal also specifically requests comment on whether the Agencies should use their authority under the FDPA to include a provision in the final rules that expressly permits regulated lending institutions to accept a flood insurance policy issued by a private insurer that does not meet the Act’s definition of ‘‘private flood insurance’’ to satisfy the FDPA’s general mandatory purchase requirement. The Agencies are also soliciting comment on what criteria the Agencies might require for such a policy. Alternatively, the Agencies solicit comment on whether it is appropriate to include a provision in the final rules that specifically requires regulated lending institutions to accept only policies issued by private insurers that meet the statutory definition, and if included, what would be the effect of such a provision on the availability of privately issued flood insurance. Third, the Agencies’ proposal includes new and revised sample notice forms and clauses. Specifically, the proposal amends the current Sample Form of Notice of Special Flood Hazards and Availability of Federal Disaster Relief Assistance, set forth as Appendix A in the Agencies’ respective regulations, to add language concerning the availability of private flood insurance coverage (pursuant to the notice requirements under section 100239 of the Act) and the escrow requirement. The proposal also adds an additional sample notice form, Notice of Requirement to Escrow for Outstanding Loans, as Appendix B to assist VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 institutions in complying with the proposal’s requirement to inform existing borrowers about the new escrow requirement. An institution would provide this notice for existing loans when neither the Notice of Special Flood Hazards and Availability of Federal Disaster Relief Assistance nor the notice of force-placement is provided. Finally, as Appendix C, the Agencies are proposing a sample clause regarding the new escrow requirement that may be included with the forceplacement notice. Fourth, the proposal would amend the force-placement of flood insurance provisions to clarify that a lender or its servicer has the authority to charge a borrower for the cost of flood insurance coverage commencing on the date on which the borrower’s coverage lapsed or became insufficient. The proposal also would stipulate the circumstances under which a lender or its servicer must terminate force-placed flood insurance coverage and refund payments to a borrower. It also sets forth the documentary evidence a lender must accept to confirm that a borrower has obtained an appropriate amount of flood insurance coverage. Fifth, the Agencies propose needed technical corrections. For example, the Agencies’ current flood insurance regulations refer to the ‘‘Director’’ of the FEMA. The correct title for the head of that agency is ‘‘Administrator.’’ 19 The Agencies’ proposal would correct all references to the head of FEMA. Finally, the OCC and the FDIC propose to integrate their flood insurance regulations for national banks and Federal savings associations and for State non-member banks and State savings associations, respectively. Specifically, the OCC proposes to add language to its flood insurance regulation for national banks, 12 CFR part 22, to make it applicable to both national banks and Federal savings associations, and to remove its regulation for Federal savings associations, 12 CFR part 172. Similarly, the FDIC proposes to add language to 12 CFR part 339, its flood regulation for State non-member banks, to make it applicable to both State non-member banks and State savings associations and to remove its flood regulation for State savings associations, 12 CFR part 391 subpart D. Parts 22, 172, 339, and 391 subpart D, are nearly identical and contain no substantive differences, as they were originally adopted through an interagency rulemaking process.20 19 6 U.S.C. 313. OCC republished the former OTS rule as an OCC rule with respect to Federal savings 20 The PO 00000 Frm 00005 Fmt 4701 Sfmt 4702 65111 III. Legal Authority Section 102(b) of the FDPA (42 U.S.C. 4012a(b)), as amended by the Act, provides that the Agencies (after consultation and coordination with the FFIEC) shall by regulation direct regulated lending institutions not to make, increase, extend, or renew any loan secured by improved real estate or a mobile home located or to be located in an area that has been identified by the Administrator of FEMA as an area having special flood hazards and in which flood insurance has been made available under the NFIP, unless the building or mobile home and any personal property securing such loan is covered for the term of the loan by flood insurance. Thus, section 102(b) of the FDPA grants the Agencies rulemaking authority to implement this mandatory flood insurance purchase requirement as it pertains to regulated lending institutions. Furthermore, under section 102(b) of the FDPA, as amended by section 100239 of the Act, the Agencies (after consultation and coordination with the FFIEC) must by regulation direct regulated lending institutions to accept private flood insurance as satisfaction of the mandatory flood insurance purchase requirement, described above. Section 102(b) of the FDPA, as amended by section 100239 of the Act, also authorizes the Agencies to implement the definition of private flood insurance under section 102(b) of the FDPA, as amended by the Act, as well as the requirement that the lender disclose to the borrower the availability of flood insurance from private insurance companies. The OCC, Board, and FDIC have general authority to issue regulations assuring the safety and soundness of depository institutions.21 The NCUA and FCA have similar authority with respect to the institutions that they supervise.22 In addition, section associations and the FDIC republished the former OTS rule with respect to State savings associations in 2011, with only nomenclature changes. See 76 FR 49140 (Aug. 9, 2011) (OCC) and 76 FR 47811 (Aug. 5, 2011) (FDIC). 21 See 12 U.S.C. 1 and 93a; 12 U.S.C. 321 (granting the Board authority to impose conditions for membership in the Federal Reserve System); 12 U.S.C. 1820(g) (granting the FDIC authority to prescribe regulations to carry out the FDI Act; See also section 39 of the Federal Deposit Insurance Act (12 U.S.C. 1831p–1) 22 The Federal Credit Union Act (12 U.S.C. 1751 et seq.) and section 5.17 of the Farm Credit Act of 1971, as amended, (12 U.S.C. 2252). Sections 106, 201, and 206 of the Federal Credit Union Act (12 U.S.C. 1756, 1781, and 1786) provide NCUA with the authority to examine and supervise Federally insured credit unions to protect the credit union system and the safety and soundness of the National Credit Union Share Insurance Fund. E:\FR\FM\30OCP2.SGM 30OCP2 65112 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules 100239(a)(1), which amended section 102(b) of the FDPA, provides that nothing in that subsection shall be construed to supersede or limit the Agencies’ authority to establish requirements relating to the financial solvency, strength, or claims-paying ability of private insurance companies from which a regulated lending institution will accept private flood insurance. Finally, section 102(d) of the FDPA (42 U.S.C. 4012a(d)), as amended by section 100209 of the Act and Public Law No. 112–281,23 states that the Agencies (after consultation and coordination with the FFIEC) must by regulation require all premiums and fees for flood insurance under the 1968 Act for residential improved real estate or a mobile home be paid to the regulated lending institution or servicer for any loan secured by the improved real estate or mobile home with the same frequency as payments on the loan are made for the duration of the loan. The statute requires that such funds be deposited in an escrow account on behalf of the borrower and used to pay the flood insurance provider when premiums are due. Section 102(d) of the FDPA, as amended, also authorizes the Agencies to implement the exception to this requirement for certain regulated lending institutions with assets less than $1 billion. IV. Section-by-Section Analysis ___.___ Authority, purpose, and scope Since the Agencies last revised their regulations in 1996, the title of the head of FEMA has changed from ‘‘Director’’ to ‘‘Administrator.’’ In accordance with this change, the Agencies are proposing an amendment to the reference to the head of FEMA in the scope section. As part of the OCC’s and FDIC’s consolidation of their flood insurance rules, the OCC and FDIC also are proposing to insert the term ‘‘Federal savings association’’ or ‘‘FDICsupervised institution’’ where necessary throughout their flood insurance rules. emcdonald on DSK67QTVN1PROD with PROPOSALS2 ___.___ Definitions Private flood insurance. The Agencies are proposing to add a new definition for ‘‘private flood insurance’’ consistent with section 100239 of the Act, which added a new section 102(b)(7) to the FDPA. Under section 102(b)(7) of the FDPA, ‘‘private flood insurance’’ means an insurance policy that: (i) Is issued by an insurance company that is licensed, admitted or otherwise approved to engage in the business of insurance in 23 126 Stat. 2485 (Jan. 14, 2013). VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 the State or jurisdiction in which the insured building is located by the insurance regulator of the State or jurisdiction or, in the case of a policy of difference in condition, multiple peril, all risk, or other blanket coverage insuring nonresidential commercial property, is recognized, or not disapproved, as a surplus lines insurer by the insurance regulator of the State or jurisdiction; 24 (ii) provides flood coverage at least as broad as the coverage provided by a standard flood insurance policy (SFIP) under the NFIP, including when considering deductibles, exclusions, and conditions offered by the insurer; (iii) includes a requirement for the insurer to give 45 days’ written notice of cancellation or non-renewal of flood insurance coverage to the insured and the regulated lending institution; (iv) includes information about the availability of flood insurance coverage under the NFIP; (v) includes a mortgage interest clause similar to the clause contained in an SFIP; (vi) includes a provision requiring an insured to file suit not later than one year after the date of a written denial for all or part of a claim under a policy; and (vii) contains cancellation provisions that are as restrictive as the provisions contained in an SFIP. Other definitions. The Agencies also are proposing technical amendments to change the references to the head of FEMA from Director to Administrator in the definitions and to renumber the definitions to accommodate the inclusion of the new definition for ‘‘private flood insurance.’’ OCC-only definitions. The OCC also proposes the following amendments to the definition section for purposes of integrating its national bank and Federal savings association flood insurance rules. First, the proposed rule provides that the term ‘‘Federal savings association’’ means a Federal savings association as defined in 12 U.S.C. 1813(b)(2) and any service corporations thereof. This definition is identical to the definition of ‘‘Federal savings association’’ in 12 CFR part 172, except that part 172 specifically referenced ‘‘subsidiaries.’’ Current 12 CFR part 22 does not specifically include a reference to bank operating subsidiaries because 24 The Agencies note that with respect to alien (non-U.S.) surplus lines insurers, States may not prohibit a surplus lines broker from placing nonadmitted insurance with, or procuring nonadmitted insurance from, a non-U.S., non-admitted insurer that is listed on the Quarterly Listing of Alien Insurers maintained by the National Association of Insurance Commissioners’ (NAIC) International Insurer’s Department (IID List). See The Nonadmitted and Reinsurance Reform Act of (NRRA), Title V of the Dodd-Frank Act, Public Law 111–203 (July 21, 2011). PO 00000 Frm 00006 Fmt 4701 Sfmt 4702 such subsidiaries are subject to the rules applicable to the operations of their parent bank pursuant to 12 CFR 5.34. Because Federal savings association operating subsidiaries also are subject to the same rules applicable to the parent savings association, as provided by 12 CFR 159.3(h), the inclusion of ‘‘subsidiary’’ in this definition is unnecessary and its removal will not affect the applicability of 12 CFR part 22 to Federal savings association operating subsidiaries. Second, the OCC proposes to remove the definition of ‘‘bank,’’ which the rule currently defines as meaning a national bank. Instead, the term ‘‘bank’’ is replaced with ‘‘national bank’’ throughout the rule. FDIC-only definition. The FDIC also proposes the following amendments to the definitional section for purposes of integrating its State nonmember bank and State savings association flood insurance rules. The FDIC proposes to remove the definition of ‘‘bank’’ and replace it with ‘‘FDIC-supervised institution’’ which would be defined to mean any insured depository institution for which the Federal Deposit Insurance Corporation is the appropriate Federal banking agency pursuant to section 3(g) of the Federal Deposit Insurance Act, 12 U.S.C. 1813(g). ___.___ Requirement to purchase flood insurance where available. In General. The current regulation provides that a regulated lending institution shall not make, increase, extend, or renew any designated loan unless the building or mobile home and any personal property securing the loan is covered by flood insurance for the term of the loan. This provision further provides that flood insurance coverage is limited to the overall value of the property securing the designated loan minus the value of the land on which the property is located. A ‘‘designated loan’’ means a loan secured by a building or mobile home that is located or to be located in a special flood hazard area in which flood insurance is available under the 1968 Act, as amended.25 The Agencies are proposing to revise the language relating to the coverage limit to reflect more accurately what is actually covered under Federal flood insurance statutes. Specifically, the Agencies are proposing that the language be amended to state that flood insurance coverage is limited to the building or mobile home 25 OCC: 12 CFR 22.2(e); Board: 12 CFR 208.25(b)(4); FDIC: 12 CFR 339.2(e); FCA: 12 CFR 614.4925(e); NCUA: 12 CFR 760.2(f). E:\FR\FM\30OCP2.SGM 30OCP2 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules emcdonald on DSK67QTVN1PROD with PROPOSALS2 and any personal property securing the loan and not the land itself. Private flood insurance The Agencies also are proposing to amend this section to implement section 102(b)(1)(B) of the FDPA, as added by section 100239(a)(1) of the Act, which requires that all regulated lending institutions accept private flood insurance if certain conditions are met. Specifically, the proposal would require a regulated lending institution to accept private flood insurance that meets the definition of this term to satisfy the FDPA’s insurance requirement, provided that the private flood insurance policy also meets the conditions set forth in the general mandatory purchase requirement. Therefore, a regulated lending institution may only accept private flood insurance coverage under this provision if the building or mobile home and any personal property that secures the mortgage loan is covered for the term of that loan by the amount of flood insurance required by section 102(b)(1)(A) of the FDPA. As described above in ___.___ Definitions, this proposal also would amend the Agencies’ regulations to include the statutory definition of ‘‘private flood insurance.’’ The Agencies understand that there have been concerns regarding the ability of regulated lending institutions to evaluate whether a flood insurance policy meets the definition of ‘‘private flood insurance’’ set forth in the Act because some regulated lending institutions lack the necessary technical expertise. To facilitate compliance in this regard, the Agencies are proposing a safe harbor to allow lenders to rely on the expertise of State insurance regulators. Under the proposed safe harbor, if a State insurance regulator makes a written determination that a flood insurance policy issued by a private insurer meets the definition of ‘‘private flood insurance’’ set forth in the Act, then the Agencies will deem such policy to meet the statutory definition of ‘‘private flood insurance.’’ The Agencies note that regulating insurance providers is generally the domain of State insurance regulators. As a result, State insurance regulators may be the appropriate parties to determine whether a flood insurance policy meets all the criteria set forth in the statutory definition of ‘‘private flood insurance.’’ The Agencies solicit comment on whether: (i) Any mechanism exists or may be developed by State regulators to make such a determination; (ii) a written determination would facilitate lenders’ acceptance of flood insurance VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 by private insurers; (iii) such a safe harbor would alleviate the concerns of regulated lending institutions in evaluating private flood policies; and (iv) a safe harbor would enable the growth of the private flood insurance market. Although section 102(b)(1)(B) of the FDPA, as added by section 100239(a)(1) of the Act, requires a regulated lending institution to accept private flood insurance that meets the statutory definition, the Agencies note that the statute is silent about whether a regulated lending institution may accept a flood insurance policy issued by a private insurer that does not meet the statutory definition. The Agencies believe that the Congressional intent of the statute was to stimulate the private flood insurance market.26 Consequently, in addition to requiring regulated lending institutions to accept private flood insurance policies that comply with the statutory definition of ‘‘private flood insurance,’’ the Agencies are considering whether to include a provision in the final rules that expressly permits regulated lending institutions to accept, as satisfaction of the FDPA’s mandatory purchase requirement, a flood insurance policy issued by a private insurer that does not meet the Act’s definition of ‘‘private flood insurance.’’ The Agencies would include this provision pursuant to their authority under the FDPA to issue regulations directing lending institutions not to make, increase, extend, or renew any loan secured by property in a SFHA unless the property is covered by ‘‘flood insurance.’’ 27 To assist with determining whether the Agencies should include this provision, the Agencies solicit comment on whether policies issued by private insurers that do not meet the statutory definition of ‘‘private flood insurance’’ should be permitted to satisfy the mandatory purchase requirement. Alternatively, the Agencies solicit comment on whether it is appropriate to include a provision in the final rules that specifically requires regulated lending institutions to accept only policies issued by private insurers that meet the statutory definition and, if included, what would be the effect of such a provision on the availability of privately issued flood insurance. Furthermore, if the Agencies decide to include a provision in the final rules 26 The Act’s reforms were designed to improve the NFIP’s financial integrity and stability as well as to ‘‘increase the role of private markets in the management of flood insurance risk.’’ H. Rep. No. 112–102, at 1 (2011); see also 158 Cong. Rec. H4622 (daily ed. June 29, 2012) (statement of Rep. Biggert). 27 See 42 U.S.C. 4012a(b). PO 00000 Frm 00007 Fmt 4701 Sfmt 4702 65113 that expressly permits regulated lending institutions, at their discretion, to accept policies issued by private insurers that do not meet the statutory definition of ‘‘private flood insurance’’ to satisfy the mandatory purchase requirement, the Agencies are requesting comment on whether they should require the following criteria for such discretionary policies pursuant to the Agencies’ authority to implement the FDPA’s general mandatory purchase requirement. First, State insurance regulators, as the functional regulator of insurance companies, may be in the best position to evaluate the condition and ability of a private insurer to issue a flood insurance policy. Accordingly, the Agencies could require that flood insurance issued by a private insurer that a regulated lending institution may accept at its discretion must be issued by an insurer that is licensed, admitted, or otherwise approved to engage in the business of insurance in the State or jurisdiction in which the insured building is located by the insurance regulator of the State. Further, in the case of a policy of difference in condition, multiple peril, all risk, or other blanket coverage insuring nonresidential commercial property, the Agencies could require that the private insurance provider must be recognized, or not disapproved, as a surplus lines insurer by the insurance regulator of the State or jurisdiction where the property to be insured is located.28 Second, the Agencies could require that the coverage provided under any flood insurance policy issued by a private insurer that a regulated lending institution accepts at its discretion must be at least as broad as the coverage provided by a SFIP under the NFIP, including when considering deductibles, exclusions, and conditions offered by the insurer. For example, the private flood insurance policy must provide coverage for the foundation of a building in addition to the aboveground portion of the building. This criterion could ensure that a private flood insurance policy accepted by a regulated lending institution provides the institution and the borrower with appropriate and sufficient coverage for the property securing the loan. 28 As discussed above in the SUPPLEMENTARY accompanying the definition of ‘‘private flood insurance’’ in ___.___ Definitions, with respect to alien (non-U.S.) surplus lines insurers, States may not prohibit a surplus lines broker from placing non-admitted insurance with, or procuring non-admitted insurance from, a nonU.S., non-admitted insurer that is listed on the Quarterly Listing of Alien Insurers maintained by the NAIC’s IID List. INFORMATION E:\FR\FM\30OCP2.SGM 30OCP2 65114 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules emcdonald on DSK67QTVN1PROD with PROPOSALS2 Finally, the Agencies could require that any flood insurance policy issued by a private insurer that a regulated lending institution accepts at its discretion must include a mortgage interest clause similar to the clause contained in a SFIP.29 Therefore, the Agencies could require the mortgage interest clause to cover the interests of both the insured (whether such insured is a mortgagor/borrower or another entity that purchased the policy, such as a condominium owners’ association) and the mortgagee (the lender). Having both the insured and the mortgagee covered in the mortgage interest clause would mean that, in the event of a loss, the interests of both the regulated lending institution and the insured would be protected. The Agencies solicit comment as to whether requiring the above criteria for any flood insurance policy issued by a private insurer that a lender accepts at its discretion would be inconsistent with State legal requirements and industry practice with respect to private flood insurance. The Agencies also solicit comment as to whether criteria, additional to those discussed above, should be imposed if the Agencies permit regulated lending institutions to accept a private flood insurance policy issued by a private insurer that does not meet the statutory definition of ‘‘private flood insurance.’’ 30 The Agencies believe that the proposed mandatory acceptance approach is consistent with both the statutory language and Congressional intent.31 Additionally, the Agencies request comment on whether allowing discretionary acceptance of flood insurance policies issued by private insurers not meeting the statutory definition of private flood insurance but requiring that such discretionary policies meet certain criteria could encourage development of the private flood insurance market while also ensuring that regulated lending institutions and borrowers are properly protected. The Agencies also seek comment regarding the experience of both lenders and their borrowers with respect to policies issued by private 29 ‘‘Any loss payable under Coverage A—Building Property will be paid to any mortgagee of whom we have actual notice as well as any other mortgagee or loss payee determined to exist at the time of loss, and you, as interests appear.’’ NFIP Dwelling Form. 30 Additionally, as indicated above, nothing in the Act can be construed to supersede or limit the Agencies’ authority to establish requirements relating to the financial solvency, strength, or claims-paying ability of private insurance companies from which a regulated lending institution will accept private flood insurance. See 42 U.S.C. 4012a(b)(5). 31 158 Cong. Rec. H4616–01, H4621–H4622 (daily ed. June 29, 2012) (statement of Rep. Biggert). VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 insurers that do not meet the statutory definition of ‘‘private flood insurance’’ as compared to policies issued by private insurers that meet the statutory definition of ‘‘private flood insurance.’’ Regulated lending institutions have previously relied upon FEMA’s ‘‘Mandatory Purchase of Flood Insurance Guidelines’’ (Guidelines) for guidance when determining whether a private insurance policy conforms to the flood insurance requirements. FEMA had advised that, to the extent that the private policy differs from the NFIP’s policy, the differences should be carefully examined before accepting the policy. On February 4, 2013, FEMA rescinded the Guidelines and advised lenders to ‘‘consult their respective regulatory agency for information regarding compliance with the mandatory purchase requirements.’’ 32 The Agencies note that currently institutions continue to have the discretion to accept flood insurance issued by a private insurer pursuant to section 102(b)(1)(A) of the FDPA. Pursuant to section 102(d) of the FDPA, as amended by section 100209(a) of the Act and Public Law 112–281,33 the Agencies are proposing to revise their regulations to require regulated lending institutions, or servicers acting on behalf of a regulated lending institution, to escrow all premiums and fees for flood insurance required for any loans secured by residential improved real estate or a mobile home unless the lending institutions qualify for the statutory exception.34 In addition, these premiums and fees must be payable with the same frequency as payments on the loan are made for the duration of the loan. Consistent with section 102(d) of the FDPA, as amended, the proposed provision applies to any loan secured by residential improved real estate or a mobile home that is made or is outstanding on or after July 6, 2014. The Agencies are proposing to implement amended section 102(d) of the FDPA with some clarifications. First, as noted above, Public Law 112– 281 amended section 102(d) of the FDPA, as amended by section 100209 of the Act, to insert the word ‘‘residential’’ prior to every mention of ‘‘improved real estate.’’ The Agencies’ understand that Congress’s intent was to apply the escrow requirement to residential loans and exclude commercial loans.35 Consequently, the Agencies are proposing that regulated lending institutions need not escrow flood insurance premiums and fees for loans that are an extension of credit for a business, commercial, or agricultural purpose even if secured by residential real estate. This exception is consistent with similar exceptions in the RESPA 36 and the Truth in Lending Act.37 Second, the Agencies are proposing that when a regulated lending institution has determined that a borrower has obtained flood insurance coverage that meets the mandatory purchase requirement for the residential improved real estate or mobile home securing the loan and is currently paying premiums and fees into an escrow account that has been established by another lender, the institution need not establish another escrow account for the same purpose. Such circumstances may arise, for example, when the regulated lending institution takes a second lien position on a particular property and the borrower is already paying flood insurance premiums and fees on such 32 FEMA Letter, February 4, 2013. See https:// www.fema.gov/library/ viewRecord.do?fromSearch=fromsearch&id=2954. 33 126 Stat. 2485 (Jan. 14, 2013). 34 The Agencies note that CFPB’s mortgage servicing rule promulgated the new escrow requirements set forth in section 6 of RESPA, which were enacted in the Dodd-Frank Act. The CFPB’s rule excludes flood insurance that is required under the FDPA from the new escrow requirements. 78 FR 10696, 10880 (Feb. 14, 2013). That is, the CFPB rule exempts from the definition of force-placed insurance, insurance required by the FDPA. Ibid. The CFPB’s rule requires a servicer to advance funds to a borrower’s escrow account and to disburse such funds in a timely manner to pay the premium charge on a borrower’s hazard insurance (unless the servicer has a reasonable basis to believe that a borrower’s hazard insurance has been canceled or not renewed for reasons other than nonpayment of premium charges). Thus, even if a borrower were delinquent by more than 31 days, a servicer would be required under the CFPB’s rule to advance funds to continue the borrower’s hazard insurance policy. In promulgating this rule, the CFPB relied on its authority under section 19(a) of RESPA to prescribe such rules and to make such interpretations as may be necessary to achieve the consumer protection purposes of RESPA. The Agencies do not have a similar grant of consumer protection authority under any of the Federal flood statutes. 35 In a floor statement on January 1, 2013, in support of S. 3677, which was adopted as Public Law No. 112–281, Congresswoman Biggert stated that the bill is ‘‘necessary to clarify that this escrowing provision only applies to ‘residential’ mortgage loans and not commercial and multifamily loans.’’ The statement further provides that the bill does not impose new escrow obligations on commercial and multifamily real estate servicers. 36 See 12 U.S.C. 2606(a). 37 See 15 U.S.C. 1603(1). ___.___ Exemptions The Agencies are proposing a technical amendment to change the reference to the head of FEMA from Director to Administrator. ___.___ Escrow requirement In General PO 00000 Frm 00008 Fmt 4701 Sfmt 4702 E:\FR\FM\30OCP2.SGM 30OCP2 emcdonald on DSK67QTVN1PROD with PROPOSALS2 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules property into an escrow account established by the first lienholder. It is the Agencies’ understanding that, in such cases, the lender in the second lienholder position will generally request the borrower to increase the current flood insurance policy coverage amount to satisfy the flood insurance purchase requirement for the second loan. The Agencies believe that the increase in premiums and fees due to the expanded coverage would then be paid into the escrow that was previously established by the first lienholder. Therefore, requiring a second escrow account to be established would not be necessary. However, if the first lienholder is not required to or otherwise does not escrow flood insurance premiums and fees for adequate insurance coverage for the residential improved real estate or a mobile home, the proposed rule would require the regulated lending institution in the second lienholder position to escrow required flood insurance premiums and fees, unless such regulated lending institution qualifies for an exception from the escrowing provisions. Third, the Agencies recognize that when flood insurance coverage for a residential improved real estate or a mobile home is provided by a policy purchased by a common interest community, such as a condominium owners’ association, the borrower is not the purchaser of the policy. If that policy is purchased by a common interest community in an amount that is sufficient to meet the mandatory flood insurance purchase requirement, then escrowing flood insurance premiums and fees on behalf of the borrower would not be necessary because the borrower would not be directly responsible for paying the flood insurance premiums or fees. As a result, the Agencies are proposing that a regulated lending institution need not establish an escrow account for flood insurance premiums and fees when the institution has determined that flood insurance coverage is provided by a policy purchased by a common interest community instead of the borrower, such as an NFIP Residential Condominium Building Association Policy (RCBAP), that meets the mandatory flood insurance purchase requirement, including coverage for the proper amount. If the amount of the policy purchased by a common interest community is insufficient to meet the mandatory flood insurance purchase requirement, however, the borrower would be required to obtain a supplemental policy to cover the VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 deficiency, and the proposed rule would require that the regulated lending institution escrow the premiums and fees for the supplemental policy. For example, if a condominium owners’ association purchases an RCBAP or a private flood insurance policy for less than the maximum amount of insurance available under the NFIP, the borrower may be required to obtain a dwelling policy for supplemental coverage. If the borrower is required to obtain a dwelling policy, the proposed rule would require the regulated lending institution to escrow the premiums and fees for such policy. Timing The Agencies’ proposal sets forth timing provisions that stipulate when regulated lending institutions must begin escrowing premiums and fees for required flood insurance. Section 100209(b) of the Act (42 U.S.C. 4012a note) provides that the escrow provisions apply to any mortgage outstanding or entered into on or after the expiration of the two-year period beginning on the date of enactment of the Act. Therefore, loans secured by residential improved real estate or a mobile home that are outstanding or entered into on or after July 6, 2014 are covered by this requirement, provided the loan is required to have flood insurance. Consequently, the Agencies propose that for any designated loans made on or after July 6, 2014, the regulated lending institution must begin escrowing upon loan consummation. With respect to designated loans that are outstanding on July 6, 2014, the proposed rule would require regulated lending institutions to begin escrowing with the first loan payment after the first renewal date of the borrower’s flood insurance policy that occurs on or after July 6, 2014. For example, if a borrower’s current flood insurance policy will renew on March 15, 2015, and the borrower’s loan payments are generally due the first of each month, the institution must begin escrowing with the loan payment due on April 1, 2015. The borrower would be responsible for paying the premium to renew the policy on March 15, 2015, however. Payments that are escrowed beginning April 1, 2015 will be used by the lender to pay the premiums for subsequent years. The Agencies’ proposal is intended to alleviate the potential burden to lenders and borrowers of establishing an escrow account for an outstanding loan for which a borrower was not previously escrowing flood insurance premiums and fees. By tying the establishment of the escrow to the time of flood PO 00000 Frm 00009 Fmt 4701 Sfmt 4702 65115 insurance policy renewal, the proposal would allow regulated lending institutions to comply with the requirement on a staggered basis, rather than requiring them to establish escrow accounts for all outstanding designated loans at one time. The Agencies believe this proposal will also benefit borrowers. Delaying the establishment of the escrow until immediately after their flood insurance policy is renewed will ensure that all borrowers will have the maximum amount of time to escrow for their subsequent flood insurance policy renewal. If the Agencies were to require regulated lending institutions to establish escrow accounts for all outstanding designated loans at one time, some borrowers may be burdened with larger escrow payments to cover the premium for the full term over a shorter period of time than other borrowers. For example, if the Agencies required all regulated lending institutions to establish escrow accounts for all outstanding loans on July 6, 2014, then a borrower whose yearly flood insurance policy renewal date is September 15, 2014, would have only approximately two months to escrow for a full year of flood insurance premiums and fees while a borrower whose yearly flood insurance policy renewal date is March 15, 2015, would have approximately eight months to escrow for a full year of flood insurance premiums and fees. Consequently, the borrower with the March 15, 2015, renewal date would have smaller escrow payments each payment period than the borrower with the September 15, 2014 renewal date. Requiring regulated lending institutions to begin escrowing with the first loan payment after the borrower renews the existing policy would mean that all borrowers will have the maximum amount of time to escrow for the next flood insurance payment, regardless of when their policies renew. The Agencies request comment on the timing proposed for complying with the escrow requirement for outstanding loans and whether regulated lending institutions should be provided the option of complying with the escrow requirement earlier than the dates set forth in the proposal. Lenders with a small number of designated loans that are not otherwise excepted from the escrow requirement may prefer to establish all required escrow accounts for outstanding designated loans in their portfolio at one time, prior to the insurance policy renewal dates. Permitting institutions to comply with the escrow requirement earlier, however, may mean that some E:\FR\FM\30OCP2.SGM 30OCP2 emcdonald on DSK67QTVN1PROD with PROPOSALS2 65116 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules borrowers will have less time to make escrow payments for flood insurance premiums and fees associated with the first insurance policy payment to be paid out of the funds in the escrow than other borrowers, depending on when the regulated lending institution, or its servicer, decides to comply with the escrow requirement. Although borrowers would ultimately pay the same amount regardless of when the escrow begins, the Agencies request comment on whether lenders’ early compliance with the escrow requirements would be otherwise detrimental to borrowers, and if so, how it may be detrimental. The Agencies are also proposing to address the timing applicable to loans that were not designated loans at the time that they were made, but become designated loans after July 6, 2014. This may occur, for example, when there is a FEMA map change, and a building that was not previously located in an SFHA is now located in an SFHA. In those instances, the loan secured by such building may be required to have flood insurance under the FDPA. If flood insurance is required, a regulated lending institution, or a servicer acting on its behalf, also would be required to establish an escrow account to comply with the FDPA, as amended by the Act. The proposed rule would require regulated lending institutions to begin escrowing premiums and fees for required flood insurance with the first loan payment after the flood insurance policy is established. Under the proposal, this initial flood insurance policy may either be purchased by the borrower or, if the borrower failed to purchase a policy, force-placed by the regulated lending institution. The following explanation illustrates how this provision would operate. Under the Agencies’ proposal, in the situation in which a lender determines that a loan that was not originally a designated loan, but has become a designated loan, for example, due to remapping, the lender would notify the borrower that flood insurance is required, as provided in the forceplacement provision of the rule. After the required notification, either the borrower would purchase and pay for a flood insurance policy or the lender would force-place a policy and charge the borrower for the cost of coverage. The lender also would commence escrowing payments to cover premiums and fees, which would be applied to the next annual policy renewal, upon the borrower’s next loan payment. The Agencies solicit comment on whether the requirement to begin escrowing for a loan that becomes a VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 designated loan after July 6, 2014, should be limited only to when a borrower-purchased flood insurance policy is established and exclude instances in which a lender-placed flood insurance policy is established. If the rule were to be limited only to when a borrower-purchased flood insurance is established, a regulated lending institution would not be required to escrow flood insurance premiums and fees when it force-places an initial flood insurance policy. In this instance, after the expiration of such a force-placed insurance policy, there would be no funds escrowed for any policy that may be purchased at that time, whether it is borrower-purchased or lender-placed. Under the proposed rule, a regulated lending institution would be required to escrow flood insurance premiums and fees following the establishment of a force-placed policy for a loan that becomes a designated loan after July 6, 2014. If a borrower fails to purchase the requisite flood insurance upon the expiration of such force-placed insurance, then the lender would use the escrowed funds to renew or purchase a new force-placed policy. Notice In order to ensure that borrowers are well-informed about the escrow requirement to collect premiums and fees for required flood insurance, the Agencies are proposing that regulated lending institutions provide borrowers with a written notice. Specifically, the proposed rule would mandate that a regulated lending institution, or a servicer acting on its behalf, mail or deliver a written notice informing a borrower that it is required to escrow all premiums and fees for required flood insurance on residential improved real estate. In order to facilitate compliance with the proposed notice requirement, the Agencies are proposing model language for this notice as discussed in more detail below in the SUPPLEMENTARY INFORMATION to Appendices A, B, and C. To minimize the burden to regulated lending institutions of providing this notice and to ensure that borrowers receive the notice at a time when they are considering the purchase of flood insurance, the proposal takes advantage of flood insurance notices that already are required under current law. Specifically, the proposal adds language regarding the escrow requirement to the existing Notice of Special Flood Hazards and Availability of Federal Disaster Relief Assistance, included in the Agencies’ current rules as Appendix A. The proposal would require that, for designated loans made on or after July 6, 2014, a regulated lending institution, PO 00000 Frm 00010 Fmt 4701 Sfmt 4702 or a servicer acting on its behalf, must provide a notice that contains language substantially similar to model clauses on the escrow requirement in the revised sample notice provided in Appendix A with or on the Notice of Special Flood Hazards and Availability of Federal Disaster Relief Assistance. Similarly, under the proposal, for a loan that becomes a designated loan after July 6, 2014, a regulated lending institution, or a servicer acting on its behalf, must provide notice concerning the escrow requirement with the forceplacement notice, using language that is substantially similar to the sample language proposed in Appendix C. However, for loans that are outstanding on July 6, 2014, there are no required notices under current law that the regulated lending institution would be certain to provide before the institution would be required to begin escrowing under the proposal. Consequently, the Agencies are proposing that a regulated lending institution, or a servicer acting on its behalf, provide a separate notice describing the escrow requirement, substantially similar to the sample notice proposed by the Agencies in Appendix B, at least 90 days before the regulated lending institution must begin escrowing. The Agencies believe that 90 days’ advance notice would give borrowers sufficient time to gather the necessary funds for the escrow. However, the Agencies solicit comment on whether 90 days is an appropriate time period to provide notice for loans outstanding on July 6, 2014. Exception This proposal implements the statutory exception to the escrow requirement substantially as included in the Act with some clarifications. The statute states that, except as provided by State law, regulated lending institutions that have total assets of less than $1 billion are exempt from this escrow requirement if, on or before July 6, 2012, the institution: (i) in the case of a loan secured by residential improved real estate or a mobile home, was not required under Federal or State law to deposit taxes, insurance premiums, fees, or any other charges in an escrow account for the entire term of the loan; and (ii) did not have a policy of consistently and uniformly requiring the deposit of taxes, insurance premiums, fees, or any other charges in an escrow account for loans secured by residential improved real estate or a mobile home. Because the Act does not specify a point in time to measure the asset size of an institution to determine whether such institution qualifies for the E:\FR\FM\30OCP2.SGM 30OCP2 emcdonald on DSK67QTVN1PROD with PROPOSALS2 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules exception, the Agencies are proposing that a regulated lending institution may qualify for the exception if it has total assets of less than $1 billion as of December 31 of either of the two prior calendar years. Thus, a regulated lending institution would only be subject to the escrow requirement if it has assets of $1 billion or more as of December 31 for at least two consecutive years. Consequently, if the proposal is finalized and becomes effective in 2014, regulated lending institutions with assets of $1 billion or more as of both December 31, 2012, and December 31, 2013, would not qualify for the exception. In contrast, a regulated lending institution with assets of less than $1 billion as of either December 31, 2012 or December 31, 2013, may qualify for the exception, provided the other conditions for the exception are met. This measurement method is similar to how the OCC, the Board, and the FDIC have measured asset size in relation to the definitions for small entities under the Community Reinvestment Act (CRA).38 The Agencies believe the asset measurement method these agencies have used with respect to CRA is an appropriate model in this case as it ensures an institution is definitively over the size threshold before requiring the institution to expend the resources needed to establish a new escrow program. Moreover, the Agencies are proposing transition rules for a change in status of a regulated lending institution that may initially qualify for the exception, but later grows to exceed the $1 billion asset size threshold. Similar to the Board’s Regulation II, the Agencies propose to give regulated lending institutions approximately six months to begin complying with the escrow requirement.39 The proposed rules would mirror the proposed rules concerning the timing requirements for when regulated lending institutions must begin to escrow for loans outstanding or entered into on or after July 6, 2014. Therefore, for any designated loans outstanding on July 1 of the succeeding calendar year after a regulated lending institution has a change in status, the proposal would require the institution to begin escrowing with the first loan payment on or after the first renewal date of the borrower’s flood insurance policy on or after July 1 of the succeeding calendar year. For any designated loan made after July 1 of the succeeding calendar year 38 See 12 CFR 25.12(u); 12 CFR 195.12(u); 12 CFR 228.12(u); and 12 CFR 345.12(u). 39 See 12 CFR 235.5(a)(3). VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 after a regulated lending institution has a change in status, the proposed rule would require the institution to begin escrowing upon loan consummation. Finally, for any loan that becomes a designated loan after July 1 of the succeeding calendar year after a regulated lending institution has a change in status, the proposed rule would require the institution to begin escrowing with the first loan payment after the flood insurance policy is established. For example, assume a regulated lending institution qualified for the exception in 2014, but had assets of $1 billion or more as of December 31, 2014, and December 31, 2015. In that case, 2016 would be the succeeding calendar year. Under the proposal, such regulated lending institution would be required to begin escrowing with the first loan payment on or after the first renewal date of the borrower’s flood insurance policy on or after July 1, 2016, for any loan outstanding on July 1, 2016. For any designated loan made after July 1, 2016, the proposal would require such institution to begin escrowing upon loan consummation. For any loan that becomes a designated loan after July 1, 2016, the proposal would require such institution to begin escrowing with the first loan payment after the flood insurance policy is established. In addition, the Agencies are proposing the same notice obligation for regulated lending institutions after a change in status with similar timing requirements as would apply to other regulated lending institutions that are subject to the escrow requirement. As a result, for loans that are outstanding on July 1 of the succeeding calendar year after a regulated lending institution has a change in status, the proposal would require a regulated lending institution to provide notice on the escrow requirement at least 90 days before the regulated lending institution must begin escrowing, using language that is substantially similar to the language provided in Appendix B. For designated loans that are made on or after July 1 of the succeeding calendar year after a regulated lending institution has a change in status, the Agencies propose that notice concerning the escrow requirement be provided with the notice of special flood hazards, using language that is substantially similar to the escrow requirement language provided in the sample form of notice contained in Appendix A. Finally, for a loan that becomes a designated loan after July 1 of the succeeding calendar year after a regulated lending institution has a change in status, notice concerning the escrow requirement would be provided PO 00000 Frm 00011 Fmt 4701 Sfmt 4702 65117 with the force-placement notice under the proposal, using language substantially similar to the sample language provided in Appendix C. Change in Ownership The Agencies also are proposing a provision to address situations in which a regulated lending institution that is required to comply with the escrow requirement acquires a designated loan that is covered by FDPA-required flood insurance that becomes subject to the escrow requirement as a result of the acquisition. For example, this may occur if a lender that qualifies for the statutory exception sells the loan to or merges with a regulated lending institution that must comply with the escrow requirement. In these cases, the Agencies are proposing that the regulated lending institution must begin escrowing premiums and fees for flood insurance with the first loan payment on or after the first renewal date of the borrower’s flood insurance policy on or after the date that is six months from the transfer date of the loan. For instance, suppose a regulated lending institution that is required to comply with the escrow requirement purchases loans from an institution that is not subject to the escrow requirement, and the transfer date for the loans is February 1, 2015. Under the proposal, for any designated loan that is transferred on February 1, 2015, the regulated lending institution that acquires the loan must begin escrowing premiums and fees for flood insurance with the first loan payment on or after the first renewal date of the borrower’s flood insurance policy on or after August 1, 2015. This proposed timing is similar to the timing the Agencies have proposed for regulated lending institutions that no longer qualify for the statutory exception. Furthermore, as with the notice requirement proposed for other outstanding designated loans, the Agencies are proposing that a regulated lending institution provide notice at least 90 days before the institution must begin to escrow for a designated loan that becomes subject to the escrow requirement as a result of a change in loan ownership. l.l Required use of standard flood hazard determination form. The Agencies are proposing technical amendments in this section to change the reference to the head of FEMA from Director to Administrator and to update how a lending institution may obtain the standard flood hazard insurance form by directing the institution to FEMA’s Web site. E:\FR\FM\30OCP2.SGM 30OCP2 65118 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules emcdonald on DSK67QTVN1PROD with PROPOSALS2 l.l Force placement of flood insurance. Pursuant to section 102(e) of the FDPA, as amended by section 100244 of the Act, the Agencies are proposing to amend their rules for the forceplacement of flood insurance.40 The proposal implements section 100244 of the Act by setting forth when a regulated lending institution or its servicer may begin to charge the borrower for force-placed insurance, the circumstances under which a regulated lending institution or its servicer must terminate force-placed insurance and refund payments, and what documentary evidence is sufficient to demonstrate a borrower has flood insurance coverage. Notice and Purchase of Coverage Under current regulations, if a regulated lending institution, or a servicer acting on its behalf, determines at any time during the term of a designated loan that the building or mobile home and any personal property securing the designated loan is not covered by flood insurance or is covered by flood insurance in an amount less than the amount required under the FDPA, then the regulated lending institution or its servicer must notify the borrower that the borrower should obtain flood insurance, at the borrower’s expense, in an amount at least equal to the amount required under the mandatory purchase requirements, for the remaining term of the designated loan. If the borrower fails to obtain adequate flood insurance within 45 days after notification, then the regulated lending institution or its servicer must purchase flood insurance on behalf of the borrower. The regulated lending institution or servicer may charge the borrower for the cost of the premiums and fees incurred in purchasing the insurance. Pursuant to section 102(e) of the FDPA, as amended by section 100244 of the Act, the Agencies propose to amend their regulations to provide that the regulated lending institution or its servicer may charge the borrower for the cost of premiums and fees incurred for coverage beginning on the date on which flood insurance coverage lapsed or did not provide a sufficient coverage amount. The Agencies’ understanding is that the date on which the flood insurance coverage lapsed is the expiration date provided in the policy. 40 The Agencies note that section 1463(a) of the Dodd-Frank Act sets forth requirements relating to the force placement of hazard insurance. The CFPB has excluded flood insurance required under the FDPA from the force placement requirements in its rule implementing this provision. 78 FR 10696, 10880 (February 14, 2013). VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 The Agencies seek comment on whether the Agencies’ interpretation of the term ‘‘lapsed’’ is consistent with the insurance industry’s use of the term and as to whether further clarification is necessary on when a lender or servicer may begin to charge for force-placed flood insurance. For purposes of safety and soundness, regulated lending institutions should monitor the continuous coverage of flood insurance for the building or mobile home and any personal property securing a designated loan. Additionally, the Agencies interpret the Act to permit a regulated lending institution to force-place a flood insurance policy purchased on behalf of a borrower that is effective the day after expiration of a borrower’s original insurance policy to ensure that it is continuous. Such a practice will ensure that institutions complete the forceplacement of flood insurance in a timely manner upon lapse of the policy and that there is continuous insurance coverage to protect both the borrower and the institution. Termination of Force-Placed Insurance As provided in section 102(e)(3) of the FDPA, as added by section 100244 of the Act, the Agencies propose that within 30 days of receipt by a regulated lending institution, or a servicer acting on its behalf, of a confirmation of a borrower’s existing flood insurance coverage, a regulated lending institution is required to: (i) Notify the insurer to terminate any force-placed insurance purchased by the regulated lending institution or its servicer; and (ii) refund to the borrower all premiums paid by the borrower for any insurance purchased by the regulated lending institution or its servicer under this section for any period during which the borrower’s flood insurance coverage and the insurance coverage purchased by the regulated lending institution or its servicer were each in effect (overlap period), and any related fees charged to the borrower with respect to the insurance purchased by the regulated lending institution or its servicer during such overlap period. The Agencies realize that, although regulated lending institutions and servicers can request that a force-placed insurance policy be terminated, the insurer is the party that actually cancels the policy. The Agencies’ proposal therefore clarifies the statutory language in section 102(e)(3) of the FDPA, as amended by section 100244 of the Act, to require the institution only to notify the insurer to terminate the force-placed policy and to fully refund to the borrower the premiums and fees for the PO 00000 Frm 00012 Fmt 4701 Sfmt 4702 overlap period within the 30-day period required by the statute. In addition, the Agencies note that section 102(e)(3) of the FDPA, as amended, and the Agencies’ proposed regulations, do not specify a party from which a regulated lending institution must receive confirmation of a borrower’s existing flood insurance coverage. Therefore, regulated lending institutions may receive the confirmation from either the borrower or a third party, such as an insurance agent or insurer with whom the institution has direct contact. Sufficiency of Demonstration Pursuant to section 102(e)(4) of the FDPA, as amended by section 100244 of the Act, the Agencies propose that for the purposes of confirming a borrower’s existing flood insurance coverage, a regulated lending institution or its servicer must accept from the borrower an insurance policy declarations page that includes the existing flood insurance policy number and the identity of, and contact information for, the insurance company or its agent, as confirmation of the existence of coverage. A lender is responsible for making all necessary inquiries into the adequacy of the borrower’s insurance policy to ensure the policy complies with the mandatory purchase requirement. If the lender determines the coverage amount or any terms and conditions fail to meet applicable requirements, the lender should notify the borrower and request the borrower to obtain an adequate flood insurance policy. l.l Determination fees. The Agencies are proposing technical amendments in this section to change the references to the head of FEMA from Director to Administrator. l.l Notice of special flood hazards and availability of Federal disaster relief assistance. Section 100239 of the Act adds a new section 102(b)(6) to the FDPA (42 U.S.C. 4012a(b)(6)) requiring regulated lending institutions to disclose to a borrower that: (i) Flood insurance is available from private insurance companies that issue SFIPs on behalf of the NFIP or directly from the NFIP; (ii) flood insurance that provides the same level of coverage as an SFIP under the NFIP may be available from a private insurance company that issues policies on behalf of the company; and (iii) the borrower is encouraged to compare the flood insurance coverage, deductibles, exclusions, conditions, and premiums associated with flood insurance policies E:\FR\FM\30OCP2.SGM 30OCP2 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules issued on behalf of the NFIP and policies issued on behalf of private insurance companies and to direct inquiries regarding the availability, cost, and comparisons of flood insurance coverage to an insurance agent. Furthermore, section 100239(b) of the Act amends section 1364(a)(3)(C) of the 1968 Act (42 U.S.C. 4104a(a)(3)(C)) to require that the disclosures in section 102(b)(6) of the FDPA be provided in the Notice of Special Flood Hazards and Availability of Federal Disaster Relief Assistance. Therefore, the proposal requires the disclosures set forth in section 102(b)(6) of the FDPA to be included in the Notice of Special Flood Hazards and Availability of Federal Disaster Relief Assistance, and the Agencies have proposed model language to include in the sample form of notice contained in Appendix A. l.l Notice of servicer’s identity. The Agencies are proposing technical amendments in this section to change the references to the head of FEMA from Director to Administrator. Appendices A, B, & C As noted above in the SUPPLEMENTARY INFORMATION accompanying the revisions to l.l Notice of special flood hazards and availability of Federal disaster relief assistance, the Agencies are proposing to amend the sample form of notice contained in Appendix A to include the disclosures required by section 102(b)(6) of the FDPA, as added by section 100239 of the Act, regarding the availability of private flood insurance coverage. The proposed additions to the sample form closely track the statutory language. The Agencies also are proposing to revise the language relating to the coverage limit to more accurately reflect what is actually covered under the Federal flood statutes, as discussed in the emcdonald on DSK67QTVN1PROD with PROPOSALS2 SUPPLEMENTARY INFORMATION accompanying the revisions to l.l Requirement to purchase flood insurance coverage where available. Specifically, the Agencies are proposing that the language be amended to state that flood insurance coverage is available only on the building or mobile home and any personal property that secures the loan and not the land itself. The Agencies propose other technical amendments to the sample form of notice contained in Appendix A, to change the references to the head of FEMA from Director to Administrator. In addition, as discussed in the SUPPLEMENTARY INFORMATION accompanying the revisions to l.l Escrow requirement, the Agencies are proposing that regulated lending VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 institutions mail or deliver a written notice informing borrowers about the requirement to escrow premiums and fees for required flood insurance. To facilitate compliance with the proposed notice requirement, the Agencies are proposing model language that may be included, if applicable, in the Notice of Special Flood Hazards and Availability of Federal Disaster Relief Assistance as set forth in the sample form of notice contained in Appendix A. The Agencies also are proposing a sample form of notice in new Appendix B that may be used for designated loans that are outstanding as of the date a regulated lending institution becomes subject to the escrow requirement or acquires a designated loan that becomes subject to the escrow requirement. Finally, new Appendix C provides a proposed Sample Clause with respect to the escrow requirement notice that regulated lending institutions could include in a notice of force-placement for a loan that becomes a designated loan after a regulated lending institution becomes subject to the escrow requirement. V. Regulatory Analysis Regulatory Flexibility Act OCC: In general, the Regulatory Flexibility Act (RFA) requires that in connection with a notice of proposed rulemaking an agency prepare and make available for public comment an initial regulatory flexibility analysis that describes the impact of a proposed rule on small entities.41 Under section 605(b) of the RFA, this analysis is not required if an agency certifies that the rule would not have a significant economic impact on a substantial number of small entities and publishes its certification and a short explanatory statement in the Federal Register along with its rule. We have concluded that the proposed rule does not have a significant economic impact on a substantial number of small entities supervised by the OCC. The OCC currently supervises approximately 1,257 small national banks, Federal savings associations, trust companies, and branches or agencies of foreign banks.42 If 41 See 5 U.S.C. 601 et seq. base our estimate of the number of active small entities on the SBA’s size thresholds for commercial banks and savings institutions, and trust companies, which are $500 million and $35.5 million, respectively. Consistent with the General Principles of Affiliation 13 CFR § 121.103(a), we count the assets of affiliated financial institutions when determining if we should classify a bank we supervise as a small entity. We use December 31, 2012 to determine size because a ‘‘financial institution’s assets are determined by averaging the assets reported on its four quarterly financial statements for the preceding year.’’ See footnote 8 42 We PO 00000 Frm 00013 Fmt 4701 Sfmt 4702 65119 implemented, the draft NPRM would impact approximately 871 of these small institutions. Thus, the proposed rule impacts a substantial number of small institutions. The OCC classifies the economic impact of total costs on an institution as significant if the total costs in a single year are greater than 5 percent of total salaries and benefits, or greater than 2.5 percent of total noninterest expense. The OCC estimates that the average cost per small institution is approximately $23,000 per year.43 Using this cost estimate, we believe the proposed rule will have a significant economic impact on eleven small institutions supervised by the OCC, which is not a substantial number. Therefore, pursuant to section 605(b) of the RFA, the OCC hereby certifies that this proposal would not have a significant economic impact on a substantial number of small entities. Accordingly, an initial regulatory flexibility analysis is not required. Board: The RFA requires an agency to publish an initial regulatory flexibility analysis with a proposed rule or certify that the proposed rule will not have a significant economic impact on a substantial number of small entities. The Board is publishing an initial regulatory flexibility analysis and requests public comment on all aspects of its analysis. The Board will conduct a final regulatory flexibility analysis after considering the comments received during the public comment period. 1. Statement of the need for, and objectives of, the proposed rule. The Board is proposing revisions to Regulation H to implement certain provisions of the Act over which the Agencies, including the Board, have jurisdiction. Consistent with the Act, the proposal would require a regulated lending institution (or its servicer) to escrow the premiums and fees for required flood insurance for any loan secured by residential improved real estate or a mobile home, unless the lender qualifies under the statutory exception for certain small lenders. The proposal also would implement the Act’s requirement that regulated lending institutions accept any private insurance policy that meets the Act’s definition of ‘‘private flood insurance’’ in satisfaction of the mandatory purchase requirement. The proposed of the U.S. Small Business Administration’s Table of Size Standards. 43 Because the OCC does not have the information to determine whether a small institutions would meet the exception for the escrow requirement provided by proposed § 22.5(c), we have not applied this exception in our calculations. Therefore, our estimated costs per small bank may be overstated. E:\FR\FM\30OCP2.SGM 30OCP2 emcdonald on DSK67QTVN1PROD with PROPOSALS2 65120 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules rule would also include a safe harbor allowing lenders to rely on a State insurance regulator’s written determination that a particular private insurance policy satisfies the Act’s definition. Regulated lending institutions would also be required to provide disclosures on the availability of private flood insurance, as mandated by the Act. The Act also includes provisions related to the force placement of flood insurance, which the proposal would implement. These provisions clarify that regulated lending institutions may charge a borrower for the cost of premiums and fees incurred in the purchase of force-placed flood insurance from the date coverage lapsed or did not provide a sufficient amount of coverage. The provisions also provide that within 30 days of receipt of a confirmation of a borrower’s existing flood insurance coverage, a regulated lending institution is required to terminate any force-placed insurance purchased by the regulated lending institution, and refund to the borrower all premiums paid by the borrower for lender-placed coverage for any period during which the borrower’s flood insurance coverage and the lender-place coverage overlapped. 2. Small entities affected by the proposed rule. All State member banks that are subject to Regulation H would be subject to the proposed rule. As of June 30, 2013, there were 844 State member banks. Under regulations issued by the Small Business Administration (SBA), banks and other depository institutions with total assets of $500 million or less are considered small. Of the 844 State member banks subject to Regulation H, approximately 634 State member banks would be considered small entities by the SBA. As discussed in detail above in the SUPPLEMENTARY INFORMATION, regulated lending institutions with total assets less than $1 billion would generally be exempt from the proposed rules implementing the escrow provisions of the Act. Therefore, the escrow provisions of the proposed rule would generally not affect small entities. Furthermore, the Act’s force placement provisions already went into effect upon passage of the Act on July 6, 2012. As a result, the proposed rules implementing the Act’s force placement provisions should not have any impact on small entities who were required to comply with the provisions as of July 6, 2012. Even prior to the Act’s passage, regulated lending institutions, including those that are considered small entities, would have had mechanisms in place to refund premiums and fees to borrowers VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 for any period of overlap between a force placed policy and a borrower’s policy. Consequently, the Act’s force placement provisions, which set forth procedures for terminating force placed insurance and refunding premiums and fees to the borrower, nevertheless would have had minimal impact on regulated lending institutions. With respect to the proposed rules regarding the acceptance of private flood insurance, the Board believes the rules will not have a significant impact on small entities because regulated lending institutions, including those that are considered small entities, currently are permitted to accept private flood insurance policies. Moreover, as discussed in the SUPPLEMENTARY INFORMATION, the proposed rule would seek to alleviate the burden on regulated lending institutions, including those that are considered small entities, of evaluating whether a flood insurance policy issued by a private insurer meets the definition of ‘‘private flood insurance’’ by providing a safe harbor permitting lenders to rely on the determination of a State insurance regulator. Small entities will be required under the proposal to amend their notices of special flood hazards to include information on the availability of private flood insurance. The proposal provides sample forms to facilitate compliance and reduce burden upon small institutions. 3. Other Federal rules. The Board has not identified any likely duplication, overlap and/or potential conflict between the proposed rule and any Federal rule. 4. Significant alternatives to the proposed revisions. The Board solicits comment on any significant alternatives that would reduce the regulatory burden associated with this proposed rule on small entities. FDIC: The RFA generally requires that, in connection with a notice of proposed rulemaking, an agency prepare and make available for public comment an initial regulatory flexibility analysis that describes the impact of a proposed rule on small entities. A regulatory flexibility analysis is not required, however, if the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities (defined in regulations promulgated by the Small Business Administration to include banking organizations with total assets of less than or equal to $500 million) and publishes its certification and a short, explanatory statement in the Federal Register together with the rule. As of March 31, 2013, there were approximately 3,711 small FDIC- PO 00000 Frm 00014 Fmt 4701 Sfmt 4702 supervised banks which include 3,398 State nonmember banks and 259 Statechartered savings banks, and 54 savings associations. It is the opinion of the FDIC that the proposed rule will not have a significant economic impact on a substantial number of the small entities, which the FDIC supervises. The FDIC reaches this conclusion in reliance upon the fact that the only requirements that the Act requires the Agencies to impose upon supervised entities as a matter of regulation are the escrow requirement and the requirement to accept private flood insurance. The Act provides that generally a depository institution with assets of less than $1 billion is not required to comply with the escrow requirement. As a result, due to this statutory exclusion, by law the escrow requirement cannot have a significant economic impact on a substantial number of small entities. The requirement to accept private flood insurance also cannot have a significant economic impact on a substantial number of small entities since depository institutions were permitted to accept private flood insurance for NFIP purposes even before the Act’s amendments. For these reasons, the FDIC certifies that this proposed rule will not have a significant economic impact on a substantial number of small entities that it supervises. FCA: Pursuant to section 605(b) of the RFA, the FCA hereby certifies that the proposed rule will not have a significant economic impact on a substantial number of small entities. Each of the banks in the Farm Credit System, considered together with its affiliated associations, has assets and annual income in excess of the amounts that would qualify them as small entities. Therefore, Farm Credit System institutions are not ‘‘small entities’’ as defined in the RFA. NCUA: The RFA requires NCUA to prepare an analysis to describe any significant economic impact a regulation may have on a substantial number of small entities.44 For purposes of this analysis, NCUA considers small credit unions to be those having under $50 million in assets.45 As of June 30, 2013, there are 1,803 small, federally insured credit unions. The proposed rule would require a credit union to escrow the premiums and fees for required flood 44 5 U.S.C. 603(a). Ruling and Policy Statement 03–2, 68 FR 31949 (May 29, 2003), as amended by Interpretative Ruling and Policy Statement 13–1, 78 FR 4032 (Jan. 18, 2013). 45 Interpretive E:\FR\FM\30OCP2.SGM 30OCP2 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules emcdonald on DSK67QTVN1PROD with PROPOSALS2 insurance for any loan secured by residential improved real estate or a mobile home. The proposed rule would also implement the requirement that credit unions accept any private insurance policy that meets the statutory definition of ‘‘private flood insurance’’, and includes provisions related to the force placement of flood insurance. Under this proposed rule, credit unions with total assets less than $1 billion would generally be exempt from the escrow provisions. Therefore, the escrow provisions of the proposed rule would not affect small credit unions. For private flood insurance, NCUA does not believe the proposed rule will have a significant impact on small credit unions since credit unions are currently allowed to accept private flood insurance. In addition, the proposed rule provides a safe harbor for regulated lending institutions (which includes credit unions), including small entities, for evaluating whether a flood insurance policy issued by a private insurer meets the definition of ‘‘private flood insurance’’. Lastly, the force placement provisions in the proposed rule were effective on July 6, 2012, and credit unions have been enforcing force placement provisions already. In addition, credit unions currently have the tools to refund premiums and fees whenever a borrower’s policy overlaps a force-placed policy, as required in the proposed rule. NCUA finds that this proposed rule would affect relatively few federally insured, small credit unions and the associated cost is minimal. Accordingly, NCUA certifies the rule will not have a significant economic impact on small entities. Unfunded Mandates Reform Act of 1995 Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) (2 U.S.C. 1501 et seq.) requires certain agencies, including the OCC, to prepare a budgetary impact statement before promulgating a rule that includes a Federal mandate that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector of $100 million or more in any one year. If a budgetary impact statement is required, section 205 of UMRA also requires an agency to identify and consider a reasonable number of regulatory alternatives before promulgating a rule. The OCC has estimated that the total cost associated with this NPRM, if implemented, would be approximately $72 million and the average cost per institution would be $55,000. However, pursuant to section 201 of the UMRA, VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 a regulation does not impose a mandate to the extent it incorporates requirements ‘‘specifically set forth in the law.’’ Therefore, we exclude from our UMRA estimate costs specifically related to requirements set forth in the Act, such as costs related to establishing escrow accounts, amendments to the force placement provisions, and the acceptance of private flood insurance policies. Furthermore, under Title II of the UMRA, indirect costs, foregone revenues and opportunity costs are not included when determining if a mandate meets or exceeds UMRA’s cost threshold. Therefore, based on these exclusions, our UMRA cost estimate for the NPRM, if implemented, is zero. Accordingly, because the OCC has determined that this proposed rule would not result in expenditures by State, local, and tribal governments, or by the private sector, of $100 million or more, we have not prepared a budgetary impact statement or specifically addressed the regulatory alternatives considered. Paperwork Reduction Act of 1995 The OCC, Board, FDIC, and NCUA (the Agencies) 46 have determined that this proposed rule involves a collection of information pursuant to the provisions of the Paperwork Reduction Act of 1995 (the PRA) (44 U.S.C. 3501 et seq.). In accordance with the PRA (44 U.S.C. 3506; 5 CFR 1320 Appendix A.1), the Board reviewed the proposed rule under the authority delegated to the Board by the Office of Management and Budget (OMB). The collection of information that is subject to the PRA by this proposed rule is found in 12 CFR 22.5, 208.25(e), 339.5, and 760.5. In addition, as permitted by the PRA, the OCC, Board, and FDIC also propose to extend for three years their respective information collections. The Agencies may not conduct or sponsor, and an organization is not required to respond to, this information collection unless the information collection displays a currently valid OMB control number. The OMB control numbers are 1557–0202 (OCC), 7100– 0280 (Board), and 3064–0120 (FDIC).47 46 The FCA has determined that the proposed rule does not involve a collection of information pursuant to the PRA for System institutions because System institutions are Federally chartered instrumentalities of the United States and instrumentalities of the United States are specifically excepted from the definition of ‘‘collection of information’’ contained in 44 U.S.C. 3502(3). 47 NCUA’s part 760 contains various information collection requirements as described in the PRA and previously submitted by NCUA. PO 00000 Frm 00015 Fmt 4701 Sfmt 4702 65121 The proposed rule adds a notice requirement stating that institutions or services that are required to escrow all premiums and fees for required flood insurance must issue a written notice to the borrower. This information collection is required to evidence compliance with the requirements of the Federal flood insurance statutes with respect to lenders and servicers. Because the Agencies do not collect any information, no issue of confidentiality arises. The respondents are for-profit and non-profit financial institutions, including small businesses. Entities subject to the Agencies’ existing flood insurance rules will have to review and revise disclosures that are currently provided to ensure that such disclosures accurately reflect the disclosure requirements in this proposed rule. Entities subject to the rule may also need to develop new disclosures to meet the proposed rule’s timing requirements. The total estimated burden increase, as well as the estimates of the burden increase associated with each major section of the proposed rule as set forth below, represents averages for all respondents regulated by the Agencies. The Agencies expect that the amount of time required to implement each of the proposed changes for a given institution may vary based on the size and complexity of the respondent. The Agencies estimate that respondents would take, on average, 40 hours to update their systems in order to comply with the disclosure requirements and the one-time escrow notice under the proposed rule. In an effort to minimize the compliance cost and burden, particularly for small entities that do not meet the requirement for the statutory exception, the proposed rule contains model disclosures in appendices A, B, and C that may be used to satisfy the requirements. Burden Estimates OCC: Number of Respondents: 1,316. Burden for Existing Recordkeeping Requirements: 196,907 hours. Burden for Existing Disclosure Requirements: 244,208 hours. Burden for Proposed Rule: 52,640 hours. Total Burden for Collection: 493,755 hours. Board: Number of Respondents: 843. Burden for Existing Recordkeeping Requirements: 14,191 hours. Burden for Existing Disclosure Requirements: 17,632 hours. E:\FR\FM\30OCP2.SGM 30OCP2 emcdonald on DSK67QTVN1PROD with PROPOSALS2 65122 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules Burden for Proposed Rule: 33,720 hours. Total Burden for Collection: 65,543 hours. FDIC: Number of Respondents: 4,421. Burden for Existing Recordkeeping Requirements: 61,894 hours. Burden for Existing Disclosure Requirements: 76,999 hours. Burden for Proposed Rule: 176,840 hours. Total Burden for Collection: 315,733 hours. NCUA: Number of Respondents: 4,192. Burden for Existing Recordkeeping Requirements: 57,230.85 hours. Burden for Existing Disclosure Requirements: 70,966.26 hours. Burden for Proposed Rule: 8,240 hours. Total Burden for Collection: 136,437.11 hours. These collections are available to the public at www.reginfo.gov. Comments are invited on: (1) Whether the proposed collection of information is necessary for the proper performance of the Agencies’ functions; including whether the information has practical utility; (2) the accuracy of the Agencies’ estimate of the burden of the proposed information collection, including the cost of compliance; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) ways to minimize the burden of information collection on respondents, including through the use of automated collection techniques or other forms of information technology. Comments on the collection of information should be sent to: OCC: Because paper mail in the Washington, DC area and at the OCC is subject to delay, commenters are encouraged to submit comments by email if possible. Comments may be sent to: Legislative and Regulatory Activities Division, Office of the Comptroller of the Currency, Attention: [1557–0202], 400 7th Street SW., Suite 3E–218, Mail Stop 9W–11, Washington, DC 20219. In addition, comments may be sent by fax to (571) 465–4326 or by electronic mail to regs.comments@ occ.treas.gov. You may personally inspect and photocopy comments at the OCC, 400 7th Street SW., Washington, DC 20219. For security reasons, the OCC requires that visitors make an appointment to inspect comments. You may do so by calling (202) 649–6700. Upon arrival, visitors will be required to present valid government-issued photo identification and to submit to security screening in order to inspect and photocopy comments. VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 All comments received, including attachments and other supporting materials, are part of the public record and subject to public disclosure. Do not enclose any information in your comment or supporting materials that you consider confidential or inappropriate for public disclosure. Board: Cynthia Ayouch, Federal Reserve Clearance Officer, Office of the Chief Data Officer, Mail Stop 95, Board of Governors of the Federal Reserve System, Washington, DC 20551, with copies of such comments sent to the Office of Management and Budget, Paperwork Reduction Project (7100– 0280), Washington, DC 20503. FDIC: You may submit comments, which should refer to ‘‘Interagency Flood Insurance, 3064–0120’’ by any of the following methods: • Agency Web site: https:// www.fdic.gov/regulations/laws/federal/ propose.html. Follow the instructions for submitting comments on the FDIC Web site. • Federal eRulemaking Portal: https:// www.regulations.gov. Follow the instructions for submitting comments. • Email: comments@FDIC.gov. Include ‘‘Interagency Flood Insurance, 3064–0120’’ in the subject line of the message. • Mail: Gary A. Kuiper, Counsel, Attn: Comments, Room NYA–5046, Federal Deposit Insurance Corporation, 550 17th Street NW., Washington, DC 20429. • Hand Delivery: Comments may be hand delivered to the guard station at the rear of the 550 17th Street Building (located on F Street) on business days between 7 a.m. and 5 p.m. Public Inspection: All comments received will be posted without change to https://www.fdic.gov/regulations/laws/ federal/propose.html including any personal information provided. NCUA: Tracy Crews, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314– 3428, Fax No. 703–837–2861, Email: OCIOPRA@ncua.gov. Additionally, commenters may send a copy of their comments to the OMB desk officer for the agencies by mail to the Office of Information and Regulatory Affairs, U.S. Office of Management and Budget, New Executive Office Building, Room 10235, 725 17th Street NW., Washington, DC 20503; by fax to (202) 395–6974; or by email to oira_ submission@omb.eop.gov. List of Subjects 12 CFR Part 22 Flood insurance, Mortgages, National banks, Reporting and recordkeeping requirements, Savings associations. PO 00000 Frm 00016 Fmt 4701 Sfmt 4702 12 CFR Part 172 Flood insurance, Reporting and recordkeeping requirements, Savings associations. 12 CFR Part 208 Accounting, Agriculture, Banks, banking, Confidential business information, Crime, Currency, Federal Reserve System, Flood insurance, Mortgages, Reporting and recordkeeping requirements, Securities. 12 CFR Part 339 Flood insurance, Reporting and recordkeeping requirements, Savings associations. 12 CFR Part 391 Flood insurance, Reporting and recordkeeping requirements, Savings associations. 12 CFR Part 614 Agriculture, Banks, banking, Flood insurance, Foreign trade, Reporting and recordkeeping requirements, Rural areas. 12 CFR Part 760 Credit unions, Mortgages, Flood insurance, Reporting and recordkeeping requirements. Office of the Comptroller of the Currency 12 CFR CHAPTER I Authority and Issuance For the reasons set forth in the joint preamble and under the authority of 12 U.S.C. 93a and 5412(b)(2)(B), the OCC proposes to amend Part 12 Chapter I as follows: ■ 1. Revise Part 22 to read as follows:: PART 22—LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS Sec. 22.1 22.2 22.3 Purpose and scope. Definitions. Requirement to purchase flood insurance where available. 22.4 Exemptions. 22.5 Escrow requirement. 22.6 Required use of standard flood hazard determination form. 22.7 Force-placement of flood insurance. 22.8 Determination fees. 22.9 Notice of special flood hazards and availability of Federal disaster relief assistance. 22.10 Notice of servicer’s identity. Appendix A to Part 22—Sample Form of Notice of Special Flood Hazards and Availability of Federal Disaster Relief Assistance Appendix B to Part 22—Sample Form of Notice of Requirement to Escrow For Outstanding Loans E:\FR\FM\30OCP2.SGM 30OCP2 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules Appendix C to Part 22—Sample Escrow Requirement Clause for Loans That Become Designated Loans Authority: 12 U.S.C. 93a, 1462a, 1463, 1464, and 5412(b)(2)(B); 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128. § 22.1 Purpose and scope. (a) Purpose. The purpose of this part is to implement the requirements of the National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973, as amended (42 U.S.C. 4001– 4129). (b) Scope. This part, except for §§ 22.6 and 22.8, applies to loans secured by buildings or mobile homes located or to be located in areas determined by the Administrator of the Federal Emergency Management Agency to have special flood hazards. Sections 22.6 and 22.8 apply to loans secured by buildings or mobile homes, regardless of location. emcdonald on DSK67QTVN1PROD with PROPOSALS2 § 22.2 Definitions. For the purposes of this part: (a) Act means the National Flood Insurance Act of 1968, as amended (42 U.S.C. 4001–4129). (b) Administrator of FEMA means the Administrator of the Federal Emergency Management Agency. (c) Building means a walled and roofed structure, other than a gas or liquid storage tank, that is principally above ground and affixed to a permanent site, and a walled and roofed structure while in the course of construction, alteration, or repair. (d) Community means a State or a political subdivision of a State that has zoning and building code jurisdiction over a particular area having special flood hazards. (e) Designated loan means a loan secured by a building or mobile home that is located or to be located in a special flood hazard area in which flood insurance is available under the Act. (f) Mobile home means a structure, transportable in one or more sections, that is built on a permanent chassis and designed for use with or without a permanent foundation when attached to the required utilities. The term mobile home does not include a recreational vehicle. For purposes of this part, the term mobile home means a mobile home on a permanent foundation. The term mobile home includes a manufactured home as that term is used in the NFIP. (g) NFIP means the National Flood Insurance Program authorized under the Act. (h) Private flood insurance means an insurance policy that: (1) Is issued by an insurance company that is: (i) Licensed, admitted, or otherwise approved to engage in the business of VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 insurance in the State or jurisdiction which the insured building is located, by the insurance regulator of that State or jurisdiction; or (ii) Recognized, or not disapproved, as a surplus lines insurer by the insurance regulator of the State or jurisdiction where the property to be insured is located in the case of a policy of difference in conditions, multiple peril, all risk, or other blanket coverage; (2) Provides flood insurance coverage which is at least as broad as the coverage provided under a standard flood insurance policy under the NFIP, including when considering deductibles, exclusions, and conditions offered by the insurer; (3) Includes all of the following: (i) A requirement for the insurer to give 45 days’ written notice of cancellation or non-renewal of flood insurance coverage to: (A) The insured; and (B) The national bank or Federal savings association that made the designated loan secured by the property for which the insurance is providing coverage; (ii) Information about the availability of flood insurance coverage under the NFIP; (iii) A mortgage interest clause similar to the clause contained in the standard flood insurance policy under the NFIP; and (iv) A provision requiring an insured to file suit not later than one year after the date of a written denial of all or part of a claim under the policy; and (4) Contains cancellation provisions that are as restrictive as the provisions contained in a standard flood insurance policy under the NFIP. (i) Residential improved real estate means real estate upon which a home or other residential building is located or to be located. (j) Federal savings association means, for purposes of this part, a Federal savings association as that term is defined in 12 U.S.C. 1813(b)(2) and any service corporations thereof. (k) Servicer means the person responsible for: (1) Receiving any scheduled, periodic payments from a borrower under the terms of a loan, including amounts for taxes, insurance premiums, and other charges with respect to the property securing the loan; and (2) Making payments of principal and interest and any other payments from the amounts received from the borrower as may be required under the terms of the loan. (l) Special flood hazard area means the land in the flood plain within a community having at least a one percent PO 00000 Frm 00017 Fmt 4701 Sfmt 4702 65123 chance of flooding in any given year, as designated by the Administrator of FEMA. (m) Table funding means a settlement at which a loan is funded by a contemporaneous advance of loan funds and an assignment of the loan to the person advancing the funds. § 22.3 Requirement to purchase flood insurance where available. (a) In general. A national bank or Federal savings association shall not make, increase, extend, or renew any designated loan unless the building or mobile home and any personal property securing the loan is covered by flood insurance for the term of the loan. The amount of insurance must be at least equal to the lesser of the outstanding principal balance of the designated loan or the maximum limit of coverage available for the particular type of property under the Act. Flood insurance coverage under the Act is limited to the building or mobile home and any personal property that secures a loan and not the land itself. (b) Table funded loans. A national bank or Federal savings association that acquires a loan from a mortgage broker or other entity through table funding shall be considered to be making a loan for the purposes of this part. (c) Private flood insurance. (1) Mandatory acceptance. A national bank or Federal savings association must accept private flood insurance, as defined in § 22.2(h), as satisfaction of the flood insurance coverage requirement, provided that coverage under the flood insurance policy meets the requirement for coverage under paragraph (a) of this section. (2) Safe harbor. A flood insurance policy shall be deemed to meet the definition of private flood insurance in § 22.2(h) for purposes of paragraph (a) of this section if a State insurance regulator makes a determination in writing that the policy meets the definition of private flood insurance in § 22.2(h). § 22.4 Exemptions. The flood insurance requirement prescribed by § 22.3 does not apply with respect to: (a) Any State-owned property covered under a policy of self-insurance satisfactory to the Administrator of FEMA, who publishes and periodically revises the list of States falling within this exemption; or (b) Property securing any loan with an original principal balance of $5,000 or less and a repayment term of one year or less. E:\FR\FM\30OCP2.SGM 30OCP2 65124 emcdonald on DSK67QTVN1PROD with PROPOSALS2 § 22.5 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules Escrow requirement. (a) In general. (1) Applicability. Except as provided in paragraph (c) of this section, a national bank or Federal savings association, or a servicer acting on its behalf, shall require the escrow of all premiums and fees for any flood insurance required under § 22.3(a) for any loan secured by residential improved real estate or a mobile home that is outstanding or entered into on or after July 6, 2014, payable with the same frequency as payments on the loan are made for the duration of the loan, unless the national bank or Federal savings association has determined that: (i) The loan is an extension of credit primarily for business, commercial, or agricultural purposes; (ii) The borrower has obtained flood insurance coverage that meets the requirements of § 22.3(a) for the residential improved real estate or mobile home securing the loan and is currently paying premiums and fees through an escrow account established by another lender; or (iii) Flood insurance coverage for the residential improved real estate or mobile home is provided by a policy that is purchased by a common interest community instead of the borrower, such as an NFIP Residential Condominium Building Association Policy (RCBAP), that meets the requirements of § 22.3(a). (2) Timing. A national bank or Federal savings association that is subject to paragraph (a) of this section, other than due to a change in status under paragraph (c)(2) of this section or for acquired loans subject to paragraph (d) of this section, shall begin escrowing premiums and fees for flood insurance: (i) For any designated loan outstanding on July 6, 2014, with the first loan payment on or after the first renewal date of the borrower’s flood insurance policy on or after July 6, 2014; (ii) For any designated loan made on or after July 6, 2014, upon loan consummation; or (iii) For any loan that becomes a designated loan after July 6, 2014, with the first loan payment after the flood insurance policy is established. (3) Escrow Account. The national bank or Federal savings association, or a servicer acting on behalf of the national bank or Federal savings association, shall deposit the flood insurance premiums and fees 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 VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 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 Administrator of FEMA or other provider of flood insurance that premiums are due, the national bank or Federal savings association, or a servicer acting on behalf of the national bank or Federal savings association, shall pay the amount owed to the insurance provider from the escrow account by the date when such premiums are due. (b) Notice. A national bank or Federal savings association that is required to comply with paragraph (a) of this section, or a servicer acting on behalf of the national bank or Federal savings association, shall mail or deliver a written notice informing the borrower that the national bank or Federal savings association is required to escrow all premiums and fees for required flood insurance: (1) For loans subject to paragraphs (a)(2)(i), (c)(2)(i), or (d) of this section, at least 90 days before the escrow of premiums and fees under paragraphs (a)(2)(i), (c)(2)(i), or (d), using language that is substantially similar to the model form in appendix B; (2) For loans subject to paragraphs (a)(2)(ii) or (c)(2)(ii) of this section, with the notice provided under § 22.9, using language that is substantially similar to model clauses on the escrow requirement in appendix A; or (3) For loans subject to paragraphs (a)(2)(iii) or (c)(2)(iii) of this section, with the notice provided under § 22.7, using language that is substantially similar to model clauses on the escrow requirement in appendix C. (c) Exception. (1) Qualification. Except as may be required under applicable State law, paragraphs (a)(1) and (2) of this section do not apply to a national bank or Federal savings association: (i) That has total assets of less than $1 billion as of December 31 of either of the two prior calendar years; and (ii) On or before July 6, 2012: (A) Was not required under Federal or State law to deposit taxes, insurance premiums, fees, or any other charges in an escrow account for the entire term of a loan secured by residential improved real estate or a mobile home; and (B) Did not have a policy of consistently and uniformly requiring the deposit of taxes, insurance premiums, fees, or any other charges in an escrow account for loans secured by residential improved real estate or a mobile home. (2) Change in status. If a national bank or Federal savings association PO 00000 Frm 00018 Fmt 4701 Sfmt 4702 previously qualified for the exception in paragraph § 22.5(c)(1), but no longer qualifies for the exception because it had assets of $1 billion or more for two consecutive calendar year ends, the national bank or Federal savings association must begin escrowing premiums and fees for flood insurance pursuant to § 22.3(a): (i) For any designated loan outstanding on July 1 of the succeeding calendar year, with the first loan payment on or after the first renewal date of the borrower’s flood insurance policy on or after July 1 of the succeeding calendar year; (ii) For any designated loan made on or after July 1 of the succeeding calendar year, upon loan consummation; or (iii) For any loan that becomes a designated loan after July 1 of the succeeding calendar year, with the first loan payment after the flood insurance policy is established. (d) Change in ownership. If a national bank or Federal savings association that is required to comply with paragraph (a) of this section acquires a designated loan covered by flood insurance required under § 22.3(a) that becomes subject to paragraph (a) of this section as a result of the bank’s or savings association’s acquisition of the loan, the bank or savings association must begin escrowing premiums and fees for flood insurance pursuant to paragraph (a) of this section with the first loan payment on or after the first renewal date of the borrower’s flood insurance policy on or after the date that is six months from the transfer date of the loan. § 22.6 Required use of standard flood hazard determination form. (a) Use of form. A national bank or Federal savings association shall use the standard flood hazard determination form developed by the Administrator 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. A national bank or Federal savings association may obtain the standard flood hazard determination form from FEMA’s Web site at www.fema.gov. (b) Retention of form. A national bank or Federal 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 bank or savings association owns the loan. E:\FR\FM\30OCP2.SGM 30OCP2 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules emcdonald on DSK67QTVN1PROD with PROPOSALS2 § 22.7 Force-placement of flood insurance. (a) Notice and purchase of coverage. If a national bank or Federal savings association, or a servicer acting on behalf of the bank or savings association, 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 § 22.3, then the national bank or Federal 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 § 22.3, for the remaining term of the loan. If the borrower fails to obtain flood insurance within 45 days after notification, then the national bank or Federal savings association, or its servicer, shall purchase insurance on the borrower’s behalf. The national bank or Federal savings association, or its servicer may charge the borrower for the cost of premiums and fees incurred in purchasing the insurance, including premiums or fees incurred for coverage beginning on the date on which flood insurance coverage lapsed or did not provide a sufficient coverage amount. (b) Termination of force-placed insurance. (1) Termination and refund. Within 30 days of receipt by a national bank or Federal savings association, or a servicer acting on the bank’s or saving association’s behalf, of a confirmation of a borrower’s existing flood insurance coverage, the national bank or Federal savings association, or its servicer shall: (i) Notify the insurance provider to terminate any insurance purchased by the national bank or Federal savings association or its servicer under paragraph (a) of this section; and (ii) Refund to the borrower all premiums paid by the borrower for any insurance purchased by the national bank or Federal savings association or its servicer under paragraph (a) of this section during any period during which the borrower’s flood insurance coverage and the insurance coverage purchased by the national bank or Federal savings association or its servicer were each in effect, and any related fees charged to the borrower with respect to the insurance purchased by the national bank or Federal savings association or its servicer during such period. (2) Sufficiency of demonstration. For purposes of confirming a borrower’s existing flood insurance coverage under paragraph (b) of this section, a national bank or Federal savings association or its servicer shall accept from the VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 borrower an insurance policy declarations page that includes the existing flood insurance policy number and the identity of, and contact information for, the insurance company or agent. § 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 national bank or Federal savings association, or a servicer acting on behalf of the national bank or Federal 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. 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 Administrator of FEMA’s revision or updating of flood plain areas or flood-risk zones; (3) Reflects the Administrator 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; (ii) By determination of the Administrator 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 § 22.7. (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. § 22.9 Notice of special flood hazards and availability of Federal disaster relief assistance. (a) Notice requirement. When a national bank or Federal 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 bank or savings association shall mail or deliver a written notice to the borrower and to the servicer in all cases whether PO 00000 Frm 00019 Fmt 4701 Sfmt 4702 65125 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 Administrator 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 from private insurance companies that issue standard flood insurance policies on behalf of the NFIP or directly from the NFIP; (4) A statement that flood insurance that provides the same level of coverage as a standard flood insurance policy under the NFIP also may be available from a private insurance company that issues policies on behalf of the company; (5) A statement that the borrower is encouraged to compare the flood insurance coverage, deductibles, exclusions, conditions and premiums associated with flood insurance policies issued on behalf of the NFIP and policies issued on behalf of private insurance companies and that the borrower should direct inquiries regarding the availability, cost, and comparisons of flood insurance coverage to an insurance agent; and (6) 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 national bank or Federal savings association 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 bank or savings association provides notice to the borrower and in any event no later than the time the bank or savings association 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 national bank or Federal savings association shall retain a record of the receipt of the notices by the borrower and the servicer for the period of time it owns the loan. E:\FR\FM\30OCP2.SGM 30OCP2 65126 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules (e) Alternate method of notice. Instead of providing the notice to the borrower required by paragraph (a) of this section, a national bank or Federal savings association 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 national bank or Federal savings association shall retain a record of the written assurance from the seller or lessor for the period of time it owns the loan. (f) Use of prescribed form of notice. A national bank or Federal savings association 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. emcdonald on DSK67QTVN1PROD with PROPOSALS2 § 22.10 Notice of servicer’s identity. (a) Notice requirement. When a national bank or Federal 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, it shall notify the Administrator of FEMA (or the Administrator’s designee) in writing of the identity of the servicer of the loan. The Administrator of FEMA has designated the insurance provider to receive the national bank’s or Federal savings association’s notice of the servicer’s identity. This notice may be provided electronically if electronic transmission is satisfactory to the Administrator of FEMA’s designee. (b) Transfer of servicing rights. The national bank or Federal savings association shall notify the Administrator of FEMA (or the Administrator’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 Administrator 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. VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 APPENDIX A TO PART 22—SAMPLE FORM OF NOTICE OF SPECIAL FLOOD HAZARDS AND AVAILABILITY OF FEDERAL DISASTER RELIEF ASSISTANCE 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 Administrator 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: lll. This area has 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 Administrator 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. l 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. • 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 building or mobile home and any personal property that secures your loan and not the land itself. • 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. Availability of Private Flood Insurance Coverage 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 that provides the same level of coverage as a standard flood insurance policy under the NFIP may be available from private insurers that do not participate in the NFIP. You should compare PO 00000 Frm 00020 Fmt 4701 Sfmt 4702 the flood insurance coverage, deductibles, exclusions, conditions and premiums associated with flood insurance policies issued on behalf of the NFIP and policies issued on behalf of private insurance companies and ask an insurance agent as to the availability, cost, and comparisons of flood insurance coverage. [Escrow Requirement for Residential Loans Federal law requires a lender or its servicer to escrow all premiums and fees for flood insurance that covers any residential building or mobile home securing a loan that is located in an area with special flood hazards. These premiums and fees must be paid to the lender or its servicer with the same frequency as your loan payments for the duration of your loan and will be deposited in an escrow account on your behalf to be paid to the flood insurance provider. Upon receipt of a notice from the flood insurance provider that the premiums are due, the premiums shall be paid from the escrow account to the insurance provider.] lFlood 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. APPENDIX B TO PART 22—SAMPLE FORM OF NOTICE OF REQUIREMENT TO ESCROW FOR OUTSTANDING LOANS Notice of Escrow Requirement We are giving you this notice to inform you that Federal law requires a lender or its servicer to escrow all premiums and fees for flood insurance that covers the building or mobile home securing your loan(s). How the Escrow Will Work Federal law requires that you pay flood insurance premiums and fees with the same frequency as your loan payments for the duration of your loan. Your payments will be deposited in an escrow account so that when we receive a notice from your flood insurance provider that your flood insurance premiums are due, we will make payment from the escrow account to the insurance provider on your behalf. When the Escrow Will Start When you receive your next flood insurance bill with the renewal of your policy from your flood insurance provider, you are responsible for making that payment directly to your insurance provider. We will begin collecting the premiums and fees for your flood insurance escrow account with your mortgage loan payment following this renewal date for the next policy term. For example, if your flood insurance policy renewal date is September 15 and your next mortgage loan payment is October 1, the bank will begin collecting the flood insurance premiums and fees for escrow with the October 1 mortgage loan payment. E:\FR\FM\30OCP2.SGM 30OCP2 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules The escrow amount for flood insurance will be added to your existing periodic mortgage payment. The payments you make into the escrow account will accumulate over time and the funds will be used to pay your flood insurance policy at the next policy renewal date. Any questions regarding this new escrow requirement should be directed to [Insert Name of Lender or Servicer] at [Insert Contact Information]. APPENDIX C TO PART 22—SAMPLE ESCROW REQUIREMENT CLAUSE FOR LOANS THAT BECOME DESIGNATED LOANS Escrow Requirement Clause Federal law requires a lender or its servicer to escrow all premiums and fees for flood insurance that covers any residential building or mobile home securing a loan that is located in an area with special flood hazards. You must make payments of these premiums and fees to [Insert Name of Lender or Servicer] with the same frequency as your loan payments for the duration of your loan. Your payments will be deposited in an escrow account on your behalf to be paid to the flood insurance provider. Upon receipt of a notice from the flood insurance provider that the flood insurance premium is due, [Insert Name of Lender or Servicer] will pay the premium from the escrow account to the insurance provider. PART 172—[REMOVED] ■ 2. Remove part 172. 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: ■ emcdonald on DSK67QTVN1PROD with PROPOSALS2 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. ■ 2. Revise § 208.25 as follows: § 208.25 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 VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 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 Administrator 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. For purposes of this section: (1) Act means the National Flood Insurance Act of 1968, as amended (42 U.S.C. 4001–4129). (2) Administrator of FEMA means the Administrator of the Federal Emergency Management Agency. (3) 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. (4) 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. (5) 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. (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. The term mobile home includes a manufactured home as that term is used in the National Flood Insurance Program. (7) NFIP means the National Flood Insurance Program authorized under the Act. (8) Private flood insurance means an insurance policy that: (i) Is issued by an insurance company that is: (A) Licensed, admitted, or otherwise approved to engage in the business of insurance in the State or jurisdiction which the insured building is located, by the insurance regulator of that State or jurisdiction; or (B) Recognized, or not disapproved, as a surplus lines insurer by the insurance regulator of the State or jurisdiction where the property to be insured is located in the case of a policy of PO 00000 Frm 00021 Fmt 4701 Sfmt 4702 65127 difference in conditions, multiple peril, all risk, or other blanket coverage; (ii) Provides flood insurance coverage which is at least as broad as the coverage provided under a standard flood insurance policy under the NFIP, including when considering deductibles, exclusions, and conditions offered by the insurer; (iii) Includes all of the following: (A) A requirement for the insurer to give 45 days’ written notice of cancellation or non-renewal of flood insurance coverage to: (1) The insured; and (2) The member bank that made the designated loan secured by the property for which the insurance is providing coverage; (B) Information about the availability of flood insurance coverage under the NFIP; (C) A mortgage interest clause similar to the clause contained in the standard flood insurance policy under the NFIP; and (D) A provision requiring an insured to file suit not later than one year after the date of a written denial of all or part of a claim under the policy; and (iv) Contains cancellation provisions that are as restrictive as the provisions contained in a standard flood insurance policy under the NFIP. (9) Residential improved real estate means real estate upon which a home or other residential building is located or to be located. (10) 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. (11) Special flood hazard area means the land in the flood plain within a community having at least a one percent chance of flooding in any given year, as designated by the Administrator of FEMA. (12) 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. (c) Requirement to purchase flood insurance where available—(1) In general. A 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 E:\FR\FM\30OCP2.SGM 30OCP2 emcdonald on DSK67QTVN1PROD with PROPOSALS2 65128 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules insurance for the term of the loan. The amount of insurance must be at least equal to the lesser of the outstanding principal balance of the designated loan or the maximum limit of coverage available for the particular type of property under the Act. Flood insurance coverage under the Act is limited to the building or mobile home and any personal property that secures a loan and not the land itself. (2) Table funded loans. A member bank that acquires a loan from a mortgage broker or other entity through table funding shall be considered to be making a loan for the purposes of this section. (3) Private flood insurance. (i) Mandatory acceptance. A member bank must accept private flood insurance, as defined in paragraph (b)(8) of this section, as satisfaction of the flood insurance coverage requirement, provided that coverage under the flood insurance policy meets the requirement for coverage under paragraph (c)(1) of this section. (ii) Safe harbor. A flood insurance policy shall be deemed to meet the definition of private flood insurance in paragraph (b)(8) of this section for purposes of paragraph (c)(1) of this section if a State insurance regulator makes a determination in writing that the policy meets the definition of private flood insurance in paragraph (b)(8) of this section. (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 Administrator of FEMA, 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. (1) In general. (i) Applicability. Except as provided in paragraph (e)(3) of this section, a member bank, or a servicer acting on its behalf, shall require the escrow of all premiums and fees for any flood insurance required under paragraph (c) of this section for any loan secured by residential improved real estate or a mobile home that is outstanding or entered into on or after July 6, 2014, payable with the same frequency as payments on the loan are made for the duration of the loan, unless the member bank has determined that: (A) The loan is an extension of credit primarily for business, commercial, or agricultural purposes; or VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 (B) The borrower has obtained flood insurance coverage that meets the requirements of paragraph (c)(1) of this section for the residential improved real estate or mobile home securing the loan and is currently paying premiums and fees through an escrow account established by another lender; or (C) Flood insurance coverage for the residential improved real estate or mobile home is provided by a policy that is purchased by a common interest community instead of the borrower, such as an NFIP Residential Condominium Building Association Policy (RCBAP), that meets the requirements of paragraph (c) of this section. (ii) Timing. A member bank that is subject to paragraph (e)(1) of this section, other than due to a change in status under paragraph (e)(3)(ii) of this section or for acquired loans subject to paragraph (e)(4) of this section, shall begin escrowing premiums and fees for flood insurance: (A) for any designated loan outstanding on July 6, 2014, with the first loan payment on or after the first renewal date of the borrower’s flood insurance policy on or after July 6, 2014; (B) For any designated loan made on or after July 6, 2014, upon loan consummation; or (C) For any loan that becomes a designated loan after July 6, 2014, with the first loan payment after the flood insurance policy is established. (iii) Escrow account. The member bank, or a servicer acting on its behalf, shall deposit the flood insurance premiums and fees 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 Administrator of FEMA or other provider of flood insurance that premiums are due, the member bank, or a servicer acting on its behalf, shall pay the amount owed to the insurance provider from the escrow account by the date when such premiums are due. (2) Notice. A member bank that is required to comply with paragraph (e)(1) of this section, or a servicer acting on its behalf, shall mail or deliver a written notice informing the borrower that the member bank is required to PO 00000 Frm 00022 Fmt 4701 Sfmt 4702 escrow all premiums and fees for required flood insurance: (i) For loans subject to paragraphs (e)(1)(ii)(A), (e)(3)(ii)(A), or (e)(4) of this section, at least 90 days before the escrow of premiums and fees under paragraphs (e)(1)(ii)(A), (e)(3)(ii)(A), or (e)(4) of this section, using language that is substantially similar to the model form in appendix B; or (ii) For loans subject to paragraphs (e)(1)(ii)(B) or (e)(3)(ii)(B) of this section, with the notice provided under paragraph (i) of this section, using language that is substantially similar to model clauses on the escrow requirement in appendix A; or (iii) For loans subject to paragraphs (e)(1)(ii)(C) or (e)(3)(ii)(C) of this section, with the notice provided under paragraph (g) of this section, using language that is substantially similar to model clauses on the escrow requirement in appendix C. (3) Exception. (i) Qualification. Except as may be required under applicable State law, paragraphs (e)(1) and (2) of this section do not apply to a member bank: (A) That has total assets of less than $1 billion as of December 31 of either of the two prior calendar years; and (B) On or before July 6, 2012: (1) Was not required under Federal or State law to deposit taxes, insurance premiums, fees, or any other charges in an escrow account for the entire term of a loan secured by residential improved real estate or a mobile home; and (2) Did not have a policy of consistently and uniformly requiring the deposit of taxes, insurance premiums, fees, or any other charges in an escrow account for loans secured by residential improved real estate or a mobile home. (ii) Change in status. If a member bank previously qualified for the exception in paragraph (e)(3)(i) of this section, but no longer qualifies for the exception because it had assets of $1 billion or more for two consecutive calendar year ends, the member bank must begin escrowing premiums and fees for flood insurance pursuant to paragraph (e)(1) of this section: (A) For any designated loan outstanding on July 1 of the succeeding calendar year, with the first loan payment on or after the first renewal date of the borrower’s flood insurance policy on or after July 1 of the succeeding calendar year; or (B) For any designated loan made on or after July 1 of the succeeding calendar year, upon loan consummation; or (C) For any loan that becomes a designated loan after July 1 of the succeeding calendar year, with the first E:\FR\FM\30OCP2.SGM 30OCP2 emcdonald on DSK67QTVN1PROD with PROPOSALS2 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules loan payment after the flood insurance policy is established. (4) Change in ownership. If a member bank that is required to comply with paragraph (e)(1) of this section acquires a designated loan covered by flood insurance required under paragraph (c) of this section that becomes subject to paragraph (e)(1) of this section as a result of the member bank’s acquisition of the loan, the member bank must begin escrowing premiums and fees for flood insurance pursuant to paragraph (e)(1) of this section with the first loan payment on or after the first renewal date of the borrower’s flood insurance policy on or after the date that is six months from the transfer date of the loan. (f) Required use of standard flood hazard determination form.—(1) Use of form. A member bank shall use the standard flood hazard determination form developed by the Administrator 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. A member bank may obtain the standard flood hazard determination form from FEMA’s Web site at www.fema.gov. (2) Retention of form. A 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) Force placement of flood insurance. (1) Notice and purchase of coverage. If a member bank, or a servicer acting on behalf of the bank, 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 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 remaining term of the loan. If the borrower fails to obtain flood insurance within 45 days after notification, then the member bank or its servicer shall purchase insurance on the borrower’s behalf. The member bank or its servicer may charge the borrower for the cost of premiums and fees incurred in purchasing the insurance, including premiums or fees VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 incurred for coverage beginning on the date on which flood insurance coverage lapsed or did not provide a sufficient coverage amount. (2) Termination of force-placed insurance. (i) Termination and refund. Within 30 days of receipt by a member bank, or a servicer acting on its behalf, of a confirmation of a borrower’s existing flood insurance coverage, the member bank or its servicer shall: (A) Notify the insurance provider to terminate any insurance purchased by the member bank or its servicer under paragraph (g)(1) of this section; and (B) Refund to the borrower all premiums paid by the borrower for any insurance purchased by the member bank or its servicer under paragraph (g)(1) of this section during any period during which the borrower’s flood insurance coverage and the insurance coverage purchased by the member bank or its servicer were each in effect, and any related fees charged to the borrower with respect to the insurance purchased by the member bank or its servicer during such period. (ii) Sufficiency of demonstration. For purposes of confirming a borrower’s existing flood insurance coverage under paragraph (g)(2)(i) of this section, a member bank or its servicer shall accept from the borrower an insurance policy declarations page that includes the existing flood insurance policy number and the identity of, and contact information for, the insurance company or agent. (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 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. A determination fee may also include, but is not limited to, a fee for life-of-loan monitoring. (2) Borrower fee. The determination fee authorized by paragraph (h)(1) of this section 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 Administrator of FEMA’s revision or updating of flood plain areas or flood-risk zones; (iii) Reflects the Administrator of FEMA’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 PO 00000 Frm 00023 Fmt 4701 Sfmt 4702 65129 (B) By determination of the Administrator 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 (iv) Results in the purchase of flood insurance coverage by the lender or its servicer on behalf of the borrower under paragraph (g) of this section. (3) Purchaser or transferee fee. The determination fee authorized by paragraph (h)(1) 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. (i) Notice of special flood hazards and availability of Federal disaster relief assistance. When a member 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. (1) Contents of notice. The written notice must include the following information: (i) A warning, in a form approved by the Administrator of FEMA, 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 from private insurance companies that issue standard flood insurance policies on behalf of the NFIP or directly from the NFIP; (iv) A statement that flood insurance that provides the same level of coverage as a standard flood insurance policy under the NFIP also may be available from a private insurance company that issues policies on behalf of the company; (v) A statement that the borrower is encouraged to compare the flood insurance coverage, deductibles, exclusions, conditions and premiums associated with flood insurance policies issued on behalf of the NFIP and policies issued on behalf of private insurance companies and that the borrower should direct inquiries regarding the availability, cost, and comparisons of flood insurance coverage to an insurance agent; and (vi) A statement whether Federal disaster relief assistance may be available in the event of damage to the building or mobile home caused by E:\FR\FM\30OCP2.SGM 30OCP2 emcdonald on DSK67QTVN1PROD with PROPOSALS2 65130 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules flooding in a Federally declared disaster. (2) Timing of notice. The member bank shall provide the notice required by paragraph (i)(1) 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 bank provides notice to the borrower and in any event no later than the time the bank 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. (3) Record of receipt. The 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. (4) Alternate method of notice. Instead of providing the notice to the borrower required by paragraph (i)(1) of this section, a member bank 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 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. (5) Use of prescribed form of notice. A member bank will be considered to be in compliance with the requirement for notice to the borrower of this paragraph (i) of this section by providing written notice to the borrower containing the language presented in appendix A of this section within a reasonable time before the completion of the transaction. The notice presented in appendix A of this section satisfies the borrower notice requirements of the Act. (j) Notice of servicer’s identity. (1) Notice requirement. When a 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 Administrator of FEMA (or the Administrator’s designee) in writing of the identity of the servicer of the loan. The Administrator of FEMA has designated the insurance provider to receive the member bank’s notice of the servicer’s identity. This notice may be provided electronically if electronic transmission is satisfactory to the Administrator of FEMA’s designee. (2) Transfer of servicing rights. The member bank shall notify the Administrator of FEMA (or the Administrator’s designee) of any change in the servicer of a loan described in paragraph (j)(1) of this section within 60 VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 days after the effective date of the change. This notice may be provided electronically if electronic transmission is satisfactory to the Administrator of FEMA’s designee. 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) of this section shall transfer to the transferee servicer. APPENDIX A TO § 208.25—SAMPLE FORM OF NOTICE OF SPECIAL FLOOD HAZARDS AND AVAILABILITY OF FEDERAL DISASTER RELIEF ASSISTANCE 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 Administrator 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: llll. This area has 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 Administrator 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. l 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. • 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 building or mobile home and any personal property that secures your loan and not the land itself. • 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. PO 00000 Frm 00024 Fmt 4701 Sfmt 4702 Availability of Private Flood Insurance Coverage 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 that provides the same level of coverage as a standard flood insurance policy under the NFIP may be available from private insurers that do not participate in the NFIP. You should compare the flood insurance coverage, deductibles, exclusions, conditions, and premiums associated with flood insurance policies issued on behalf of the NFIP and policies issued on behalf of private insurance companies and ask an insurance agent as to the availability, cost, and comparisons of flood insurance coverage. [Escrow Requirement for Residential Loans Federal law requires a lender or its servicer to escrow all premiums and fees for flood insurance that covers any residential building or mobile home securing a loan that is located in an area with special flood hazards. These premiums and fees must be paid to the lender or its servicer with the same frequency as your loan payments for the duration of your loan and will be deposited in an escrow account on your behalf to be paid to the flood insurance provider. Upon receipt of a notice from the flood insurance provider that the premiums are due, the premiums shall be paid from the escrow account to the insurance provider. ] lFlood 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. APPENDIX B TO § 208.25—SAMPLE FORM OF NOTICE OF REQUIREMENT TO ESCROW FOR OUTSTANDING LOANS Notice of Escrow Requirement We are giving you this notice to inform you that Federal law requires a lender or its servicer to escrow all premiums and fees for flood insurance that covers the building or mobile home securing your loan(s). How the Escrow Will Work Federal law requires that you pay flood insurance premiums and fees with the same frequency as your loan payments for the duration of your loan. Your payments will be deposited in an escrow account so that when we receive a notice from your flood insurance provider that your flood insurance premiums are due, we will make payment from the escrow account to the insurance provider on your behalf. When the Escrow Will Start When you receive your next flood insurance bill with the renewal of your E:\FR\FM\30OCP2.SGM 30OCP2 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules policy from your flood insurance provider, you are responsible for making that payment directly to your insurance provider. We will begin collecting the premiums and fees for your flood insurance escrow account with your mortgage loan payment following this renewal date for the next policy term. For example, if your flood insurance policy renewal date is September 15 and your next mortgage loan payment is October 1, the bank will begin collecting the flood insurance premiums and fees for escrow with the October 1 mortgage loan payment. The escrow amount for flood insurance will be added to your existing periodic mortgage payment. The payments you make into the escrow account will accumulate over time and the funds will be used to pay your flood insurance policy at the next policy renewal date. Any questions regarding this new escrow requirement should be directed to [Insert Name of Lender or Servicer] at [Insert Contact Information]. APPENDIX C TO § 208.25—SAMPLE ESCROW REQUIREMENT CLAUSE FOR LOANS THAT BECOME DESIGNATED LOANS Escrow Requirement Clause Federal law requires a lender or its servicer to escrow all premiums and fees for flood insurance that covers any residential building or mobile home securing a loan that is located in an area with special flood hazards. You must make payments of these premiums and fees to [Insert Name of Lender or Servicer] with the same frequency as your loan payments for the duration of your loan. Your payments will be deposited in an escrow account on your behalf to be paid to the flood insurance provider. Upon receipt of a notice from the flood insurance provider that the flood insurance premium is due, [Insert Name of Lender or Servicer] will pay the premium from the escrow account to the insurance provider. 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 amend chapter III of title 12 of the Code of Federal Regulations to read as follows: ■ 1. Part 339 is revised to read as follows: emcdonald on DSK67QTVN1PROD with PROPOSALS2 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 Force-placement of flood insurance. 339.8 Determination fees. VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 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 Appendix B to Part 339—Sample Form of Notice of Requirement to Escrow for Outstanding Loans Appendix C to Part 339—Sample Escrow Requirement Clause for Loans that Become Designated Loans 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. 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 Administrator 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) Administrator of FEMA means the Administrator of the Federal Emergency Management Agency. (c) Building means a walled and roofed structure, other than a gas or liquid storage tank, that is principally above ground and affixed to a permanent site, and a walled and roofed structure while in the course of construction, alteration, or repair. (d) Community means a State or a political subdivision of a State that has zoning and building code jurisdiction over a particular area having special flood hazards. (e) Designated loan means a loan secured by a building or mobile home that is located or to be located in a special flood hazard area in which flood insurance is available under the Act. (f) 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) PO 00000 Frm 00025 Fmt 4701 Sfmt 4702 65131 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) Private flood insurance means an insurance policy that: (1) Is issued by an insurance company that is (A) Licensed, admitted, or otherwise approved to engage in the business of insurance in the State or jurisdiction in which the insured building is located, by the insurance regulator of that State or jurisdiction; or (B) In the case of a policy of difference in conditions, multiple peril, all risk, or other blanket coverage insuring nonresidential commercial policy, is recognized, or not disapproved, as a surplus lines insurer by the insurance regulator of the State where the property to be insured is located; (2) Provides flood insurance coverage that is at least as broad as the coverage provided under a standard flood insurance policy under the NFIP, including when considering deductibles, exclusions, and conditions offered by the insurer; (3) Includes all of the following: (A) A requirement for the insurer to give 45 days’ written notice of cancellation or non-renewal of flood insurance coverage to the insured and the FDIC-supervised institution; (B) Information about the availability of flood insurance coverage under the NFIP; (C) A mortgage interest clause similar to the clause contained in a standard flood insurance policy under the NFIP; and (D) A provision requiring an insured to file suit not later than one year after the date of a written denial of all or part of a claim under the policy; and (4) Contains cancellation provisions that are as restrictive as the provisions contained in a standard flood insurance policy under the NFIP. (j) Residential improved real estate means real estate upon which a home or other residential building is located or to be located. (k) Servicer means the person responsible for: E:\FR\FM\30OCP2.SGM 30OCP2 65132 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules (1) Receiving any scheduled, periodic payments from a borrower under the terms of a loan, including amounts for taxes, insurance premiums, and other charges with respect to the property securing the loan; and (2) Making payments of principal and interest and any other payments from the amounts received from the borrower as may be required under the terms of the loan. (l) Special flood hazard area means the land in the flood plain within a community having at least a one percent chance of flooding in any given year, as designated by the Administrator of FEMA. (m) Table funding means a settlement at which a loan is funded by a contemporaneous advance of loan funds and an assignment of the loan to the person advancing the funds. emcdonald on DSK67QTVN1PROD with PROPOSALS2 § 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 building or mobile home and any personal property that secures a loan and not the land itself. (b) Table funded loans. An FDICsupervised 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. (c) Private flood insurance. (1) Mandatory acceptance. An FDICsupervised institution must accept private flood insurance, as defined in § 339.2(i), as satisfaction of the flood insurance coverage requirement, provided that coverage under the flood insurance policy meets the requirement for coverage under paragraph (a) of this section. (2) Safe harbor. A flood insurance policy shall be deemed to meet the definition of private flood insurance in § 339.2(i) for purposes of paragraph (a) of this section if a State insurance regulator makes a determination in writing that the policy meets the definition of private flood insurance in § 339.2(i). VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 § 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 Administrator of FEMA, who publishes and periodically revises the list of states falling within this exemption; or (b) Property securing any loan with an original principal balance of $5,000 or less and a repayment term of one year or less. § 339.5 Escrow requirement. (a) In general. (1) Applicability. Except as provided in paragraph (c) of this section, an FDIC-supervised institution, or a servicer acting on its behalf, shall require the escrow of all premiums and fees for any flood insurance required under § 339.3(a) for any loan secured by residential improved real estate or a mobile home that is outstanding or entered into on or after July 6, 2014, payable with the same frequency as payments on the loan are made for the duration of the loan, unless the FDIC-supervised institution has determined that: (i) The loan is an extension of credit primarily for business, commercial, or agricultural purposes; or (ii) The borrower has obtained flood insurance coverage that meets the requirements of § 339.3(a) for the residential improved real estate or mobile home securing the loan and is currently paying premiums and fees through an escrow account established by another lender; or (iii) Flood insurance coverage for the residential improved real estate or mobile home is provided by a policy that is purchased by a common interest community instead of the borrower, such as an NFIP Residential Condominium Building Association Policy (RCBAP), that meets the requirements of § 339.3(a). (2) Timing. An FDIC-supervised institution that is subject to paragraph (a) of this section, other than due to a change in status under paragraph (c)(2) of this section or for acquired loans subject to paragraph (d) of this section, shall begin escrowing premiums and fees for flood insurance: (i) For any designated loan outstanding on July 6, 2014, with the first loan payment on or after the first renewal date of the borrower’s flood insurance policy on or after July 6, 2014; (ii) For any designated loan made on or after July 6, 2014, upon loan consummation; or (iii) For any loan that becomes a designated loan after July 6, 2014, with PO 00000 Frm 00026 Fmt 4701 Sfmt 4702 the first loan payment after the flood insurance policy is established. (3) Escrow account. The FDICsupervised institution, or a servicer acting on its behalf, shall deposit the flood insurance premiums and fees 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 Administrator of FEMA or other provider of flood insurance that premiums are due, the FDIC-supervised institution, or a servicer acting on its behalf, shall pay the amount owed to the insurance provider from the escrow account by the date when such premiums are due. (b) Notice. An FDIC-supervised institution that is required to comply with paragraph (a) of this section, or a servicer acting on its behalf, shall mail or deliver a written notice informing the borrower that the FDIC-supervised institution is required to escrow all premiums and fees for required flood insurance: (1) For loans subject to paragraphs (a)(2)(i), (c)(2)(i), or (d) of this section, at least 90 days before the escrow of premiums and fees under paragraphs (a)(2)(i), (c)(2)(i), or (d), using language that is substantially similar to the model form in appendix B; or (2) For loans subject to paragraphs (a)(2)(ii) or (c)(2)(ii) of this section, with the notice provided under § 339.9, using language that is substantially similar to model clauses on the escrow requirement in appendix A; or (3) For loans subject to paragraphs (a)(2)(iii) or (c)(2)(iii) of this section, with the notice provided under § 339.7, using language that is substantially similar to model clauses on the escrow requirement in appendix C. (c) Exception. (1) Qualification. Except as may be required under applicable State law, paragraphs (a)(1) and (2) of this section do not apply to an FDIC-supervised institution: (i) That has total assets of less than $1 billion as of December 31 of either of the two prior calendar years; and (ii) On or before July 6, 2012: (A) Was not required under Federal or State law to deposit taxes, insurance premiums, fees, or any other charges in an escrow account for the entire term of E:\FR\FM\30OCP2.SGM 30OCP2 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules a loan secured by residential improved real estate or a mobile home; and (B) Did not have a policy of consistently and uniformly requiring the deposit of taxes, insurance premiums, fees, or any other charges in an escrow account for loans secured by residential improved real estate or a mobile home. (2) Change in status. If an FDICsupervised institution previously qualified for the exception in paragraph § 339.5(c)(1), but no longer qualifies for the exception because it had assets of $1 billion or more for two consecutive calendar year ends, the FDIC-supervised institution must begin escrowing premiums and fees for flood insurance pursuant to § 339.3(a): (i) For any designated loan outstanding on July 1 of the succeeding calendar year, with the first loan payment on or after the first renewal date of the borrower’s flood insurance policy on or after July 1 of the succeeding calendar year; or (ii) For any designated loan made on or after July 1 of the succeeding calendar year, upon loan consummation; or (iii) For any loan that becomes a designated loan after July 1 of the succeeding calendar year, with the first loan payment after the flood insurance policy is established. (d) Change in ownership. If an FDICsupervised institution that is required to comply with paragraph (a) of this section acquires a designated loan covered by flood insurance required under § 339.3(a) that becomes subject to paragraph (a) of this section as a result of the FDIC-supervised institution’s acquisition of the loan, the FDICsupervised institution must begin escrowing premiums and fees for flood insurance pursuant to paragraph (a) of this section with the first loan payment on or after the first renewal date of the borrower’s flood insurance policy on or after the date that is six months from the transfer date of the loan. emcdonald on DSK67QTVN1PROD with PROPOSALS2 § 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 Administrator 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 VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 determination form from FEMA’s Web site at www.fema.gov. (b) Retention of form. An FDICsupervised 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 Force-placement of flood insurance. (a) Notice and purchase of coverage. If an FDIC-supervised institution, or a servicer acting on its behalf, determines at any time during the term of a designated loan, that the building or mobile home and any personal property securing the designated loan is not covered by flood insurance or is covered by flood insurance in an amount less than the amount required under § 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, including premiums or fees incurred for coverage beginning on the date on which flood insurance coverage lapsed or did not provide a sufficient coverage amount. (b) Termination of force-placed insurance. (1) Termination and refund. Within 30 days of receipt by an FDICsupervised institution, or a servicer acting on its behalf, of a confirmation of a borrower’s existing flood insurance coverage, the FDIC-supervised institution or its servicer shall: (A) Notify the insurance provider to terminate any insurance purchased by the FDIC-supervised institution or its servicer under paragraph (a) of this section; and (B) Refund to the borrower all premiums paid by the borrower for any insurance purchased by the FDICsupervised institution or its servicer under paragraph (a) of this section during any period during which the borrower’s flood insurance coverage and the insurance coverage purchased by the FDIC-supervised institution or its servicer were each in effect, and any related fees charged to the borrower with respect to the insurance purchased by the FDIC-supervised institution or its servicer during such period. PO 00000 Frm 00027 Fmt 4701 Sfmt 4702 65133 (2) Sufficiency of demonstration. For purposes of confirming a borrower’s existing flood insurance coverage under paragraph (b) of this section, an FDICsupervised institution or its servicer shall accept from the borrower an insurance policy declarations page that includes the existing flood insurance policy number and the identity of, and contact information for, the insurance company or agent. § 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 its behalf, 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 Administrator of FEMA’s revision or updating of floodplain areas or flood-risk zones; (3) Reflects the Administrator 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 Administrator 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 E:\FR\FM\30OCP2.SGM 30OCP2 emcdonald on DSK67QTVN1PROD with PROPOSALS2 65134 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules 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 Administrator 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 from private insurance companies that issue flood insurance policies on behalf of the NFIP or directly from the NFIP; (4) A statement that flood insurance that provides the same level of coverage as a standard flood insurance policy under the NFIP may also be available from a private insurance company that issues policies on behalf of the company. (5) A statement that the borrower is encouraged to compare the flood insurance coverage, deductibles, exclusions, conditions and premiums associated with flood insurance policies issued on behalf of the NFIP and policies issued on behalf of private insurance companies and that the borrower should direct inquiries regarding the availability, cost, and comparisons of flood insurance coverage to an insurance agent; and (6) 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 FDICsupervised 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 FDICsupervised 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 FDICsupervised institution shall retain a record of the receipt of the notices by the borrower and the servicer for the VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 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 FDICsupervised 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 FDICsupervised institution shall notify the Administrator of FEMA (or the Administrator of FEMA’s designee) in writing of the identity of the servicer of the loan. The Administrator 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 Administrator of FEMA’s designee. (b) Transfer of servicing rights. The FDIC-supervised institution shall notify the Administrator of FEMA (or the Administrator 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 Administrator or his or her 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. PO 00000 Frm 00028 Fmt 4701 Sfmt 4702 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 Administrator 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: llll. This area has 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 Administrator 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. l 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. • 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 building or mobile home and any personal property that secures your loan and not the land itself. • 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. Availability of Private Flood Insurance Coverage 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 that provides the same level of coverage as a standard flood insurance policy under the NFIP may be available from private insurers that do not participate in the NFIP. You should compare the flood insurance coverage, deductibles, exclusions, conditions and premiums associated with flood insurance policies issued on behalf of the NFIP and policies issued on behalf of private insurance E:\FR\FM\30OCP2.SGM 30OCP2 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules companies and ask an insurance agent as to the availability, cost, and comparisons of flood insurance coverage. [Escrow Requirement for Residential Loans Federal law requires a lender or its servicer to escrow all premiums and fees for flood insurance that covers any residential building or mobile home securing a loan that is located in an area with special flood hazards. These premiums and fees must be paid to the lender or its servicer with the same frequency as your loan payments for the duration of your loan and will be deposited in an escrow account on your behalf to be paid to the flood insurance provider. Upon receipt of a notice from the flood insurance provider that the premiums are due, the premiums shall be paid from the escrow account to the insurance provider.] lFlood 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. Appendix B to Part 339—Sample Form of Notice of Requirement to Escrow for Outstanding Loans Notice of Escrow Requirement We are giving you this notice to inform you that Federal law requires a lender or its servicer to escrow all premiums and fees for flood insurance that covers the building or mobile home securing your loan(s). flood insurance policy at the next policy renewal date. Any questions regarding this new escrow requirement should be directed to [Insert Name of Lender or Servicer] at [Insert Contact Information]. Appendix C to Part 339—Sample Escrow Requirement Clause for Loans that Become Designated Loans Escrow Requirement Clause Federal law requires a lender or its servicer to escrow all premiums and fees for flood insurance that covers any residential building or mobile home securing a loan that is located in an area with special flood hazards. You must make payments of these premiums and fees to [Insert Name of Lender or Servicer] with the same frequency as your loan payments for the duration of your loan. Your payments will be deposited in an escrow account on your behalf to be paid to the flood insurance provider. Upon receipt of a notice from the flood insurance provider that the flood insurance premium is due, [Insert Name of Lender or Servicer] will pay the premium from the escrow account to the insurance provider. 65135 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 Force 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. PART 391—FORMER OFFICE OF THRIFT SUPERVISION REGULATIONS Appendix A to Subpart S of Part 614—Sample Form of Notice of Special Flood Hazards and Availability of Federal Disaster Relief Assistance Appendix B to Subpart S of Part 614—Sample Form of Notice of Requirement to Escrow for Outstanding Loans Appendix C to Subpart S of Part 614—Sample Escrow Requirement Clause for Loans that Become Designated Loans 2. The authority citation for Part 391 continues to read as follows: Subpart S—Flood Insurance Requirements ■ Authority: 12 U.S.C. 1819. § 614.4920 Subpart D—[Removed and Reserved] 3. Remove and reserve Subpart D consisting of §§ 391.30 through 391.39. ■ Farm Credit Administration Purpose and scope. (a) Purpose. This subpart implements the requirements of the National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973, as amended (42 U.S.C. 4001–4129). (b) Scope. This subpart, except for §§ 614.4940 and 614.4950, applies to loans secured by buildings or mobile homes located or to be located in areas determined by the Administrator of the Federal Emergency Management Agency to have special flood hazards. Sections 614.4940 and 614.4950 apply to loans secured by buildings or mobile homes, regardless of location. emcdonald on DSK67QTVN1PROD with PROPOSALS2 How the Escrow Will Work Federal law requires that you pay flood insurance premiums and fees with the same frequency as your loan payments for the duration of your loan. Your payments will be deposited in an escrow account so that when we receive a notice from your flood insurance provider that your flood insurance premiums are due, we will make payment from the escrow account to the insurance provider on your behalf. 12 CFR CHAPTER VI When the Escrow Will Start When you receive your next flood insurance bill with the renewal of your policy from your flood insurance provider, you are responsible for making that payment directly to your insurance provider. We will begin collecting the premiums and fees for your flood insurance escrow account with your mortgage loan payment following this renewal date for the next policy term. For example, if your flood insurance policy renewal date is September 15 and your next mortgage loan payment is October 1, the bank will begin collecting the flood insurance premiums and fees for escrow with the October 1 mortgage loan payment. The escrow amount for flood insurance will be added to your existing periodic mortgage payment. The payments you make into the escrow account will accumulate over time and the funds will be used to pay your ■ § 614.4925 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. For the purposes of this subpart: (a) 1968 Act means the National Flood Insurance Act of 1968, as amended (42 U.S.C. 4001–4129). (b) Administrator of FEMA means the Administrator of the Federal Emergency Management Agency. (c) Building means a walled and roofed structure, other than a gas or liquid storage tank, that is principally above ground and affixed to a permanent site, and a walled and roofed structure while in the course of construction, alteration, or repair. (d) Community means a state or a political subdivision of a State that has zoning and building code jurisdiction over a particular area having special flood hazards. VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 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: 2. Part 614 is amended by revising subpart S to read as follows: ■ PO 00000 Frm 00029 Fmt 4701 Sfmt 4702 E:\FR\FM\30OCP2.SGM Definitions. 30OCP2 emcdonald on DSK67QTVN1PROD with PROPOSALS2 65136 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules (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 1968 Act. (f) Mobile home means a structure, transportable in one or more sections, that is built on a permanent chassis and designed for use with or without a permanent foundation when attached to the required utilities. The term mobile home does not include a recreational vehicle. For purposes of this part, the term mobile home means a mobile home on a permanent foundation. The term mobile home includes a manufactured home as that term is used in the NFIP. (h) NFIP means the National Flood Insurance Program authorized under the 1968 Act. (i) Private flood insurance means an insurance policy that: (1) Is issued by an insurance company that is (i) Licensed, admitted, or otherwise approved to engage in the business of insurance in the State or jurisdiction in which the insured building is located, by the insurance regulator of that State or jurisdiction; or (ii) In the case of a policy of difference in conditions, multiple peril, all risk, or other blanket coverage insuring nonresidential commercial policy, is recognized, or not disapproved, as a surplus lines insurer by the insurance regulator of the State where the property to be insured is located; (2) Provides flood insurance coverage that is at least as broad as the coverage provided under a standard flood insurance policy under the NFIP, including when considering deductibles, exclusions, and conditions offered by the insurer; (3) Includes all of the following: (i) A requirement for the insurer to give 45 days’ written notice of cancellation or non-renewal of flood insurance coverage to the insured and the System institution; (ii) Information about the availability of flood insurance coverage under the NFIP; (iii) A mortgage interest clause similar to the clause contained in a standard flood insurance policy under the NFIP; and (iv) A provision requiring an insured to file suit not later than one year after the date of a written denial of all or part of a claim under the policy; and (4) Contains cancellation provisions that are as restrictive as the provisions contained in a standard flood insurance policy under the NFIP. (j) Residential improved real estate means real estate upon which a home or VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 other residential building is located or to be located. (k) Servicer means the person responsible for: (1) Receiving any scheduled, periodic payments from a borrower under the terms of a loan, including amounts for taxes, insurance premiums, and other charges with respect to the property securing the loan; and (2) Making payments of principal and interest and any other payments from the amounts received from the borrower as may be required under the terms of the loan. (l) Special flood hazard area means the land in the flood plain within a community having at least a one percent chance of flooding in any given year, as designated by the Administrator of FEMA. (m) Table funding means a settlement at which a loan is funded by a contemporaneous advance of loan funds and an assignment of the loan to the person advancing the funds. § 614.4930 Requirement to purchase flood insurance where available. (a) In general. 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 is covered by flood insurance purchased under the NFIP or private flood insurance, as that term is defined in § 614.4925, 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. Flood insurance coverage under the 1968 Act is limited to the building or mobile home and any personal property that secures a loan and not the land itself. (b) Table funded loans. A System 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 subpart. (c) Private flood insurance. (1) Mandatory acceptance. A System institution must accept private flood insurance, as defined in § 614.4925, as satisfaction of the flood insurance coverage requirement, provided that coverage under the flood insurance policy meets the requirement for coverage under paragraph (a) of this section. (2) Safe harbor. A flood insurance policy shall be deemed to meet the definition of private flood insurance in § 614.4925 for purposes of paragraph (a) of this section if a State insurance PO 00000 Frm 00030 Fmt 4701 Sfmt 4702 regulator makes a determination in writing that the policy meets the definition of private flood insurance in § 614.4925. (d) 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 Administrator of FEMA, 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 1 year or less. § 614.4935 Escrow requirement. (a) In general. (1) Applicability. Except as provided in paragraph (c) of this section, a System institution, or a servicer acting on its behalf, shall require the escrow of all premiums and fees for any flood insurance required under § 614.4930(a) for any loan secured by residential improved real estate or a mobile home that is outstanding or entered into on or after July 6, 2014, payable with the same frequency as payments on the loan are made for the duration of the loan, unless the System institution has determined that: (i) The loan is an extension of credit primarily for business, commercial, or agricultural purposes; or (ii) The borrower has obtained flood insurance coverage that meets the requirement of § 614.4930(a) for the residential improved real estate or mobile home securing the loan and is currently paying premiums and fees through an escrow account established by another lender; or (iii) Flood insurance coverage for the residential improved real estate or mobile home is provided by a policy that is purchased by a common interest community instead of the borrower, such as an NFIP Residential Condominium Building Association Policy (RCBAP), that meets the requirements of § 614.4930(a). (2) Timing. A System institution that is subject to paragraph (a) of this section, other than due to a change in status under paragraph (c)(2) of this section or for acquired loans subject to paragraph (d) of this section, shall begin escrowing premiums and fees for flood insurance: (i) For any designated loan outstanding on July 6, 2014, with the first loan payment on or after the first renewal date of the borrower’s flood insurance policy on or after July 6, 2014; E:\FR\FM\30OCP2.SGM 30OCP2 emcdonald on DSK67QTVN1PROD with PROPOSALS2 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules (ii) For any designated loan made on or after July 6, 2014, upon loan consummation; or (iii) For any loan that becomes a designated loan after July 6, 2014, with the first loan payment after the flood insurance policy is established. (3) Escrow account. The System institution, or a servicer acting on its behalf, shall deposit the flood insurance premiums and fees 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 Administrator of FEMA or other provider of flood insurance that premiums are due, the System institution, or a servicer acting on its behalf, shall pay the amount owed to the insurance provider from the escrow account by the date when such premiums are due. (b) Notice. A System institution that is required to comply with paragraph (a) of this section, or a servicer acting on its behalf, shall mail or deliver a written notice informing the borrower that the System institution is required to escrow all premiums and fees for required flood insurance: (1) For loans subject to paragraph (a)(2)(i) or (c)(2)(i) or (d) of this section, at least 90 days before the escrow of premiums and fees under paragraph (a)(2)(i) or (c)(2)(i) or (d), using language that is substantially similar to the model form in Appendix B; or (2) For loans subject to paragraph (a)(2)(ii) or (c)(2)(ii) of this section, with the notice provided under § 614.4945, using language that is substantially similar to model clauses on the escrow requirement in Appendix A; or (3) For loans subject to paragraph (a)(2)(iii) or (c)(2)(iii) of this section, with the notice provided under § 614.4955, using language that is substantially similar to model clauses on the escrow requirement in Appendix C. (c) Exception. (1) Qualification. Except as may be required under applicable State law, paragraph (a)(1) and (2) of this section do not apply to a System institution: (i) That has total assets of less than $1 billion as of December 31 of either of the 2 prior calendar years; and (ii) On or before July 6, 2012: VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 (A) Was not required under Federal or State law to deposit taxes, insurance premiums, fees, or any other charges in an escrow account for the entire term of a loan secured by residential improved real estate or a mobile home; and (B) Did not have a policy of consistently and uniformly requiring the deposit of taxes, insurance premiums, fees, or any other charges in an escrow account for loans secured by residential improved real estate or a mobile home. (2) Change in status. If a System institution previously qualified for the exception in § 614.4935(c)(1), but no longer qualifies for the exception because it had assets of $1 billion or more for 2 consecutive calendar year ends, the System institution must begin escrowing premiums and fees for flood insurance pursuant to § 614.4930(a): (i) For any designated loan outstanding on July 1 of the succeeding calendar year, with the first loan payment on or after the first renewal date of the borrower’s flood insurance policy on or after July 1 of the succeeding calendar year; or (ii) For any designated loan made on or after July 1 of the succeeding calendar year, upon loan consummation; or (iii) For any loan that becomes a designated loan after July 1 of the succeeding calendar year, with the first loan payment after the flood insurance policy is established. (d) Change in ownership. If a System institution that is required to comply with paragraph (a) of this section acquires a designated loan covered by flood insurance required under § 614.4930(a) that becomes subject to paragraph (a) of this section as a result of the System institution’s acquisition of the loan, the System institution must begin escrowing premiums and fees for flood insurance pursuant to paragraph (a) of this section with the first loan payment on or after the first renewal date of the borrower’s flood insurance policy on or after the date that is 6 months from the transfer date of the loan. § 614.4940 Required use of standard flood hazard determination form. (a) Use of form. A System institution shall use the standard flood hazard determination form developed by the Administrator 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 PO 00000 Frm 00031 Fmt 4701 Sfmt 4702 65137 manner. A System institution may obtain the standard flood hazard determination form from FEMA’s Web site at www.fema.gov. (b) Retention of form. A System 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 System institution owns the loan. § 614.4945 Force-placement of flood insurance. (a) Notice and purchase of coverage. If a System institution, or a servicer acting on its behalf, determines, at any time during the term of a designated loan, that the building or mobile home and any personal property securing the designated loan is not covered by flood insurance or is covered by flood insurance in an amount less than the amount required under § 614.4930, then the System 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 § 614.4930, for the remaining term of the loan. If the borrower fails to obtain flood insurance within 45 days after notification, then the System institution or its servicer shall purchase insurance on the borrower’s behalf. The System institution or its servicer may charge the borrower for the cost of premiums and fees incurred in purchasing the insurance, including premiums or fees incurred for coverage beginning on the date on which flood insurance coverage lapsed or did not provide a sufficient coverage amount. (b) Termination of force-placed insurance. (1) Termination and refund. Within 30 days of receipt by a System institution, or its servicer, of a confirmation of a borrower’s existing flood insurance coverage, the System institution or its servicer shall: (i) Notify the insurance provider to terminate any insurance purchased by the System institution or its servicer under paragraph (a) of this section; and (ii) Refund to the borrower all premiums paid by the borrower for any insurance purchased by the System institution or its servicer under paragraph (a) of this section during any period during which the borrower’s flood insurance coverage and the insurance coverage purchased by the System institution or its servicer were each in effect, and any related fees charged to the borrower with respect to the insurance purchased by the System institution or its servicer during such period. (2) Sufficiency of demonstration. For purposes of confirming a borrower’s E:\FR\FM\30OCP2.SGM 30OCP2 65138 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules existing flood insurance coverage under paragraph (b) of this section, a System institution or its servicer shall accept from the borrower an insurance policy declarations page that includes the existing flood insurance policy number and the identity of, and contact information for, the insurance company or agent. § 614.4950 Determination fees. emcdonald on DSK67QTVN1PROD with PROPOSALS2 (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 System institution, or a servicer acting on its behalf, 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 Administrator of FEMA’s revision or updating of floodplain areas or flood-risk zones; (3) Reflects the Administrator 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 Administrator 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 § 614.4945. (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. § 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 System institution shall mail or deliver a written notice to the borrower and to the servicer of the loan. Notice VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 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 Administrator 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 from private insurance companies that issue flood insurance policies on behalf of the NFIP or directly from the NFIP; and (4) A statement that flood insurance that provides the same level of coverage as a standard flood insurance policy under the NFIP may be available from a private insurance company that issues policies on behalf of the company. (5) A statement that the borrower is encouraged to compare the flood insurance coverage, deductibles, exclusions, conditions and premiums associated with flood insurance policies issued on behalf of the NFIP and policies issued on behalf of private insurance companies and that the borrower should direct inquiries regarding the availability, cost, and comparisons of flood insurance coverage to an insurance agent; and (6) 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 System 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 System institution provides notice to the borrower and in any event no later than the time the System 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 System institution shall retain a record of the receipt of the notices by the borrower and the servicer for the period of time the System institution owns the loan. (e) Alternate method of notice. Instead of providing the notice to the borrower required by paragraph (a) of this section, a System institution may obtain satisfactory written assurance from a PO 00000 Frm 00032 Fmt 4701 Sfmt 4702 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 System institution shall retain a record of the written assurance from the seller or lessor for the period of time the System institution owns the loan. (f) Use of prescribed form of notice. A System 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 1968 Act. § 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 mobile home located or to be located in a special flood hazard area, the System institution shall notify the Administrator of FEMA (or the Administrator of FEMA’s designee) in writing of the identity of the servicer of the loan. The Administrator of FEMA has designated the insurance provider to receive the System institution’s notice of the servicer’s identity. This notice may be provided electronically if electronic transmission is satisfactory to the Administrator of FEMA’s designee. (b) Transfer of servicing rights. The System institution shall notify the Administrator of FEMA (or the Administrator 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 Administrator 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 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 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 Administrator of the Federal Emergency Management Agency (FEMA) as a special E:\FR\FM\30OCP2.SGM 30OCP2 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules flood hazard area using FEMA’s Flood Insurance Rate Map or the Flood Hazard Boundary Map for the following community: llll. 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 Administrator 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. llll 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 improvements that have been made to the real property that secure the loan and not the land itself. • 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. emcdonald on DSK67QTVN1PROD with PROPOSALS2 Availability of Private Flood Insurance Coverage 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 that provides the same level of coverage as a standard flood insurance policy under the NFIP may be available from private insurers that do not participate in the NFIP. You should compare the flood insurance coverage, deductibles, exclusions, conditions and premiums associated with flood insurance policies issued on behalf of the NFIP and policies issued on behalf of private insurance companies and ask an insurance agent as to the availability, cost, and comparisons of flood insurance coverage. VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 [Escrow Requirement for Residential Loans Federal law requires a lender or its servicer to escrow all premiums and fees for flood insurance that covers any residential building or mobile home securing a loan that is located in an area with special flood hazards. These premiums and fees must be paid to the lender or its servicer with the same frequency as your loan payments for the duration of your loan and will be deposited in an escrow account on your behalf to be paid to the flood insurance provider. Upon receipt of a notice from the flood insurance provider that the premiums are due, the premiums shall be paid from the escrow account to the insurance provider.] l 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. Appendix B to Subpart S of Part 614— Sample Form of Notice of Requirement to Escrow for Outstanding Loans Notice of Escrow Requirement We are giving you this notice to inform you that Federal law requires a lender or its servicer to escrow all premiums and fees for flood insurance that covers the building or mobile home securing your loan(s). How the Escrow Will Work Federal law requires that you pay flood insurance premiums and fees with the same frequency as your loan payments for the duration of your loan. Your premiums will be deposited in an escrow account so that when we receive a notice from your flood insurance provider that your flood insurance premiums are due, we will make payment from the escrow account to the insurance provider on your behalf. When the Escrow Will Start When you receive your next flood insurance bill with the renewal of your policy from your flood insurance provider, you are responsible for making that payment directly to your insurance provider. We will begin collecting the premiums and fees for your flood insurance escrow account with your mortgage loan payment following this renewal date for the next policy term. For example, if your flood insurance policy renewal date is September 15 and your next mortgage loan payment is October 1, the institution will begin collecting the flood insurance premiums and fees for escrow with the October 1 mortgage loan payment. The escrow amount for flood insurance will be added to your existing periodic mortgage payment. The payments you make into the escrow account will accumulate over time and the funds will be used to pay your flood insurance policy at the next policy renewal date. Any questions regarding this new escrow requirement should be directed to [Insert PO 00000 Frm 00033 Fmt 4701 Sfmt 4702 65139 Name of Lender or Servicer] at [Insert Contact Information]. Appendix C to Subpart S of Part 614— Sample Escrow Requirement Clause for Loans That Become Designated Loans Escrow Requirement Clause Federal law requires a lender or its servicer to escrow all premiums and fees for flood insurance that covers any residential building or mobile home securing a loan that is located in an area with special flood hazards. You must make payments of these premiums and fees to [Insert Name of Lender or Servicer] with the same frequency as your loan payments for the duration of your loan. Your payments will be deposited in an escrow account on your behalf to be paid to the flood insurance provider. Upon receipt of a notice from the flood insurance provider that the flood insurance premium is due, [Insert Name of Lender or Servicer] will pay the premium from the escrow account to the insurance provider. National Credit Union Administration 12 CFR CHAPTER VII Authority and Issuance For the reasons set forth in the joint preamble, the NCUA Board proposes to revise part 760 of chapter VII of title 12 of the Code of Federal Regulations 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 Force-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 Appendix B to Part 760—Sample Form of Notice of Requirement to Escrow for Outstanding Loans Appendix C to Part 760—Sample Escrow Requirement Clause for Loans that Become Designated Loans Authority: 12 U.S.C. 1757, 1789; 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128. § 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, and 4128. (b) Purpose. The purpose of this part is to implement the requirements of the E:\FR\FM\30OCP2.SGM 30OCP2 65140 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules 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 §§ 760.6 and 760.8, applies to loans secured by buildings or mobile homes located or to be located in areas determined by the Administrator of the Federal Emergency Management Agency to have special flood hazards. Sections 760.6 and 760.8 apply to loans secured by buildings or mobile homes, regardless of location. emcdonald on DSK67QTVN1PROD with PROPOSALS2 § 760.2 Definitions. (a) Act means the National Flood Insurance Act of 1968, as amended (42 U.S.C. 4001–4129). (b) Administrator of FEMA means the Administrator of the Federal Emergency Management Agency. (c) Credit union means a Federal or State-chartered credit union that is insured by the National Credit Union Share Insurance Fund. (d) 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. (e) 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. (f) 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. (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) Private flood insurance means an insurance policy that: (1) Is issued by an insurance company that is: (i) Licensed, admitted, or otherwise approved to engage in the business of insurance in the State or jurisdiction in which the insured building is located, by the insurance regulator of that State or jurisdiction; or VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 (ii) Recognized, or not disapproved, as a surplus lines insurer by the insurance regulator of the State where the property to be insured is located in the case of a policy of difference in conditions, multiple peril, all risk, or other blanket coverage insuring non-residential commercial policies; (2) Provides flood insurance coverage that is at least as broad as the coverage provided under a standard flood insurance policy under the NFIP, including when considering deductibles, exclusions, and conditions offered by the insurer; (3) Includes all of the following: (i) A requirement for the insurer to give 45 days’ written notice of cancellation or non-renewal of flood insurance coverage to the insured and the credit union; (ii) Information about the availability of flood insurance coverage under the NFIP; (iii) A mortgage interest clause similar to the clause contained in a standard flood insurance policy under the NFIP; and (iv) A provision requiring an insured to file suit not later than one year after the date of a written denial of all or part of a claim under the policy; and (4) Contains cancellation provisions that are as restrictive as the provisions contained in a standard flood insurance policy under the NFIP. (j) Residential improved real estate means real estate upon which a home or other residential building is located or to be located. (k) Servicer means the person responsible for: (1) Receiving any scheduled, periodic payments from a borrower under the terms of a loan, including amounts for taxes, insurance premiums, and other charges with respect to the property securing the loan; and (2) Making payments of principal and interest and any other payments from the amounts received from the borrower as may be required under the terms of the loan. (l) Special flood hazard area means the land in the flood plain within a community having at least a one percent chance of flooding in any given year, as designated by the Administrator of FEMA. (m) Table funding means a settlement at which a loan is funded by a contemporaneous advance of loan funds and an assignment of the loan to the person advancing the funds. § 760.3 Requirement to purchase flood insurance where available. (a) In general. A credit union shall not make, increase, extend, or renew any PO 00000 Frm 00034 Fmt 4701 Sfmt 4702 designated loan unless the building or mobile home and any personal property securing the loan is covered by flood insurance for the term of the loan. The amount of insurance must be at least equal to the lesser of the outstanding principal balance of the designated loan or the maximum limit of coverage available for the particular type of property under the Act. Flood insurance coverage under the Act is limited to the building or mobile home and any personal property that secures a loan and not the land itself. (b) Table funded loan. A credit union that acquires a loan from a mortgage broker or other entity through table funding shall be considered to be making a loan for the purposes of this part. (c) Private flood insurance. (1) Mandatory acceptance. A credit union must accept private flood insurance, as defined in § 760.2(i), as satisfaction of the flood insurance coverage requirement, provided that coverage under the flood insurance policy meets the requirement for coverage under paragraph (a) of this section. (2) Safe harbor. A flood insurance policy shall be deemed to meet the definition of private flood insurance in § 760.2(i) for purposes of paragraph (a) of this section if a State insurance regulator makes a determination in writing that the policy meets the definition of private flood insurance in § 760.2(i). § 760.4 Exemptions. The flood insurance requirement prescribed by § 760.3 does not apply with respect to: (a) Any State-owned property covered under a policy of self-insurance satisfactory to the Administrator of FEMA, who publishes and periodically revises the list of States falling within this exemption; or (b) Property securing any loan with an original principal balance of $5,000 or less and a repayment term of one year or less. § 760.5 Escrow requirement. (a) In general. (1) Applicability. Except as provided in paragraph (c) of this section, a credit union, or a servicer acting on behalf of the credit union, shall require the escrow of all premiums and fees for any flood insurance required under § 760.3(a) for any loan secured by residential improved real estate or a mobile home that is outstanding or entered into on or after July 6, 2014, payable with the same frequency as payments on the loan are E:\FR\FM\30OCP2.SGM 30OCP2 emcdonald on DSK67QTVN1PROD with PROPOSALS2 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules made for the duration of the loan, unless the credit union has determined that: (i) The loan is an extension of credit primarily for business, commercial, or agricultural purposes; (ii) The borrower has obtained flood insurance coverage that meets the requirement of § 760.3(a) for the residential improved real estate or mobile home securing the loan and is currently paying premiums and fees through an escrow account established by another lender; or (iii) Flood insurance coverage for the residential improved real estate or mobile home is provided by a policy that is purchased by a common interest community instead of the borrower, such as an NFIP Residential Condominium Building Association Policy (RCBAP), that meets the requirements of § 760.3(a). (2) Timing. A credit union that is subject to paragraph (a) of this section, other than due to a change in status under paragraph (c)(2) of this section or for acquired loans subject to paragraph (d) of this section, shall begin escrowing premiums and fees for flood insurance: (i) For any designated loan outstanding on July 6, 2014, with the first loan payment on or after the first renewal date of the borrower’s flood insurance policy on or after July 6, 2014; (ii) For any designated loan made on or after July 6, 2014, upon loan consummation; or (iii) For any loan that becomes a designated loan after July 6, 2014, with the first loan payment after the flood insurance policy is established. (3) Escrow account. The credit union, or a servicer acting on behalf of the credit union, shall deposit the flood insurance premiums and fees 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 Administrator of FEMA or other provider of flood insurance that premiums are due, the credit union, or a servicer acting on behalf of the credit union, shall pay the amount owed to the insurance provider from the escrow account by the date when such premiums are due. (b) Notice. A credit union that is required to comply with paragraph (a) of this section, or a servicer acting on behalf of the credit union, shall mail or VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 deliver a written notice informing the borrower that the credit union is required to escrow all premiums and fees for required flood insurance: (1) For loans subject to paragraphs (a)(2)(i), (c)(2)(i), or (d) of this section, at least 90 days before the escrow of premiums and fees under paragraphs (a)(2)(i), (c)(2)(i), or (d), using language that is substantially similar to the model form in appendix B; (2) For loans subject to paragraphs (a)(2)(ii) or (c)(2)(ii) of this section, with the notice provided under § 760.9, using language that is substantially similar to model clauses on the escrow requirement in appendix A; or (3) For loans subject to paragraphs (a)(2)(iii) or (c)(2)(iii) of this section, with the notice provided under § 760.7, using language that is substantially similar to model clauses on the escrow requirement in appendix C. (c) Exception. (1) Qualification. Except as may be required under applicable State law, paragraphs (a)(1) and (2) of this section do not apply to a credit union: (i) That has total assets of less than $1 billion as of December 31 of either of the two prior calendar years; and (ii) On or before July 6, 2012: (A) Was not required under Federal or State law to deposit taxes, insurance premiums, fees, or any other charges in an escrow account for the entire term of a loan secured by residential improved real estate or a mobile home; and (B) Did not have a policy of consistently and uniformly requiring the deposit of taxes, insurance premiums, fees, or any other charges in an escrow account for loans secured by residential improved real estate or a mobile home. (2) Change in status. If a credit union previously qualified for the exception in paragraph § 760.5(c)(1), but no longer qualifies for the exception because it had assets of $1 billion or more for two consecutive calendar year ends, the credit union must begin escrowing premiums and fees for flood insurance pursuant to § 760.3(a): (i) For any designated loan outstanding on July 1 of the succeeding calendar year, with the first loan payment on or after the first renewal date of the borrower’s flood insurance policy on or after July 1 of the succeeding calendar year; (ii) For any designated loan made on or after July 1 of the succeeding calendar year, upon loan consummation; or (iii) For any loan that becomes a designated loan after July 1 of the succeeding calendar year, with the first loan payment after the flood insurance policy is established. PO 00000 Frm 00035 Fmt 4701 Sfmt 4702 65141 (d) Change in ownership. If a credit union that is required to comply with paragraph (a) of this section acquires a designated loan covered by flood insurance required under § 760.3(a) that becomes subject to paragraph (a) of this section as a result of the credit union’s acquisition of the loan, the credit union must begin escrowing premiums and fees for flood insurance pursuant to paragraph (a) of this section with the first loan payment on or after the first renewal date of the borrower’s flood insurance policy on or after the date that is six months from the transfer date of the loan. § 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 Administrator 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. A credit union may obtain the standard flood hazard determination form from FEMA’s Web site at www.fema.gov. (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. § 760.7 Force-placement of flood insurance. (a) Notice and purchase of coverage. If a credit union, or a servicer acting on behalf of the credit union, 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 § 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 § 760.3, for the remaining 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, including premiums or fees incurred for coverage E:\FR\FM\30OCP2.SGM 30OCP2 65142 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules beginning on the date on which flood insurance coverage lapsed or did not provide a sufficient coverage amount. (b) Termination of force-placed insurance. (1) Termination and refund. Within 30 days of receipt by a credit union, or a servicer acting on the credit union’s behalf, of a confirmation of a borrower’s existing flood insurance coverage, the credit union, or its servicer shall: (i) Notify the insurance provider to terminate any insurance purchased by the credit union or its servicer under paragraph (a) of this section; and (ii) Refund to the borrower all premiums paid by the borrower for any insurance purchased by the credit union or its servicer under paragraph (a) of this section during any period during which the borrower’s flood insurance coverage and the insurance coverage purchased by the credit union or its servicer were each in effect, and any related fees charged to the borrower with respect to the insurance purchased by the credit union or its servicer during such period. (2) Sufficiency of demonstration. For purposes of confirming a borrower’s existing flood insurance coverage under paragraph (b) of this section, a credit union or its servicer shall accept from the borrower an insurance policy declarations page that includes the existing flood insurance policy number and the identity of, and contact information for, the insurance company or agent. emcdonald on DSK67QTVN1PROD with PROPOSALS2 § 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. 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 Administrator of FEMA’s revision or updating of floodplain areas or flood-risk zones; (3) Reflects the Administrator of FEMA’s publication of a notice or compendium that: VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 (i) Affects the area in which the building or mobile home securing the loan is located; or (ii) By determination of the Administrator 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 credit union or its servicer on behalf of the borrower under § 760.7. (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. § 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 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 Administrator 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 from private insurance companies that issue flood insurance policies on behalf of the NFIP or directly from the NFIP; (4) A statement that flood insurance that provides the same level of coverage as a standard flood insurance policy under the NFIP may also be available from a private insurance company that issues policies on behalf of the company; (5) A statement that the borrower is encouraged to compare the flood insurance coverage, deductibles, exclusions, conditions and premiums associated with flood insurance policies issued on behalf of the NFIP and policies issued on behalf of private insurance companies and that the borrower should direct inquiries regarding the availability, cost, and PO 00000 Frm 00036 Fmt 4701 Sfmt 4702 comparisons of flood insurance coverage to an insurance agent; and (6) 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 within a reasonable time before the completion of the transaction and to the servicer as promptly as practicable after the credit union provides notice to the borrower and in any event no later than the time the credit union 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 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 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 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 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. § 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 Administrator of FEMA (or the Administrator’s designee) in writing of the identity of the servicer of the loan. The Administrator of FEMA has designated the insurance provider to receive the credit union’s notice of the servicer’s identity. This notice may be provided electronically if electronic E:\FR\FM\30OCP2.SGM 30OCP2 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules transmission is satisfactory to the Administrator of FEMA’s designee. (b) Transfer of servicing rights. The credit union shall notify the Administrator of FEMA (or the Administrator’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 Administrator 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. emcdonald on DSK67QTVN1PROD with PROPOSALS2 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 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 Administrator 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: llll. This area has 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 Administrator 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. l 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. • 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 building or mobile home and VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 any personal property that secures your loan and not the land itself. • 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. Availability of Private Flood Insurance Coverage 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 that provides the same level of coverage as a standard flood insurance policy under the NFIP may be available from private insurers that do not participate in the NFIP. You should compare the flood insurance coverage, deductibles, exclusions, conditions and premiums associated with flood insurance policies issued on behalf of the NFIP and policies issued on behalf of private insurance companies and ask an insurance agent as to the availability, cost, and comparisons of flood insurance coverage. [Escrow Requirement for Residential Loans Federal law requires a lender or its servicer to escrow all premiums and fees for flood insurance that covers any residential building or mobile home securing a loan that is located in an area with special flood hazards. These premiums and fees must be paid to the lender or its servicer with the same frequency as your loan payments for the duration of your loan and will be deposited in an escrow account on your behalf to be paid to the flood insurance provider. Upon receipt of a notice from the flood insurance provider that the premiums are due, the premiums shall be paid from the escrow account to the insurance provider.] l 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. Appendix B to Part 760—Sample Form of Notice of Requirement to Escrow for Outstanding Loans Notice of Escrow Requirement We are giving you this notice to inform you that Federal law requires a lender or its servicer to escrow all premiums and fees for flood insurance that covers the building or mobile home securing your loan(s). How the Escrow Will Work Federal law requires that you pay flood insurance premiums and fees with the same PO 00000 Frm 00037 Fmt 4701 Sfmt 4702 65143 frequency as your loan payments for the duration of your loan. Your payments will be deposited in an escrow account so that when we receive a notice from your flood insurance provider that your flood insurance premiums are due, we will make payment from the escrow account to the insurance provider on your behalf. When the Escrow Will Start When you receive your next flood insurance bill with the renewal of your policy from your flood insurance provider, you are responsible for making that payment directly to your insurance provider. We will begin collecting the premiums and fees for your flood insurance escrow account with your mortgage loan payment following this renewal date for the next policy term. For example, if your flood insurance policy renewal date is September 15 and your next mortgage loan payment is October 1, the credit union will begin collecting the flood insurance premiums and fees for escrow with the October 1 mortgage loan payment. The escrow amount for flood insurance will be added to your existing periodic mortgage payment. The payments you make into the escrow account will accumulate over time and the funds will be used to pay your flood insurance policy at the next policy renewal date. Any questions regarding this new escrow requirement should be directed to [Insert Name of Lender or Servicer] at [Insert Contact Information]. Appendix C to Part 760—Sample Escrow Requirement Clause for Loans That Become Designated Loans Escrow Requirement Clause Federal law requires a lender or its servicer to escrow all premiums and fees for flood insurance that covers any residential building or mobile home securing a loan that is located in an area with special flood hazards. You must make payments of these premiums and fees to [Insert Name of Lender or Servicer] with the same frequency as your loan payments for the duration of your loan. Your payments will be deposited in an escrow account on your behalf to be paid to the flood insurance provider. Upon receipt of a notice from the flood insurance provider that the flood insurance premium is due, [Insert Name of Lender or Servicer] will pay the premium from the escrow account to the insurance provider. Dated: October 9, 2013. Thomas J. Curry, Comptroller of the Currency. By order of the Board of Governors of the Federal Reserve System, October 10, 2013. Robert deV. Frierson, Secretary of the Board. E:\FR\FM\30OCP2.SGM 30OCP2 65144 Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Proposed Rules emcdonald on DSK67QTVN1PROD with PROPOSALS2 By order of the Board of Directors of the Federal Deposit Insurance Corporation. Dated at Washington, DC, this 8th day of October, 2013. Robert E. Feldman, Executive Secretary. By order of the Board of the Farm Credit Administration. VerDate Mar<15>2010 17:05 Oct 29, 2013 Jkt 232001 Dated at McLean, VA, this 10th day of October, 2013. Dale Aultman Secretary. By order of the Board of the National Credit Union Association. PO 00000 Frm 00038 Fmt 4701 Sfmt 9990 Dated at Alexandria, VA, this 9th day of October, 2013. Gerard Poliquin, Secretary of the Board. [FR Doc. 2013–24724 Filed 10–29–13; 8:45 am] BILLING CODE 4810–33–P; 6210–01–P; 6714–01–P; 6705–01–P; 7535–01–U E:\FR\FM\30OCP2.SGM 30OCP2

Agencies

[Federal Register Volume 78, Number 210 (Wednesday, October 30, 2013)]
[Proposed Rules]
[Pages 65107-65144]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-24724]

[[Page 65107]]

Vol. 78

Wednesday,

No. 210

October 30, 2013

Part III

Department of the Treasury

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Office of the Comptroller of the Currency

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12 CFR Parts 22 and 172

Federal Reserve System

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12 CFR Part 208

Federal Deposit Insurance Corporation

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12 CFR Parts 339 and 391

Farm Credit Administration

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12 CFR Part 614

National Credit Union Administration

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12 CFR Part 760

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Loans in Areas Having Special Flood Hazards; Proposed Rule

Federal Register / Vol. 78 , No. 210 / Wednesday, October 30, 2013 /
Proposed Rules

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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Parts 22, 172

[Docket ID OCC-2013-0015]
RIN 1557-AD67

FEDERAL RESERVE SYSTEM

12 CFR Part 208

[Regulation H, Docket No. R-1462]
RIN 7100 AE-00

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Parts 339, 391

RIN 3064-AE03

FARM CREDIT ADMINISTRATION

12 CFR Part 614

RIN 3052-AC93

NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 760

RIN 3133-AE18

Loans in Areas Having Special Flood Hazards

AGENCY: Office of the Comptroller of the Currency, Treasury; Board of
Governors of the Federal Reserve System; Federal Deposit Insurance
Corporation; Farm Credit Administration; National Credit Union
Administration.

ACTION: Joint notice of proposed rulemaking.

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SUMMARY: The Office of the Comptroller of the Currency (OCC), Board of
Governors of the Federal Reserve System (Board), Federal Deposit
Insurance Corporation (FDIC), the Farm Credit Administration (FCA), and
the National Credit Union Administration (NCUA) (collectively, the
Agencies) are proposing to amend their regulations regarding loans in
areas having special flood hazards to implement provisions of the
Biggert-Waters Flood Insurance Reform Act of 2012. Specifically, the
proposal would establish requirements with respect to the escrow of
flood insurance payments, the acceptance of private flood insurance
coverage, and the force-placement of flood insurance. The proposal also
would clarify the Agencies' flood insurance regulations with respect to
other amendments made by the Act and make technical corrections.
Furthermore, the OCC and the FDIC are proposing to integrate their
flood insurance regulations for national banks and Federal savings
associations and for State non-member banks and State savings
associations, respectively.

DATES: Comments must be received on or before December 10, 2013, except
that comments on the Paperwork Reduction Act analysis in part V of the
SUPPLEMENTARY INFORMATION must be received on or before December 30,
2013.

ADDRESSES: Interested parties are encouraged to submit written comments
jointly to all of the Agencies. Commenters are encouraged to use the
title ``Loans in Areas Having Special Flood Hazards'' to facilitate the
organization and distribution of comments among the Agencies.
Interested parties are invited to submit written comments to:
OCC: Because paper mail in the Washington, DC area and at the OCC
is subject to delay, commenters are encouraged to submit comments by
the Federal eRulemaking Portal or email, if possible. Please use the
title ``Loans in Areas Having Special Flood Hazards'' to facilitate the
organization and distribution of the comments. You may submit comments
by any of the following methods:
Federal eRulemaking Portal--``regulations.gov'': Go to
https://www.regulations.gov. Enter ``Docket ID OCC-2013-0015'' in the
Search Box and click ``Search.'' Results can be filtered using the
filtering tools on the left side of the screen. Click on ``Comment
Now'' to submit public comments. Click on the ``Help'' tab on the
Regulations.gov home page to get information on using Regulations.gov,
including instructions for submitting public comments.
Email: regs.comments@occ.treas.gov.
Mail: Legislative and Regulatory Activities Division,
Office of the Comptroller of the Currency, 400 7th Street SW., Suite
3E-218, Mail Stop 9W-11, Washington, DC 20219.
Hand Delivery/Courier: 400 7th Street SW., Suite 3E-218,
Mail Stop 9W-11, Washington, DC 20219.
Fax: (571) 465-4326.
Instructions: You must include ``OCC'' as the agency name and
``Docket ID OCC-2013-0015'' in your comment. In general, OCC will enter
all comments received into the docket and publish them on the
Regulations.gov Web site without change, including any business or
personal information that you provide such as name and address
information, email addresses, or phone numbers. Comments received,
including attachments and other supporting materials, are part of the
public record and subject to public disclosure. Do not enclose any
information in your comment or supporting materials that you consider
confidential or inappropriate for public disclosure.
You may review comments and other related materials that pertain to
this rulemaking action by any of the following methods:
Viewing Comments Electronically: Go to https://www.regulations.gov. Enter ``Docket ID OCC-2013-0015'' in the Search
box and click ``Search.'' Comments can be filtered by Agency using the
filtering tools on the left side of the screen. Click on the ``Help''
tab on the Regulations.gov home page to get information on using
Regulations.gov, including instructions for viewing public comments,
viewing other supporting and related materials, and viewing the docket
after the close of the comment period.
Viewing Comments Personally: You may personally inspect
and photocopy comments at the OCC, 400 7th Street SW., Washington, DC.
For security reasons, the OCC requires that visitors make an
appointment to inspect comments. You may do so by calling (202) 649-
6700. Upon arrival, visitors will be required to present valid
government-issued photo identification and to submit to security
screening in order to inspect and photocopy comments.
Docket: You may also view or request available background
documents and project summaries using the methods described above.
Board: You may submit comments, identified by Docket No. R-1462 or
RIN 7100 AE-00, by any of the following methods:
Agency Web site: https://www.federalreserve.gov. Follow the
instructions for submitting comments at https://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
Email: regs.comments@federalreserve.gov. Include the
docket number in the subject line of the message.
Fax: (202) 452-3819 or (202) 452-3102.
Mail: Address to Robert deV. Frierson, Secretary, Board of
Governors of the Federal Reserve System, 20th Street and Constitution
Avenue NW., Washington, DC 20551.
All public comments will be made available on the Board's Web site
at https://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as

[[Page 65109]]

submitted, unless modified for technical reasons. Accordingly, comments
will not be edited to remove any identifying or contact information.
Public comments may also be viewed electronically or in paper in Room
MP-500 of the Board's Martin Building (20th and C Streets NW.) between
9:00 a.m. and 5:00 p.m. on weekdays.
FDIC: You may submit comments by any of the following methods:
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
Agency Web site: https://www.fdic.gov/regulations/laws/federal/propose.html
Mail: Robert E. Feldman, Executive Secretary, Attention:
Comments/Legal ESS, Federal Deposit Insurance Corporation, 550 17th
Street NW., Washington, DC 20429.
Hand Delivered/Courier: The guard station at the rear of
the 550 17th Street Building (located on F Street), on business days
between 7:00 a.m. and 5:00 p.m.
Email: comments@FDIC.gov. Comments submitted must include
``FDIC'' and ``Loans in Areas Having Special Flood Hazards.'' Comments
received will be posted without change to https://www.fdic.gov/regulations/laws/federal/propose.html, including any personal
information provided.
FCA: We offer a variety of methods for you to submit your comments.
For accuracy and efficiency reasons, commenters are encouraged to
submit comments by email or through the FCA's Web site. As facsimiles
(fax) are difficult for us to process and achieve compliance with
section 508 of the Rehabilitation Act, we are no longer accepting
comments submitted by fax. Regardless of the method you use, please do
not submit your comments multiple times via different methods. You may
submit comments by any of the following methods:
Email: Send us an email at reg-comm@fca.gov.
Agency Web site: https://www.fca.gov. Select ``Law &
Regulations,'' then ``FCA Regulations,'' then ``Public Comments,'' and
follow the directions for ``Submitting a Comment.''
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
Mail: Barry F. Mardock, Deputy Director, Office of
Regulatory Policy, Farm Credit Administration, 1501 Farm Credit Drive,
McLean, VA 22102-5090.
You may review copies of all comments we receive at our office in
McLean, Virginia or on our Web site at https://www.fca.gov. Once you are
in the Web site, Select ``Law & Regulations,'' then ``FCA
Regulations,'' then ``Public Comments,'' and follow the directions for
``Reading Submitted Public Comments.'' We will show your comments as
submitted, including any supporting data provided, but for technical
reasons we may omit items such as logos and special characters.
Identifying information that you provide, such as phone numbers and
addresses, will be publicly available. However, we will attempt to
remove email addresses to help reduce Internet spam.
NCUA: You may submit comments, identified by RIN 3133-AE18 by any
of the following methods (Please send comments by one method only):
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
Agency Web site: https://www.ncua.gov/Legal/Regs/Pages/PropRegs.aspx. Follow the instructions for submitting comments.
Email: Address to regcomments@ncua.gov. Include [Your
name] Comments on ``Loans in Areas Having Special Flood Hazards'' in
the email subject line.
Fax: (703) 518-6319. Use the subject line described above
for email.
Mail: Address to Gerard Poliquin, Secretary of the Board,
National Credit Union Administration, 1775 Duke Street, Alexandria,
Virginia 22314-3428.
Hand Delivery/Courier: Same as mail address.
You can view all public comments on NCUA's Web site at https://www.ncua.gov/Legal/Regs/Pages/PropRegs.aspx as submitted, except for
those we cannot post for technical reasons. NCUA will not edit or
remove any identifying or contact information from the public comments
submitted. You may inspect paper copies of comments in NCUA's law
library at 1775 Duke Street, Alexandria, Virginia 22314, by appointment
weekdays between 9:00 a.m. and 3:00 p.m. To make an appointment, call
(703) 518-6546 or send an email to OGCMail@ncua.gov.

FOR FURTHER INFORMATION CONTACT:
OCC: Rhonda L. Daniels, Compliance Specialist, Compliance Policy
Division, (202) 649-5405; Margaret C. Hesse, Senior Counsel, Community
and Consumer Law Division, (202) 649-6350, or Heidi M. Thomas, Special
Counsel, Legislative and Regulatory Activities Division, (202) 649-
5490, Office of the Chief Counsel.
Board: Lanette Meister, Senior Supervisory Consumer Financial
Services Analyst (202) 452-2705; Vivian W. Wong, Counsel (202) 452-
3667, Division of Consumer and Community Affairs; or Daniel Ericson,
Counsel (202) 452-3359, Legal Division; for users of Telecommunications
Device for the Deaf (TDD) only, contact (202) 263-4869.
FDIC: Navid Choudhury, Senior Attorney, Consumer Compliance Section
(202) 898-6526, Legal Division; or John Jackwood, Senior Policy Analyst
(202) 898-3991, Division of Depositor and Consumer Protection.
FCA: Paul K. Gibbs, Senior Accountant, Office of Regulatory Policy
(703) 883-4203, TTY (703) 883-4056; or Mary Alice Donner, Senior
Counsel, Office of General Counsel (703) 883-4020, TTY (703) 883-4056.
NCUA: Sarah Chung, Staff Attorney, (703) 518-1178, Office of
General Counsel.

SUPPLEMENTARY INFORMATION:

I. Background

A. Introduction

The Biggert-Waters Flood Insurance Reform Act of 2012 \1\ (the
Act), signed into law by the President on July 6, 2012, significantly
revised Federal flood insurance statutes. Section 100209 of the Act,
relating to the escrow of flood insurance payments, and section 100239
of the Act, relating to the acceptance of private flood insurance
coverage, amended provisions of the Flood Disaster Protection Act
(FDPA) \2\ that require the Agencies to issue implementing regulations.
Section 100244 of the Act, relating to force-placed insurance,
necessitates conforming revisions to the Agencies' current flood
insurance regulations. The Agencies jointly are issuing this proposal
to revise their regulations accordingly. In connection with the
issuance of this proposal, the Agencies have coordinated and consulted
with the Federal Financial Institutions Examination Council (FFIEC), as
is required by certain provisions of the flood insurance statutes.\3\
The Agencies' proposal would implement only certain provisions of the
Act over which the Agencies have jurisdiction. Accordingly, the
Agencies encourage lenders to consult the Act for further information
about revisions to the flood insurance statutes that will not be
implemented through this rulemaking.
---------------------------------------------------------------------------

\1\ Public Law 112-141, 126 Stat. 916 (2012).
\2\ Public Law 93-234, 87 Stat. 975 (1973).
\3\ See 42 U.S.C. 4012a(b)(1). The heads of four of the five
Agencies (OCC, Board, FDIC, and NCUA) comprise part of the
membership of the FFIEC.

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[[Page 65110]]

B. Flood Insurance Statutes

The National Flood Insurance Act of 1968 (1968 Act) \4\ and the
FDPA govern the National Flood Insurance Program (NFIP).\5\ The 1968
Act made Federally subsidized flood insurance available to owners of
improved real estate or mobile homes located in special flood hazard
areas if the community where the improved real estate or mobile home is
located participates in the NFIP. A special flood hazard area (SFHA) is
an area within a floodplain having a one percent or greater chance of
flood occurrence in any given year.\6\ SFHAs are delineated on maps
issued by FEMA for individual communities.\7\ A community establishes
its eligibility to participate in the NFIP by adopting and enforcing
floodplain management measures to regulate new construction and by
making substantial improvements within its SFHAs to eliminate or
minimize future flood damage.\8\
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\4\ Public Law 90-448, 82 Stat. 572 (1968).
\5\ These statutes are codified at 42 U.S.C. 4001-4129. The
Federal Emergency Management Agency (FEMA) administers the NFIP; its
regulations implementing the NFIP appear at 44 CFR parts 59-77.
\6\ 44 CFR 59.1.
\7\ 44 CFR part 65.
\8\ 44 CFR part 60.
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Until the adoption of the FDPA in 1973, the purchase of flood
insurance was voluntary. The FDPA required the mandatory purchase of
flood insurance and directed the OCC, Board, FDIC, NCUA, and the former
Office of Thrift Supervision (OTS) \9\ to issue regulations governing
the lending institutions that they supervised. The resulting
regulations directed these lending institutions to require flood
insurance on improved real estate or mobile homes serving as collateral
for a loan (secured property) if the secured property was located in a
SFHA in a participating community. The regulations also required
lenders to notify borrowers that the secured property is located in a
SFHA and that Federal disaster assistance is available with respect to
the property in the event of a flood.
---------------------------------------------------------------------------

\9\ Title III of the Dodd-Frank Wall Street Reform and Consumer
Protection Act, Public Law 111-203, 124 Stat. 1376 (2010), (Dodd-
Frank Act), transferred the powers, duties, and functions formerly
performed by the OTS among the FDIC, as to State savings
associations, the OCC, as to Federal savings associations, and the
Board as to savings and loan holding companies. The OTS was
abolished 90 days after the transfer date.
---------------------------------------------------------------------------

Title V of the Riegle Community Development and Regulatory
Improvement Act of 1994, also known as the National Flood Insurance
Reform Act of 1994 (Reform Act), comprehensively amended the Federal
flood insurance statutes.\10\ The Reform Act established new
requirements on Federally regulated lending institutions, such as the
escrow for flood insurance premiums under certain conditions and
mandatory force-placement of flood insurance coverage. The Reform Act
was intended to increase compliance with the mandatory flood insurance
purchase requirements and participation in the NFIP in order to provide
additional income to the National Flood Insurance Fund and to decrease
the financial burden of flooding on the Federal government, taxpayers,
and flood victims. In addition, the Reform Act broadened the definition
of ``Federal entity for lending regulation'' to include the FCA,
thereby increasing the number of regulated lending institutions subject
to the mandatory flood insurance purchase requirement to include
lenders regulated by the FCA.
---------------------------------------------------------------------------

\10\ Public Law 103-325, 108 Stat. 2255 (1994) (codified as
amended at 42 U.S.C. 4001 et seq. (1994)).
---------------------------------------------------------------------------

The Reform Act required the Agencies to revise their flood
insurance regulations and required the FCA to promulgate flood
insurance regulations for the first time. The Agencies fulfilled these
requirements by issuing a joint final rule in August 1996.\11\
---------------------------------------------------------------------------

\11\ 61 FR 45684 (Aug. 29, 1996).
---------------------------------------------------------------------------

C. The Biggert-Waters Act Amendments

Among other changes,\12\ the Act significantly amends the NFIP
requirements, over which the Agencies have jurisdiction. Specifically,
the Act: (i) Increases the maximum civil money penalty (CMP) that the
Agencies may impose per violation when there is a pattern or practice
of flood violations and eliminates the limit on the total amount of
penalties that the Agencies may assess against a regulated lending
institution during any calendar year; \13\ (ii) requires regulated
lending institutions to escrow premiums and fees for flood insurance on
residential improved real estate, unless the regulated lending
institution meets the statutory small institution exception; \14\ (iii)
directs regulated lending institutions to accept private flood
insurance, as defined by the Act, and to notify borrowers of the
availability of private flood insurance; \15\ and (iv) amends the
force-placement requirement to clarify that regulated lending
institutions may charge a borrower for the cost of premiums and fees
incurred for coverage beginning on the date on which the flood
insurance coverage lapsed or did not provide sufficient coverage and to
prescribe the procedures for terminating force-placed insurance.\16\
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\12\ The Agencies note, for example, that section 100222 of the
Act mandates a revision to the Special Information Booklet required
under section 5 of the Real Estate Settlement Procedures Act of 1974
(RESPA) (12 U.S.C. 2604(b)) to include a notice to the borrower of
the availability of flood insurance under the NFIP or from a private
insurance company, whether or not the real estate is located in an
area having special flood hazards. The requirement to revise the
Special Information Booklet is the responsibility of the Bureau of
Consumer Financial Protection (CFPB) under RESPA. In addition,
section 100204 of the Act directs the Administrator of FEMA to make
flood insurance available to cover residential properties of five or
more residences. The maximum coverage made available to such
residential properties will be equal to the coverage made available
to commercial properties. Policies for such properties will be made
available by FEMA at a later date.
\13\ Section 100208 of the Act, amending section 102(f)(5) of
the FDPA (42 U.S.C. 4012a(f)(5)).
\14\ Section 100209 of the Act, amending section 102(d) of the
FDPA (42 U.S.C. 4012a(d)). Congress further amended section 42
U.S.C. 4012a(d) subsequent to the enactment of the Act to clarify
that the flood insurance escrow requirement applies only to loans
secured by residential improved real estate. See Public Law 112-281,
125 Stat. 2485 (Jan. 14, 2013).
\15\ Section 100239 of the Act, amending section 102(b) of the
FDPA (42 U.S.C. 4012a(b)) and section 1364(a)(3)(C) of the 1968 Act
(42 U.S.C. 4104a(a)(3)(C)).
\16\ Section 100244 of the Act, amending section 102(e) of the
FDPA (42 U.S.C. 4012a(e)).
---------------------------------------------------------------------------

The civil money penalty provisions,\17\ and the force-placement
requirements were effective upon enactment. In contrast, both the
escrow and private flood insurance provisions will become effective
when the Agencies finalize implementing regulations. The Agencies
previously published guidance regarding the effective dates of these
amendments.\18\
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\17\ Some of the Agencies have revised their regulations to
incorporate these increased civil money penalties. See OCC: 77 FR
66529 (Nov. 11, 2012) and 77 FR 76354 (Dec. 28, 2012); Board: 77 FR
68680 (Nov. 16, 2012); FDIC: 77 FR 74573 (Dec. 17, 2012); and FCA:
78 FR 24336 (April 25, 2013). The NCUA is in the process of updating
its rule to reflect this civil money penalty change.
\18\ ``Interagency Statement on the Impact of Biggert-Waters
Act,'' March 29, 2013 (Board: CA 13-2; OCC: Bulletin 2013-10; FDIC:
FIL 14-2013, FCA: Information Memorandum, March 29, 2013; NCUA: 13-
RA-03).
---------------------------------------------------------------------------

II. Summary of the Proposal

As indicated above, the Agencies propose to revise their respective
flood insurance regulations to implement the Act's amendments
addressing the escrow of flood insurance payments, private flood
insurance, and force-placed insurance. These provisions, and other
amendments, proposed by this rulemaking are summarized below and more
specifically described in IV. Section-by-Section Analysis of this
preamble. Although the Agencies' proposals are substantively
consistent, the format of the regulatory text varies

[[Page 65111]]

to conform to each Agency's current regulation.
First, the Agencies' proposal generally would require regulated
lending institutions, or servicers acting on their behalf, to escrow
premiums and fees for flood insurance for any loans secured by
residential improved real estate or a mobile home, unless the
institutions qualify for the statutory exception. Except as may be
required under applicable State law, a regulated lending institution is
not required to escrow if it has total assets of less than $1 billion
and, as of the Act's date of enactment, July 6, 2012, was not required
by Federal or State law to escrow taxes or insurance for the term of
the loan and did not have a policy to require escrow of taxes and
insurance. The Agencies are proposing to implement the exception
substantially as set forth in the statute.
Second, consistent with the Act, the Agencies' proposal would
require that regulated lending institutions accept private flood
insurance that meets the statutory definition to satisfy the mandatory
purchase requirement. The proposal also specifically requests comment
on whether the Agencies should use their authority under the FDPA to
include a provision in the final rules that expressly permits regulated
lending institutions to accept a flood insurance policy issued by a
private insurer that does not meet the Act's definition of ``private
flood insurance'' to satisfy the FDPA's general mandatory purchase
requirement. The Agencies are also soliciting comment on what criteria
the Agencies might require for such a policy. Alternatively, the
Agencies solicit comment on whether it is appropriate to include a
provision in the final rules that specifically requires regulated
lending institutions to accept only policies issued by private insurers
that meet the statutory definition, and if included, what would be the
effect of such a provision on the availability of privately issued
flood insurance.
Third, the Agencies' proposal includes new and revised sample
notice forms and clauses. Specifically, the proposal amends the current
Sample Form of Notice of Special Flood Hazards and Availability of
Federal Disaster Relief Assistance, set forth as Appendix A in the
Agencies' respective regulations, to add language concerning the
availability of private flood insurance coverage (pursuant to the
notice requirements under section 100239 of the Act) and the escrow
requirement. The proposal also adds an additional sample notice form,
Notice of Requirement to Escrow for Outstanding Loans, as Appendix B to
assist institutions in complying with the proposal's requirement to
inform existing borrowers about the new escrow requirement. An
institution would provide this notice for existing loans when neither
the Notice of Special Flood Hazards and Availability of Federal
Disaster Relief Assistance nor the notice of force-placement is
provided. Finally, as Appendix C, the Agencies are proposing a sample
clause regarding the new escrow requirement that may be included with
the force-placement notice.
Fourth, the proposal would amend the force-placement of flood
insurance provisions to clarify that a lender or its servicer has the
authority to charge a borrower for the cost of flood insurance coverage
commencing on the date on which the borrower's coverage lapsed or
became insufficient. The proposal also would stipulate the
circumstances under which a lender or its servicer must terminate
force-placed flood insurance coverage and refund payments to a
borrower. It also sets forth the documentary evidence a lender must
accept to confirm that a borrower has obtained an appropriate amount of
flood insurance coverage.
Fifth, the Agencies propose needed technical corrections. For
example, the Agencies' current flood insurance regulations refer to the
``Director'' of the FEMA. The correct title for the head of that agency
is ``Administrator.'' \19\ The Agencies' proposal would correct all
references to the head of FEMA.
---------------------------------------------------------------------------

\19\ 6 U.S.C. 313.
---------------------------------------------------------------------------

Finally, the OCC and the FDIC propose to integrate their flood
insurance regulations for national banks and Federal savings
associations and for State non-member banks and State savings
associations, respectively. Specifically, the OCC proposes to add
language to its flood insurance regulation for national banks, 12 CFR
part 22, to make it applicable to both national banks and Federal
savings associations, and to remove its regulation for Federal savings
associations, 12 CFR part 172. Similarly, the FDIC proposes to add
language to 12 CFR part 339, its flood regulation for State non-member
banks, to make it applicable to both State non-member banks and State
savings associations and to remove its flood regulation for State
savings associations, 12 CFR part 391 subpart D. Parts 22, 172, 339,
and 391 subpart D, are nearly identical and contain no substantive
differences, as they were originally adopted through an interagency
rulemaking process.\20\
---------------------------------------------------------------------------

\20\ The OCC republished the former OTS rule as an OCC rule with
respect to Federal savings associations and the FDIC republished the
former OTS rule with respect to State savings associations in 2011,
with only nomenclature changes. See 76 FR 49140 (Aug. 9, 2011) (OCC)
and 76 FR 47811 (Aug. 5, 2011) (FDIC).
---------------------------------------------------------------------------

III. Legal Authority

Section 102(b) of the FDPA (42 U.S.C. 4012a(b)), as amended by the
Act, provides that the Agencies (after consultation and coordination
with the FFIEC) shall by regulation direct regulated lending
institutions not to make, increase, extend, or renew any loan secured
by improved real estate or a mobile home located or to be located in an
area that has been identified by the Administrator of FEMA as an area
having special flood hazards and in which flood insurance has been made
available under the NFIP, unless the building or mobile home and any
personal property securing such loan is covered for the term of the
loan by flood insurance. Thus, section 102(b) of the FDPA grants the
Agencies rulemaking authority to implement this mandatory flood
insurance purchase requirement as it pertains to regulated lending
institutions.
Furthermore, under section 102(b) of the FDPA, as amended by
section 100239 of the Act, the Agencies (after consultation and
coordination with the FFIEC) must by regulation direct regulated
lending institutions to accept private flood insurance as satisfaction
of the mandatory flood insurance purchase requirement, described above.
Section 102(b) of the FDPA, as amended by section 100239 of the Act,
also authorizes the Agencies to implement the definition of private
flood insurance under section 102(b) of the FDPA, as amended by the
Act, as well as the requirement that the lender disclose to the
borrower the availability of flood insurance from private insurance
companies.
The OCC, Board, and FDIC have general authority to issue
regulations assuring the safety and soundness of depository
institutions.\21\ The NCUA and FCA have similar authority with respect
to the institutions that they supervise.\22\ In addition, section

[[Page 65112]]

100239(a)(1), which amended section 102(b) of the FDPA, provides that
nothing in that subsection shall be construed to supersede or limit the
Agencies' authority to establish requirements relating to the financial
solvency, strength, or claims-paying ability of private insurance
companies from which a regulated lending institution will accept
private flood insurance.
---------------------------------------------------------------------------

\21\ See 12 U.S.C. 1 and 93a; 12 U.S.C. 321 (granting the Board
authority to impose conditions for membership in the Federal Reserve
System); 12 U.S.C. 1820(g) (granting the FDIC authority to prescribe
regulations to carry out the FDI Act; See also section 39 of the
Federal Deposit Insurance Act (12 U.S.C. 1831p-1)
\22\ The Federal Credit Union Act (12 U.S.C. 1751 et seq.) and
section 5.17 of the Farm Credit Act of 1971, as amended, (12 U.S.C.
2252). Sections 106, 201, and 206 of the Federal Credit Union Act
(12 U.S.C. 1756, 1781, and 1786) provide NCUA with the authority to
examine and supervise Federally insured credit unions to protect the
credit union system and the safety and soundness of the National
Credit Union Share Insurance Fund.
---------------------------------------------------------------------------

Finally, section 102(d) of the FDPA (42 U.S.C. 4012a(d)), as
amended by section 100209 of the Act and Public Law No. 112-281,\23\
states that the Agencies (after consultation and coordination with the
FFIEC) must by regulation require all premiums and fees for flood
insurance under the 1968 Act for residential improved real estate or a
mobile home be paid to the regulated lending institution or servicer
for any loan secured by the improved real estate or mobile home with
the same frequency as payments on the loan are made for the duration of
the loan. The statute requires that such funds be deposited in an
escrow account on behalf of the borrower and used to pay the flood
insurance provider when premiums are due. Section 102(d) of the FDPA,
as amended, also authorizes the Agencies to implement the exception to
this requirement for certain regulated lending institutions with assets
less than $1 billion.
---------------------------------------------------------------------------

\23\ 126 Stat. 2485 (Jan. 14, 2013).
---------------------------------------------------------------------------

IV. Section-by-Section Analysis

------.------ Authority, purpose, and scope

Since the Agencies last revised their regulations in 1996, the
title of the head of FEMA has changed from ``Director'' to
``Administrator.'' In accordance with this change, the Agencies are
proposing an amendment to the reference to the head of FEMA in the
scope section.
As part of the OCC's and FDIC's consolidation of their flood
insurance rules, the OCC and FDIC also are proposing to insert the term
``Federal savings association'' or ``FDIC-supervised institution''
where necessary throughout their flood insurance rules.

------.------ Definitions

Private flood insurance. The Agencies are proposing to add a new
definition for ``private flood insurance'' consistent with section
100239 of the Act, which added a new section 102(b)(7) to the FDPA.
Under section 102(b)(7) of the FDPA, ``private flood insurance'' means
an insurance policy that: (i) Is issued by an insurance company that is
licensed, admitted or otherwise approved to engage in the business of
insurance in the State or jurisdiction in which the insured building is
located by the insurance regulator of the State or jurisdiction or, in
the case of a policy of difference in condition, multiple peril, all
risk, or other blanket coverage insuring nonresidential commercial
property, is recognized, or not disapproved, as a surplus lines insurer
by the insurance regulator of the State or jurisdiction; \24\ (ii)
provides flood coverage at least as broad as the coverage provided by a
standard flood insurance policy (SFIP) under the NFIP, including when
considering deductibles, exclusions, and conditions offered by the
insurer; (iii) includes a requirement for the insurer to give 45 days'
written notice of cancellation or non-renewal of flood insurance
coverage to the insured and the regulated lending institution; (iv)
includes information about the availability of flood insurance coverage
under the NFIP; (v) includes a mortgage interest clause similar to the
clause contained in an SFIP; (vi) includes a provision requiring an
insured to file suit not later than one year after the date of a
written denial for all or part of a claim under a policy; and (vii)
contains cancellation provisions that are as restrictive as the
provisions contained in an SFIP.
---------------------------------------------------------------------------

\24\ The Agencies note that with respect to alien (non-U.S.)
surplus lines insurers, States may not prohibit a surplus lines
broker from placing non-admitted insurance with, or procuring non-
admitted insurance from, a non-U.S., non-admitted insurer that is
listed on the Quarterly Listing of Alien Insurers maintained by the
National Association of Insurance Commissioners' (NAIC)
International Insurer's Department (IID List). See The Nonadmitted
and Reinsurance Reform Act of (NRRA), Title V of the Dodd-Frank Act,
Public Law 111-203 (July 21, 2011).
---------------------------------------------------------------------------

Other definitions. The Agencies also are proposing technical
amendments to change the references to the head of FEMA from Director
to Administrator in the definitions and to renumber the definitions to
accommodate the inclusion of the new definition for ``private flood
insurance.''
OCC-only definitions. The OCC also proposes the following
amendments to the definition section for purposes of integrating its
national bank and Federal savings association flood insurance rules.
First, the proposed rule provides that the term ``Federal savings
association'' means a Federal savings association as defined in 12
U.S.C. 1813(b)(2) and any service corporations thereof. This definition
is identical to the definition of ``Federal savings association'' in 12
CFR part 172, except that part 172 specifically referenced
``subsidiaries.'' Current 12 CFR part 22 does not specifically include
a reference to bank operating subsidiaries because such subsidiaries
are subject to the rules applicable to the operations of their parent
bank pursuant to 12 CFR 5.34. Because Federal savings association
operating subsidiaries also are subject to the same rules applicable to
the parent savings association, as provided by 12 CFR 159.3(h), the
inclusion of ``subsidiary'' in this definition is unnecessary and its
removal will not affect the applicability of 12 CFR part 22 to Federal
savings association operating subsidiaries.
Second, the OCC proposes to remove the definition of ``bank,''
which the rule currently defines as meaning a national bank. Instead,
the term ``bank'' is replaced with ``national bank'' throughout the
rule.
FDIC-only definition. The FDIC also proposes the following
amendments to the definitional section for purposes of integrating its
State nonmember bank and State savings association flood insurance
rules. The FDIC proposes to remove the definition of ``bank'' and
replace it with ``FDIC-supervised institution'' which would be defined
to mean any insured depository institution for which the Federal
Deposit Insurance Corporation is the appropriate Federal banking agency
pursuant to section 3(g) of the Federal Deposit Insurance Act, 12
U.S.C. 1813(g).

------.------ Requirement to purchase flood insurance where available.

In General.
The current regulation provides that a regulated lending
institution shall not make, increase, extend, or renew any designated
loan unless the building or mobile home and any personal property
securing the loan is covered by flood insurance for the term of the
loan. This provision further provides that flood insurance coverage is
limited to the overall value of the property securing the designated
loan minus the value of the land on which the property is located. A
``designated loan'' means a loan secured by a building or mobile home
that is located or to be located in a special flood hazard area in
which flood insurance is available under the 1968 Act, as amended.\25\
The Agencies are proposing to revise the language relating to the
coverage limit to reflect more accurately what is actually covered
under Federal flood insurance statutes. Specifically, the Agencies are
proposing that the language be amended to state that flood insurance
coverage is limited to the building or mobile home

[[Page 65113]]

and any personal property securing the loan and not the land itself.
---------------------------------------------------------------------------

\25\ OCC: 12 CFR 22.2(e); Board: 12 CFR 208.25(b)(4); FDIC: 12
CFR 339.2(e); FCA: 12 CFR 614.4925(e); NCUA: 12 CFR 760.2(f).
---------------------------------------------------------------------------

Private flood insurance
The Agencies also are proposing to amend this section to implement
section 102(b)(1)(B) of the FDPA, as added by section 100239(a)(1) of
the Act, which requires that all regulated lending institutions accept
private flood insurance if certain conditions are met. Specifically,
the proposal would require a regulated lending institution to accept
private flood insurance that meets the definition of this term to
satisfy the FDPA's insurance requirement, provided that the private
flood insurance policy also meets the conditions set forth in the
general mandatory purchase requirement. Therefore, a regulated lending
institution may only accept private flood insurance coverage under this
provision if the building or mobile home and any personal property that
secures the mortgage loan is covered for the term of that loan by the
amount of flood insurance required by section 102(b)(1)(A) of the FDPA.
As described above in ------.------ Definitions, this proposal also
would amend the Agencies' regulations to include the statutory
definition of ``private flood insurance.''
The Agencies understand that there have been concerns regarding the
ability of regulated lending institutions to evaluate whether a flood
insurance policy meets the definition of ``private flood insurance''
set forth in the Act because some regulated lending institutions lack
the necessary technical expertise. To facilitate compliance in this
regard, the Agencies are proposing a safe harbor to allow lenders to
rely on the expertise of State insurance regulators. Under the proposed
safe harbor, if a State insurance regulator makes a written
determination that a flood insurance policy issued by a private insurer
meets the definition of ``private flood insurance'' set forth in the
Act, then the Agencies will deem such policy to meet the statutory
definition of ``private flood insurance.''
The Agencies note that regulating insurance providers is generally
the domain of State insurance regulators. As a result, State insurance
regulators may be the appropriate parties to determine whether a flood
insurance policy meets all the criteria set forth in the statutory
definition of ``private flood insurance.'' The Agencies solicit comment
on whether: (i) Any mechanism exists or may be developed by State
regulators to make such a determination; (ii) a written determination
would facilitate lenders' acceptance of flood insurance by private
insurers; (iii) such a safe harbor would alleviate the concerns of
regulated lending institutions in evaluating private flood policies;
and (iv) a safe harbor would enable the growth of the private flood
insurance market.
Although section 102(b)(1)(B) of the FDPA, as added by section
100239(a)(1) of the Act, requires a regulated lending institution to
accept private flood insurance that meets the statutory definition, the
Agencies note that the statute is silent about whether a regulated
lending institution may accept a flood insurance policy issued by a
private insurer that does not meet the statutory definition. The
Agencies believe that the Congressional intent of the statute was to
stimulate the private flood insurance market.\26\ Consequently, in
addition to requiring regulated lending institutions to accept private
flood insurance policies that comply with the statutory definition of
``private flood insurance,'' the Agencies are considering whether to
include a provision in the final rules that expressly permits regulated
lending institutions to accept, as satisfaction of the FDPA's mandatory
purchase requirement, a flood insurance policy issued by a private
insurer that does not meet the Act's definition of ``private flood
insurance.'' The Agencies would include this provision pursuant to
their authority under the FDPA to issue regulations directing lending
institutions not to make, increase, extend, or renew any loan secured
by property in a SFHA unless the property is covered by ``flood
insurance.'' \27\
---------------------------------------------------------------------------

\26\ The Act's reforms were designed to improve the NFIP's
financial integrity and stability as well as to ``increase the role
of private markets in the management of flood insurance risk.'' H.
Rep. No. 112-102, at 1 (2011); see also 158 Cong. Rec. H4622 (daily
ed. June 29, 2012) (statement of Rep. Biggert).
\27\ See 42 U.S.C. 4012a(b).
---------------------------------------------------------------------------

To assist with determining whether the Agencies should include this
provision, the Agencies solicit comment on whether policies issued by
private insurers that do not meet the statutory definition of ``private
flood insurance'' should be permitted to satisfy the mandatory purchase
requirement. Alternatively, the Agencies solicit comment on whether it
is appropriate to include a provision in the final rules that
specifically requires regulated lending institutions to accept only
policies issued by private insurers that meet the statutory definition
and, if included, what would be the effect of such a provision on the
availability of privately issued flood insurance.
Furthermore, if the Agencies decide to include a provision in the
final rules that expressly permits regulated lending institutions, at
their discretion, to accept policies issued by private insurers that do
not meet the statutory definition of ``private flood insurance'' to
satisfy the mandatory purchase requirement, the Agencies are requesting
comment on whether they should require the following criteria for such
discretionary policies pursuant to the Agencies' authority to implement
the FDPA's general mandatory purchase requirement.
First, State insurance regulators, as the functional regulator of
insurance companies, may be in the best position to evaluate the
condition and ability of a private insurer to issue a flood insurance
policy. Accordingly, the Agencies could require that flood insurance
issued by a private insurer that a regulated lending institution may
accept at its discretion must be issued by an insurer that is licensed,
admitted, or otherwise approved to engage in the business of insurance
in the State or jurisdiction in which the insured building is located
by the insurance regulator of the State. Further, in the case of a
policy of difference in condition, multiple peril, all risk, or other
blanket coverage insuring nonresidential commercial property, the
Agencies could require that the private insurance provider must be
recognized, or not disapproved, as a surplus lines insurer by the
insurance regulator of the State or jurisdiction where the property to
be insured is located.\28\
---------------------------------------------------------------------------

\28\ As discussed above in the SUPPLEMENTARY INFORMATION
accompanying the definition of ``private flood insurance'' in ----
--.------ Definitions, with respect to alien (non-U.S.) surplus
lines insurers, States may not prohibit a surplus lines broker from
placing non-admitted insurance with, or procuring non-admitted
insurance from, a non-U.S., non-admitted insurer that is listed on
the Quarterly Listing of Alien Insurers maintained by the NAIC's IID
List.
---------------------------------------------------------------------------

Second, the Agencies could require that the coverage provided under
any flood insurance policy issued by a private insurer that a regulated
lending institution accepts at its discretion must be at least as broad
as the coverage provided by a SFIP under the NFIP, including when
considering deductibles, exclusions, and conditions offered by the
insurer. For example, the private flood insurance policy must provide
coverage for the foundation of a building in addition to the above-
ground portion of the building. This criterion could ensure that a
private flood insurance policy accepted by a regulated lending
institution provides the institution and the borrower with appropriate
and sufficient coverage for the property securing the loan.

[[Page 65114]]

Finally, the Agencies could require that any flood insurance policy
issued by a private insurer that a regulated lending institution
accepts at its discretion must include a mortgage interest clause
similar to the clause contained in a SFIP.\29\ Therefore, the Agencies
could require the mortgage interest clause to cover the interests of
both the insured (whether such insured is a mortgagor/borrower or
another entity that purchased the policy, such as a condominium owners'
association) and the mortgagee (the lender). Having both the insured
and the mortgagee covered in the mortgage interest clause would mean
that, in the event of a loss, the interests of both the regulated
lending institution and the insured would be protected.
---------------------------------------------------------------------------

\29\ ``Any loss payable under Coverage A--Building Property will
be paid to any mortgagee of whom we have actual notice as well as
any other mortgagee or loss payee determined to exist at the time of
loss, and you, as interests appear.'' NFIP Dwelling Form.
---------------------------------------------------------------------------

The Agencies solicit comment as to whether requiring the above
criteria for any flood insurance policy issued by a private insurer
that a lender accepts at its discretion would be inconsistent with
State legal requirements and industry practice with respect to private
flood insurance. The Agencies also solicit comment as to whether
criteria, additional to those discussed above, should be imposed if the
Agencies permit regulated lending institutions to accept a private
flood insurance policy issued by a private insurer that does not meet
the statutory definition of ``private flood insurance.'' \30\ The
Agencies believe that the proposed mandatory acceptance approach is
consistent with both the statutory language and Congressional
intent.\31\ Additionally, the Agencies request comment on whether
allowing discretionary acceptance of flood insurance policies issued by
private insurers not meeting the statutory definition of private flood
insurance but requiring that such discretionary policies meet certain
criteria could encourage development of the private flood insurance
market while also ensuring that regulated lending institutions and
borrowers are properly protected. The Agencies also seek comment
regarding the experience of both lenders and their borrowers with
respect to policies issued by private insurers that do not meet the
statutory definition of ``private flood insurance'' as compared to
policies issued by private insurers that meet the statutory definition
of ``private flood insurance.''
---------------------------------------------------------------------------

\30\ Additionally, as indicated above, nothing in the Act can be
construed to supersede or limit the Agencies' authority to establish
requirements relating to the financial solvency, strength, or
claims-paying ability of private insurance companies from which a
regulated lending institution will accept private flood insurance.
See 42 U.S.C. 4012a(b)(5).
\31\ 158 Cong. Rec. H4616-01, H4621-H4622 (daily ed. June 29,
2012) (statement of Rep. Biggert).
---------------------------------------------------------------------------

Regulated lending institutions have previously relied upon FEMA's
``Mandatory Purchase of Flood Insurance Guidelines'' (Guidelines) for
guidance when determining whether a private insurance policy conforms
to the flood insurance requirements. FEMA had advised that, to the
extent that the private policy differs from the NFIP's policy, the
differences should be carefully examined before accepting the policy.
On February 4, 2013, FEMA rescinded the Guidelines and advised lenders
to ``consult their respective regulatory agency for information
regarding compliance with the mandatory purchase requirements.'' \32\
The Agencies note that currently institutions continue to have the
discretion to accept flood insurance issued by a private insurer
pursuant to section 102(b)(1)(A) of the FDPA.
---------------------------------------------------------------------------

\32\ FEMA Letter, February 4, 2013. See https://www.fema.gov/library/viewRecord.do?fromSearch=fromsearch&id=2954.
---------------------------------------------------------------------------

------.------ Exemptions

The Agencies are proposing a technical amendment to change the
reference to the head of FEMA from Director to Administrator.

------.------ Escrow requirement

In General
Pursuant to section 102(d) of the FDPA, as amended by section
100209(a) of the Act and Public Law 112-281,\33\ the Agencies are
proposing to revise their regulations to require regulated lending
institutions, or servicers acting on behalf of a regulated lending
institution, to escrow all premiums and fees for flood insurance
required for any loans secured by residential improved real estate or a
mobile home unless the lending institutions qualify for the statutory
exception.\34\ In addition, these premiums and fees must be payable
with the same frequency as payments on the loan are made for the
duration of the loan. Consistent with section 102(d) of the FDPA, as
amended, the proposed provision applies to any loan secured by
residential improved real estate or a mobile home that is made or is
outstanding on or after July 6, 2014.
---------------------------------------------------------------------------

\33\ 126 Stat. 2485 (Jan. 14, 2013).
\34\ The Agencies note that CFPB's mortgage servicing rule
promulgated the new escrow requirements set forth in section 6 of
RESPA, which were enacted in the Dodd-Frank Act. The CFPB's rule
excludes flood insurance that is required under the FDPA from the
new escrow requirements. 78 FR 10696, 10880 (Feb. 14, 2013). That
is, the CFPB rule exempts from the definition of force-placed
insurance, insurance required by the FDPA. Ibid. The CFPB's rule
requires a servicer to advance funds to a borrower's escrow account
and to disburse such funds in a timely manner to pay the premium
charge on a borrower's hazard insurance (unless the servicer has a
reasonable basis to believe that a borrower's hazard insurance has
been canceled or not renewed for reasons other than nonpayment of
premium charges). Thus, even if a borrower were delinquent by more
than 31 days, a servicer would be required under the CFPB's rule to
advance funds to continue the borrower's hazard insurance policy. In
promulgating this rule, the CFPB relied on its authority under
section 19(a) of RESPA to prescribe such rules and to make such
interpretations as may be necessary to achieve the consumer
protection purposes of RESPA. The Agencies do not have a similar
grant of consumer protection authority under any of the Federal
flood statutes.
---------------------------------------------------------------------------

The Agencies are proposing to implement amended section 102(d) of
the FDPA with some clarifications. First, as noted above, Public Law
112-281 amended section 102(d) of the FDPA, as amended by section
100209 of the Act, to insert the word ``residential'' prior to every
mention of ``improved real estate.'' The Agencies' understand that
Congress's intent was to apply the escrow requirement to residential
loans and exclude commercial loans.\35\ Consequently, the Agencies are
proposing that regulated lending institutions need not escrow flood
insurance premiums and fees for loans that are an extension of credit
for a business, commercial, or agricultural purpose even if secured by
residential real estate. This exception is consistent with similar
exceptions in the RESPA \36\ and the Truth in Lending Act.\37\
---------------------------------------------------------------------------

\35\ In a floor statement on January 1, 2013, in support of S.
3677, which was adopted as Public Law No. 112-281, Congresswoman
Biggert stated that the bill is ``necessary to clarify that this
escrowing provision only applies to `residential' mortgage loans and
not commercial and multifamily loans.'' The statement further
provides that the bill does not impose new escrow obligations on
commercial and multifamily real estate servicers.
\36\ See 12 U.S.C. 2606(a).
\37\ See 15 U.S.C. 1603(1).
---------------------------------------------------------------------------

Second, the Agencies are proposing that when a regulated lending
institution has determined that a borrower has obtained flood insurance
coverage that meets the mandatory purchase requirement for the
residential improved real estate or mobile home securing the loan and
is currently paying premiums and fees into an escrow account that has
been established by another lender, the institution need not establish
another escrow account for the same purpose. Such circumstances may
arise, for example, when the regulated lending institution takes a
second lien position on a particular property and the borrower is
already paying flood insurance premiums and fees on such

[[Page 65115]]

property into an escrow account established by the first lienholder. It
is the Agencies' understanding that, in such cases, the lender in the
second lienholder position will generally request the borrower to
increase the current flood insurance policy coverage amount to satisfy
the flood insurance purchase requirement for the second loan. The
Agencies believe that the increase in premiums and fees due to the
expanded coverage would then be paid into the escrow that was
previously established by the first lienholder. Therefore, requiring a
second escrow account to be established would not be necessary.
However, if the first lienholder is not required to or otherwise does
not escrow flood insurance premiums and fees for adequate insurance
coverage for the residential improved real estate or a mobile home, the
proposed rule would require the regulated lending institution in the
second lienholder position to escrow required flood insurance premiums
and fees, unless such regulated lending institution qualifies for an
exception from the escrowing provisions.
Third, the Agencies recognize that when flood insurance coverage
for a residential improved real estate or a mobile home is provided by
a policy purchased by a common interest community, such as a
condominium owners' association, the borrower is not the purchaser of
the policy. If that policy is purchased by a common interest community
in an amount that is sufficient to meet the mandatory flood insurance
purchase requirement, then escrowing flood insurance premiums and fees
on behalf of the borrower would not be necessary because the borrower
would not be directly responsible for paying the flood insurance
premiums or fees. As a result, the Agencies are proposing that a
regulated lending institution need not establish an escrow account for
flood insurance premiums and fees when the institution has determined
that flood insurance coverage is provided by a policy purchased by a
common interest community instead of the borrower, such as an NFIP
Residential Condominium Building Association Policy (RCBAP), that meets
the mandatory flood insurance purchase requirement, including coverage
for the proper amount. If the amount of the policy purchased by a
common interest community is insufficient to meet the mandatory flood
insurance purchase requirement, however, the borrower would be required
to obtain a supplemental policy to cover the deficiency, and the
proposed rule would require that the regulated lending institution
escrow the premiums and fees for the supplemental policy. For example,
if a condominium owners' association purchases an RCBAP or a private
flood insurance policy for less than the maximum amount of insurance
available under the NFIP, the borrower may be required to obtain a
dwelling policy for supplemental coverage. If the borrower is required
to obtain a dwelling policy, the proposed rule would require the
regulated lending institution to escrow the premiums and fees for such
policy.
Timing
The Agencies' proposal sets forth timing provisions that stipulate
when regulated lending institutions must begin escrowing premiums and
fees for required flood insurance. Section 100209(b) of the Act (42
U.S.C. 4012a note) provides that the escrow provisions apply to any
mortgage outstanding or entered into on or after the expiration of the
two-year period beginning on the date of enactment of the Act.
Therefore, loans secured by residential improved real estate or a
mobile home that are outstanding or entered into on or after July 6,
2014 are covered by this requirement, provided the loan is required to
have flood insurance. Consequently, the Agencies propose that for any
designated loans made on or after July 6, 2014, the regulated lending
institution must begin escrowing upon loan consummation.
With respect to designated loans that are outstanding on July 6,
2014, the proposed rule would require regulated lending institutions to
begin escrowing with the first loan payment after the first renewal
date of the borrower's flood insurance policy that occurs on or after
July 6, 2014. For example, if a borrower's current flood insurance
policy will renew on March 15, 2015, and the borrower's loan payments
are generally due the first of each month, the institution must begin
escrowing with the loan payment due on April 1, 2015. The borrower
would be responsible for paying the premium to renew the policy on
March 15, 2015, however. Payments that are escrowed beginning April 1,
2015 will be used by the lender to pay the premiums for subsequent
years.
The Agencies' proposal is intended to alleviate the potential
burden to lenders and borrowers of establishing an escrow account for
an outstanding loan for which a borrower was not previously escrowing
flood insurance premiums and fees. By tying the establishment of the
escrow to the time of flood insurance policy renewal, the proposal
would allow regulated lending institutions to comply with the
requirement on a staggered basis, rather than requiring them to
establish escrow accounts for all outstanding designated loans at one
time.
The Agencies believe this proposal will also benefit borrowers.
Delaying the establishment of the escrow until immediately after their
flood insurance policy is renewed will ensure that all borrowers will
have the maximum amount of time to escrow for their subsequent flood
insurance policy renewal. If the Agencies were to require regulated
lending institutions to establish escrow accounts for all outstanding
designated loans at one time, some borrowers may be burdened with
larger escrow payments to cover the premium for the full term over a
shorter period of time than other borrowers. For example, if the
Agencies required all regulated lending institutions to establish
escrow accounts for all outstanding loans on July 6, 2014, then a
borrower whose yearly flood insurance policy renewal date is September
15, 2014, would have only approximately two months to escrow for a full
year of flood insurance premiums and fees while a borrower whose yearly
flood insurance policy renewal date is March 15, 2015, would have
approximately eight months to escrow for a full year of flood insurance
premiums and fees. Consequently, the borrower with the March 15, 2015,
renewal date would have smaller escrow payments each payment period
than the borrower with the September 15, 2014 renewal date. Requiring
regulated lending institutions to begin escrowing with the first loan
payment after the borrower renews the existing policy would mean that
all borrowers will have the maximum amount of time to escrow for the
next flood insurance payment, regardless of when their policies renew.
The Agencies request comment on the timing proposed for complying
with the escrow requirement for outstanding loans and whether regulated
lending institutions should be provided the option of complying with
the escrow requirement earlier than the dates set forth in the
proposal. Lenders with a small number of designated loans that are not
otherwise excepted from the escrow requirement may prefer to establish
all required escrow accounts for outstanding designated loans in their
portfolio at one time, prior to the insurance policy renewal dates.
Permitting institutions to comply with the escrow requirement earlier,
however, may mean that some

[[Page 65116]]

borrowers will have less time to make escrow payments for flood
insurance premiums and fees associated with the first insurance policy
payment to be paid out of the funds in the escrow than other borrowers,
depending on when the regulated lending institution, or its servicer,
decides to comply with the escrow requirement. Although borrowers would
ultimately pay the same amount regardless of when the escrow begins,
the Agencies request comment on whether lenders' early compliance with
the escrow requirements would be otherwise detrimental to borrowers,
and if so, how it may be detrimental.
The Agencies are also proposing to address the timing applicable to
loans that were not designated loans at the time that they were made,
but become designated loans after July 6, 2014. This may occur, for
example, when there is a FEMA map change, and a building that was not
previously located in an SFHA is now located in an SFHA. In those
instances, the loan secured by such building may be required to have
flood insurance under the FDPA. If flood insurance is required, a
regulated lending institution, or a servicer acting on its behalf, also
would be required to establish an escrow account to comply with the
FDPA, as amended by the Act. The proposed rule would require regulated
lending institutions to begin escrowing premiums and fees for required
flood insurance with the first loan payment after the flood insurance
policy is established. Under the proposal, this initial flood insurance
policy may either be purchased by the borrower or, if the borrower
failed to purchase a policy, force-placed by the regulated lending
institution.
The following explanation illustrates how this provision would
operate. Under the Agencies' proposal, in the situation in which a
lender determines that a loan that was not originally a designated
loan, but has become a designated loan, for example, due to remapping,
the lender would notify the borrower that flood insurance is required,
as provided in the force-placement provision of the rule. After the
required notification, either the borrower would purchase and pay for a
flood insurance policy or the lender would force-place a policy and
charge the borrower for the cost of coverage. The lender also would
commence escrowing payments to cover premiums and fees, which would be
applied to the next annual policy renewal, upon the borrower's next
loan payment.
The Agencies solicit comment on whether the requirement to begin
escrowing for a loan that becomes a designated loan after July 6, 2014,
should be limited only to when a borrower-purchased flood insurance
policy is established and exclude instances in which a lender-placed
flood insurance policy is established. If the rule were to be limited
only to when a borrower-purchased flood insurance is established, a
regulated lending institution would not be required to escrow flood
insurance premiums and fees when it force-places an initial flood
insurance policy. In this instance, after the expiration of such a
force-placed insurance policy, there would be no funds escrowed for any
policy that may be purchased at that time, whether it is borrower-
purchased or lender-placed. Under the proposed rule, a regulated
lending institution would be required to escrow flood insurance
premiums and fees following the establishment of a force-placed policy
for a loan that becomes a designated loan after July 6, 2014. If a
borrower fails to purchase the requisite flood insurance upon the
expiration of such force-placed insurance, then the lender would use
the escrowed funds to renew or purchase a new force-placed policy.
Notice
In order to ensure that borrowers are well-informed about the
escrow requirement to collect premiums and fees for required flood
insurance, the Agencies are proposing that regulated lending
institutions provide borrowers with a written notice. Specifically, the
proposed rule would mandate that a regulated lending institution, or a
servicer acting on its behalf, mail or deliver a written notice
informing a borrower that it is required to escrow all premiums and
fees for required flood insurance on residential improved real estate.
In order to facilitate compliance with the proposed notice requirement,
the Agencies are proposing model language for this notice as discussed
in more detail below in the SUPPLEMENTARY INFORMATION to Appendices A,
B, and C. To minimize the burden to regulated lending institutions of
providing this notice and to ensure that borrowers receive the notice
at a time when they are considering the purchase of flood insurance,
the proposal takes advantage of flood insurance notices that already
are required under current law. Specifically, the proposal adds
language regarding the escrow requirement to the existing Notice of
Special Flood Hazards and Availability of Federal Disaster Relief
Assistance, included in the Agencies' current rules as Appendix A. The
proposal would require that, for designated loans made on or after July
6, 2014, a regulated lending institution, or a servicer acting on its
behalf, must provide a notice that contains language substantially
similar to model clauses on the escrow requirement in the revised
sample notice provided in Appendix A with or on the Notice of Special
Flood Hazards and Availability of Federal Disaster Relief Assistance.
Similarly, under the proposal, for a loan that becomes a designated
loan after July 6, 2014, a regulated lending institution, or a servicer
acting on its behalf, must provide notice concerning the escrow
requirement with the force-placement notice, using language that is
substantially similar to the sample language proposed in Appendix C.
However, for loans that are outstanding on July 6, 2014, there are
no required notices under current law that the regulated lending
institution would be certain to provide before the institution would be
required to begin escrowing under the proposal. Consequently, the
Agencies are proposing that a regulated lending institution, or a
servicer acting on its behalf, provide a separate notice describing the
escrow requirement, substantially similar to the sample notice proposed
by the Agencies in Appendix B, at least 90 days before the regulated
lending institution must begin escrowing. The Agencies believe that 90
days' advance notice would give borrowers sufficient time to gather the
necessary funds for the escrow. However, the Agencies solicit comment
on whether 90 days is an appropriate time period to provide notice for
loans outstanding on July 6, 2014.
Exception
This proposal implements the statutory exception to the escrow
requirement substantially as included in the Act with some
clarifications. The statute states that, except as provided by State
law, regulated lending institutions that have total assets of less than
$1 billion are exempt from this escrow requirement if, on or before
July 6, 2012, the institution: (i) in the case of a loan secured by
residential improved real estate or a mobile home, was not required
under Federal or State law to deposit taxes, insurance premiums, fees,
or any other charges in an escrow account for the entire term of the
loan; and (ii) did not have a policy of consistently and uniformly
requiring the deposit of taxes, insurance premiums, fees, or any other
charges in an escrow account for loans secured by residential improved
real estate or a mobile home.
Because the Act does not specify a point in time to measure the
asset size of an institution to determine whether such institution
qualifies for the

[[Page 65117]]

exception, the Agencies are proposing that a regulated lending
institution may qualify for the exception if it has total assets of
less than $1 billion as of December 31 of either of the two prior
calendar years. Thus, a regulated lending institution would only be
subject to the escrow requirement if it has assets of $1 billion or
more as of December 31 for at least two consecutive years.
Consequently, if the proposal is finalized and becomes effective in
2014, regulated lending institutions with assets of $1 billion or more
as of both December 31, 2012, and December 31, 2013, would not qualify
for the exception. In contrast, a regulated lending institution with
assets of less than $1 billion as of either December 31, 2012 or
December 31, 2013, may qualify for the exception, provided the other
conditions for the exception are met.
This measurement method is similar to how the OCC, the Board, and
the FDIC have measured asset size in relation to the definitions for
small entities under the Community Reinvestment Act (CRA).\38\ The
Agencies believe the asset measurement method these agencies have used
with respect to CRA is an appropriate model in this case as it ensures
an institution is definitively over the size threshold before requiring
the institution to expend the resources needed to establish a new
escrow program.
---------------------------------------------------------------------------

\38\ See 12 CFR 25.12(u); 12 CFR 195.12(u); 12 CFR 228.12(u);
and 12 CFR 345.12(u).
---------------------------------------------------------------------------

Moreover, the Agencies are proposing transition rules for a change
in status of a regulated lending institution that may initially qualify
for the exception, but later grows to exceed the $1 billion asset size
threshold. Similar to the Board's Regulation II, the Agencies propose
to give regulated lending institutions approximately six months to
begin complying with the escrow requirement.\39\ The proposed rules
would mirror the proposed rules concerning the timing requirements for
when regulated lending institutions must begin to escrow for loans
outstanding or entered into on or after July 6, 2014. Therefore, for
any designated loans outstanding on July 1 of the succeeding calendar
year after a regulated lending institution has a change in status, the
proposal would require the institution to begin escrowing with the
first loan payment on or after the first renewal date of the borrower's
flood insurance policy on or after July 1 of the succeeding calendar
year. For any designated loan made after July 1 of the succeeding
calendar year after a regulated lending institution has a change in
status, the proposed rule would require the institution to begin
escrowing upon loan consummation. Finally, for any loan that becomes a
designated loan after July 1 of the succeeding calendar year after a
regulated lending institution has a change in status, the proposed rule
would require the institution to begin escrowing with the first loan
payment after the flood insurance policy is established.
---------------------------------------------------------------------------

\39\ See 12 CFR 235.5(a)(3).
---------------------------------------------------------------------------

For example, assume a regulated lending institution qualified for
the exception in 2014, but had assets of $1 billion or more as of
December 31, 2014, and December 31, 2015. In that case, 2016 would be
the succeeding calendar year. Under the proposal, such regulated
lending institution would be required to begin escrowing with the first
loan payment on or after the first renewal date of the borrower's flood
insurance policy on or after July 1, 2016, for any loan outstanding on
July 1, 2016. For any designated loan made after July 1, 2016, the
proposal would require such institution to begin escrowing upon loan
consummation. For any loan that becomes a designated loan after July 1,
2016, the proposal would require such institution to begin escrowing
with the first loan payment after the flood insurance policy is
established.
In addition, the Agencies are proposing the same notice obligation
for regulated lending institutions after a change in status with
similar timing requirements as would apply to other regulated lending
institutions that are subject to the escrow requirement. As a result,
for loans that are outstanding on July 1 of the succeeding calendar
year after a regulated lending institution has a change in status, the
proposal would require a regulated lending institution to provide
notice on the escrow requirement at least 90 days before the regulated
lending institution must begin escrowing, using language that is
substantially similar to the language provided in Appendix B. For
designated loans that are made on or after July 1 of the succeeding
calendar year after a regulated lending institution has a change in
status, the Agencies propose that notice concerning the escrow
requirement be provided with the notice of special flood hazards, using
language that is substantially similar to the escrow requirement
language provided in the sample form of notice contained in Appendix A.
Finally, for a loan that becomes a designated loan after July 1 of the
succeeding calendar year after a regulated lending institution has a
change in status, notice concerning the escrow requirement would be
provided with the force-placement notice under the proposal, using
language substantially similar to the sample language provided in
Appendix C.
Change in Ownership
The Agencies also are proposing a provision to address situations
in which a regulated lending institution that is required to comply
with the escrow requirement acquires a designated loan that is covered
by FDPA-required flood insurance that becomes subject to the escrow
requirement as a result of the acquisition. For example, this may occur
if a lender that qualifies for the statutory exception sells the loan
to or merges with a regulated lending institution that must comply with
the escrow requirement. In these cases, the Agencies are proposing that
the regulated lending institution must begin escrowing premiums and
fees for flood insurance with the first loan payment on or after the
first renewal date of the borrower's flood insurance policy on or after
the date that is six months from the transfer date of the loan. For
instance, suppose a regulated lending institution that is required to
comply with the escrow requirement purchases loans from an institution
that is not subject to the escrow requirement, and the transfer date
for the loans is February 1, 2015. Under the proposal, for any
designated loan that is transferred on February 1, 2015, the regulated
lending institution that acquires the loan must begin escrowing
premiums and fees for flood insurance with the first loan payment on or
after the first renewal date of the borrower's flood insurance policy
on or after August 1, 2015.
This proposed timing is similar to the timing the Agencies have
proposed for regulated lending institutions that no longer qualify for
the statutory exception. Furthermore, as with the notice requirement
proposed for other outstanding designated loans, the Agencies are
proposing that a regulated lending institution provide notice at least
90 days before the institution must begin to escrow for a designated
loan that becomes subject to the escrow requirement as a result of a
change in loan ownership.

--.-- Required use of standard flood hazard determination form.

The Agencies are proposing technical amendments in this section to
change the reference to the head of FEMA from Director to Administrator
and to update how a lending institution may obtain the standard flood
hazard insurance form by directing the institution to FEMA's Web site.

[[Page 65118]]

--.-- Force placement of flood insurance.

Pursuant to section 102(e) of the FDPA, as amended by section
100244 of the Act, the Agencies are proposing to amend their rules for
the force-placement of flood insurance.\40\ The proposal implements
section 100244 of the Act by setting forth when a regulated lending
institution or its servicer may begin to charge the borrower for force-
placed insurance, the circumstances under which a regulated lending
institution or its servicer must terminate force-placed insurance and
refund payments, and what documentary evidence is sufficient to
demonstrate a borrower has flood insurance coverage.
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\40\ The Agencies note that section 1463(a) of the Dodd-Frank
Act sets forth requirements relating to the force placement of
hazard insurance. The CFPB has excluded flood insurance required
under the FDPA from the force placement requirements in its rule
implementing this provision. 78 FR 10696, 10880 (February 14, 2013).
---------------------------------------------------------------------------

Notice and Purchase of Coverage
Under current regulations, if a regulated lending institution, or a
servicer acting on its behalf, determines at any time during the term
of a designated loan that the building or mobile home and any personal
property securing the designated loan is not covered by flood insurance
or is covered by flood insurance in an amount less than the amount
required under the FDPA, then the regulated lending institution or its
servicer must notify the borrower that the borrower should obtain flood
insurance, at the borrower's expense, in an amount at least equal to
the amount required under the mandatory purchase requirements, for the
remaining term of the designated loan. If the borrower fails to obtain
adequate flood insurance within 45 days after notification, then the
regulated lending institution or its servicer must purchase flood
insurance on behalf of the borrower. The regulated lending institution
or servicer may charge the borrower for the cost of the premiums and
fees incurred in purchasing the insurance. Pursuant to section 102(e)
of the FDPA, as amended by section 100244 of the Act, the Agencies
propose to amend their regulations to provide that the regulated
lending institution or its servicer may charge the borrower for the
cost of premiums and fees incurred for coverage beginning on the date
on which flood insurance coverage lapsed or did not provide a
sufficient coverage amount. The Agencies' understanding is that the
date on which the flood insurance coverage lapsed is the expiration
date provided in the policy. The Agencies seek comment on whether the
Agencies' interpretation of the term ``lapsed'' is consistent with the
insurance industry's use of the term and as to whether further
clarification is necessary on when a lender or servicer may begin to
charge for force-placed flood insurance.
For purposes of safety and soundness, regulated lending
institutions should monitor the continuous coverage of flood insurance
for the building or mobile home and any personal property securing a
designated loan. Additionally, the Agencies interpret the Act to permit
a regulated lending institution to force-place a flood insurance policy
purchased on behalf of a borrower that is effective the day after
expiration of a borrower's original insurance policy to ensure that it
is continuous. Such a practice will ensure that institutions complete
the force-placement of flood insurance in a timely manner upon lapse of
the policy and that there is continuous insurance coverage to protect
both the borrower and the institution.
Termination of Force-Placed Insurance
As provided in section 102(e)(3) of the FDPA, as added by section
100244 of the Act, the Agencies propose that within 30 days of receipt
by a regulated lending institution, or a servicer acting on its behalf,
of a confirmation of a borrower's existing flood insurance coverage, a
regulated lending institution is required to: (i) Notify the insurer to
terminate any force-placed insurance purchased by the regulated lending
institution or its servicer; and (ii) refund to the borrower all
premiums paid by the borrower for any insurance purchased by the
regulated lending institution or its servicer under this section for
any period during which the borrower's flood insurance coverage and the
insurance coverage purchased by the regulated lending institution or
its servicer were each in effect (overlap period), and any related fees
charged to the borrower with respect to the insurance purchased by the
regulated lending institution or its servicer during such overlap
period.
The Agencies realize that, although regulated lending institutions
and servicers can request that a force-placed insurance policy be
terminated, the insurer is the party that actually cancels the policy.
The Agencies' proposal therefore clarifies the statutory language in
section 102(e)(3) of the FDPA, as amended by section 100244 of the Act,
to require the institution only to notify the insurer to terminate the
force-placed policy and to fully refund to the borrower the premiums
and fees for the overlap period within the 30-day period required by
the statute.
In addition, the Agencies note that section 102(e)(3) of the FDPA,
as amended, and the Agencies' proposed regulations, do not specify a
party from which a regulated lending institution must receive
confirmation of a borrower's existing flood insurance coverage.
Therefore, regulated lending institutions may receive the confirmation
from either the borrower or a third party, such as an insurance agent
or insurer with whom the institution has direct contact.
Sufficiency of Demonstration
Pursuant to section 102(e)(4) of the FDPA, as amended by section
100244 of the Act, the Agencies propose that for the purposes of
confirming a borrower's existing flood insurance coverage, a regulated
lending institution or its servicer must accept from the borrower an
insurance policy declarations page that includes the existing flood
insurance policy number and the identity of, and contact information
for, the insurance company or its agent, as confirmation of the
existence of coverage. A lender is responsible for making all necessary
inquiries into the adequacy of the borrower's insurance policy to
ensure the policy complies with the mandatory purchase requirement. If
the lender determines the coverage amount or any terms and conditions
fail to meet applicable requirements, the lender should notify the
borrower and request the borrower to obtain an adequate flood insurance
policy.

--.-- Determination fees.

The Agencies are proposing technical amendments in this section to
change the references to the head of FEMA from Director to
Administrator.

--.-- Notice of special flood hazards and availability of Federal
disaster relief assistance.

Section 100239 of the Act adds a new section 102(b)(6) to the FDPA
(42 U.S.C. 4012a(b)(6)) requiring regulated lending institutions to
disclose to a borrower that: (i) Flood insurance is available from
private insurance companies that issue SFIPs on behalf of the NFIP or
directly from the NFIP; (ii) flood insurance that provides the same
level of coverage as an SFIP under the NFIP may be available from a
private insurance company that issues policies on behalf of the
company; and (iii) the borrower is encouraged to compare the flood
insurance coverage, deductibles, exclusions, conditions, and premiums
associated with flood insurance policies

[[Page 65119]]

issued on behalf of the NFIP and policies issued on behalf of private
insurance companies and to direct inquiries regarding the availability,
cost, and comparisons of flood insurance coverage to an insurance
agent. Furthermore, section 100239(b) of the Act amends section
1364(a)(3)(C) of the 1968 Act (42 U.S.C. 4104a(a)(3)(C)) to require
that the disclosures in section 102(b)(6) of the FDPA be provided in
the Notice of Special Flood Hazards and Availability of Federal
Disaster Relief Assistance. Therefore, the proposal requires the
disclosures set forth in section 102(b)(6) of the FDPA to be included
in the Notice of Special Flood Hazards and Availability of Federal
Disaster Relief Assistance, and the Agencies have proposed model
language to include in the sample form of notice contained in Appendix
A.

--.-- Notice of servicer's identity.

The Agencies are proposing technical amendments in this section to
change the references to the head of FEMA from Director to
Administrator.

Appendices A, B, & C

As noted above in the SUPPLEMENTARY INFORMATION accompanying the
revisions to --.-- Notice of special flood hazards and availability of
Federal disaster relief assistance, the Agencies are proposing to amend
the sample form of notice contained in Appendix A to include the
disclosures required by section 102(b)(6) of the FDPA, as added by
section 100239 of the Act, regarding the availability of private flood
insurance coverage. The proposed additions to the sample form closely
track the statutory language. The Agencies also are proposing to revise
the language relating to the coverage limit to more accurately reflect
what is actually covered under the Federal flood statutes, as discussed
in the SUPPLEMENTARY INFORMATION accompanying the revisions to --.--
Requirement to purchase flood insurance coverage where available.
Specifically, the Agencies are proposing that the language be amended
to state that flood insurance coverage is available only on the
building or mobile home and any personal property that secures the loan
and not the land itself. The Agencies propose other technical
amendments to the sample form of notice contained in Appendix A, to
change the references to the head of FEMA from Director to
Administrator.
In addition, as discussed in the SUPPLEMENTARY INFORMATION
accompanying the revisions to --.-- Escrow requirement, the Agencies
are proposing that regulated lending institutions mail or deliver a
written notice informing borrowers about the requirement to escrow
premiums and fees for required flood insurance. To facilitate
compliance with the proposed notice requirement, the Agencies are
proposing model language that may be included, if applicable, in the
Notice of Special Flood Hazards and Availability of Federal Disaster
Relief Assistance as set forth in the sample form of notice contained
in Appendix A. The Agencies also are proposing a sample form of notice
in new Appendix B that may be used for designated loans that are
outstanding as of the date a regulated lending institution becomes
subject to the escrow requirement or acquires a designated loan that
becomes subject to the escrow requirement. Finally, new Appendix C
provides a proposed Sample Clause with respect to the escrow
requirement notice that regulated lending institutions could include in
a notice of force-placement for a loan that becomes a designated loan
after a regulated lending institution becomes subject to the escrow
requirement.

V. Regulatory Analysis

Regulatory Flexibility Act

OCC: In general, the Regulatory Flexibility Act (RFA) requires that
in connection with a notice of proposed rulemaking an agency prepare
and make available for public comment an initial regulatory flexibility
analysis that describes the impact of a proposed rule on small
entities.\41\ Under section 605(b) of the RFA, this analysis is not
required if an agency certifies that the rule would not have a
significant economic impact on a substantial number of small entities
and publishes its certification and a short explanatory statement in
the Federal Register along with its rule. We have concluded that the
proposed rule does not have a significant economic impact on a
substantial number of small entities supervised by the OCC.
---------------------------------------------------------------------------

\41\ See 5 U.S.C. 601 et seq.
---------------------------------------------------------------------------

The OCC currently supervises approximately 1,257 small national
banks, Federal savings associations, trust companies, and branches or
agencies of foreign banks.\42\ If implemented, the draft NPRM would
impact approximately 871 of these small institutions. Thus, the
proposed rule impacts a substantial number of small institutions. The
OCC classifies the economic impact of total costs on an institution as
significant if the total costs in a single year are greater than 5
percent of total salaries and benefits, or greater than 2.5 percent of
total non-interest expense. The OCC estimates that the average cost per
small institution is approximately $23,000 per year.\43\ Using this
cost estimate, we believe the proposed rule will have a significant
economic impact on eleven small institutions supervised by the OCC,
which is not a substantial number. Therefore, pursuant to section
605(b) of the RFA, the OCC hereby certifies that this proposal would
not have a significant economic impact on a substantial number of small
entities. Accordingly, an initial regulatory flexibility analysis is
not required.
---------------------------------------------------------------------------

\42\ We base our estimate of the number of active small entities
on the SBA's size thresholds for commercial banks and savings
institutions, and trust companies, which are $500 million and $35.5
million, respectively. Consistent with the General Principles of
Affiliation 13 CFR Sec. 121.103(a), we count the assets of
affiliated financial institutions when determining if we should
classify a bank we supervise as a small entity. We use December 31,
2012 to determine size because a ``financial institution's assets
are determined by averaging the assets reported on its four
quarterly financial statements for the preceding year.'' See
footnote 8 of the U.S. Small Business Administration's Table of Size
Standards.
\43\ Because the OCC does not have the information to determine
whether a small institutions would meet the exception for the escrow
requirement provided by proposed Sec. 22.5(c), we have not applied
this exception in our calculations. Therefore, our estimated costs
per small bank may be overstated.
---------------------------------------------------------------------------

Board: The RFA requires an agency to publish an initial regulatory
flexibility analysis with a proposed rule or certify that the proposed
rule will not have a significant economic impact on a substantial
number of small entities. The Board is publishing an initial regulatory
flexibility analysis and requests public comment on all aspects of its
analysis. The Board will conduct a final regulatory flexibility
analysis after considering the comments received during the public
comment period.
1. Statement of the need for, and objectives of, the proposed rule.
The Board is proposing revisions to Regulation H to implement certain
provisions of the Act over which the Agencies, including the Board,
have jurisdiction. Consistent with the Act, the proposal would require
a regulated lending institution (or its servicer) to escrow the
premiums and fees for required flood insurance for any loan secured by
residential improved real estate or a mobile home, unless the lender
qualifies under the statutory exception for certain small lenders.
The proposal also would implement the Act's requirement that
regulated lending institutions accept any private insurance policy that
meets the Act's definition of ``private flood insurance'' in
satisfaction of the mandatory purchase requirement. The proposed

[[Page 65120]]

rule would also include a safe harbor allowing lenders to rely on a
State insurance regulator's written determination that a particular
private insurance policy satisfies the Act's definition. Regulated
lending institutions would also be required to provide disclosures on
the availability of private flood insurance, as mandated by the Act.
The Act also includes provisions related to the force placement of
flood insurance, which the proposal would implement. These provisions
clarify that regulated lending institutions may charge a borrower for
the cost of premiums and fees incurred in the purchase of force-placed
flood insurance from the date coverage lapsed or did not provide a
sufficient amount of coverage. The provisions also provide that within
30 days of receipt of a confirmation of a borrower's existing flood
insurance coverage, a regulated lending institution is required to
terminate any force-placed insurance purchased by the regulated lending
institution, and refund to the borrower all premiums paid by the
borrower for lender-placed coverage for any period during which the
borrower's flood insurance coverage and the lender-place coverage
overlapped.
2. Small entities affected by the proposed rule. All State member
banks that are subject to Regulation H would be subject to the proposed
rule. As of June 30, 2013, there were 844 State member banks. Under
regulations issued by the Small Business Administration (SBA), banks
and other depository institutions with total assets of $500 million or
less are considered small. Of the 844 State member banks subject to
Regulation H, approximately 634 State member banks would be considered
small entities by the SBA.
As discussed in detail above in the SUPPLEMENTARY INFORMATION,
regulated lending institutions with total assets less than $1 billion
would generally be exempt from the proposed rules implementing the
escrow provisions of the Act. Therefore, the escrow provisions of the
proposed rule would generally not affect small entities. Furthermore,
the Act's force placement provisions already went into effect upon
passage of the Act on July 6, 2012. As a result, the proposed rules
implementing the Act's force placement provisions should not have any
impact on small entities who were required to comply with the
provisions as of July 6, 2012. Even prior to the Act's passage,
regulated lending institutions, including those that are considered
small entities, would have had mechanisms in place to refund premiums
and fees to borrowers for any period of overlap between a force placed
policy and a borrower's policy. Consequently, the Act's force placement
provisions, which set forth procedures for terminating force placed
insurance and refunding premiums and fees to the borrower, nevertheless
would have had minimal impact on regulated lending institutions.
With respect to the proposed rules regarding the acceptance of
private flood insurance, the Board believes the rules will not have a
significant impact on small entities because regulated lending
institutions, including those that are considered small entities,
currently are permitted to accept private flood insurance policies.
Moreover, as discussed in the SUPPLEMENTARY INFORMATION, the proposed
rule would seek to alleviate the burden on regulated lending
institutions, including those that are considered small entities, of
evaluating whether a flood insurance policy issued by a private insurer
meets the definition of ``private flood insurance'' by providing a safe
harbor permitting lenders to rely on the determination of a State
insurance regulator. Small entities will be required under the proposal
to amend their notices of special flood hazards to include information
on the availability of private flood insurance. The proposal provides
sample forms to facilitate compliance and reduce burden upon small
institutions.
3. Other Federal rules. The Board has not identified any likely
duplication, overlap and/or potential conflict between the proposed
rule and any Federal rule.
4. Significant alternatives to the proposed revisions. The Board
solicits comment on any significant alternatives that would reduce the
regulatory burden associated with this proposed rule on small entities.
FDIC: The RFA generally requires that, in connection with a notice
of proposed rulemaking, an agency prepare and make available for public
comment an initial regulatory flexibility analysis that describes the
impact of a proposed rule on small entities. A regulatory flexibility
analysis is not required, however, if the agency certifies that the
rule will not have a significant economic impact on a substantial
number of small entities (defined in regulations promulgated by the
Small Business Administration to include banking organizations with
total assets of less than or equal to $500 million) and publishes its
certification and a short, explanatory statement in the Federal
Register together with the rule. As of March 31, 2013, there were
approximately 3,711 small FDIC-supervised banks which include 3,398
State nonmember banks and 259 State-chartered savings banks, and 54
savings associations.
It is the opinion of the FDIC that the proposed rule will not have
a significant economic impact on a substantial number of the small
entities, which the FDIC supervises. The FDIC reaches this conclusion
in reliance upon the fact that the only requirements that the Act
requires the Agencies to impose upon supervised entities as a matter of
regulation are the escrow requirement and the requirement to accept
private flood insurance. The Act provides that generally a depository
institution with assets of less than $1 billion is not required to
comply with the escrow requirement. As a result, due to this statutory
exclusion, by law the escrow requirement cannot have a significant
economic impact on a substantial number of small entities. The
requirement to accept private flood insurance also cannot have a
significant economic impact on a substantial number of small entities
since depository institutions were permitted to accept private flood
insurance for NFIP purposes even before the Act's amendments. For these
reasons, the FDIC certifies that this proposed rule will not have a
significant economic impact on a substantial number of small entities
that it supervises.
FCA:
Pursuant to section 605(b) of the RFA, the FCA hereby certifies
that the proposed rule will not have a significant economic impact on a
substantial number of small entities. Each of the banks in the Farm
Credit System, considered together with its affiliated associations,
has assets and annual income in excess of the amounts that would
qualify them as small entities. Therefore, Farm Credit System
institutions are not ``small entities'' as defined in the RFA.
NCUA:
The RFA requires NCUA to prepare an analysis to describe any
significant economic impact a regulation may have on a substantial
number of small entities.\44\ For purposes of this analysis, NCUA
considers small credit unions to be those having under $50 million in
assets.\45\ As of June 30, 2013, there are 1,803 small, federally
insured credit unions. The proposed rule would require a credit union
to escrow the premiums and fees for required flood

[[Page 65121]]

insurance for any loan secured by residential improved real estate or a
mobile home. The proposed rule would also implement the requirement
that credit unions accept any private insurance policy that meets the
statutory definition of ``private flood insurance'', and includes
provisions related to the force placement of flood insurance.
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\44\ 5 U.S.C. 603(a).
\45\ Interpretive Ruling and Policy Statement 03-2, 68 FR 31949
(May 29, 2003), as amended by Interpretative Ruling and Policy
Statement 13-1, 78 FR 4032 (Jan. 18, 2013).
---------------------------------------------------------------------------

Under this proposed rule, credit unions with total assets less than
$1 billion would generally be exempt from the escrow provisions.
Therefore, the escrow provisions of the proposed rule would not affect
small credit unions. For private flood insurance, NCUA does not believe
the proposed rule will have a significant impact on small credit unions
since credit unions are currently allowed to accept private flood
insurance. In addition, the proposed rule provides a safe harbor for
regulated lending institutions (which includes credit unions),
including small entities, for evaluating whether a flood insurance
policy issued by a private insurer meets the definition of ``private
flood insurance''. Lastly, the force placement provisions in the
proposed rule were effective on July 6, 2012, and credit unions have
been enforcing force placement provisions already. In addition, credit
unions currently have the tools to refund premiums and fees whenever a
borrower's policy overlaps a force-placed policy, as required in the
proposed rule.
NCUA finds that this proposed rule would affect relatively few
federally insured, small credit unions and the associated cost is
minimal. Accordingly, NCUA certifies the rule will not have a
significant economic impact on small entities.
Unfunded Mandates Reform Act of 1995
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) (2
U.S.C. 1501 et seq.) requires certain agencies, including the OCC, to
prepare a budgetary impact statement before promulgating a rule that
includes a Federal mandate that may result in the expenditure by State,
local, and tribal governments, in the aggregate, or by the private
sector of $100 million or more in any one year. If a budgetary impact
statement is required, section 205 of UMRA also requires an agency to
identify and consider a reasonable number of regulatory alternatives
before promulgating a rule.
The OCC has estimated that the total cost associated with this
NPRM, if implemented, would be approximately $72 million and the
average cost per institution would be $55,000. However, pursuant to
section 201 of the UMRA, a regulation does not impose a mandate to the
extent it incorporates requirements ``specifically set forth in the
law.'' Therefore, we exclude from our UMRA estimate costs specifically
related to requirements set forth in the Act, such as costs related to
establishing escrow accounts, amendments to the force placement
provisions, and the acceptance of private flood insurance policies.
Furthermore, under Title II of the UMRA, indirect costs, foregone
revenues and opportunity costs are not included when determining if a
mandate meets or exceeds UMRA's cost threshold. Therefore, based on
these exclusions, our UMRA cost estimate for the NPRM, if implemented,
is zero.
Accordingly, because the OCC has determined that this proposed rule
would not result in expenditures by State, local, and tribal
governments, or by the private sector, of $100 million or more, we have
not prepared a budgetary impact statement or specifically addressed the
regulatory alternatives considered.
Paperwork Reduction Act of 1995
The OCC, Board, FDIC, and NCUA (the Agencies) \46\ have determined
that this proposed rule involves a collection of information pursuant
to the provisions of the Paperwork Reduction Act of 1995 (the PRA) (44
U.S.C. 3501 et seq.).
---------------------------------------------------------------------------

\46\ The FCA has determined that the proposed rule does not
involve a collection of information pursuant to the PRA for System
institutions because System institutions are Federally chartered
instrumentalities of the United States and instrumentalities of the
United States are specifically excepted from the definition of
``collection of information'' contained in 44 U.S.C. 3502(3).
---------------------------------------------------------------------------

In accordance with the PRA (44 U.S.C. 3506; 5 CFR 1320 Appendix
A.1), the Board reviewed the proposed rule under the authority
delegated to the Board by the Office of Management and Budget (OMB).
The collection of information that is subject to the PRA by this
proposed rule is found in 12 CFR 22.5, 208.25(e), 339.5, and 760.5. In
addition, as permitted by the PRA, the OCC, Board, and FDIC also
propose to extend for three years their respective information
collections.
The Agencies may not conduct or sponsor, and an organization is not
required to respond to, this information collection unless the
information collection displays a currently valid OMB control number.
The OMB control numbers are 1557-0202 (OCC), 7100-0280 (Board), and
3064-0120 (FDIC).\47\
---------------------------------------------------------------------------

\47\ NCUA's part 760 contains various information collection
requirements as described in the PRA and previously submitted by
NCUA.
---------------------------------------------------------------------------

The proposed rule adds a notice requirement stating that
institutions or services that are required to escrow all premiums and
fees for required flood insurance must issue a written notice to the
borrower.
This information collection is required to evidence compliance with
the requirements of the Federal flood insurance statutes with respect
to lenders and servicers. Because the Agencies do not collect any
information, no issue of confidentiality arises. The respondents are
for-profit and non-profit financial institutions, including small
businesses.
Entities subject to the Agencies' existing flood insurance rules
will have to review and revise disclosures that are currently provided
to ensure that such disclosures accurately reflect the disclosure
requirements in this proposed rule. Entities subject to the rule may
also need to develop new disclosures to meet the proposed rule's timing
requirements.
The total estimated burden increase, as well as the estimates of
the burden increase associated with each major section of the proposed
rule as set forth below, represents averages for all respondents
regulated by the Agencies. The Agencies expect that the amount of time
required to implement each of the proposed changes for a given
institution may vary based on the size and complexity of the
respondent.
The Agencies estimate that respondents would take, on average, 40
hours to update their systems in order to comply with the disclosure
requirements and the one-time escrow notice under the proposed rule. In
an effort to minimize the compliance cost and burden, particularly for
small entities that do not meet the requirement for the statutory
exception, the proposed rule contains model disclosures in appendices
A, B, and C that may be used to satisfy the requirements.
Burden Estimates
OCC:
Number of Respondents: 1,316.
Burden for Existing Recordkeeping Requirements: 196,907 hours.
Burden for Existing Disclosure Requirements: 244,208 hours.
Burden for Proposed Rule: 52,640 hours.
Total Burden for Collection: 493,755 hours.
Board:
Number of Respondents: 843.
Burden for Existing Recordkeeping Requirements: 14,191 hours.
Burden for Existing Disclosure Requirements: 17,632 hours.

[[Page 65122]]

Burden for Proposed Rule: 33,720 hours.
Total Burden for Collection: 65,543 hours.
FDIC:
Number of Respondents: 4,421.
Burden for Existing Recordkeeping Requirements: 61,894 hours.
Burden for Existing Disclosure Requirements: 76,999 hours.
Burden for Proposed Rule: 176,840 hours.
Total Burden for Collection: 315,733 hours.
NCUA:
Number of Respondents: 4,192.
Burden for Existing Recordkeeping Requirements: 57,230.85 hours.
Burden for Existing Disclosure Requirements: 70,966.26 hours.
Burden for Proposed Rule: 8,240 hours.
Total Burden for Collection: 136,437.11 hours.
These collections are available to the public at www.reginfo.gov.
Comments are invited on: (1) Whether the proposed collection of
information is necessary for the proper performance of the Agencies'
functions; including whether the information has practical utility; (2)
the accuracy of the Agencies' estimate of the burden of the proposed
information collection, including the cost of compliance; (3) ways to
enhance the quality, utility, and clarity of the information to be
collected; and (4) ways to minimize the burden of information
collection on respondents, including through the use of automated
collection techniques or other forms of information technology.
Comments on the collection of information should be sent to:
OCC: Because paper mail in the Washington, DC area and at the OCC
is subject to delay, commenters are encouraged to submit comments by
email if possible. Comments may be sent to: Legislative and Regulatory
Activities Division, Office of the Comptroller of the Currency,
Attention: [1557-0202], 400 7th Street SW., Suite 3E-218, Mail Stop 9W-
11, Washington, DC 20219. In addition, comments may be sent by fax to
(571) 465-4326 or by electronic mail to regs.comments@occ.treas.gov.
You may personally inspect and photocopy comments at the OCC, 400 7th
Street SW., Washington, DC 20219. For security reasons, the OCC
requires that visitors make an appointment to inspect comments. You may
do so by calling (202) 649-6700. Upon arrival, visitors will be
required to present valid government-issued photo identification and to
submit to security screening in order to inspect and photocopy
comments.
All comments received, including attachments and other supporting
materials, are part of the public record and subject to public
disclosure. Do not enclose any information in your comment or
supporting materials that you consider confidential or inappropriate
for public disclosure.
Board: Cynthia Ayouch, Federal Reserve Clearance Officer, Office of
the Chief Data Officer, Mail Stop 95, Board of Governors of the Federal
Reserve System, Washington, DC 20551, with copies of such comments sent
to the Office of Management and Budget, Paperwork Reduction Project
(7100-0280), Washington, DC 20503.
FDIC: You may submit comments, which should refer to ``Interagency
Flood Insurance, 3064-0120'' by any of the following methods:
Agency Web site: https://www.fdic.gov/regulations/laws/federal/propose.html. Follow the instructions for submitting comments
on the FDIC Web site.
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
Email: comments@FDIC.gov. Include ``Interagency Flood
Insurance, 3064-0120'' in the subject line of the message.
Mail: Gary A. Kuiper, Counsel, Attn: Comments, Room NYA-
5046, Federal Deposit Insurance Corporation, 550 17th Street NW.,
Washington, DC 20429.
Hand Delivery: Comments may be hand delivered to the guard
station at the rear of the 550 17th Street Building (located on F
Street) on business days between 7 a.m. and 5 p.m.
Public Inspection: All comments received will be posted without
change to https://www.fdic.gov/regulations/laws/federal/propose.html
including any personal information provided.
NCUA: Tracy Crews, National Credit Union Administration, 1775 Duke
Street, Alexandria, Virginia 22314-3428, Fax No. 703-837-2861, Email:
OCIOPRA@ncua.gov.
Additionally, commenters may send a copy of their comments to the
OMB desk officer for the agencies by mail to the Office of Information
and Regulatory Affairs, U.S. Office of Management and Budget, New
Executive Office Building, Room 10235, 725 17th Street NW., Washington,
DC 20503; by fax to (202) 395-6974; or by email to oira_submission@omb.eop.gov.

List of Subjects

12 CFR Part 22

Flood insurance, Mortgages, National banks, Reporting and
recordkeeping requirements, Savings associations.

12 CFR Part 172

Flood insurance, Reporting and recordkeeping requirements, Savings
associations.

12 CFR Part 208

Accounting, Agriculture, Banks, banking, Confidential business
information, Crime, Currency, Federal Reserve System, Flood insurance,
Mortgages, Reporting and recordkeeping requirements, Securities.

12 CFR Part 339

Flood insurance, Reporting and recordkeeping requirements, Savings
associations.

12 CFR Part 391

Flood insurance, Reporting and recordkeeping requirements, Savings
associations.

12 CFR Part 614

Agriculture, Banks, banking, Flood insurance, Foreign trade,
Reporting and recordkeeping requirements, Rural areas.

12 CFR Part 760

Credit unions, Mortgages, Flood insurance, Reporting and
recordkeeping requirements.

Office of the Comptroller of the Currency

12 CFR CHAPTER I

Authority and Issuance

For the reasons set forth in the joint preamble and under the
authority of 12 U.S.C. 93a and 5412(b)(2)(B), the OCC proposes to amend
Part 12 Chapter I as follows:

0
1. Revise Part 22 to read as follows::

PART 22--LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS

Sec.
22.1 Purpose and scope.
22.2 Definitions.
22.3 Requirement to purchase flood insurance where available.
22.4 Exemptions.
22.5 Escrow requirement.
22.6 Required use of standard flood hazard determination form.
22.7 Force-placement of flood insurance.
22.8 Determination fees.
22.9 Notice of special flood hazards and availability of Federal
disaster relief assistance.
22.10 Notice of servicer's identity.
Appendix A to Part 22--Sample Form of Notice of Special Flood
Hazards and Availability of Federal Disaster Relief Assistance
Appendix B to Part 22--Sample Form of Notice of Requirement to
Escrow For Outstanding Loans

[[Page 65123]]

Appendix C to Part 22--Sample Escrow Requirement Clause for Loans
That Become Designated Loans

Authority: 12 U.S.C. 93a, 1462a, 1463, 1464, and 5412(b)(2)(B);
42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128.

Sec. 22.1 Purpose and scope.

(a) Purpose. The purpose of this part is to implement the
requirements of the National Flood Insurance Act of 1968 and the Flood
Disaster Protection Act of 1973, as amended (42 U.S.C. 4001-4129).
(b) Scope. This part, except for Sec. Sec. 22.6 and 22.8, applies
to loans secured by buildings or mobile homes located or to be located
in areas determined by the Administrator of the Federal Emergency
Management Agency to have special flood hazards. Sections 22.6 and 22.8
apply to loans secured by buildings or mobile homes, regardless of
location.

Sec. 22.2 Definitions.

For the purposes of this part:
(a) Act means the National Flood Insurance Act of 1968, as amended
(42 U.S.C. 4001-4129).
(b) Administrator of FEMA means the Administrator of the Federal
Emergency Management Agency.
(c) Building means a walled and roofed structure, other than a gas
or liquid storage tank, that is principally above ground and affixed to
a permanent site, and a walled and roofed structure while in the course
of construction, alteration, or repair.
(d) Community means a State or a political subdivision of a State
that has zoning and building code jurisdiction over a particular area
having special flood hazards.
(e) Designated loan means a loan secured by a building or mobile
home that is located or to be located in a special flood hazard area in
which flood insurance is available under the Act.
(f) Mobile home means a structure, transportable in one or more
sections, that is built on a permanent chassis and designed for use
with or without a permanent foundation when attached to the required
utilities. The term mobile home does not include a recreational
vehicle. For purposes of this part, the term mobile home means a mobile
home on a permanent foundation. The term mobile home includes a
manufactured home as that term is used in the NFIP.
(g) NFIP means the National Flood Insurance Program authorized
under the Act.
(h) Private flood insurance means an insurance policy that:
(1) Is issued by an insurance company that is:
(i) Licensed, admitted, or otherwise approved to engage in the
business of insurance in the State or jurisdiction which the insured
building is located, by the insurance regulator of that State or
jurisdiction; or
(ii) Recognized, or not disapproved, as a surplus lines insurer by
the insurance regulator of the State or jurisdiction where the property
to be insured is located in the case of a policy of difference in
conditions, multiple peril, all risk, or other blanket coverage;
(2) Provides flood insurance coverage which is at least as broad as
the coverage provided under a standard flood insurance policy under the
NFIP, including when considering deductibles, exclusions, and
conditions offered by the insurer;
(3) Includes all of the following:
(i) A requirement for the insurer to give 45 days' written notice
of cancellation or non-renewal of flood insurance coverage to:
(A) The insured; and
(B) The national bank or Federal savings association that made the
designated loan secured by the property for which the insurance is
providing coverage;
(ii) Information about the availability of flood insurance coverage
under the NFIP;
(iii) A mortgage interest clause similar to the clause contained in
the standard flood insurance policy under the NFIP; and
(iv) A provision requiring an insured to file suit not later than
one year after the date of a written denial of all or part of a claim
under the policy; and
(4) Contains cancellation provisions that are as restrictive as the
provisions contained in a standard flood insurance policy under the
NFIP.
(i) Residential improved real estate means real estate upon which a
home or other residential building is located or to be located.
(j) Federal savings association means, for purposes of this part, a
Federal savings association as that term is defined in 12 U.S.C.
1813(b)(2) and any service corporations thereof.
(k) Servicer means the person responsible for:
(1) Receiving any scheduled, periodic payments from a borrower
under the terms of a loan, including amounts for taxes, insurance
premiums, and other charges with respect to the property securing the
loan; and
(2) Making payments of principal and interest and any other
payments from the amounts received from the borrower as may be required
under the terms of the loan.
(l) Special flood hazard area means the land in the flood plain
within a community having at least a one percent chance of flooding in
any given year, as designated by the Administrator of FEMA.
(m) Table funding means a settlement at which a loan is funded by a
contemporaneous advance of loan funds and an assignment of the loan to
the person advancing the funds.

Sec. 22.3 Requirement to purchase flood insurance where available.

(a) In general. A national bank or Federal savings association
shall not make, increase, extend, or renew any designated loan unless
the building or mobile home and any personal property securing the loan
is covered by flood insurance for the term of the loan. The amount of
insurance must be at least equal to the lesser of the outstanding
principal balance of the designated loan or the maximum limit of
coverage available for the particular type of property under the Act.
Flood insurance coverage under the Act is limited to the building or
mobile home and any personal property that secures a loan and not the
land itself.
(b) Table funded loans. A national bank or Federal savings
association that acquires a loan from a mortgage broker or other entity
through table funding shall be considered to be making a loan for the
purposes of this part.
(c) Private flood insurance. (1) Mandatory acceptance. A national
bank or Federal savings association must accept private flood
insurance, as defined in Sec. 22.2(h), as satisfaction of the flood
insurance coverage requirement, provided that coverage under the flood
insurance policy meets the requirement for coverage under paragraph (a)
of this section.
(2) Safe harbor. A flood insurance policy shall be deemed to meet
the definition of private flood insurance in Sec. 22.2(h) for purposes
of paragraph (a) of this section if a State insurance regulator makes a
determination in writing that the policy meets the definition of
private flood insurance in Sec. 22.2(h).

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 Administrator of FEMA, who publishes and
periodically revises the list of States falling within this exemption;
or
(b) Property securing any loan with an original principal balance
of $5,000 or less and a repayment term of one year or less.

[[Page 65124]]

Sec. 22.5 Escrow requirement.

(a) In general. (1) Applicability. Except as provided in paragraph
(c) of this section, a national bank or Federal savings association, or
a servicer acting on its behalf, shall require the escrow of all
premiums and fees for any flood insurance required under Sec. 22.3(a)
for any loan secured by residential improved real estate or a mobile
home that is outstanding or entered into on or after July 6, 2014,
payable with the same frequency as payments on the loan are made for
the duration of the loan, unless the national bank or Federal savings
association has determined that:
(i) The loan is an extension of credit primarily for business,
commercial, or agricultural purposes;
(ii) The borrower has obtained flood insurance coverage that meets
the requirements of Sec. 22.3(a) for the residential improved real
estate or mobile home securing the loan and is currently paying
premiums and fees through an escrow account established by another
lender; or
(iii) Flood insurance coverage for the residential improved real
estate or mobile home is provided by a policy that is purchased by a
common interest community instead of the borrower, such as an NFIP
Residential Condominium Building Association Policy (RCBAP), that meets
the requirements of Sec. 22.3(a).
(2) Timing. A national bank or Federal savings association that is
subject to paragraph (a) of this section, other than due to a change in
status under paragraph (c)(2) of this section or for acquired loans
subject to paragraph (d) of this section, shall begin escrowing
premiums and fees for flood insurance:
(i) For any designated loan outstanding on July 6, 2014, with the
first loan payment on or after the first renewal date of the borrower's
flood insurance policy on or after July 6, 2014;
(ii) For any designated loan made on or after July 6, 2014, upon
loan consummation; or
(iii) For any loan that becomes a designated loan after July 6,
2014, with the first loan payment after the flood insurance policy is
established.
(3) Escrow Account. The national bank or Federal savings
association, or a servicer acting on behalf of the national bank or
Federal savings association, shall deposit the flood insurance premiums
and fees 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
Administrator of FEMA or other provider of flood insurance that
premiums are due, the national bank or Federal savings association, or
a servicer acting on behalf of the national bank or Federal savings
association, shall pay the amount owed to the insurance provider from
the escrow account by the date when such premiums are due.
(b) Notice. A national bank or Federal savings association that is
required to comply with paragraph (a) of this section, or a servicer
acting on behalf of the national bank or Federal savings association,
shall mail or deliver a written notice informing the borrower that the
national bank or Federal savings association is required to escrow all
premiums and fees for required flood insurance:
(1) For loans subject to paragraphs (a)(2)(i), (c)(2)(i), or (d) of
this section, at least 90 days before the escrow of premiums and fees
under paragraphs (a)(2)(i), (c)(2)(i), or (d), using language that is
substantially similar to the model form in appendix B;
(2) For loans subject to paragraphs (a)(2)(ii) or (c)(2)(ii) of
this section, with the notice provided under Sec. 22.9, using language
that is substantially similar to model clauses on the escrow
requirement in appendix A; or
(3) For loans subject to paragraphs (a)(2)(iii) or (c)(2)(iii) of
this section, with the notice provided under Sec. 22.7, using language
that is substantially similar to model clauses on the escrow
requirement in appendix C.
(c) Exception. (1) Qualification. Except as may be required under
applicable State law, paragraphs (a)(1) and (2) of this section do not
apply to a national bank or Federal savings association:
(i) That has total assets of less than $1 billion as of December 31
of either of the two prior calendar years; and
(ii) On or before July 6, 2012:
(A) Was not required under Federal or State law to deposit taxes,
insurance premiums, fees, or any other charges in an escrow account for
the entire term of a loan secured by residential improved real estate
or a mobile home; and
(B) Did not have a policy of consistently and uniformly requiring
the deposit of taxes, insurance premiums, fees, or any other charges in
an escrow account for loans secured by residential improved real estate
or a mobile home.
(2) Change in status. If a national bank or Federal savings
association previously qualified for the exception in paragraph Sec.
22.5(c)(1), but no longer qualifies for the exception because it had
assets of $1 billion or more for two consecutive calendar year ends,
the national bank or Federal savings association must begin escrowing
premiums and fees for flood insurance pursuant to Sec. 22.3(a):
(i) For any designated loan outstanding on July 1 of the succeeding
calendar year, with the first loan payment on or after the first
renewal date of the borrower's flood insurance policy on or after July
1 of the succeeding calendar year;
(ii) For any designated loan made on or after July 1 of the
succeeding calendar year, upon loan consummation; or
(iii) For any loan that becomes a designated loan after July 1 of
the succeeding calendar year, with the first loan payment after the
flood insurance policy is established.
(d) Change in ownership. If a national bank or Federal savings
association that is required to comply with paragraph (a) of this
section acquires a designated loan covered by flood insurance required
under Sec. 22.3(a) that becomes subject to paragraph (a) of this
section as a result of the bank's or savings association's acquisition
of the loan, the bank or savings association must begin escrowing
premiums and fees for flood insurance pursuant to paragraph (a) of this
section with the first loan payment on or after the first renewal date
of the borrower's flood insurance policy on or after the date that is
six months from the transfer date of the loan.

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

(a) Use of form. A national bank or Federal savings association
shall use the standard flood hazard determination form developed by the
Administrator 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. A national bank or Federal
savings association may obtain the standard flood hazard determination
form from FEMA's Web site at www.fema.gov.
(b) Retention of form. A national bank or Federal 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 bank or savings association owns the loan.

[[Page 65125]]

Sec. 22.7 Force-placement of flood insurance.

(a) Notice and purchase of coverage. If a national bank or Federal
savings association, or a servicer acting on behalf of the bank or
savings association, 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 Sec. 22.3, then the national bank or Federal 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. 22.3, for
the remaining term of the loan. If the borrower fails to obtain flood
insurance within 45 days after notification, then the national bank or
Federal savings association, or its servicer, shall purchase insurance
on the borrower's behalf. The national bank or Federal savings
association, or its servicer may charge the borrower for the cost of
premiums and fees incurred in purchasing the insurance, including
premiums or fees incurred for coverage beginning on the date on which
flood insurance coverage lapsed or did not provide a sufficient
coverage amount.
(b) Termination of force-placed insurance. (1) Termination and
refund. Within 30 days of receipt by a national bank or Federal savings
association, or a servicer acting on the bank's or saving association's
behalf, of a confirmation of a borrower's existing flood insurance
coverage, the national bank or Federal savings association, or its
servicer shall:
(i) Notify the insurance provider to terminate any insurance
purchased by the national bank or Federal savings association or its
servicer under paragraph (a) of this section; and
(ii) Refund to the borrower all premiums paid by the borrower for
any insurance purchased by the national bank or Federal savings
association or its servicer under paragraph (a) of this section during
any period during which the borrower's flood insurance coverage and the
insurance coverage purchased by the national bank or Federal savings
association or its servicer were each in effect, and any related fees
charged to the borrower with respect to the insurance purchased by the
national bank or Federal savings association or its servicer during
such period.
(2) Sufficiency of demonstration. For purposes of confirming a
borrower's existing flood insurance coverage under paragraph (b) of
this section, a national bank or Federal savings association or its
servicer shall accept from the borrower an insurance policy
declarations page that includes the existing flood insurance policy
number and the identity of, and contact information for, the insurance
company or agent.

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 national bank or Federal savings association, or a servicer
acting on behalf of the national bank or Federal 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. 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 Administrator of FEMA's revision or updating of
flood plain areas or flood-risk zones;
(3) Reflects the Administrator 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;
(ii) By determination of the Administrator 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 Sec. 22.7.
(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.

Sec. 22.9 Notice of special flood hazards and availability of Federal
disaster relief assistance.

(a) Notice requirement. When a national bank or Federal 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 bank or savings 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 Administrator 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 from private insurance companies that issue standard flood
insurance policies on behalf of the NFIP or directly from the NFIP;
(4) A statement that flood insurance that provides the same level
of coverage as a standard flood insurance policy under the NFIP also
may be available from a private insurance company that issues policies
on behalf of the company;
(5) A statement that the borrower is encouraged to compare the
flood insurance coverage, deductibles, exclusions, conditions and
premiums associated with flood insurance policies issued on behalf of
the NFIP and policies issued on behalf of private insurance companies
and that the borrower should direct inquiries regarding the
availability, cost, and comparisons of flood insurance coverage to an
insurance agent; and
(6) 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 national bank or Federal savings
association 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 bank or savings association provides notice to the borrower
and in any event no later than the time the bank or savings association
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 national bank or Federal savings
association shall retain a record of the receipt of the notices by the
borrower and the servicer for the period of time it owns the loan.

[[Page 65126]]

(e) Alternate method of notice. Instead of providing the notice to
the borrower required by paragraph (a) of this section, a national bank
or Federal savings association 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 national bank
or Federal savings association shall retain a record of the written
assurance from the seller or lessor for the period of time it owns the
loan.
(f) Use of prescribed form of notice. A national bank or Federal
savings association 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.

Sec. 22.10 Notice of servicer's identity.

(a) Notice requirement. When a national bank or Federal 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, it shall notify the Administrator of FEMA
(or the Administrator's designee) in writing of the identity of the
servicer of the loan. The Administrator of FEMA has designated the
insurance provider to receive the national bank's or Federal savings
association's notice of the servicer's identity. This notice may be
provided electronically if electronic transmission is satisfactory to
the Administrator of FEMA's designee.
(b) Transfer of servicing rights. The national bank or Federal
savings association shall notify the Administrator of FEMA (or the
Administrator'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
Administrator 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 22--SAMPLE FORM OF NOTICE OF SPECIAL FLOOD HAZARDS
AND AVAILABILITY OF FEDERAL DISASTER RELIEF ASSISTANCE

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 Administrator 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 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
Administrator 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.
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
building or mobile home and any personal property that secures your
loan and not the land itself.
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.

Availability of Private Flood Insurance Coverage

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 that provides the same level of
coverage as a standard flood insurance policy under the NFIP may be
available from private insurers that do not participate in the NFIP.
You should compare the flood insurance coverage, deductibles,
exclusions, conditions and premiums associated with flood insurance
policies issued on behalf of the NFIP and policies issued on behalf
of private insurance companies and ask an insurance agent as to the
availability, cost, and comparisons of flood insurance coverage.

[Escrow Requirement for Residential Loans

Federal law requires a lender or its servicer to escrow all
premiums and fees for flood insurance that covers any residential
building or mobile home securing a loan that is located in an area
with special flood hazards. These premiums and fees must be paid to
the lender or its servicer with the same frequency as your loan
payments for the duration of your loan and will be deposited in an
escrow account on your behalf to be paid to the flood insurance
provider. Upon receipt of a notice from the flood insurance provider
that the premiums are due, the premiums shall be paid from the
escrow account to the insurance provider.]
--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.

APPENDIX B TO PART 22--SAMPLE FORM OF NOTICE OF REQUIREMENT TO ESCROW
FOR OUTSTANDING LOANS

Notice of Escrow Requirement

We are giving you this notice to inform you that Federal law
requires a lender or its servicer to escrow all premiums and fees
for flood insurance that covers the building or mobile home securing
your loan(s).

How the Escrow Will Work

Federal law requires that you pay flood insurance premiums and
fees with the same frequency as your loan payments for the duration
of your loan. Your payments will be deposited in an escrow account
so that when we receive a notice from your flood insurance provider
that your flood insurance premiums are due, we will make payment
from the escrow account to the insurance provider on your behalf.

When the Escrow Will Start

[[Page 65127]]

The escrow amount for flood insurance will be added to your
existing periodic mortgage payment. The payments you make into the
escrow account will accumulate over time and the funds will be used
to pay your flood insurance policy at the next policy renewal date.
Any questions regarding this new escrow requirement should be
directed to [Insert Name of Lender or Servicer] at [Insert Contact
Information].

APPENDIX C TO PART 22--SAMPLE ESCROW REQUIREMENT CLAUSE FOR LOANS THAT
BECOME DESIGNATED LOANS

Escrow Requirement Clause

PART 172--[REMOVED]

0
2. Remove part 172.

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)

0
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.

0
2. Revise Sec. 208.25 as follows:

Sec. 208.25 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 Administrator 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. For purposes of this section:
(1) Act means the National Flood Insurance Act of 1968, as amended
(42 U.S.C. 4001-4129).
(2) Administrator of FEMA means the Administrator of the Federal
Emergency Management Agency.
(3) 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.
(4) 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.
(5) 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.
(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. The term mobile home includes a
manufactured home as that term is used in the National Flood Insurance
Program.
(7) NFIP means the National Flood Insurance Program authorized
under the Act.
(8) Private flood insurance means an insurance policy that:
(i) Is issued by an insurance company that is:
(A) Licensed, admitted, or otherwise approved to engage in the
business of insurance in the State or jurisdiction which the insured
building is located, by the insurance regulator of that State or
jurisdiction; or
(B) Recognized, or not disapproved, as a surplus lines insurer by
the insurance regulator of the State or jurisdiction where the property
to be insured is located in the case of a policy of difference in
conditions, multiple peril, all risk, or other blanket coverage;
(ii) Provides flood insurance coverage which is at least as broad
as the coverage provided under a standard flood insurance policy under
the NFIP, including when considering deductibles, exclusions, and
conditions offered by the insurer;
(iii) Includes all of the following:
(A) A requirement for the insurer to give 45 days' written notice
of cancellation or non-renewal of flood insurance coverage to:
(1) The insured; and
(2) The member bank that made the designated loan secured by the
property for which the insurance is providing coverage;
(B) Information about the availability of flood insurance coverage
under the NFIP;
(C) A mortgage interest clause similar to the clause contained in
the standard flood insurance policy under the NFIP; and
(D) A provision requiring an insured to file suit not later than
one year after the date of a written denial of all or part of a claim
under the policy; and
(iv) Contains cancellation provisions that are as restrictive as
the provisions contained in a standard flood insurance policy under the
NFIP.
(9) Residential improved real estate means real estate upon which a
home or other residential building is located or to be located.
(10) 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.
(11) Special flood hazard area means the land in the flood plain
within a community having at least a one percent chance of flooding in
any given year, as designated by the Administrator of FEMA.
(12) 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.
(c) Requirement to purchase flood insurance where available--(1) In
general. A 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

[[Page 65128]]

insurance for the term of the loan. The amount of insurance must be at
least equal to the lesser of the outstanding principal balance of the
designated loan or the maximum limit of coverage available for the
particular type of property under the Act. Flood insurance coverage
under the Act is limited to the building or mobile home and any
personal property that secures a loan and not the land itself.
(2) Table funded loans. A member bank that acquires a loan from a
mortgage broker or other entity through table funding shall be
considered to be making a loan for the purposes of this section.
(3) Private flood insurance. (i) Mandatory acceptance. A member
bank must accept private flood insurance, as defined in paragraph
(b)(8) of this section, as satisfaction of the flood insurance coverage
requirement, provided that coverage under the flood insurance policy
meets the requirement for coverage under paragraph (c)(1) of this
section.
(ii) Safe harbor. A flood insurance policy shall be deemed to meet
the definition of private flood insurance in paragraph (b)(8) of this
section for purposes of paragraph (c)(1) of this section if a State
insurance regulator makes a determination in writing that the policy
meets the definition of private flood insurance in paragraph (b)(8) of
this section.
(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 Administrator of FEMA, 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. (1) In general. (i) Applicability. Except
as provided in paragraph (e)(3) of this section, a member bank, or a
servicer acting on its behalf, shall require the escrow of all premiums
and fees for any flood insurance required under paragraph (c) of this
section for any loan secured by residential improved real estate or a
mobile home that is outstanding or entered into on or after July 6,
2014, payable with the same frequency as payments on the loan are made
for the duration of the loan, unless the member bank has determined
that:
(A) The loan is an extension of credit primarily for business,
commercial, or agricultural purposes; or
(B) The borrower has obtained flood insurance coverage that meets
the requirements of paragraph (c)(1) of this section for the
residential improved real estate or mobile home securing the loan and
is currently paying premiums and fees through an escrow account
established by another lender; or
(C) Flood insurance coverage for the residential improved real
estate or mobile home is provided by a policy that is purchased by a
common interest community instead of the borrower, such as an NFIP
Residential Condominium Building Association Policy (RCBAP), that meets
the requirements of paragraph (c) of this section.
(ii) Timing. A member bank that is subject to paragraph (e)(1) of
this section, other than due to a change in status under paragraph
(e)(3)(ii) of this section or for acquired loans subject to paragraph
(e)(4) of this section, shall begin escrowing premiums and fees for
flood insurance:
(A) for any designated loan outstanding on July 6, 2014, with the
first loan payment on or after the first renewal date of the borrower's
flood insurance policy on or after July 6, 2014;
(B) For any designated loan made on or after July 6, 2014, upon
loan consummation; or
(C) For any loan that becomes a designated loan after July 6, 2014,
with the first loan payment after the flood insurance policy is
established.
(iii) Escrow account. The member bank, or a servicer acting on its
behalf, shall deposit the flood insurance premiums and fees 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 Administrator of FEMA or
other provider of flood insurance that premiums are due, the member
bank, or a servicer acting on its behalf, shall pay the amount owed to
the insurance provider from the escrow account by the date when such
premiums are due.
(2) Notice. A member bank that is required to comply with paragraph
(e)(1) of this section, or a servicer acting on its behalf, shall mail
or deliver a written notice informing the borrower that the member bank
is required to escrow all premiums and fees for required flood
insurance:
(i) For loans subject to paragraphs (e)(1)(ii)(A), (e)(3)(ii)(A),
or (e)(4) of this section, at least 90 days before the escrow of
premiums and fees under paragraphs (e)(1)(ii)(A), (e)(3)(ii)(A), or
(e)(4) of this section, using language that is substantially similar to
the model form in appendix B; or
(ii) For loans subject to paragraphs (e)(1)(ii)(B) or (e)(3)(ii)(B)
of this section, with the notice provided under paragraph (i) of this
section, using language that is substantially similar to model clauses
on the escrow requirement in appendix A; or
(iii) For loans subject to paragraphs (e)(1)(ii)(C) or
(e)(3)(ii)(C) of this section, with the notice provided under paragraph
(g) of this section, using language that is substantially similar to
model clauses on the escrow requirement in appendix C.
(3) Exception. (i) Qualification. Except as may be required under
applicable State law, paragraphs (e)(1) and (2) of this section do not
apply to a member bank:
(A) That has total assets of less than $1 billion as of December 31
of either of the two prior calendar years; and
(B) On or before July 6, 2012:
(1) Was not required under Federal or State law to deposit taxes,
insurance premiums, fees, or any other charges in an escrow account for
the entire term of a loan secured by residential improved real estate
or a mobile home; and
(2) Did not have a policy of consistently and uniformly requiring
the deposit of taxes, insurance premiums, fees, or any other charges in
an escrow account for loans secured by residential improved real estate
or a mobile home.
(ii) Change in status. If a member bank previously qualified for
the exception in paragraph (e)(3)(i) of this section, but no longer
qualifies for the exception because it had assets of $1 billion or more
for two consecutive calendar year ends, the member bank must begin
escrowing premiums and fees for flood insurance pursuant to paragraph
(e)(1) of this section:
(A) For any designated loan outstanding on July 1 of the succeeding
calendar year, with the first loan payment on or after the first
renewal date of the borrower's flood insurance policy on or after July
1 of the succeeding calendar year; or
(B) For any designated loan made on or after July 1 of the
succeeding calendar year, upon loan consummation; or
(C) For any loan that becomes a designated loan after July 1 of the
succeeding calendar year, with the first

[[Page 65129]]

loan payment after the flood insurance policy is established.
(4) Change in ownership. If a member bank that is required to
comply with paragraph (e)(1) of this section acquires a designated loan
covered by flood insurance required under paragraph (c) of this section
that becomes subject to paragraph (e)(1) of this section as a result of
the member bank's acquisition of the loan, the member bank must begin
escrowing premiums and fees for flood insurance pursuant to paragraph
(e)(1) of this section with the first loan payment on or after the
first renewal date of the borrower's flood insurance policy on or after
the date that is six months from the transfer date of the loan.
(f) Required use of standard flood hazard determination form.--(1)
Use of form. A member bank shall use the standard flood hazard
determination form developed by the Administrator 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. A member bank may obtain the standard flood
hazard determination form from FEMA's Web site at www.fema.gov.
(2) Retention of form. A 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) Force placement of flood insurance. (1) Notice and purchase of
coverage. If a member bank, or a servicer acting on behalf of the bank,
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
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 remaining term of
the loan. If the borrower fails to obtain flood insurance within 45
days after notification, then the member bank or its servicer shall
purchase insurance on the borrower's behalf. The member bank or its
servicer may charge the borrower for the cost of premiums and fees
incurred in purchasing the insurance, including premiums or fees
incurred for coverage beginning on the date on which flood insurance
coverage lapsed or did not provide a sufficient coverage amount.
(2) Termination of force-placed insurance. (i) Termination and
refund. Within 30 days of receipt by a member bank, or a servicer
acting on its behalf, of a confirmation of a borrower's existing flood
insurance coverage, the member bank or its servicer shall:
(A) Notify the insurance provider to terminate any insurance
purchased by the member bank or its servicer under paragraph (g)(1) of
this section; and
(B) Refund to the borrower all premiums paid by the borrower for
any insurance purchased by the member bank or its servicer under
paragraph (g)(1) of this section during any period during which the
borrower's flood insurance coverage and the insurance coverage
purchased by the member bank or its servicer were each in effect, and
any related fees charged to the borrower with respect to the insurance
purchased by the member bank or its servicer during such period.
(ii) Sufficiency of demonstration. For purposes of confirming a
borrower's existing flood insurance coverage under paragraph (g)(2)(i)
of this section, a member bank or its servicer shall accept from the
borrower an insurance policy declarations page that includes the
existing flood insurance policy number and the identity of, and contact
information for, the insurance company or agent.
(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 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. A determination fee may also
include, but is not limited to, a fee for life-of-loan monitoring.
(2) Borrower fee. The determination fee authorized by paragraph
(h)(1) of this section 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 Administrator of FEMA's revision or updating of
flood plain areas or flood-risk zones;
(iii) Reflects the Administrator of FEMA'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 Administrator 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
(iv) Results in the purchase of flood insurance coverage by the
lender or its servicer on behalf of the borrower under paragraph (g) of
this section.
(3) Purchaser or transferee fee. The determination fee authorized
by paragraph (h)(1) 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.
(i) Notice of special flood hazards and availability of Federal
disaster relief assistance. When a member 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.
(1) Contents of notice. The written notice must include the
following information:
(i) A warning, in a form approved by the Administrator of FEMA,
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 from private insurance companies that issue standard flood
insurance policies on behalf of the NFIP or directly from the NFIP;
(iv) A statement that flood insurance that provides the same level
of coverage as a standard flood insurance policy under the NFIP also
may be available from a private insurance company that issues policies
on behalf of the company;
(v) A statement that the borrower is encouraged to compare the
flood insurance coverage, deductibles, exclusions, conditions and
premiums associated with flood insurance policies issued on behalf of
the NFIP and policies issued on behalf of private insurance companies
and that the borrower should direct inquiries regarding the
availability, cost, and comparisons of flood insurance coverage to an
insurance agent; and
(vi) A statement whether Federal disaster relief assistance may be
available in the event of damage to the building or mobile home caused
by

[[Page 65130]]

flooding in a Federally declared disaster.
(2) Timing of notice. The member bank shall provide the notice
required by paragraph (i)(1) 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 bank provides notice to
the borrower and in any event no later than the time the bank 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.
(3) Record of receipt. The 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.
(4) Alternate method of notice. Instead of providing the notice to
the borrower required by paragraph (i)(1) of this section, a member
bank 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 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.
(5) Use of prescribed form of notice. A member bank will be
considered to be in compliance with the requirement for notice to the
borrower of this paragraph (i) of this section by providing written
notice to the borrower containing the language presented in appendix A
of this section within a reasonable time before the completion of the
transaction. The notice presented in appendix A of this section
satisfies the borrower notice requirements of the Act.
(j) Notice of servicer's identity. (1) Notice requirement. When a
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 Administrator of
FEMA (or the Administrator's designee) in writing of the identity of
the servicer of the loan. The Administrator of FEMA has designated the
insurance provider to receive the member bank's notice of the
servicer's identity. This notice may be provided electronically if
electronic transmission is satisfactory to the Administrator of FEMA's
designee.
(2) Transfer of servicing rights. The member bank shall notify the
Administrator of FEMA (or the Administrator'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. This notice may
be provided electronically if electronic transmission is satisfactory
to the Administrator of FEMA's designee. 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) of this section
shall transfer to the transferee servicer.

APPENDIX A TO Sec. 208.25--SAMPLE FORM OF NOTICE OF SPECIAL FLOOD
HAZARDS AND AVAILABILITY OF FEDERAL DISASTER RELIEF ASSISTANCE

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 Administrator 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 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
Administrator 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.
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
building or mobile home and any personal property that secures your
loan and not the land itself.
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.

Availability of Private Flood Insurance Coverage

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 that provides the same level of
coverage as a standard flood insurance policy under the NFIP may be
available from private insurers that do not participate in the NFIP.
You should compare the flood insurance coverage, deductibles,
exclusions, conditions, and premiums associated with flood insurance
policies issued on behalf of the NFIP and policies issued on behalf
of private insurance companies and ask an insurance agent as to the
availability, cost, and comparisons of flood insurance coverage.

[Escrow Requirement for Residential Loans

Federal law requires a lender or its servicer to escrow all
premiums and fees for flood insurance that covers any residential
building or mobile home securing a loan that is located in an area
with special flood hazards. These premiums and fees must be paid to
the lender or its servicer with the same frequency as your loan
payments for the duration of your loan and will be deposited in an
escrow account on your behalf to be paid to the flood insurance
provider. Upon receipt of a notice from the flood insurance provider
that the premiums are due, the premiums shall be paid from the
escrow account to the insurance provider. ]
--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.

APPENDIX B TO Sec. 208.25--SAMPLE FORM OF NOTICE OF REQUIREMENT TO
ESCROW FOR OUTSTANDING LOANS

Notice of Escrow Requirement

How the Escrow Will Work

When the Escrow Will Start

When you receive your next flood insurance bill with the renewal
of your

[[Page 65131]]

policy from your flood insurance provider, you are responsible for
making that payment directly to your insurance provider.
We will begin collecting the premiums and fees for your flood
insurance escrow account with your mortgage loan payment following
this renewal date for the next policy term. For example, if your
flood insurance policy renewal date is September 15 and your next
mortgage loan payment is October 1, the bank will begin collecting
the flood insurance premiums and fees for escrow with the October 1
mortgage loan payment.
The escrow amount for flood insurance will be added to your
existing periodic mortgage payment. The payments you make into the
escrow account will accumulate over time and the funds will be used
to pay your flood insurance policy at the next policy renewal date.
Any questions regarding this new escrow requirement should be
directed to [Insert Name of Lender or Servicer] at [Insert Contact
Information].

APPENDIX C TO Sec. 208.25--SAMPLE ESCROW REQUIREMENT CLAUSE FOR LOANS
THAT BECOME DESIGNATED LOANS

Escrow Requirement Clause

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 amend chapter III of title 12 of the
Code of Federal Regulations to read as follows:
0
1. Part 339 is revised 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 Force-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
Appendix B to Part 339--Sample Form of Notice of Requirement to
Escrow for Outstanding Loans
Appendix C to Part 339--Sample Escrow Requirement Clause for Loans
that Become Designated Loans

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.

Sec. 339.1 Authority, purpose, and scope.

(a) Authority. This part is issued pursuant to 12 U.S.C. 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 Sec. Sec. 339.6 and 339.8,
applies to loans secured by buildings or mobile homes located or to be
located in areas determined by the Administrator of the Federal
Emergency Management Agency to have special flood hazards. Sections
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) Administrator of FEMA means the Administrator of the Federal
Emergency Management Agency.
(c) Building means a walled and roofed structure, other than a gas
or liquid storage tank, that is principally above ground and affixed to
a permanent site, and a walled and roofed structure while in the course
of construction, alteration, or repair.
(d) Community means a State or a political subdivision of a State
that has zoning and building code jurisdiction over a particular area
having special flood hazards.
(e) Designated loan means a loan secured by a building or mobile
home that is located or to be located in a special flood hazard area in
which flood insurance is available under the Act.
(f) 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) Private flood insurance means an insurance policy that:
(1) Is issued by an insurance company that is
(A) Licensed, admitted, or otherwise approved to engage in the
business of insurance in the State or jurisdiction in which the insured
building is located, by the insurance regulator of that State or
jurisdiction; or
(B) In the case of a policy of difference in conditions, multiple
peril, all risk, or other blanket coverage insuring nonresidential
commercial policy, is recognized, or not disapproved, as a surplus
lines insurer by the insurance regulator of the State where the
property to be insured is located;
(2) Provides flood insurance coverage that is at least as broad as
the coverage provided under a standard flood insurance policy under the
NFIP, including when considering deductibles, exclusions, and
conditions offered by the insurer;
(3) Includes all of the following:
(A) A requirement for the insurer to give 45 days' written notice
of cancellation or non-renewal of flood insurance coverage to the
insured and the FDIC-supervised institution;
(B) Information about the availability of flood insurance coverage
under the NFIP;
(C) A mortgage interest clause similar to the clause contained in a
standard flood insurance policy under the NFIP; and
(D) A provision requiring an insured to file suit not later than
one year after the date of a written denial of all or part of a claim
under the policy; and
(4) Contains cancellation provisions that are as restrictive as the
provisions contained in a standard flood insurance policy under the
NFIP.
(j) Residential improved real estate means real estate upon which a
home or other residential building is located or to be located.
(k) Servicer means the person responsible for:

[[Page 65132]]

(1) Receiving any scheduled, periodic payments from a borrower
under the terms of a loan, including amounts for taxes, insurance
premiums, and other charges with respect to the property securing the
loan; and
(2) Making payments of principal and interest and any other
payments from the amounts received from the borrower as may be required
under the terms of the loan.
(l) Special flood hazard area means the land in the flood plain
within a community having at least a one percent chance of flooding in
any given year, as designated by the Administrator of FEMA.
(m) Table funding means a settlement at which a loan is funded by a
contemporaneous advance of loan funds and an assignment of the loan to
the person advancing the funds.

Sec. 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 building or mobile home and any
personal property that secures a loan and not the land itself.
(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.
(c) Private flood insurance. (1) Mandatory acceptance. An FDIC-
supervised institution must accept private flood insurance, as defined
in Sec. 339.2(i), as satisfaction of the flood insurance coverage
requirement, provided that coverage under the flood insurance policy
meets the requirement for coverage under paragraph (a) of this section.
(2) Safe harbor. A flood insurance policy shall be deemed to meet
the definition of private flood insurance in Sec. 339.2(i) for
purposes of paragraph (a) of this section if a State insurance
regulator makes a determination in writing that the policy meets the
definition of private flood insurance in Sec. 339.2(i).

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 Administrator of FEMA, who publishes and
periodically revises the list of states falling within this exemption;
or
(b) Property securing any loan with an original principal balance
of $5,000 or less and a repayment term of one year or less.

Sec. 339.5 Escrow requirement.

(a) In general. (1) Applicability. Except as provided in paragraph
(c) of this section, an FDIC-supervised institution, or a servicer
acting on its behalf, shall require the escrow of all premiums and fees
for any flood insurance required under Sec. 339.3(a) for any loan
secured by residential improved real estate or a mobile home that is
outstanding or entered into on or after July 6, 2014, payable with the
same frequency as payments on the loan are made for the duration of the
loan, unless the FDIC-supervised institution has determined that:
(i) The loan is an extension of credit primarily for business,
commercial, or agricultural purposes; or
(ii) The borrower has obtained flood insurance coverage that meets
the requirements of Sec. 339.3(a) for the residential improved real
estate or mobile home securing the loan and is currently paying
premiums and fees through an escrow account established by another
lender; or
(iii) Flood insurance coverage for the residential improved real
estate or mobile home is provided by a policy that is purchased by a
common interest community instead of the borrower, such as an NFIP
Residential Condominium Building Association Policy (RCBAP), that meets
the requirements of Sec. 339.3(a).
(2) Timing. An FDIC-supervised institution that is subject to
paragraph (a) of this section, other than due to a change in status
under paragraph (c)(2) of this section or for acquired loans subject to
paragraph (d) of this section, shall begin escrowing premiums and fees
for flood insurance:
(i) For any designated loan outstanding on July 6, 2014, with the
first loan payment on or after the first renewal date of the borrower's
flood insurance policy on or after July 6, 2014;
(ii) For any designated loan made on or after July 6, 2014, upon
loan consummation; or
(iii) For any loan that becomes a designated loan after July 6,
2014, with the first loan payment after the flood insurance policy is
established.
(3) Escrow account. The FDIC-supervised institution, or a servicer
acting on its behalf, shall deposit the flood insurance premiums and
fees 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
Administrator of FEMA or other provider of flood insurance that
premiums are due, the FDIC-supervised institution, or a servicer acting
on its behalf, shall pay the amount owed to the insurance provider from
the escrow account by the date when such premiums are due.
(b) Notice. An FDIC-supervised institution that is required to
comply with paragraph (a) of this section, or a servicer acting on its
behalf, shall mail or deliver a written notice informing the borrower
that the FDIC-supervised institution is required to escrow all premiums
and fees for required flood insurance:
(1) For loans subject to paragraphs (a)(2)(i), (c)(2)(i), or (d) of
this section, at least 90 days before the escrow of premiums and fees
under paragraphs (a)(2)(i), (c)(2)(i), or (d), using language that is
substantially similar to the model form in appendix B; or
(2) For loans subject to paragraphs (a)(2)(ii) or (c)(2)(ii) of
this section, with the notice provided under Sec. 339.9, using
language that is substantially similar to model clauses on the escrow
requirement in appendix A; or
(3) For loans subject to paragraphs (a)(2)(iii) or (c)(2)(iii) of
this section, with the notice provided under Sec. 339.7, using
language that is substantially similar to model clauses on the escrow
requirement in appendix C.
(c) Exception.
(1) Qualification. Except as may be required under applicable State
law, paragraphs (a)(1) and (2) of this section do not apply to an FDIC-
supervised institution:
(i) That has total assets of less than $1 billion as of December 31
of either of the two prior calendar years; and
(ii) On or before July 6, 2012:
(A) Was not required under Federal or State law to deposit taxes,
insurance premiums, fees, or any other charges in an escrow account for
the entire term of

[[Page 65133]]

a loan secured by residential improved real estate or a mobile home;
and
(B) Did not have a policy of consistently and uniformly requiring
the deposit of taxes, insurance premiums, fees, or any other charges in
an escrow account for loans secured by residential improved real estate
or a mobile home.
(2) Change in status. If an FDIC-supervised institution previously
qualified for the exception in paragraph Sec. 339.5(c)(1), but no
longer qualifies for the exception because it had assets of $1 billion
or more for two consecutive calendar year ends, the FDIC-supervised
institution must begin escrowing premiums and fees for flood insurance
pursuant to Sec. 339.3(a):
(i) For any designated loan outstanding on July 1 of the succeeding
calendar year, with the first loan payment on or after the first
renewal date of the borrower's flood insurance policy on or after July
1 of the succeeding calendar year; or
(ii) For any designated loan made on or after July 1 of the
succeeding calendar year, upon loan consummation; or
(iii) For any loan that becomes a designated loan after July 1 of
the succeeding calendar year, with the first loan payment after the
flood insurance policy is established.
(d) Change in ownership. If an FDIC-supervised institution that is
required to comply with paragraph (a) of this section acquires a
designated loan covered by flood insurance required under Sec.
339.3(a) that becomes subject to paragraph (a) of this section as a
result of the FDIC-supervised institution's acquisition of the loan,
the FDIC-supervised institution must begin escrowing premiums and fees
for flood insurance pursuant to paragraph (a) of this section with the
first loan payment on or after the first renewal date of the borrower's
flood insurance policy on or after the date that is six months from the
transfer date of the loan.

Sec. 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 Administrator
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 from FEMA's Web
site at www.fema.gov.
(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.

Sec. 339.7 Force-placement of flood insurance.

(a) Notice and purchase of coverage. If an FDIC-supervised
institution, or a servicer acting on its behalf, determines at any time
during the term of a designated loan, that the building or mobile home
and any personal property securing the designated loan is not covered
by flood insurance or is covered by flood insurance in an amount less
than the amount required under Sec. 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 Sec. 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, including premiums or fees incurred for coverage beginning
on the date on which flood insurance coverage lapsed or did not provide
a sufficient coverage amount.
(b) Termination of force-placed insurance. (1) Termination and
refund. Within 30 days of receipt by an FDIC-supervised institution, or
a servicer acting on its behalf, of a confirmation of a borrower's
existing flood insurance coverage, the FDIC-supervised institution or
its servicer shall:
(A) Notify the insurance provider to terminate any insurance
purchased by the FDIC-supervised institution or its servicer under
paragraph (a) of this section; and
(B) Refund to the borrower all premiums paid by the borrower for
any insurance purchased by the FDIC-supervised institution or its
servicer under paragraph (a) of this section during any period during
which the borrower's flood insurance coverage and the insurance
coverage purchased by the FDIC-supervised institution or its servicer
were each in effect, and any related fees charged to the borrower with
respect to the insurance purchased by the FDIC-supervised institution
or its servicer during such period.
(2) Sufficiency of demonstration. For purposes of confirming a
borrower's existing flood insurance coverage under paragraph (b) of
this section, an FDIC-supervised institution or its servicer shall
accept from the borrower an insurance policy declarations page that
includes the existing flood insurance policy number and the identity
of, and contact information for, the insurance company or agent.

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 FDIC-supervised institution, or a servicer acting on its
behalf, 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 Administrator of FEMA's revision or updating of
floodplain areas or flood-risk zones;
(3) Reflects the Administrator 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 Administrator 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 Sec. 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.

Sec. 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

[[Page 65134]]

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 Administrator 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 from private insurance companies that issue flood insurance
policies on behalf of the NFIP or directly from the NFIP;
(4) A statement that flood insurance that provides the same level
of coverage as a standard flood insurance policy under the NFIP may
also be available from a private insurance company that issues policies
on behalf of the company.
(5) A statement that the borrower is encouraged to compare the
flood insurance coverage, deductibles, exclusions, conditions and
premiums associated with flood insurance policies issued on behalf of
the NFIP and policies issued on behalf of private insurance companies
and that the borrower should direct inquiries regarding the
availability, cost, and comparisons of flood insurance coverage to an
insurance agent; and
(6) 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.

Sec. 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
Administrator of FEMA (or the Administrator of FEMA's designee) in
writing of the identity of the servicer of the loan. The Administrator
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 Administrator of FEMA's designee.
(b) Transfer of servicing rights. The FDIC-supervised institution
shall notify the Administrator of FEMA (or the Administrator 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 Administrator or his or her
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 Administrator 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 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
Administrator 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.
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
building or mobile home and any personal property that secures your
loan and not the land itself.
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.

Availability of Private Flood Insurance Coverage

[[Page 65135]]

companies and ask an insurance agent as to the availability, cost,
and comparisons of flood insurance coverage.

[Escrow Requirement for Residential Loans

Appendix B to Part 339--Sample Form of Notice of Requirement to Escrow
for Outstanding Loans

Notice of Escrow Requirement

How the Escrow Will Work

When the Escrow Will Start

When you receive your next flood insurance bill with the renewal
of your policy from your flood insurance provider, you are
responsible for making that payment directly to your insurance
provider.
We will begin collecting the premiums and fees for your flood
insurance escrow account with your mortgage loan payment following
this renewal date for the next policy term. For example, if your
flood insurance policy renewal date is September 15 and your next
mortgage loan payment is October 1, the bank will begin collecting
the flood insurance premiums and fees for escrow with the October 1
mortgage loan payment.
The escrow amount for flood insurance will be added to your
existing periodic mortgage payment. The payments you make into the
escrow account will accumulate over time and the funds will be used
to pay your flood insurance policy at the next policy renewal date.
Any questions regarding this new escrow requirement should be
directed to [Insert Name of Lender or Servicer] at [Insert Contact
Information].

Appendix C to Part 339--Sample Escrow Requirement Clause for Loans that
Become Designated Loans

Escrow Requirement Clause

PART 391--FORMER OFFICE OF THRIFT SUPERVISION REGULATIONS

0
2. The authority citation for Part 391 continues to read as follows:

Authority: 12 U.S.C. 1819.

Subpart D--[Removed and Reserved]

0
3. Remove and reserve Subpart D consisting of Sec. Sec. 391.30 through
391.39.

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

0
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.

0
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 Force 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
Appendix B to Subpart S of Part 614--Sample Form of Notice of
Requirement to Escrow for Outstanding Loans
Appendix C to Subpart S of Part 614--Sample Escrow Requirement
Clause for Loans that Become Designated Loans

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 and the Flood Disaster Protection
Act of 1973, as amended (42 U.S.C. 4001-4129).
(b) Scope. This subpart, except for Sec. Sec. 614.4940 and
614.4950, applies to loans secured by buildings or mobile homes located
or to be located in areas determined by the Administrator of the
Federal Emergency Management Agency to have special flood hazards.
Sections 614.4940 and 614.4950 apply to loans secured by buildings or
mobile homes, regardless of location.

Sec. 614.4925 Definitions.

For the purposes of this subpart:
(a) 1968 Act means the National Flood Insurance Act of 1968, as
amended (42 U.S.C. 4001-4129).
(b) Administrator of FEMA means the Administrator of the Federal
Emergency Management Agency.
(c) Building means a walled and roofed structure, other than a gas
or liquid storage tank, that is principally above ground and affixed to
a permanent site, and a walled and roofed structure while in the course
of construction, alteration, or repair.
(d) Community means a state or a political subdivision of a State
that has zoning and building code jurisdiction over a particular area
having special flood hazards.

[[Page 65136]]

(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 1968 Act.
(f) Mobile home means a structure, transportable in one or more
sections, that is built on a permanent chassis and designed for use
with or without a permanent foundation when attached to the required
utilities. The term mobile home does not include a recreational
vehicle. For purposes of this part, the term mobile home means a mobile
home on a permanent foundation. The term mobile home includes a
manufactured home as that term is used in the NFIP.
(h) NFIP means the National Flood Insurance Program authorized
under the 1968 Act.
(i) Private flood insurance means an insurance policy that:
(1) Is issued by an insurance company that is
(i) Licensed, admitted, or otherwise approved to engage in the
business of insurance in the State or jurisdiction in which the insured
building is located, by the insurance regulator of that State or
jurisdiction; or
(ii) In the case of a policy of difference in conditions, multiple
peril, all risk, or other blanket coverage insuring nonresidential
commercial policy, is recognized, or not disapproved, as a surplus
lines insurer by the insurance regulator of the State where the
property to be insured is located;
(2) Provides flood insurance coverage that is at least as broad as
the coverage provided under a standard flood insurance policy under the
NFIP, including when considering deductibles, exclusions, and
conditions offered by the insurer;
(3) Includes all of the following:
(i) A requirement for the insurer to give 45 days' written notice
of cancellation or non-renewal of flood insurance coverage to the
insured and the System institution;
(ii) Information about the availability of flood insurance coverage
under the NFIP;
(iii) A mortgage interest clause similar to the clause contained in
a standard flood insurance policy under the NFIP; and
(iv) A provision requiring an insured to file suit not later than
one year after the date of a written denial of all or part of a claim
under the policy; and
(4) Contains cancellation provisions that are as restrictive as the
provisions contained in a standard flood insurance policy under the
NFIP.
(j) Residential improved real estate means real estate upon which a
home or other residential building is located or to be located.
(k) Servicer means the person responsible for:
(1) Receiving any scheduled, periodic payments from a borrower
under the terms of a loan, including amounts for taxes, insurance
premiums, and other charges with respect to the property securing the
loan; and
(2) Making payments of principal and interest and any other
payments from the amounts received from the borrower as may be required
under the terms of the loan.
(l) Special flood hazard area means the land in the flood plain
within a community having at least a one percent chance of flooding in
any given year, as designated by the Administrator of FEMA.
(m) Table funding means a settlement at which a loan is funded by a
contemporaneous advance of loan funds and an assignment of the loan to
the person advancing the funds.

Sec. 614.4930 Requirement to purchase flood insurance where
available.

(a) In general. 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 is covered by flood
insurance purchased under the NFIP or private flood insurance, as that
term is defined in Sec. 614.4925, 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. Flood insurance coverage under the 1968 Act is limited to the
building or mobile home and any personal property that secures a loan
and not the land itself.
(b) Table funded loans. A System 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 subpart.
(c) Private flood insurance.
(1) Mandatory acceptance. A System institution must accept private
flood insurance, as defined in Sec. 614.4925, as satisfaction of the
flood insurance coverage requirement, provided that coverage under the
flood insurance policy meets the requirement for coverage under
paragraph (a) of this section.
(2) Safe harbor. A flood insurance policy shall be deemed to meet
the definition of private flood insurance in Sec. 614.4925 for
purposes of paragraph (a) of this section if a State insurance
regulator makes a determination in writing that the policy meets the
definition of private flood insurance in Sec. 614.4925.
(d) 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 Administrator of FEMA, 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 1 year or less.

Sec. 614.4935 Escrow requirement.

(a) In general.
(1) Applicability. Except as provided in paragraph (c) of this
section, a System institution, or a servicer acting on its behalf,
shall require the escrow of all premiums and fees for any flood
insurance required under Sec. 614.4930(a) for any loan secured by
residential improved real estate or a mobile home that is outstanding
or entered into on or after July 6, 2014, payable with the same
frequency as payments on the loan are made for the duration of the
loan, unless the System institution has determined that:
(i) The loan is an extension of credit primarily for business,
commercial, or agricultural purposes; or
(ii) The borrower has obtained flood insurance coverage that meets
the requirement of Sec. 614.4930(a) for the residential improved real
estate or mobile home securing the loan and is currently paying
premiums and fees through an escrow account established by another
lender; or
(iii) Flood insurance coverage for the residential improved real
estate or mobile home is provided by a policy that is purchased by a
common interest community instead of the borrower, such as an NFIP
Residential Condominium Building Association Policy (RCBAP), that meets
the requirements of Sec. 614.4930(a).
(2) Timing. A System institution that is subject to paragraph (a)
of this section, other than due to a change in status under paragraph
(c)(2) of this section or for acquired loans subject to paragraph (d)
of this section, shall begin escrowing premiums and fees for flood
insurance:
(i) For any designated loan outstanding on July 6, 2014, with the
first loan payment on or after the first renewal date of the borrower's
flood insurance policy on or after July 6, 2014;

[[Page 65137]]

(ii) For any designated loan made on or after July 6, 2014, upon
loan consummation; or
(iii) For any loan that becomes a designated loan after July 6,
2014, with the first loan payment after the flood insurance policy is
established.
(3) Escrow account. The System institution, or a servicer acting on
its behalf, shall deposit the flood insurance premiums and fees 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 Administrator of FEMA or
other provider of flood insurance that premiums are due, the System
institution, or a servicer acting on its behalf, shall pay the amount
owed to the insurance provider from the escrow account by the date when
such premiums are due.
(b) Notice. A System institution that is required to comply with
paragraph (a) of this section, or a servicer acting on its behalf,
shall mail or deliver a written notice informing the borrower that the
System institution is required to escrow all premiums and fees for
required flood insurance:
(1) For loans subject to paragraph (a)(2)(i) or (c)(2)(i) or (d) of
this section, at least 90 days before the escrow of premiums and fees
under paragraph (a)(2)(i) or (c)(2)(i) or (d), using language that is
substantially similar to the model form in Appendix B; or
(2) For loans subject to paragraph (a)(2)(ii) or (c)(2)(ii) of this
section, with the notice provided under Sec. 614.4945, using language
that is substantially similar to model clauses on the escrow
requirement in Appendix A; or
(3) For loans subject to paragraph (a)(2)(iii) or (c)(2)(iii) of
this section, with the notice provided under Sec. 614.4955, using
language that is substantially similar to model clauses on the escrow
requirement in Appendix C.
(c) Exception. (1) Qualification. Except as may be required under
applicable State law, paragraph (a)(1) and (2) of this section do not
apply to a System institution:
(i) That has total assets of less than $1 billion as of December 31
of either of the 2 prior calendar years; and
(ii) On or before July 6, 2012:
(A) Was not required under Federal or State law to deposit taxes,
insurance premiums, fees, or any other charges in an escrow account for
the entire term of a loan secured by residential improved real estate
or a mobile home; and
(B) Did not have a policy of consistently and uniformly requiring
the deposit of taxes, insurance premiums, fees, or any other charges in
an escrow account for loans secured by residential improved real estate
or a mobile home.
(2) Change in status. If a System institution previously qualified
for the exception in Sec. 614.4935(c)(1), but no longer qualifies for
the exception because it had assets of $1 billion or more for 2
consecutive calendar year ends, the System institution must begin
escrowing premiums and fees for flood insurance pursuant to Sec.
614.4930(a):
(i) For any designated loan outstanding on July 1 of the succeeding
calendar year, with the first loan payment on or after the first
renewal date of the borrower's flood insurance policy on or after July
1 of the succeeding calendar year; or
(ii) For any designated loan made on or after July 1 of the
succeeding calendar year, upon loan consummation; or
(iii) For any loan that becomes a designated loan after July 1 of
the succeeding calendar year, with the first loan payment after the
flood insurance policy is established.
(d) Change in ownership. If a System institution that is required
to comply with paragraph (a) of this section acquires a designated loan
covered by flood insurance required under Sec. 614.4930(a) that
becomes subject to paragraph (a) of this section as a result of the
System institution's acquisition of the loan, the System institution
must begin escrowing premiums and fees for flood insurance pursuant to
paragraph (a) of this section with the first loan payment on or after
the first renewal date of the borrower's flood insurance policy on or
after the date that is 6 months from the transfer date of the loan.

Sec. 614.4940 Required use of standard flood hazard determination
form.

(a) Use of form. A System institution shall use the standard flood
hazard determination form developed by the Administrator 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. A System institution may obtain the standard
flood hazard determination form from FEMA's Web site at www.fema.gov.
(b) Retention of form. A System 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 System institution
owns the loan.

Sec. 614.4945 Force-placement of flood insurance.

(a) Notice and purchase of coverage. If a System institution, or a
servicer acting on its behalf, determines, at any time during the term
of a designated loan, that the building or mobile home and any personal
property securing the designated loan is not covered by flood insurance
or is covered by flood insurance in an amount less than the amount
required under Sec. 614.4930, then the System 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, for the remaining term of
the loan. If the borrower fails to obtain flood insurance within 45
days after notification, then the System institution or its servicer
shall purchase insurance on the borrower's behalf. The System
institution or its servicer may charge the borrower for the cost of
premiums and fees incurred in purchasing the insurance, including
premiums or fees incurred for coverage beginning on the date on which
flood insurance coverage lapsed or did not provide a sufficient
coverage amount.
(b) Termination of force-placed insurance. (1) Termination and
refund. Within 30 days of receipt by a System institution, or its
servicer, of a confirmation of a borrower's existing flood insurance
coverage, the System institution or its servicer shall:
(i) Notify the insurance provider to terminate any insurance
purchased by the System institution or its servicer under paragraph (a)
of this section; and
(ii) Refund to the borrower all premiums paid by the borrower for
any insurance purchased by the System institution or its servicer under
paragraph (a) of this section during any period during which the
borrower's flood insurance coverage and the insurance coverage
purchased by the System institution or its servicer were each in
effect, and any related fees charged to the borrower with respect to
the insurance purchased by the System institution or its servicer
during such period.
(2) Sufficiency of demonstration. For purposes of confirming a
borrower's

[[Page 65138]]

existing flood insurance coverage under paragraph (b) of this section,
a System institution or its servicer shall accept from the borrower an
insurance policy declarations page that includes the existing flood
insurance policy number and the identity of, and contact information
for, the insurance company or agent.

Sec. 614.4950 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 System institution, or a servicer acting on its behalf, 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 Administrator of FEMA's revision or updating of
floodplain areas or flood-risk zones;
(3) Reflects the Administrator 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 Administrator 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 Sec. 614.4945.
(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.

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 System
institution shall mail or deliver a written notice 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 Administrator 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 from private insurance companies that issue flood insurance
policies on behalf of the NFIP or directly from the NFIP; and
(4) A statement that flood insurance that provides the same level
of coverage as a standard flood insurance policy under the NFIP may be
available from a private insurance company that issues policies on
behalf of the company.
(5) A statement that the borrower is encouraged to compare the
flood insurance coverage, deductibles, exclusions, conditions and
premiums associated with flood insurance policies issued on behalf of
the NFIP and policies issued on behalf of private insurance companies
and that the borrower should direct inquiries regarding the
availability, cost, and comparisons of flood insurance coverage to an
insurance agent; and
(6) 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 System 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 System institution
provides notice to the borrower and in any event no later than the time
the System 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 System institution shall retain a record
of the receipt of the notices by the borrower and the servicer for the
period of time the System institution owns the loan.
(e) Alternate method of notice. Instead of providing the notice to
the borrower required by paragraph (a) of this section, a System
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 System institution shall retain a record
of the written assurance from the seller or lessor for the period of
time the System institution owns the loan.
(f) Use of prescribed form of notice. A System 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 1968 Act.

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
mobile home located or to be located in a special flood hazard area,
the System institution shall notify the Administrator of FEMA (or the
Administrator of FEMA's designee) in writing of the identity of the
servicer of the loan. The Administrator of FEMA has designated the
insurance provider to receive the System institution's notice of the
servicer's identity. This notice may be provided electronically if
electronic transmission is satisfactory to the Administrator of FEMA's
designee.
(b) Transfer of servicing rights. The System institution shall
notify the Administrator of FEMA (or the Administrator 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 Administrator 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 Subpart S of Part 614--Sample Form of Notice of Special
Flood Hazards and Availability of Federal Disaster Relief Assistance

[[Page 65139]]

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
Administrator 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
improvements that have been made to the real property that secure
the loan and not the land itself.
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.

Availability of Private Flood Insurance Coverage

[Escrow Requirement for Residential Loans

Federal law requires a lender or its servicer to escrow all
premiums and fees for flood insurance that covers any residential
building or mobile home securing a loan that is located in an area
with special flood hazards. These premiums and fees must be paid to
the lender or its servicer with the same frequency as your loan
payments for the duration of your loan and will be deposited in an
escrow account on your behalf to be paid to the flood insurance
provider. Upon receipt of a notice from the flood insurance provider
that the premiums are due, the premiums shall be paid from the
escrow account to the insurance provider.]
-- 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.

Appendix B to Subpart S of Part 614--Sample Form of Notice of
Requirement to Escrow for Outstanding Loans

Notice of Escrow Requirement

How the Escrow Will Work

Federal law requires that you pay flood insurance premiums and
fees with the same frequency as your loan payments for the duration
of your loan. Your premiums will be deposited in an escrow account
so that when we receive a notice from your flood insurance provider
that your flood insurance premiums are due, we will make payment
from the escrow account to the insurance provider on your behalf.

When the Escrow Will Start

When you receive your next flood insurance bill with the renewal
of your policy from your flood insurance provider, you are
responsible for making that payment directly to your insurance
provider.
We will begin collecting the premiums and fees for your flood
insurance escrow account with your mortgage loan payment following
this renewal date for the next policy term. For example, if your
flood insurance policy renewal date is September 15 and your next
mortgage loan payment is October 1, the institution will begin
collecting the flood insurance premiums and fees for escrow with the
October 1 mortgage loan payment.
The escrow amount for flood insurance will be added to your
existing periodic mortgage payment. The payments you make into the
escrow account will accumulate over time and the funds will be used
to pay your flood insurance policy at the next policy renewal date.
Any questions regarding this new escrow requirement should be
directed to [Insert Name of Lender or Servicer] at [Insert Contact
Information].

Appendix C to Subpart S of Part 614--Sample Escrow Requirement Clause
for Loans That Become Designated Loans

Escrow Requirement Clause

National Credit Union Administration

12 CFR CHAPTER VII

Authority and Issuance

For the reasons set forth in the joint preamble, the NCUA Board
proposes to revise part 760 of chapter VII of title 12 of the Code of
Federal Regulations 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 Force-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
Appendix B to Part 760--Sample Form of Notice of Requirement to
Escrow for Outstanding Loans
Appendix C to Part 760--Sample Escrow Requirement Clause for Loans
that Become Designated Loans

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, and 4128.
(b) Purpose. The purpose of this part is to implement the
requirements of the

[[Page 65140]]

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 Sec. Sec. 760.6 and 760.8,
applies to loans secured by buildings or mobile homes located or to be
located in areas determined by the Administrator of the Federal
Emergency Management Agency to have special flood hazards. Sections
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) Administrator of FEMA means the Administrator of the Federal
Emergency Management Agency.
(c) Credit union means a Federal or State-chartered credit union
that is insured by the National Credit Union Share Insurance Fund.
(d) 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.
(e) 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.
(f) 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.
(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) Private flood insurance means an insurance policy that:
(1) Is issued by an insurance company that is:
(i) Licensed, admitted, or otherwise approved to engage in the
business of insurance in the State or jurisdiction in which the insured
building is located, by the insurance regulator of that State or
jurisdiction; or
(ii) Recognized, or not disapproved, as a surplus lines insurer by
the insurance regulator of the State where the property to be insured
is located in the case of a policy of difference in conditions,
multiple peril, all risk, or other blanket coverage insuring non-
residential commercial policies;
(2) Provides flood insurance coverage that is at least as broad as
the coverage provided under a standard flood insurance policy under the
NFIP, including when considering deductibles, exclusions, and
conditions offered by the insurer;
(3) Includes all of the following:
(i) A requirement for the insurer to give 45 days' written notice
of cancellation or non-renewal of flood insurance coverage to the
insured and the credit union;
(ii) Information about the availability of flood insurance coverage
under the NFIP;
(iii) A mortgage interest clause similar to the clause contained in
a standard flood insurance policy under the NFIP; and
(iv) A provision requiring an insured to file suit not later than
one year after the date of a written denial of all or part of a claim
under the policy; and
(4) Contains cancellation provisions that are as restrictive as the
provisions contained in a standard flood insurance policy under the
NFIP.
(j) Residential improved real estate means real estate upon which a
home or other residential building is located or to be located.
(k) Servicer means the person responsible for:
(1) Receiving any scheduled, periodic payments from a borrower
under the terms of a loan, including amounts for taxes, insurance
premiums, and other charges with respect to the property securing the
loan; and
(2) Making payments of principal and interest and any other
payments from the amounts received from the borrower as may be required
under the terms of the loan.
(l) Special flood hazard area means the land in the flood plain
within a community having at least a one percent chance of flooding in
any given year, as designated by the Administrator of FEMA.
(m) Table funding means a settlement at which a loan is funded by a
contemporaneous advance of loan funds and an assignment of the loan to
the person advancing the funds.

Sec. 760.3 Requirement to purchase flood insurance where available.

(a) In general. 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. Flood insurance coverage under the Act is
limited to the building or mobile home and any personal property that
secures a loan and not the land itself.
(b) Table funded loan. A credit union that acquires a loan from a
mortgage broker or other entity through table funding shall be
considered to be making a loan for the purposes of this part.
(c) Private flood insurance.
(1) Mandatory acceptance. A credit union must accept private flood
insurance, as defined in Sec. 760.2(i), as satisfaction of the flood
insurance coverage requirement, provided that coverage under the flood
insurance policy meets the requirement for coverage under paragraph (a)
of this section.
(2) Safe harbor. A flood insurance policy shall be deemed to meet
the definition of private flood insurance in Sec. 760.2(i) for
purposes of paragraph (a) of this section if a State insurance
regulator makes a determination in writing that the policy meets the
definition of private flood insurance in Sec. 760.2(i).

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 Administrator of FEMA, who publishes and
periodically revises the list of States falling within this exemption;
or
(b) Property securing any loan with an original principal balance
of $5,000 or less and a repayment term of one year or less.

Sec. 760.5 Escrow requirement.

(a) In general. (1) Applicability. Except as provided in paragraph
(c) of this section, a credit union, or a servicer acting on behalf of
the credit union, shall require the escrow of all premiums and fees for
any flood insurance required under Sec. 760.3(a) for any loan secured
by residential improved real estate or a mobile home that is
outstanding or entered into on or after July 6, 2014, payable with the
same frequency as payments on the loan are

[[Page 65141]]

made for the duration of the loan, unless the credit union has
determined that:
(i) The loan is an extension of credit primarily for business,
commercial, or agricultural purposes;
(ii) The borrower has obtained flood insurance coverage that meets
the requirement of Sec. 760.3(a) for the residential improved real
estate or mobile home securing the loan and is currently paying
premiums and fees through an escrow account established by another
lender; or
(iii) Flood insurance coverage for the residential improved real
estate or mobile home is provided by a policy that is purchased by a
common interest community instead of the borrower, such as an NFIP
Residential Condominium Building Association Policy (RCBAP), that meets
the requirements of Sec. 760.3(a).
(2) Timing. A credit union that is subject to paragraph (a) of this
section, other than due to a change in status under paragraph (c)(2) of
this section or for acquired loans subject to paragraph (d) of this
section, shall begin escrowing premiums and fees for flood insurance:
(i) For any designated loan outstanding on July 6, 2014, with the
first loan payment on or after the first renewal date of the borrower's
flood insurance policy on or after July 6, 2014;
(ii) For any designated loan made on or after July 6, 2014, upon
loan consummation; or
(iii) For any loan that becomes a designated loan after July 6,
2014, with the first loan payment after the flood insurance policy is
established.
(3) Escrow account. The credit union, or a servicer acting on
behalf of the credit union, shall deposit the flood insurance premiums
and fees 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
Administrator of FEMA or other provider of flood insurance that
premiums are due, the credit union, or a servicer acting on behalf of
the credit union, shall pay the amount owed to the insurance provider
from the escrow account by the date when such premiums are due.
(b) Notice. A credit union that is required to comply with
paragraph (a) of this section, or a servicer acting on behalf of the
credit union, shall mail or deliver a written notice informing the
borrower that the credit union is required to escrow all premiums and
fees for required flood insurance:
(1) For loans subject to paragraphs (a)(2)(i), (c)(2)(i), or (d) of
this section, at least 90 days before the escrow of premiums and fees
under paragraphs (a)(2)(i), (c)(2)(i), or (d), using language that is
substantially similar to the model form in appendix B;
(2) For loans subject to paragraphs (a)(2)(ii) or (c)(2)(ii) of
this section, with the notice provided under Sec. 760.9, using
language that is substantially similar to model clauses on the escrow
requirement in appendix A; or
(3) For loans subject to paragraphs (a)(2)(iii) or (c)(2)(iii) of
this section, with the notice provided under Sec. 760.7, using
language that is substantially similar to model clauses on the escrow
requirement in appendix C.
(c) Exception.
(1) Qualification. Except as may be required under applicable State
law, paragraphs (a)(1) and (2) of this section do not apply to a credit
union:
(i) That has total assets of less than $1 billion as of December 31
of either of the two prior calendar years; and
(ii) On or before July 6, 2012:
(A) Was not required under Federal or State law to deposit taxes,
insurance premiums, fees, or any other charges in an escrow account for
the entire term of a loan secured by residential improved real estate
or a mobile home; and
(B) Did not have a policy of consistently and uniformly requiring
the deposit of taxes, insurance premiums, fees, or any other charges in
an escrow account for loans secured by residential improved real estate
or a mobile home.
(2) Change in status. If a credit union previously qualified for
the exception in paragraph Sec. 760.5(c)(1), but no longer qualifies
for the exception because it had assets of $1 billion or more for two
consecutive calendar year ends, the credit union must begin escrowing
premiums and fees for flood insurance pursuant to Sec. 760.3(a):
(i) For any designated loan outstanding on July 1 of the succeeding
calendar year, with the first loan payment on or after the first
renewal date of the borrower's flood insurance policy on or after July
1 of the succeeding calendar year;
(ii) For any designated loan made on or after July 1 of the
succeeding calendar year, upon loan consummation; or
(iii) For any loan that becomes a designated loan after July 1 of
the succeeding calendar year, with the first loan payment after the
flood insurance policy is established.
(d) Change in ownership. If a credit union that is required to
comply with paragraph (a) of this section acquires a designated loan
covered by flood insurance required under Sec. 760.3(a) that becomes
subject to paragraph (a) of this section as a result of the credit
union's acquisition of the loan, the credit union must begin escrowing
premiums and fees for flood insurance pursuant to paragraph (a) of this
section with the first loan payment on or after the first renewal date
of the borrower's flood insurance policy on or after the date that is
six months from the transfer date of the loan.

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 Administrator 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. A credit union may obtain the standard flood
hazard determination form from FEMA's Web site at www.fema.gov.
(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 Force-placement of flood insurance.

(a) Notice and purchase of coverage. If a credit union, or a
servicer acting on behalf of the credit union, 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 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 remaining 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, including premiums or fees
incurred for coverage

[[Page 65142]]

beginning on the date on which flood insurance coverage lapsed or did
not provide a sufficient coverage amount.
(b) Termination of force-placed insurance. (1) Termination and
refund. Within 30 days of receipt by a credit union, or a servicer
acting on the credit union's behalf, of a confirmation of a borrower's
existing flood insurance coverage, the credit union, or its servicer
shall:
(i) Notify the insurance provider to terminate any insurance
purchased by the credit union or its servicer under paragraph (a) of
this section; and
(ii) Refund to the borrower all premiums paid by the borrower for
any insurance purchased by the credit union or its servicer under
paragraph (a) of this section during any period during which the
borrower's flood insurance coverage and the insurance coverage
purchased by the credit union or its servicer were each in effect, and
any related fees charged to the borrower with respect to the insurance
purchased by the credit union or its servicer during such period.
(2) Sufficiency of demonstration. For purposes of confirming a
borrower's existing flood insurance coverage under paragraph (b) of
this section, a credit union or its servicer shall accept from the
borrower an insurance policy declarations page that includes the
existing flood insurance policy number and the identity of, and contact
information for, the insurance company or agent.

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. 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 Administrator of FEMA's revision or updating of
floodplain areas or flood-risk zones;
(3) Reflects the Administrator 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 Administrator 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
credit union or its servicer on behalf of the borrower under Sec.
760.7.
(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.

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 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 Administrator 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 from private insurance companies that issue flood insurance
policies on behalf of the NFIP or directly from the NFIP;
(4) A statement that flood insurance that provides the same level
of coverage as a standard flood insurance policy under the NFIP may
also be available from a private insurance company that issues policies
on behalf of the company;
(5) A statement that the borrower is encouraged to compare the
flood insurance coverage, deductibles, exclusions, conditions and
premiums associated with flood insurance policies issued on behalf of
the NFIP and policies issued on behalf of private insurance companies
and that the borrower should direct inquiries regarding the
availability, cost, and comparisons of flood insurance coverage to an
insurance agent; and
(6) 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 within a
reasonable time before the completion of the transaction and to the
servicer as promptly as practicable after the credit union provides
notice to the borrower and in any event no later than the time the
credit union 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 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 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 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 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.

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 Administrator of FEMA (or the
Administrator's designee) in writing of the identity of the servicer of
the loan. The Administrator of FEMA has designated the insurance
provider to receive the credit union's notice of the servicer's
identity. This notice may be provided electronically if electronic

[[Page 65143]]

transmission is satisfactory to the Administrator of FEMA's designee.
(b) Transfer of servicing rights. The credit union shall notify the
Administrator of FEMA (or the Administrator'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 Administrator 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 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 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 Administrator 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 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
Administrator 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.
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
building or mobile home and any personal property that secures your
loan and not the land itself.
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.

Availability of Private Flood Insurance Coverage

[Escrow Requirement for Residential Loans

Federal law requires a lender or its servicer to escrow all
premiums and fees for flood insurance that covers any residential
building or mobile home securing a loan that is located in an area
with special flood hazards. These premiums and fees must be paid to
the lender or its servicer with the same frequency as your loan
payments for the duration of your loan and will be deposited in an
escrow account on your behalf to be paid to the flood insurance
provider. Upon receipt of a notice from the flood insurance provider
that the premiums are due, the premiums shall be paid from the
escrow account to the insurance provider.]
-- 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.

Appendix B to Part 760--Sample Form of Notice of Requirement to Escrow
for Outstanding Loans

Notice of Escrow Requirement

How the Escrow Will Work

When the Escrow Will Start

When you receive your next flood insurance bill with the renewal
of your policy from your flood insurance provider, you are
responsible for making that payment directly to your insurance
provider.
We will begin collecting the premiums and fees for your flood
insurance escrow account with your mortgage loan payment following
this renewal date for the next policy term. For example, if your
flood insurance policy renewal date is September 15 and your next
mortgage loan payment is October 1, the credit union will begin
collecting the flood insurance premiums and fees for escrow with the
October 1 mortgage loan payment.
The escrow amount for flood insurance will be added to your
existing periodic mortgage payment. The payments you make into the
escrow account will accumulate over time and the funds will be used
to pay your flood insurance policy at the next policy renewal date.
Any questions regarding this new escrow requirement should be
directed to [Insert Name of Lender or Servicer] at [Insert Contact
Information].

Appendix C to Part 760--Sample Escrow Requirement Clause for Loans That
Become Designated Loans

Escrow Requirement Clause

Dated: October 9, 2013.
Thomas J. Curry,
Comptroller of the Currency.
By order of the Board of Governors of the Federal Reserve
System, October 10, 2013.
Robert deV. Frierson,
Secretary of the Board.

[[Page 65144]]

By order of the Board of Directors of the Federal Deposit
Insurance Corporation.
Dated at Washington, DC, this 8th day of October, 2013.
Robert E. Feldman,
Executive Secretary.
By order of the Board of the Farm Credit Administration.

Dated at McLean, VA, this 10th day of October, 2013.
Dale Aultman
Secretary.
By order of the Board of the National Credit Union Association.

Dated at Alexandria, VA, this 9th day of October, 2013.
Gerard Poliquin,
Secretary of the Board.
[FR Doc. 2013-24724 Filed 10-29-13; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P; 6705-01-P; 7535-01-U

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