Loans in Areas Having Special Flood Hazards–Private Flood Insurance
To: Chief Executive Officers of All National Banks, Federal Savings Associations, and Federal Branches and Agencies; Department and Division Heads; All Examining Personnel; and Other Interested Parties
Description: Final Rule
Summary
Note for
This final rule applies to all national banks, federal savings associations, and federal branches and agencies (collectively, banks), including community banks.
Highlights
The final rule requires banks to accept "private flood insurance," as defined in the Biggert-Waters Act, to satisfy the requirement that flood insurance be purchased in connection with loans secured by buildings or mobile homes located in special flood hazard areas for which flood insurance is available under the National Flood Insurance Program (NFIP). The final rule also
* includes a "compliance aid" provision to help a bank determine whether a flood insurance policy meets the Biggert-Waters Act definition of "private flood insurance" and must be accepted
* permits banks to accept certain flood policies issued by private insurers that do not meet the definition of "private flood insurance."
* permits banks to accept certain flood coverage provided by mutual aid societies, such as Amish Aid Plans.
Background
The National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973 govern the NFIP. Among other things, these statutes require the purchase of flood insurance in connection with loans secured by 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. These statutes also make available federally subsidized flood insurance through the NFIP, which is administered by the
The Biggert-Waters Act significantly amended the NFIP requirements. Among other changes, the Biggert-Waters Act requires each of the agencies to issue a rule directing regulated lending institutions to accept private flood insurance as defined in the act. On
Currently, the OCC allows banks to accept private flood insurance and flood coverage provided by mutual aid societies, such as Amish Aid Plans, in satisfaction of NFIP requirements on a discretionary basis if the bank determines that the insurance adequately protects its security for a loan. Until the effective date of this rule, banks may continue to accept private flood insurance and flood coverage provided by mutual aid societies, as currently permitted. After the effective date of this rule, banks will be required to accept certain flood insurance policies and, similar to current practice, may continue to accept other flood insurance policies issued by private insurers and flood coverage issued by mutual aid societies.
Further Information
Please contact
Senior Deputy Comptroller and Chief Counsel
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