Acceptance of Private Flood Insurance for FHA-Insured Mortgages, 74630-74636 [2020-25105]

Agencies

• DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Federal Register Volume 85, Number 226 (Monday, November 23, 2020)]
[Proposed Rules]
[Pages 74630-74636]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-25105]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 201, 203, and 206

[Docket No. FR-6084-P-01]
RIN 2502-AJ43


Acceptance of Private Flood Insurance for FHA-Insured Mortgages

AGENCY: Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner, HUD.

ACTION: Proposed rule.

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SUMMARY: This proposed rule would amend Federal Housing Administration 
(FHA) regulations to allow mortgagors the option to purchase private 
flood insurance on FHA-insured mortgages for

[[Page 74631]]

properties located in Special Flood Hazard Areas (SFHAs), in 
satisfaction of the mandatory purchase requirement of the Flood 
Disaster Protection Act of 1973 (the FDPA). The FDPA, as amended, 
requires the owner of a property mapped in a SFHA, and located in a 
community participating in the National Flood Insurance Program, to 
purchase flood insurance as a condition of receiving a mortgage backed 
by the GSEs, VA, USDA, or FHA.

DATES: Comment due date: January 22, 2021.

ADDRESSES: Interested persons are invited to submit comments regarding 
this proposed rule to the Regulations Division, Office of General 
Counsel, Department of Housing and Urban Development, 451 7th Street 
SW, Room 10276, Washington, DC 20410-0500. Communications must refer to 
the above docket number and title. There are two methods for submitting 
public comments. All submissions must refer to the above docket number 
and title.
    1. Submission of Comments by Mail. Comments may be submitted by 
mail to the Regulations Division, Office of General Counsel, Department 
of Housing and Urban Development, 451 7th Street SW, Room 10276, 
Washington, DC 20410-0500.
    2. Electronic Submission of Comments. Interested persons may submit 
comments electronically through the Federal eRulemaking Portal at 
www.regulations.gov. HUD strongly encourages commenters to submit 
comments electronically. Electronic submission of comments allows the 
commenter maximum time to prepare and submit a comment, ensures timely 
receipt by HUD, and enables HUD to make them immediately available to 
the public. Comments submitted electronically through the 
www.regulations.gov website can be viewed by other commenters and 
interested members of the public. Commenters should follow the 
instructions provided on that site to submit comments electronically.
    Note: To receive consideration as public comments, comments must be 
submitted through one of the two methods specified above. Again, all 
submissions must refer to the docket number and title of the rule.
    No Facsimile Comments. Facsimile (fax) comments are not acceptable.
    Public Inspection of Public Comments. HUD will make all properly 
submitted comments and communications available for public inspection 
and copying between 8 a.m. and 5 p.m. weekdays at the above address. 
Due to security measures at the HUD Headquarters building, you must 
schedule an appointment in advance to review the public comments by 
calling the Regulations Division at 202-708-3055 (this is not a toll-
free number). Individuals with speech or hearing impairments may access 
this number via TTY by calling the toll-free Federal Relay Service at 
800-877-8339. Copies of all comments submitted are available for 
inspection and downloading at www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Elissa Saunders, Director, Office of 
Single Family Program Development, Office of Housing, Department of 
Housing and Urban Development, 451 7th Street SW, Room 9184, 
Washington, DC 20410-8000; telephone number 202-708-2121. The telephone 
numbers listed above are not toll-free numbers. Persons with hearing or 
speech impairments may access these numbers through TTY by calling the 
toll-free Federal Relay Service at 800-877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

    The National Flood Insurance Act of 1968 (the 1968 Act) and the 
FDPA, as amended, govern the National Flood Insurance Program 
(NFIP).\1\ The 1968 Act makes federally backed flood insurance 
available to owners of improved real estate or manufactured homes 
located in special flood hazard areas (SFHAs) if their community 
participates in the NFIP. A SFHA is an area within a floodplain having 
a one percent or greater chance of flood occurrence in any given year. 
SFHAs are delineated on maps issued by the Federal Emergency Management 
Agency (FEMA) for individual communities.\2\ A community establishes 
its eligibility to participate in the NFIP by adopting and enforcing 
floodplain management measures that regulate new construction and by 
making substantial improvements within its SFHAs to eliminate or 
minimize future flood damage. The NFIP thus combines the concepts of 
hazard mitigation and insurance protection. By conditioning access to 
insurance on communities' adoption of floodplain management ordinances 
to mitigate the effects of flooding on new and existing construction, 
the NFIP incentivizes adoption of floodplain management ordinances.
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    \1\ See Public Law 90-448 (1968); Public Law 93-234 (1973). 
These statutes are codified at 42 U.S.C. 4001 et seq.
    \2\ FEMA administers the NFIP; its regulations implementing the 
NFIP appear at 44 CFR parts 59-77.
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    Until the adoption of the FDPA in 1973, the purchase of flood 
insurance was voluntary. Section 102 of the FDPA made the purchase of 
flood insurance mandatory, providing that no federal officer or agency 
may approve any financial assistance for acquisition or construction 
\3\ in any area identified as having SFHAs and in which the sale of 
flood insurance has been made available under the 1968 Act, unless the 
building or mobile home and any personal property is covered by flood 
insurance. Under the FDPA, flood insurance must be in an amount at 
least equal to the outstanding principal balance of the loan or to the 
maximum limit of coverage made available under the 1968 Act, whichever 
is less, and the coverage need not extend beyond the term of the loan.
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    \3\ Defined at 42 U.S.C. 4003(a)(4).
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    The National Flood Insurance Reform Act of 1994 \4\ (Reform Act) 
comprehensively amended the Federal flood insurance statutes. The 
purpose of the Reform Act was to increase compliance with flood 
insurance requirements and participation in the NFIP 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.\5\ Among other changes, the Reform Act requires that 
the federal entities for lending regulation \6\ revise their flood 
insurance regulations and brings lenders regulated by the Farm Credit 
Administration under the 1968 Act. The Reform Act also applies the 
flood insurance requirements directly to loans purchased by the Federal 
National Mortgage Association (Fannie Mae) and the Federal Home Loan 
Mortgage Corporation (Freddie Mac) (or collectively, the government 
sponsored enterprises or GSEs) and to Federal agency lenders,\7\ 
including FHA in limited circumstances, that make direct loans secured 
by real property or mobile homes in a SFHA.\8\ Under the Reform

[[Page 74632]]

Act, the owner of a property located in a community participating in 
the NFIP, and mapped in a SFHA, must purchase flood insurance as a 
condition of receiving a mortgage backed by the GSEs, VA, USDA, or FHA.
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    \4\ Title V of the Riegle Community Development and Regulatory 
Improvement Act of 1994, Public Law 103-325 (1994).
    \5\ H.R. Conf. Rep. No. 652, 103d Cong. 2d Sess. 195 (1994). 
(Conference Report).
    \6\ The federal financial regulatory agencies are the Office of 
the Comptroller of the Currency, the Federal Deposit Insurance 
Corporation, the National Credit Union Administration, the Board of 
Governors of the Federal Reserve System, and the Farm Credit 
Administration.
    \7\ Defined at 42 U.S.C. 4003(a)(7).
    \8\ These include: FHA, the Government National Mortgage 
Association (GNMA), the Small Business Administration (SBA), and the 
Department of Veterans Affairs (VA), and to the loans purchased by 
the Federal National Mortgage Association (Fannie Mae) and the 
Federal Home Loan Mortgage Corporation (Freddie Mac).
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    The Biggert-Waters Insurance Reform Act of 2012 (Biggert-Waters 
Act) further amended the Federal flood insurance statutes to encourage 
private-sector participation. The Biggert-Waters Act requires the 
Federal entities for lending regulation (the Federal Reserve Board 
(FRB), the Federal Deposit Insurance Corporation (FDIC), the Office of 
the Comptroller of the Currency (OCC), the National Credit Union 
Administration (NCUA), and the Farm Credit Administration (FCA))), 
collectively, Federal regulators) to direct lenders to accept private 
flood insurance to satisfy the mandatory purchase requirement, instead 
of NFIP insurance, if the private flood insurance meets the conditions 
defined further in the statute at 42 U.S.C. 4012a(b)(7). In addition, 
the Biggert-Waters Act also requires federal agency lenders and 
government-sponsored enterprises for housing to accept private flood 
insurance, as defined by the statute. The Biggert-Waters Act also 
mandates that federally regulated lenders, federal agency lenders, and 
lenders who sell to or service loans on behalf of the GSEs must provide 
borrowers a notice encouraging them to consider and compare private 
market flood insurance policies with NFIP policies and must accept such 
private flood insurance policies that meet the definition of ``private 
flood insurance'' in the Biggert Waters Act as satisfaction of 
mandatory purchase and flood insurance coverage requirements under the 
FDPA.\9\ Additionally, under the Biggert-Waters Act, the Federal 
regulators, Federal Housing Finance Agency, Federal agency lenders, and 
GSEs may require lenders to verify that insurers meet specific 
independent rating agency criteria relating to the financial solvency, 
strength, or claims-paying ability that indicate the insurers can 
satisfy claims.\10\ On February 20, 2019 (84 FR 4953), the Federal 
regulators jointly issued a Final Rule implementing the private flood 
insurance provisions of the Biggert-Waters Act.
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    \9\ See Public Law 112-141 (2012).
    \10\ See 42 U.S.C. 4012a(b)(5).
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    FHA's currently codified rules regarding the requirement to 
maintain flood insurance coverage on property located in a SFHA do not 
permit private flood insurance as an option to satisfy the mandatory 
purchase requirement under the FDPA. Instead, the FHA requires owners 
to obtain and maintain NFIP flood insurance during such a time as the 
mortgage is insured, to the extent that NFIP insurance is available.

II. This Proposed Rule

    HUD is proposing to amend FHA regulations at 24 CFR parts 201, 203, 
and 206, to allow owners the option to purchase private flood insurance 
on FHA-insured mortgages for properties located in SFHAs, consistent 
with the FDPA and in harmony with private flood insurance requirements 
under the Biggert-Waters Act. In the event of a lapse in the NFIP, the 
option of private flood insurance may reduce the likelihood of delays 
in the processing of new originations. Acceptance of private flood 
insurance policies would additionally benefit borrowers who want FHA-
insured mortgages, by providing them consumer choice, including the 
opportunity to obtain private flood insurance policies that may be more 
affordable than NFIP policies.
    Overall, this proposed rule would promote consistency with industry 
standards and reduce the regulatory restrictions on flood insurance for 
FHA-insured loans. HUD believes that this proposed rule would harmonize 
FHA policies with the Congressional intent to encourage an expanded 
private flood insurance market, as expressed in the Biggert-Waters Act. 
Accordingly, HUD is proposing to revise FHA regulations to permit 
mortgagors and mortgagees of single-family properties and other insured 
property to obtain private flood insurance on properties that secure 
FHA mortgages and are required to have flood insurance under the FDPA, 
as a private-sector alternative to NFIP flood insurance.
    Specifically, HUD is proposing to revise 24 CFR 203.16a to include 
the definition of ``private flood insurance'' specified in section 
100239 of the Biggert-Waters Act, which added a new section 102(b)(7) 
to the FDPA. This proposed rule would define ``private flood 
insurance'' similar to the statutory definition, to mean an insurance 
policy that:
    1. 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 property to be insured is located, by the 
insurance regulator of the State or jurisdiction; or, in the case of a 
policy of difference in conditions, 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 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 a requirement for the insurer to give written notice 45 
days before cancellation or non-renewal of flood insurance coverage to 
the insured and the mortgagee or FHA, in cases where the lender has 
assigned the loan to FHA in exchange for claim payment.
    4. Includes information about the availability of flood insurance 
coverage under the NFIP;
    5. Includes a mortgage interest clause similar to the clause 
contained in a standard flood insurance policy under the NFIP;
    6. 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 the policy; and
    7. Contains cancellation provisions that are as restrictive as the 
provisions contained in a standard flood insurance policy under the 
NFIP.
    This definition would ensure that private insurers can satisfy 
claims and that private flood insurance coverage is at least as broad 
as the coverage provided under the NFIP.
    HUD welcomes feedback from the public regarding acceptance of 
private flood insurance policies. Specifically, HUD is seeking public 
comment regarding whether FHA regulations should state that a Mortgagee 
may accept a qualifying private flood insurance policy in lieu of an 
NFIP policy or that a Mortgagee must accept a qualifying private flood 
insurance policy in lieu of an NFIP policy. HUD recognizes the value of 
consistency across the housing market with respect to flood insurance 
and of allowing FHA borrowers to select their preferred flood insurance 
policy, where required. However, HUD also recognizes that mortgagees 
have industry experience with different insurance providers and a 
responsibility for ensuring adequate insurance coverage is maintained.
    A mortgagee may maintain more flood insurance than required by 
Sec.  203.16a to protect the security interest in the mortgaged 
property.
    HUD is proposing to include a compliance aid provision in Sec.  
203.16a to help mortgagees evaluate whether a flood insurance policy 
meets the

[[Page 74633]]

definition of ``private flood insurance.'' This compliance aid will 
allow a mortgagee to conclude that a policy meets the definition of 
``private flood insurance'' without further review of the policy if the 
policy, or an endorsement to the policy, states: ``This policy meets 
the definition of private flood insurance contained in 24 CFR 
203.16a(e) for FHA-insured mortgages.'' This compliance aid will 
address concerns that a mortgagee, especially small mortgagees with a 
lack of technical expertise regarding flood insurance policies, could 
have difficulty evaluating whether a flood insurance policy meets the 
definition of ``private flood insurance.'' If a policy includes this 
statement, the mortgagee may rely on the statement and would not need 
to review the policy to determine whether it meets the definition of 
``private flood insurance.'' However, the mortgagee could choose not to 
rely on this statement and instead make its own determination. This 
provision does not relieve a mortgagee of the requirement to accept a 
policy that both meets the definition of ``private flood insurance'' 
and fulfills the flood insurance coverage requirement, even if the 
policy does not include the statement. In other words, this provision 
does not permit mortgagees to reject policies solely because they are 
not accompanied by the statement. Mortgagees that are regulated lending 
institutions may seek additional compliance aids on the policy.
    HUD's proposed compliance aid differs from the compliance aid 
provided by the Federal regulators' Final Rule implementing the private 
flood insurance provisions of the Biggert-Waters Act published at 84 FR 
4953 on February 20, 2019. Because the Federal regulators are bound by 
the Biggert-Waters Act, their compliance aid explicitly references 42 
CFR 4012a(b)(7). Except in limited circumstances when acting as a 
Federal agency lender, FHA was not included in the Biggert-Waters 
legislation, and is not governed by the associated regulations; 
instead, the HUD compliance aid cites the authority under 24 CFR 
203.16a(e) for flood insurance requirements for FHA-insured mortgages. 
In addition to the different governing authorities, HUD's Proposed Rule 
is not identical to the Federal regulators' Final Rule on private flood 
insurance acceptance.
    Specifically, unlike the Federal regulators, HUD will not permit 
Mortgagees to exercise their discretion to accept flood insurance 
policies, provided by private insurers or mutual aid societies, that do 
not meet the definition and requirements for a private flood insurance 
policy as laid out in this rule. HUD's requirements for FHA-insured 
mortgages may differ or exceed requirements by the Federal regulators 
on a number of issues, where appropriate, to best serve FHA borrowers 
and protect FHA's Mutual Mortgage Insurance Fund. Due to the 
differences between HUD and the Federal regulators' rules, compliance 
with the Federal regulators' Final Rule should not be interpreted as 
compliance with HUD's requirements. A private flood insurance provider 
can include both the Federal regulators' compliance aid and the HUD/FHA 
compliance aid on a policy to assert that the policy meets the 
definition and fulfills the requirements of both the Federal regulators 
and HUD. This would facilitate Mortgagees' review of a private flood 
insurance policy, to ensure that it is in compliance with HUD's 
regulations. HUD welcomes feedback from the public on this proposed 
compliance aid. Specifically, HUD is seeking public comment on the 
language and option for the proposed HUD compliance aid for private 
flood insurance policies to demonstrate compliance with HUD's 
definition and requirements for private flood insurance.
    Finally, HUD is proposing to amend 24 CFR 201.28(a) (Property 
Improvement and Manufactured Home Loans), 203.343(b) (Single Family 
Mortgage Insurance), 206.45(c) (Home Equity Conversion Mortgage 
Insurance), and 206.134(b) (Home Equity Conversion Mortgage Insurance) 
to permit borrowers to obtain private flood insurance on certain other 
types of mortgages that are required to have flood insurance under the 
FDPA. HUD is proposing to define private flood insurance in these 
sections by cross-reference to the definition in 203.16a.

III. Findings and Certifications

Executive Order 12866 and Executive Order 13563

    Under Executive Order 12866 (Regulatory Planning and Review), a 
determination must be made whether a regulatory action is significant 
and therefore, subject to review by the Office of Management and Budget 
(OMB) in accordance with the requirements of the order. Executive Order 
13563 (Improving Regulations and Regulatory Review) directs executive 
agencies to analyze regulations that are ``outmoded, ineffective, 
insufficient, or excessively burdensome, and to modify, streamline, 
expand, or repeal them in accordance with what has been learned.'' 
Executive Order 13563 also directs that, where relevant, feasible, and 
consistent with regulatory objectives, and to the extent permitted by 
law, agencies are to identify and consider regulatory approaches that 
reduce burdens and maintain flexibility and freedom of choice for the 
public.
    HUD has examined the economic, budgetary, legal and policy 
implication of this action and has determined that this proposed rule 
is a significant regulatory action under section 3(f) of Executive 
Order 12866 (but not an economically significant action).

Executive Order 13771

    Executive Order 13771, entitled ``Reducing Regulation and 
Controlling Regulatory Costs,'' was issued on January 30, 2017. Section 
2(a) of Executive Order 13771 requires an Agency, unless prohibited by 
law, to identify at least two existing regulations to be repealed when 
the Agency publicly proposes for notice and comment or otherwise 
promulgates a new regulation. In furtherance of this requirement, 
section 2(c) of Executive Order 13771 requires that the new incremental 
costs associated with new regulations shall, to the extent permitted by 
law, be offset by the elimination of existing costs associated with at 
least two prior regulations. This proposed rule is expected to be an 
E.O. 13771 deregulatory action. Details on the estimated cost savings 
of this proposed rule can be found in the rule's economic analysis.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.) 
generally requires an agency to conduct a regulatory flexibility 
analysis of any rule subject to notice and comment rulemaking 
requirements, unless the agency certifies that the rule will not have a 
significant economic impact on a substantial number of small entities. 
Initially, supervised mortgagees are among FHA-approved lenders. These 
mortgagees are supervised by the Federal regulators. Based on the 
analysis developed by the Federal regulators and published as part of 
their final rule (see 84 FR 4953), the Federal regulators determined 
that allowing private flood insurance in mortgage transactions 
conducted by these mortgagees would not have a significant economic 
impact on a substantial number of small entities they supervised. This 
finding is also true for the share of regulated lending institutions 
supervised by the Federal regulators that are FHA-approved lenders.
    Small entities also include small businesses, small not-for-profit

[[Page 74634]]

organizations, and small governmental jurisdictions. This rule, 
however, offers a benefit to all FHA-approved mortgagees regardless of 
the size of the firm. Allowing private insurers to compete provides 
business opportunities to those private insurers. The rule would 
provide a compliance aid which will allow all mortgagees, including 
small mortgagees that may lack technical expertise regarding flood 
insurance policies, to conclude that a policy meets the definition of 
``private flood insurance'' without further review of the policy if the 
policy, or an endorsement to the policy, states: ``This policy meets 
the definition of private flood insurance contained in 24 CFR 
203.16a(e) for FHA-insured mortgages.'' This proposed rule would also 
reduce the burden to all mortgagees, including those small entities, by 
aligning FHA's regulations with those issued by the Federal regulators.
    For flood insurance companies, there is less data. However, 
existing analysis by Kousky et al. (2018) \11\ on private insurers that 
are currently providing flood insurance shows that these private 
insurance companies are mostly surplus line carriers that operate 
globally. This finding implies that such carriers cannot be considered 
as small entities. Taking advantage of the business opportunities is 
more difficult for small firms because large firms are inherently 
favored by their ability to spread flood risk. However, as the private 
flood insurance market expands, it is expected to become less 
concentrated, to the benefit of small entities. Overall, HUD believes 
that this rule will not have a significant impact on a substantial 
number of small entities, and the impact of the rule on those small 
entities impacted will be beneficial rather than adverse. Therefore, 
this proposed rule is not expected to have a significant economic 
impact on small entities.
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    \11\ Kousky, C., H. Kunreuther, B. Lingle, and L. Shabman 
(2018). The Emerging Private Residential Flood Insurance Market in 
the United States, Risk Management and Decision Processes Center, 
Wharton, University of Pennsylvania, July.
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    Notwithstanding HUD's determination, HUD specifically invites 
comments regarding any less burdensome alternatives to this rule that 
will meet HUD's objectives as described in the preamble to this rule.

Environmental Impact

    A Finding of No Significant Impact (FONSI) with respect to the 
environment has been made in accordance with HUD regulations at 24 CFR 
part 50, which implement section 102(2)(C) of the National 
Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C)). The FONSI is 
available for public inspection on www.regulations.gov.

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has federalism implications if the rule 
either (i) imposes substantial direct compliance costs on state and 
local governments and is not required by statute, or (ii) preempts 
state law, unless the agency meets the consultation and funding 
requirements of section 6 of the Executive order. This proposed rule 
would not have federalism implications and would not impose substantial 
direct compliance costs on state and local governments or preempt state 
law within the meaning of the Executive order.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1531-1538) (UMRA) establishes requirements for Federal agencies to 
assess the effects of their regulatory actions on state, local, and 
tribal governments, and on the private sector. This proposed rule would 
not impose any Federal mandates on any state, local, or tribal 
governments, or on the private sector, within the meaning of the UMRA.

List of Subjects

24 CFR Part 201

    Claims; Health facilities; Historic preservation; Home improvement; 
Loan programs-housing and community development; Manufactured homes; 
Mortgage insurance; Reporting and recordkeeping requirements.

24 CFR Part 203

    Hawaiian Natives; Home improvement, Indians-lands; Loan programs-
housing and community development; Mortgage insurance; Reporting and 
recordkeeping requirements; Solar energy.

24 CFR Part 206

    Aged; Condominiums; Loan programs-housing and community 
development; Mortgage insurance; Reporting and recordkeeping 
requirements.

    For the reasons discussed in the preamble, HUD proposes to amend 24 
CFR parts 201, 203, and 206 as follows:

PART 201--TITLE I PROPERTY IMPROVEMENT AND MANUFACTURED HOME LOANS

0
1. The authority citation for part 201 continues to read as follows:

    Authority:  12 U.S.C. 1703; 15 U.S.C. 1639c; 42 U.S.C. 3535(d).

0
2. Revise Sec.  201.28(a), to read as follows:


Sec.  201.28   Flood and hazard insurance, and Coastal Barriers 
properties.

    (a) Flood insurance. No property improvement loan or manufactured 
home loan shall be eligible for insurance under this part if the 
property securing repayment of the loan is located in a special flood 
hazard area identified by the Federal Emergency Management Agency 
(FEMA), unless flood insurance on the property is obtained by the 
borrower in compliance with section 102 of the Flood Disaster 
Protection Act of 1973 (42 U.S.C. 4012a). Such insurance shall be in 
the form of the standard policy issued under the National Flood 
Insurance Program (NFIP) or private flood insurance, as defined in 
Sec.  203.16a of this chapter. Such insurance shall be obtained at any 
time during the term of the loan that the lender determines that the 
secured property is located in a special flood hazard area identified 
by FEMA and shall be maintained by the borrower for the remaining term 
of the loan, or until the lender determines that the property is no 
longer in a special flood hazard area, or until the property is 
repossessed or foreclosed upon by the lender. The amount of such 
insurance shall be at least equal to the unpaid balance of the Title I 
loan, and the lender shall be named as the loss payee for flood 
insurance benefits.
* * * * *

PART 203--SINGLE FAMILY MORTGAGE INSURANCE

0
3. The authority citation for part 203 continues to read as follows:

    Authority: 12 U.S.C. 1707, 1709, 1710, 1715b, 1715z-16, 1715u, 
and 1715z-21; 15 U.S.C. 1639c; 42 U.S.C. 3535(d).
0
4. Revise Sec.  203.16a to read as follows:


Sec.  203.16a  Mortgagor and mortgagee requirement for maintaining 
flood insurance coverage.

    (a) In general. (1) The requirements of this section apply if a 
mortgage is to cover property improvements that:
    (i) Are located in an area designated by the Federal Emergency 
Management Agency (FEMA) as a floodplain area having special flood 
hazards; or
    (ii) Are otherwise determined by the Commissioner to be subject to 
flood hazard.
    (2) No mortgage may be insured that covers property improvements 
located in an area that has been identified by FEMA as an area having 
special flood

[[Page 74635]]

hazards unless the community in which the area is situated is 
participating in the National Flood Insurance Program and flood 
insurance under the National Flood Insurance Program (NFIP) is 
available with respect to such property improvements. Such requirement 
for flood insurance shall be effective one year after the date of 
notification by FEMA to the chief executive officer of a flood prone 
community that such community has been identified as having special 
flood hazards.
    (3) For purposes of this section, property improvement means a 
dwelling and related structures/equipment essential to the value of the 
property and subject to flood damage.
    (b) Flood insurance obligation. The mortgagor and mortgagee shall 
be obligated, by a special condition to be included in the mortgage 
commitment, to obtain and maintain either NFIP flood insurance or 
private flood insurance coverage on the property improvements.
    (c) Insurance policy. A mortgagee may accept a flood insurance 
policy in the form of the standard policy issued under the National 
Flood Insurance Program (NFIP) or a private flood insurance policy as 
defined in this section, and the mortgagee shall be named as the loss 
payee for flood insurance benefits. A mortgagee may determine that a 
private flood insurance policy meets the definition of private flood 
insurance in Sec.  203.16a, without further review of the policy, if 
the following statement is included within the policy or as an 
endorsement to the policy: ``This policy meets the definition of 
private flood insurance contained in paragraph (e) of this section for 
FHA-insured mortgages.''
    (d) Duration and amount of coverage. The flood insurance must be 
maintained during such time as the mortgage is insured in an amount at 
least equal to the lowest of the following:
    (1) Development or project cost less estimated land cost; or
    (2) The maximum amount of NFIP insurance available with respect to 
the particular type of property; or
    (3) The outstanding principal balance of the loan.
    (e) Private flood insurance defined. The term ``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 property, is 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;
    (2) Provides flood insurance coverage that is at least as broad as 
the coverage provided under a standard flood insurance policy under the 
National Flood Insurance Program for the same type of property, 
including when considering deductibles, exclusions, and conditions 
offered by the insurer. To be at least as broad as the coverage 
provided under a standard flood insurance policy under the National 
Flood Insurance Program, the policy must, at a minimum:
    (i) Define the term ``flood'' to include the events defined as a 
``flood'' in a standard flood insurance policy under the National Flood 
Insurance Program;
    (ii) Contain the coverage specified in a standard flood insurance 
policy under the National Flood Insurance Program, including that 
relating to building property coverage; personal property coverage, if 
purchased by the insured mortgagor(s); other coverages; and increased 
cost of compliance coverage;
    (iii) Contain deductibles no higher than the specified maximum, and 
include similar non-applicability provisions, as under a standard flood 
insurance policy under the National Flood Insurance Program, for any 
total policy coverage amount up to the maximum available under the NFIP 
at the time the policy is provided to the lender;
    (iv) Provide coverage for direct physical loss caused by a flood 
and may only exclude other causes of loss that are excluded in a 
standard flood insurance policy under the National Flood Insurance 
Program. Any exclusions other than those in a standard flood insurance 
policy under the National Flood Insurance Program may pertain only to 
coverage that is in addition to the amount and type of coverage that 
could be provided by a standard flood insurance policy under the 
National Flood Insurance Program or have the effect of providing 
broader coverage to the policyholder; and
    (v) Not contain conditions that narrow the coverage provided in a 
standard flood insurance policy under the National Flood Insurance 
Program;
    (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;
    (B) The mortgagee, if any; and
    (C) FHA, in cases where the mortgagee has assigned the loan to FHA 
in exchange for claim payment.
    (ii) Information about the availability of flood insurance coverage 
under the National Flood Insurance Program;
    (iii) A mortgage interest clause similar to the clause contained in 
a standard flood insurance policy under the National Flood Insurance 
Program; and
    (iv) A provision requiring an insured to file suit not later than 1 
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 
National Flood Insurance Program.
0
5. Revise Sec.  203.343(b)(3), to read as follows:


Sec.  203.343   Partial release, addition or substitution of security.

* * * * *
    (b) * * *
    (3) The property to which the dwelling is removed is in an area 
known to be reasonably free from natural hazards or, if in a flood 
zone, the mortgagor will insure or reinsure under the National Flood 
Insurance Program or obtain equivalent private flood insurance coverage 
as defined in Sec.  203.16a.
* * * * *

PART 206--HOME EQUITY CONVERSION MORTGAGE INSURANCE

0
6. The authority citation for part 206 continues to read as follows:

    Authority:  12 U.S.C. 1715b, 1715z-20; 42 U.S.C. 3535(d)

0
7. Revise Sec.  206.45(c) to read as follows:


Sec.  206.45   Eligible properties.

* * * * *
    (c) Borrower and mortgagee requirement for maintaining flood 
insurance coverage.
    (1) During such time as the mortgage is insured, the borrower and 
mortgagee shall be obligated, by a special condition to be included in 
the mortgage commitment, to obtain and to maintain flood insurance 
coverage under either the National Flood Insurance Program (NFIP) or 
equivalent private flood insurance coverage as defined in Sec.  203.16a 
on the property improvements (dwelling and related structures/equipment 
essential to the value of the property and subject to flood damage) if 
the flood insurance is available with respect to the property 
improvements that:

[[Page 74636]]

    (i) Are located in an area designated by the Federal Emergency 
Management Agency (FEMA) as a floodplain area having special flood 
hazards; or
    (ii) Are otherwise determined by the Commissioner to be subject to 
a flood hazard.
    (2) No mortgage may be insured that covers property improvements 
located in an area that has been identified by FEMA as an area having 
special flood hazards, unless the community in which the area is 
situated is participating in the NFIP and flood insurance is obtained 
by the borrower. Such flood insurance shall be in the form of the 
standard policy issued under the National Flood Insurance Program 
(NFIP) or private flood insurance as defined in Sec.  203.16a. Such 
requirement for flood insurance shall be effective one year after the 
date of notification by FEMA to the chief executive officer of a flood 
prone community that such community has been identified as having 
special flood hazards.
* * * * *


Sec.  206.134  [Amended]

0
8. In Sec.  206.134, amend paragraph (b)(3) by adding the phrase ``or 
obtain equivalent private flood insurance coverage, as defined in Sec.  
203.16a'' after ``National Flood Insurance Program''.

Dana T. Wade,
Assistant Secretary for Housing, Federal Housing Commissioner.
[FR Doc. 2020-25105 Filed 11-20-20; 8:45 am]
BILLING CODE 4210-67-P