Loans in Areas Having Special Flood Hazards
Final rule.
CFR Part: "12 CFR Part 208"
RIN Number: "RIN 1557-AD84"
Citation: "80 FR 43216"
Document Number: "RIN 3052-AC93"
Page Number: "43216"
"Rules and Regulations"
SUMMARY:
EFFECTIVE DATE: The effective date of amendatory instructions 1, 6, 7, 8, 10, 15, 16, 21 and 22 is
FOR FURTHER INFORMATION CONTACT: FOR FURTHER INFORMATION CONTACT:
OCC:
Board:
FCA:
NCUA:
SUPPLEMENTARY INFORMATION: In
FOOTNOTE 1 Public Law 112-141, 126 Stat. 916 (2012). END FOOTNOTE
FOOTNOTE 2 78 FR 65108 (
FOOTNOTE 3 The National Flood Insurance Reform Act of 1994 defines "regulated lending institution" to mean any bank, savings and loan association, credit union, farm credit bank, Federal land bank association, production credit association, or similar institution subject to the supervision of a Federal entity for lending regulation. 42 U.S.C. 4003(a)(1). END FOOTNOTE
In
FOOTNOTE 4 Public Law 113-89, 128 Stat. 1020 (2014). END FOOTNOTE
FOOTNOTE 5 Public Law 93-234, 87 Stat. 975 (1973). END FOOTNOTE
FOOTNOTE 6 79 FR 64518 (
The Agencies are issuing this final rule to implement the escrow provisions and the detached structures provision detailed in the
FOOTNOTE 7 See 42 U.S.C. 4012a(b)(1). Four of the five Agencies (OCC, Board,
B. Flood Insurance Statutes
The National Flood Insurance Act of 1968 (1968 Act) /8/ and the FDPA, as amended, govern the National Flood Insurance Program (NFIP). /9/ 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. /10/ SFHAs are delineated on maps issued by the
FOOTNOTE 8 Public Law 90-448, 82 Stat. 572 (1968). END FOOTNOTE
FOOTNOTE 9 These statutes are codified at 42 U.S.C. 4001-4129. The
FOOTNOTE 10 44 CFR 59.1. END FOOTNOTE
FOOTNOTE 11 44 CFR part 65. END FOOTNOTE
FOOTNOTE 12 44 CFR part 60. END FOOTNOTE
Until the adoption of the FDPA in 1973, the purchase of flood insurance was voluntary. The FDPA made the purchase of flood insurance mandatory in connection with loans made by regulated lending institutions when the loans are secured by improved real estate or mobile homes located in a SFHA in a participating community. The FDPA directed the OCC, Board,
FOOTNOTE 13 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 to the
Title V of the
FOOTNOTE 14 Public Law 103-325, 108 Stat. 2255 (1994) (codified as amended at 42 U.S.C. 4001 et seq. (1994)). END FOOTNOTE
The Reform Act required the OCC, Board,
FOOTNOTE 15 61 FR 45684 (
C. The Biggert-Waters and HFIAA Amendments
Among other changes, /16/ Biggert-Waters significantly amended the NFIP requirements over which the Agencies have jurisdiction. Specifically, Biggert-Waters: (i) Increased the maximum civil money penalty (CMP) that the Agencies may impose per violation when there is a pattern or practice of flood violations and eliminated the limit on the total amount of penalties that the Agencies may assess against a regulated lending institution during any calendar year; /17/ (ii) required the Agencies to issue a rule to direct 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; /18/ (iii) required the Agencies to issue a rule to direct regulated lending institutions to accept private flood insurance, as defined by Biggert-Waters, and to notify borrowers of the availability of private flood insurance; /19/ and (iv) amended the force-placed insurance 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 borrower's flood insurance coverage lapsed or did not provide sufficient coverage and to prescribe the procedures for terminating force-placed insurance. /20/
FOOTNOTE 16 The Agencies note, for example, that section 100222 of Biggert-Waters 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
FOOTNOTE 17 Section 100208 of Biggert-Waters, amending section 102(f)(5) of the FDPA (42 U.S.C. 4012a(f)(5)). END FOOTNOTE
FOOTNOTE 18 Section 100209 of Biggert-Waters, amending section 102(d) of the FDPA (42 U.S.C. 4012a(d)).
FOOTNOTE 19 Section 100239 of Biggert-Waters, 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)). END FOOTNOTE
FOOTNOTE 20 Section 100244 of the Act, amending section 102(e) of the FDPA (42 U.S.C. 4012a(e)). END FOOTNOTE
HFIAA further amended the changes set forth in Biggert-Waters. Among these changes were amendments that tied the escrow requirement to the origination, refinance, increase, extension, or renewal of a loan on or after
FOOTNOTE 21 Section 25 of HFIAA, amending section 102(d) of the FDPA (42 U.S.C. 4012a(d)). END FOOTNOTE
FOOTNOTE 22 "Outstanding loan" is defined in section 25(b)(1)(B)(i)(II) of HFIAA. END FOOTNOTE
FOOTNOTE 23 Section 13 of HFIAA, amending section 102(c) of the FDPA (42 U.S.C. 4012a(c)). The Agencies note that Section 13 of HFIAA also amends section 5(b) of RESPA (12 U.S.C. 2604(b)) to require language related to detached structures be included in the required Special Information Booklet. The requirement to revise the Special Information Booklet under RESPA falls under the jurisdiction of the CFPB. END FOOTNOTE
As previously discussed in guidance issued by the Agencies, /24/ the CMP provisions /25/ and the force-placed insurance requirements in Biggert-Waters were effective upon enactment of Biggert-Waters. Similarly, the provision in HFIAA excluding certain detached structures from the mandatory flood insurance purchase requirement became effective upon the enactment of HFIAA. In contrast, Biggert-Waters and HFIAA require the Agencies to issue regulations implementing both the escrow and private flood insurance provisions.
FOOTNOTE 24 "Interagency Statement on the Impact of Biggert-Waters Act,"
FOOTNOTE 25 Some of the Agencies have revised their regulations to incorporate these increased CMPs. See OCC: 77 FR 66529 (
II. The Agencies' Proposed Revisions
A. Summary of the
In the
FOOTNOTE 26 However, with HFIAA's enactment in
The
The
Finally, consistent with Biggert-Waters, the
FOOTNOTE 27 As mentioned above, the Agencies will address issues related to private flood insurance in a separate rulemaking. END FOOTNOTE
B. Summary of the
Under the
In addition, the
The
C. Overview of Public Comments
The Agencies received 81 written comments on the
FOOTNOTE 28 The Agencies have placed summaries of these meetings in the public comment file. END FOOTNOTE
The Agencies received numerous comments supporting the exemption for certain detached structures from the mandatory flood insurance purchase requirement. Many of these commenters requested clarifications of the terms used in the exemption, including the meanings of the terms "residential property," "detached structure," and "serve as a residence." The Agencies also sought comment on whether the exemption should be restricted to consumer purpose loans. Many commenters opposed the Agencies incorporating such a limitation. Some commenters also wanted the Agencies to expand the exemption to include non-residential property. Commenters also were uniformly opposed to the Agencies stating that regulated lending institutions need not perform a flood hazard determination for any properties or structures that are exempt from the mandatory flood insurance purchase requirement because a flood hazard determination is often needed to determine what types of structures exist on the property.
Many commenters also offered suggestions on the Agencies' proposed escrow provisions. Several commenters recommended that the Agencies apply the general escrow requirement to applications received on or after
In addition, the Agencies received many comment letters that addressed force placement issues. Commenters generally supported the proposed provisions on force placement. However, commenters sought clarification on various force placement issues, such as, sufficiency of proof of coverage when a borrower obtains flood insurance after the lender or its servicer has force placed the insurance; the definition of the term "lapsed;" whether force-placed insurance only should be terminated when the borrower provides proof of NFIP-compliant flood insurance coverage; whether a refund for any period of overlapping coverage should be made to the borrower by the lender within 30 days of the borrower obtaining coverage; when a lender should cancel force-placed flood insurance; what constitutes proof of coverage for purposes of determining whether a borrower has obtained alternative flood insurance coverage; and how to resolve force placement issues when a borrower is in default.
Finally, the Agencies received numerous comment letters on the private flood insurance provisions the Agencies proposed in the
III. Summary of the Final Rule
The amendments finalized by this rulemaking are summarized below and more specifically described in V. Section-by-Section Analysis of this preamble. Although the Agencies' final regulations are substantively consistent, the format of the regulatory text varies to conform to each Agency's current regulation.
The final rule sets forth the new exemption in the FDPA, as amended by section 13 of HFIAA, to the mandatory flood insurance purchase requirement for any structure that is a part of a residential property, but is detached from the primary residential structure and does not serve as a residence. Consistent with commenters' suggestions, the final rule includes clarifications of the terms "a structure that is part of a residential property," "detached," and "serve as a residence."
In accordance with the FDPA, as amended by Biggert-Waters and HFIAA, the final rule also requires regulated lending institutions, or servicers acting on their behalf, to escrow premiums and fees for flood insurance for any loan secured by residential improved real estate or a mobile home that is made, increased, extended, or renewed on or after
Moreover, the final rule implements the following additional exceptions from the escrow requirement, as amended by HFIAA for: (i) Loans that are in a subordinate position to a senior lien secured by the same property for which flood insurance is being provided; (ii) loans secured by residential improved real estate or a mobile home that is part of a condominium, cooperative, or other project development, provided certain conditions are met; (iii) loans that are extensions of credit primarily for a business, commercial, or agricultural purpose; (iv) home equity lines of credit; (v) nonperforming loans; and (vi) loans with terms not longer than 12 months. The Agencies are clarifying in the final rule that, when a regulated lending institution determines that an exception no longer applies, the institution must require the escrow of flood insurance premiums and fees.
The Agencies note that the escrow provisions in the Agencies' rules in effect on
FOOTNOTE 29
The final rule also implements the requirement under HFIAA that regulated lending institutions not excepted from the escrow requirement offer and make available to a borrower the option to escrow flood insurance premiums and fees for loans that are outstanding as of
The Agencies' final rule includes new and revised sample notice forms and clauses. Specifically, the final rule 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 escrow requirement. The Agencies are adopting minor amendments to the language the Agencies proposed in the
The final rule also includes an additional sample clause, Sample Clause for Option to Escrow for Outstanding Loans, as Appendix B, to assist institutions in complying with the requirement to inform borrowers of outstanding loans about their option to escrow flood insurance premiums and fees. The Agencies are making minor language and formatting changes to Appendix B as proposed in the
Furthermore, consistent with Biggert-Waters, the Agencies' final rule amends 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 final rule also stipulates 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.
The Agencies also adopt needed technical corrections proposed in the 2013 Proposed Rule. For example, the Agencies' final rule corrects all references to the head of
FOOTNOTE 30 6 U.S.C. 313. END FOOTNOTE
FOOTNOTE 31 79 FR 75742 (
The escrow and option to escrow provisions in this final rule, as well as the revisions to Appendix A and new Appendix B, will become effective on
IV. Legal Authority
Section 102(b) of the FDPA (42 U.S.C. 4012a(b)), as amended, provides that the Agencies (after consultation and coordination with the
Section 102(c) of the FDPA (42 U.S.C. 4012a(c)) sets forth specific exceptions to the mandatory flood insurance purchase requirement. The Agencies are authorized to implement these exceptions.
Section 102(d) of the FDPA (42 U.S.C. 4012a(d)), as amended by section 25 of HFIAA, states that the Agencies (after consultation and coordination with the
Section 102(d) of the FDPA, as amended by HFIAA, also directs the Agencies to implement the seven exceptions to this requirement that are set forth in the statute. Section 25(b) of HFIAA further states that the Agencies (after consultation and coordination with the
V. Section-by-Section Analysis
__.__ Authority, Purpose, and Scope
As discussed in the
As part of the OCC's consolidation of its flood insurance rule, the OCC also proposed the insertion of the term "Federal savings association" where necessary throughout its flood insurance rule. No comments were received on this proposed change. The OCC therefore adopts the change as proposed.
__.__ Definitions
As noted above in __.__ Authority, purpose, and scope, the Agencies proposed technical amendments to change the references to the head of
OCC-Only Definitions
The OCC proposed amendments to the definition section for purposes of integrating its national bank and Federal savings association flood insurance rules. First, the proposed rule provided 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 5.38(e)(3), 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 proposed to remove the definition of "bank," which the rule currently defines as meaning a national bank, and replaced "bank" with "national bank" throughout the final rule. The OCC did not receive any comments on these technical changes. However, the final rule adds a definition of "national bank" to include Federal branches and agencies of a foreign bank. Federal branches and agencies are currently subject to the same flood insurance requirements as national banks. /32/ The addition of this definition clarifies the scope of the rule and promotes consistency throughout the OCC's rules and regulations.
FOOTNOTE 32 See, e.g., Comptroller's Handbook, Federal Branches and Agencies Supervision,
__.__ Requirement To Purchase Flood Insurance Where Available
The current regulation provides that a regulated lending institution shall not make, increase, extend, or renew any designated loan /33/ 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. The
FOOTNOTE 33 " 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 [
In response to these comments, the Agencies emphasize that the proposed change does not set forth a new requirement, but merely clarifies the long-standing legal interpretation that Federal flood insurance coverage does not apply to land. In proposing this change, the Agencies simply intended to reduce confusion by clarifying the meaning of the term to reflect what is actually covered. In response to the comment that suggests the use of replacement cost or the appraised value of the property minus the land, it is the Agencies' opinion that using other insurance terms to clarify the coverage limit would not reflect what is covered under Federal flood insurance legislation as accurately as the proposed language. For these reasons, the Agencies adopt the language as proposed.
__.__ Exemptions
Section 13 of HFIAA, which amends section 102(c) of the FDPA (42 U.S.C. 4012a(c)), adds a new exemption to the mandatory flood insurance purchase requirement. Specifically, HFIAA provides that flood insurance is not required, in the case of any residential property, on any structure that is a part of such property, but is detached from the primary residential structure and does not serve as a residence. The
Numerous commenters provided general support for the proposed rule's implementation of the exemption for detached structures. Commenters strongly supported providing lenders with the discretion to exempt low-value non-residential structures from the mandatory purchase obligation. Many commenters requested that the Agencies clarify the meaning of various terms to assist lenders in applying the exemption and to ensure consistent application of the exemption.
Several commenters asserted that the detached structure exemption should be available regardless of whether the loan is made for a business, agricultural, or commercial purpose, contrary to the Agencies' suggestion. These commenters maintained that lenders should be able to exclude non-residential detached structures regardless of the loan's purpose, as long as the loan is secured by residential property. Numerous commenters, including trade associations, financial institutions, and individuals, suggested that the final rule should broaden the exemption to include business, agricultural, and commercial loans and not apply solely to consumer loans. Commenters noted that loan proceeds may be used for different purposes than that of the property that secures those proceeds and that section 13 of HFIAA does not limit the exemption only to consumer loans. Several commenters noted that a borrower who uses a residence to secure a business, commercial, or agricultural purpose loan faces the same affordability challenges when required to insure a low-value detached structure as a borrower who uses the same collateral to secure a consumer loan. One commenter noted that low-value structures are a common issue for both consumer and commercial borrowers and therefore should be treated consistently.
The Agencies acknowledge that, with respect to flood insurance, the purpose of a loan may be immaterial to the borrower when the borrower uses his or her residence to secure the loan. Therefore, the Agencies agree with commenters that the detached structure exemption should be available in connection with consumer loans as well as those made for business, commercial, or agricultural purposes if the loan is secured by a residence.
The Agencies considered the various comments concerning the definition of "residential property." Several commenters, including trade associations and financial institutions, suggested that "residential property" should be defined consistently with "residential improved real estate" /34/ as defined in the FDPA. Another commenter suggested "residential property" should be interpreted as a parcel of collateral property containing a 1-4 family building actually used as a residence. Several commenters suggested the Agencies adopt a definition of "residential property" that focuses on the structure's residential use--regardless of its nature or size--consistent with similar definitions in the FDPA. These commenters believed the term should be broadly defined to encompass any residential structure, including single-family dwellings, 1-4 family dwellings, multi-family dwellings, and mixed-use buildings as long as the primary purpose of the building is for a residential purpose. A trade association suggested the Agencies look to the
FOOTNOTE 34 The FDPA defines "residential improved real estate" as "improved real estate for which the improvement is a residential building." 42 U.S.C. 4012a(d)(4). END FOOTNOTE
FOOTNOTE 35 See, e.g., Real Estate Settlement Procedures Act, 12 U.S.C. 2602(1)(A); Truth in Lending Act, 15 U.S.C. 1602(w)-(x). END FOOTNOTE
As previously explained, the Agencies have determined that the meaning of the term "residential property" should not focus on a loan's purpose. In addition, the Agencies have determined that using the FDPA definition of "residential improved real estate" would render the exemption too expansive for its intended purpose because it could result in exempting all commercial or agricultural structures on a property merely because a residence is also located on the property. The Agencies believe detached structures used for commercial, agricultural, or other business purposes should be protected adequately by flood insurance as collateral given their value to the borrower and lender, and should not be covered by the detached structures exemption.
The Agencies, however, did find the HUD definition of "residential property" to be helpful. /36/ The HUD lead-based paint regulation seeks to limit its scope only to properties and structures used solely for residential purposes, and to exclude land used for agricultural, commercial, industrial, or other non-residential purposes. The Agencies have determined that "residential property" in the detached structure exemption should be similar to the HUD regulation's definition in that it should apply only to structures for which there is a residential use and not to structures for which there is a commercial, agricultural, or other business use.
FOOTNOTE 36 " Residential property means a dwelling unit, common areas, building exterior surfaces, and any surrounding land, including outbuildings, fences and play equipment affixed to the land, belonging to an owner and available for use by residents, but not including land used for agricultural, commercial, industrial or other non-residential purposes, and not including paint on the pavement of parking lots, garages, or roadways." 24 CFR 35.110. END FOOTNOTE
Additionally, the Agencies were guided by Regulation Z, which implements the Truth in Lending Act (TILA), and its well-established interpretations for further clarification on residential purpose because TILA generally covers consumer extensions of credit. /37/ In particular, Regulation Z applies to credit "primarily for personal, family, or household purposes." /38/ Consistent with Regulation Z, for purposes of the detached structures exemption, the final rule clarifies that the phrase "a structure that is part of a residential property" refers to a structure used primarily for personal, family, or household purposes, and not used primarily for agricultural, commercial, industrial, or other business purposes. The Agencies are aware that certain structures may be used for both residential and business purposes and therefore have decided to limit the exemption only to structures with a primarily residential purpose. Furthermore, the final rule makes clear that the exemption applies only to structures that the lender deems part of the residential property.
FOOTNOTE 37 See 15 U.S.C. 1602(i). END FOOTNOTE
FOOTNOTE 38 See 12 CFR 1026.1(c)(1). END FOOTNOTE
Although the Agencies decline to adopt the FDPA's definition of "residential improved real estate" for "residential property," the Agencies agree with commenters that "residential property" should be interpreted as broadly as "residential improved real estate" as set forth in the
FOOTNOTE 39 See 74 FR 35914, 35943 (
Several commenters also suggested that the Agencies provide further clarification of the term "detached" and how to interpret the statutory phrase "detached from the primary residential structure." One trade association commenter believed "detached" should be defined more precisely than the Agencies did in the
To be exempt from the mandatory flood insurance purchase requirement, the detached structure also may not "serve as a residence." The Agencies received numerous comments on the necessity for additional clarification on this aspect of the exemption. Some commenters suggested it would be helpful to describe the features or facilities that, if present, could indicate that a structure serves as a residence, but ultimately to defer to a lender's good faith determination. Several commenters suggested the Agencies provide a bright line test to facilitate determinations, such as total square footage or assessed value. Some commenters suggested a bright line test of whether a structure is designed for use as a residence, not how the structure is being used either at the time of the triggering event or subsequently. One large trade association suggested that "serve as a residence" be defined to include sleeping, bathroom, and kitchen facilities, while a large bank commenter asserted that a structure lacking one or more of these facilities should be deemed non-residential. Another trade association commenter suggested referring to the definition of "residence" set forth in the
FOOTNOTE 40
Based on these comments, the Agencies believe it would be beneficial to clarify the meaning of "serve as a residence." However, given the numerous types of detached structures that could serve as a residence, the Agencies find that a single bright line test, for example, square footage or appraised value, to determine whether a structure serves as a residence, is not appropriate. Instead, the Agencies have concluded that a more practical approach to applying this exemption is to rely on the good faith determination of a lender on whether a detached structure serves as a residence. The Agencies believe the lender is in the best position to consider all the facts and circumstances involving a detached structure securing a loan, and this approach is similar to how the
FOOTNOTE 41 See footnote 40. END FOOTNOTE
The Agencies note that the
FOOTNOTE 42 See footnote 40. END FOOTNOTE
Moreover, some commenters suggested that the standard for whether a structure serves as a residence should be its actual use as a residence. The Agencies disagree with employing "actual use" as the sole indicator of a structure serving as a residence. Such a standard would exclude homes under construction, vacant rental units, vacant garage apartments, and numerous other structures from being deemed to serve as a residence. Although the Agencies decline to accept "actual use" as an appropriate indicator of residency by itself, a lender should take reasonable steps to determine if a structure is actually occupied by a resident. Therefore, the Agencies clarify that whether a detached structure in a residential property serves as a residence shall be based upon the regulated lending institution's good faith determination that the structure is intended for use or actually used as a residence.
Additionally, with respect to the "serve as a residence" provision, several commenters, including financial institutions, trade associations, and an individual, requested that the Agencies confirm that there is no duty to monitor residential collateral subsequent to the lender's making, increasing, renewing, or extending a loan to determine whether an exempt detached structure has been repurposed to serve as a residence. The Agencies agree that there is no duty to monitor the status of a detached structure following the lender's initial determination due to the minimal post-closing communications with borrowers or lack of systematic inspections of the property. In response to these commenters, the Agencies clarify that a lender must re-examine the status of a detached structure upon a qualifying triggering event under the FDPA--making, increasing, renewing, or extending a loan. However, consistent with existing obligations under the FDPA, if a lender subsequently determines that a property has become subject to the mandatory flood insurance purchase requirement and, as a result, the collateral is underinsured, the lender has a duty to inform the borrower of the obligation to increase insurance coverage. /43/ If the borrower fails to increase the flood insurance to the appropriate amount, the lender must force place flood insurance, as required by the FDPA.
FOOTNOTE 43 42 U.S.C. 4012a(e). END FOOTNOTE
Moreover, as the Agencies noted in the
FOOTNOTE 44 See 80 FR 17414 (
Several commenters supported the ability of lenders to require flood insurance for safety and soundness purposes or if it is in the best interest of the borrower, even if not required by statute. The Agencies reaffirm that a lender may require flood insurance on a detached structure, even though the statute does not require it, to protect the lender's and borrower's collateral securing the loan. /45/
FOOTNOTE 45 See section 13(b) of HFIAA. END FOOTNOTE
In addition, a trade association suggested the Agencies consider adding language in the Notice of Special Flood Hazards and Availability of Federal Disaster Relief Assistance (Notice of Special Flood Hazards) on the ability of a lender to waive flood insurance requirements for detached structures because some borrowers might not receive the Special Information Booklet. /46/ The Agencies believe that the commenter's suggestion has merit and have determined that it also would be appropriate to amend the notice to include the related disclosure required by section 13(b) of HFIAA. This additional disclosure is intended to ensure that borrowers receive full disclosure on this aspect of flood insurance coverage, as discussed below in the SUPPLEMENTARY INFORMATION related to Appendices A & B.
FOOTNOTE 46 The Special Information Booklet is provided only to borrowers who submit a written application for a Federally related mortgage loan. See 12 CFR 1024.6(a). END FOOTNOTE
Finally, the Agencies are adopting a change to their regulations in this section to amend the reference to the head of
__.__ Escrow requirement
In General
The Agencies proposed to revise their regulations in the
FOOTNOTE 47 As discussed above, the Agencies note that section 25(b)(3) of HFIAA provides that these new escrow requirements will not supersede the current escrow provisions during the period beginning on
Consistent with section 25(b) of HFIAA, the Agencies proposed that the escrow requirement would apply to any loan secured by residential improved real estate or a mobile home that is made, increased, extended, or renewed on or after
FOOTNOTE 48 See, e.g., 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) (FCA); and 12 CFR 760.3(a) (NCUA). END FOOTNOTE
One financial institution commenter suggested that the Agencies' regulations be amended to reference "designated" loans because that is a defined term for loans that are subject to the mandatory flood insurance purchase requirement. The commenter also recommended that the regulation be amended to state that the escrow payments be payable with the same frequency as payments on the loan are "required to be" made for the duration of the loan because such wording would be technically accurate. The Agencies agree with these suggested changes, and the final rule adopts the changes recommended by the commenter.
Several financial institution and trade association commenters suggested that the Agencies apply the escrow requirement to loan applications received on or after
Another financial institution commenter requested that the Agencies clarify that a flood map change on or after
Finally, some credit union association commenters recommended that the escrow status be detailed on an insurance declarations page and that changes in escrow status should be reported to insurance companies who should, in turn, notify all lienholders and homeowners of changes in escrow. The Agencies note that the FDPA, as amended, does not address how insurance companies compose their declarations pages or when and how they must notify lienholders and homeowners regarding escrow status. Accordingly, the Agencies decline to make that requested change.
Loan-Related Exceptions
Section 102(d) of the FDPA, as amended by section 25 of HFIAA, contains several exceptions to the general escrow requirement. These exceptions include: (i) Loans that are in a subordinate position to a senior lien secured by the same property for which flood insurance is being provided; (ii) loans secured by residential improved real estate or a mobile home that is part of a condominium, cooperative, or other project development, provided certain conditions are met; (iii) loans that are secured by residential improved real estate or a mobile home that is used as collateral for a business purpose; (iv) home equity lines of credit; (v) nonperforming loans; and (vi) loans with terms not longer than 12 months. These exceptions are in addition to the small lender exception applicable to certain regulated lending institutions that have total assets of less than
Although the Agencies proposed the exceptions largely as provided in HFIAA, the Agencies did propose some clarifications in the
Commenters supported the Agencies' clarification regarding the business purpose loan exception. Some commenters, however, recommended that the Agencies provide further guidance on the exception. Some commenters suggested that the Agencies specifically adopt or refer to the interpretations in Regulation Z, which implements TILA, on the meaning of "primarily for a business, commercial, or agricultural purpose." /49/
FOOTNOTE 49 One credit union association commenter inquired whether a loan for residential investment properties would be considered a loan that is "primarily for business, agricultural or commercial purposes." The Agencies note that Regulation Z contains commentary that addresses this question. See comments 3 and 4 under 12 CFR 1026.3(a). END FOOTNOTE
The Agencies are adopting the exception on business, commercial, or agricultural purpose loans as proposed. As the Agencies explained in the
FOOTNOTE 50 See 12 U.S.C. 2606(a). END FOOTNOTE
FOOTNOTE 51 See 15 U.S.C. 1603(1). END FOOTNOTE
Section 102(d) of the FDPA, as amended by section 25 of HFIAA, also includes an exception for a loan in a junior or subordinate position to a senior lien secured by the same residential improved real estate or mobile home for which flood insurance is being provided at the time of the origination of the loan. The Agencies proposed language in the
FOOTNOTE 52 See 74 FR 35914, 35940-41 (
Several commenters also requested that the Agencies clarify whether a lender has a duty to monitor its lien position over the life of the loan to determine whether the loan qualifies for the subordinate lien exception. As discussed further below, the Agencies do not believe there is an ongoing duty to evaluate the applicability of the subordinate lien exception, or any of the other exceptions. However, similar to the force placement provisions relating to the mandatory flood insurance purchase requirement, the Agencies believe that when a lender makes a determination that the subordinate lien exception no longer applies, for example, when it receives notice that the senior lien has been paid off or when it conducts the required inquiry at a triggering event, then the lender must begin escrowing flood insurance premiums and fees. Therefore, lenders should ensure that the loan documents executed in connection with a subordinate loan permit the lender to require an escrow in connection with the loan in the event the loan takes a first lien position and becomes subject to the escrow requirement.
Section 102(d) of the FDPA, as amended by section 25 of HFIAA, also excepts from the escrow requirement loans secured by residential improved real estate or a mobile home that is part of a condominium, cooperative, or other project development when covered by a flood insurance policy that: (i) Meets the mandatory flood insurance purchase requirement; (ii) is provided by the condominium association, cooperative, homeowners association or other applicable group; and (iii) the premium for which is paid by the condominium association, cooperative, homeowners association, or other applicable group as a common expense. The Agencies proposed in the
As the Agencies discussed in both the
Commenters were generally supportive of the exception as included in the
Section 102(d) of the FDPA, as amended by section 25 of HFIAA, includes an exception from the escrow requirement for home equity lines of credit (HELOCs), which was an exception requested by many commenters on the
FOOTNOTE 53 See 12 CFR 1026.2(a)(20) and associated commentary. END FOOTNOTE
Section 102(d) of the FDPA, as amended by section 25 of HFIAA, also includes an exception from the escrow requirement for nonperforming loans. The Agencies proposed to implement this exception with a clarification that the exception be available for a nonperforming loan that is 90 or more days past due and solicited comment on the clarification. Several commenters supported the Agencies' clarification. Other commenters, however, requested that the Agencies look to the CFPB's foreclosure and servicing rules or the FCA's rules on categorizing assets for accounting and reporting purposes in 12 CFR 621.6. In addition, many commenters suggested that once a designated loan is 90 or more days past due, it should not lose the exception if the borrower makes additional payments.
Based on these comments, the Agencies believe further clarification is required regarding this exception. Although it appears that 90 or more days past due is an appropriate measure of when a loan is nonperforming and is consistent with many lenders' current practices, there is confusion on when a nonperforming loan may become a performing loan that is no longer entitled to the exception. The Agencies generally agree that a borrower making some additional payments would not render a nonperforming loan a performing loan; however, the Agencies believe some guidance is necessary to help lenders determine when a loan is no longer nonperforming. Therefore, the Agencies are adopting language that is adapted from the FCA's regulations on categorizing assets /54/ to provide that a nonperforming loan is a loan that is 90 or more days past due and remains nonperforming until it is permanently modified or until the entire amount past due, including principal, accrued interest, and penalty interest incurred as the result of past due status, is collected or otherwise discharged in full.
FOOTNOTE 54 See 12 CFR 621.6(c). END FOOTNOTE
The final exception provided by section 25 of HFIAA is for a loan that has a term of not longer than 12 months, which the Agencies proposed as provided by the statute. Several financial institution commenters suggested that the term of the exception be extended to 15 months or 24 months to include all construction loans. The Agencies note the statute provides an exception only for loans with a term of 12 months or less, and therefore, the exception is adopted as proposed. However, if a loan of 12 months or less is extended or renewed for an additional term of 12 months or less, the Agencies' regulations would permit the exception to apply to the extended or renewed loan because an extension or renewal is a triggering event. Therefore, at the time of the triggering event, the regulated lending institution may apply the exception if the term of the newly extended or renewed loan is for a term of 12 months or less.
Moreover, the Agencies are adding new language to address questions the Agencies received about the duration of an exception to the escrow requirement. These questions were raised particularly with respect to exceptions based on a loan status that could change, such as the subordinate lien and nonperforming loan exceptions. Given the ambiguity in the FDPA, as amended, regarding how the exceptions would apply, the final rule clarifies that if a regulated lending institution, or its servicer, determines at any time during the term of a designated loan secured by residential improved real estate or a mobile home that is made, increased, extended, or renewed on or after
The Agencies also received several requests for additional exceptions from the escrow requirements. Some commenters suggested that the Agencies add an exception for closed-end home equity loans in a senior lien position of
In addition, a financial institution commenter requested that the Agencies create an exception for reverse mortgages. This commenter stated that it is not possible to align the frequency of escrow payments with loan payments because a borrower makes no payments on a reverse mortgage. The Agencies agree that given the terms of a reverse mortgage, such loans are already excluded based on the plain language of the escrow requirement, which requires lenders to collect flood insurance premiums and fees with the same frequency as payments on the loan are made. As a borrower makes no payments on a reverse mortgage, the lender is not required to escrow flood insurance premiums and fees for such loans.
Notice
The Agencies proposed 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. As noted in the
As the Agencies explained in the
One commenter supported the proposed requirement to include the notice with the Notice of Special Flood Hazards. The final rule continues to include the escrow notice with the Notice of Special Flood Hazards.
The Agencies are making one modification to the escrow notice requirement in the
The Agencies also received some comments related to the content of the notice. These comments will be addressed below in the SUPPLEMENTARY INFORMATION accompanying the discussion on Appendices A & B.
Small Lender Exception
In addition to the exceptions to the escrow requirement discussed above, section 102(d) of the FDPA, as amended by section 100209 of Biggert-Waters, contains an exception for certain small lenders. The FDPA, as amended, states that, except as provided by State law, regulated lending institutions that have total assets of less than
One of these clarifications addressed the measurement of the asset size to qualify for the exception, which the Agencies proposed in both the
FOOTNOTE 55 See 12 CFR 25.12(u) and 195.12(u) (OCC); 12 CFR 228.12(u) (Board); and 12 CFR 345.12(u) (FDIC). END FOOTNOTE
Similar to comments received on the
FOOTNOTE 56 See 12 CFR 1026.35(b)(2)(iii)(C). END FOOTNOTE
Some commenters also asked whether the assets to be measured applied per institution or whether the assets of all institutions under common ownership must be aggregated. The Agencies' regulations state that the measurement reflects the assets of only the regulated lending institution. As a result, regulated lending institutions need not consolidate the assets of other institutions under common ownership with the regulated lending institution for the measurement of asset size.
The Agencies also proposed 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
FOOTNOTE 57 See 12 CFR 235.5(a)(3). END FOOTNOTE
Several financial institution trade association commenters suggested that lenders be given 12 months to comply with the escrow requirements after a change in status. The Agencies believe that this would be too long a period for lenders to comply in light of the Agencies' regulations measuring the lender's assets over a period of two years. Thus, a lender who has had assets of
The Agencies also received questions from commenters on whether an institution that experienced a change in status, which no longer qualifies it for the small lender exception, could regain the small lender exception if the institution's asset size decreased to less than
The FDPA, as amended, states that the small lender exception is available only if, on or before
The Agencies proposed clarifications to these conditions in the
A farm credit commenter suggested that the conditions should only apply to an institution's consumer loan portfolio. The Agencies note that the statute applies the conditions to any loan secured by residential improved real estate or a mobile home. Therefore, based on the plain language of the FDPA, as amended, and the Agencies' regulations, the institution should include all loans secured by residential improved real estate or a mobile home, regardless of whether the loan is for a consumer purpose. Some commenters, including several farm credit commenters, suggested that instead of adopting the conditions set forth in the FDPA, the Agencies develop a bright line test, for example less than 100 mortgages per year or 200 loans per year or 5 percent of the institution's portfolio, to determine whether or not an institution has a policy of consistently and uniformly requiring the deposit of taxes, insurance premiums, fees, or any other charges in an escrow account. The Agencies do not believe these limits would be consistent with the FDPA and decline to adopt such standards.
The Agencies also received several questions about the conditions, which the Agencies believe can be resolved by looking to the plain language of the FDPA, as adopted and implemented by the Agencies' regulations. A financial institution trade group commenter asked whether a lender who began a policy of consistently and uniformly requiring the deposit of taxes, insurance premiums, fees, or any other charges in an escrow account after
Option To Escrow
Section 25(b) of HFIAA requires regulated lending institutions to offer and make available to a borrower the option to escrow flood insurance premiums and fees for loans secured by residential improved real estate or a mobile home that are outstanding as of
Commenters were generally supportive of the Agencies' proposal on the option to escrow. Some credit union and credit union trade group commenters, however, opposed requiring lenders to offer an option to escrow for loans outstanding on
Several commenters supported the Agencies' proposal stating that the option to escrow does not apply to loans or lenders that are excepted from the general escrow requirement. Many commenters requested the Agencies to clarify that the status of the loan as of the "outstanding" date should determine whether the lender must send the notice of the option to escrow. For example, if a loan outstanding as of
The Agencies also received several comments on providing additional exceptions for the option to escrow requirement. Several commenters suggested that there should be an exception to offering an option to escrow for borrowers that already are escrowing. The Agencies agree section 25(b) of HFIAA provides an exception for certain loans that are already escrowing. /58/ Furthermore, the Agencies do not find any reason for a borrower who is already escrowing to receive a notice of the option to escrow. Consequently, the Agencies are adding language to their regulations to clarify that the option to escrow does not apply to an outstanding loan with a related escrow of flood insurance premiums and fees, or to a loan that is already subject to the escrow requirement. Therefore, if a loan is outstanding on
FOOTNOTE 58 Section 25(b)(1)(B) of HFIAA states that the term "outstanding loan" to which the option to escrow requirement applies includes a loan that is not subject to the requirement to escrow premiums and fees for flood insurance under section 102(d)(1) of the FDPA in effect on
Commenters also requested that the Agencies exclude loans for which borrowers have previously waived escrow or for which lenders previously offered an option to escrow from having to offer the option to escrow again. The Agencies decline to include such exceptions. Although a borrower may have previously decided to waive escrow or been offered an option to escrow, it is possible that the borrower's circumstances have changed, and if offered another chance to escrow, the borrower may do so. Moreover, including such exceptions would be inconsistent with section 25(b) of HFIAA.
Furthermore, the Agencies proposed in the
A few credit union and farm credit commenters opposed the Agencies' proposal while a consumer group commenter supported the proposal. Several financial institution and financial institution trade association commenters did not oppose applying the option to escrow requirement to institutions that lose the small lender exception, but stated that additional time may be needed for such institutions to comply. The Agencies continue to believe that a regulated lending institution that no longer qualifies for the small lender exception should be required to provide an option to escrow. Because a regulated lending institution that experiences a change in status will be required to establish an escrow program, borrowers on existing loans should benefit from the institution's program and be offered the option to escrow. Therefore, the Agencies are adopting the proposed regulations to require regulated lending institutions that lose the small lender exception to offer the option to escrow to existing borrowers with outstanding loans secured by residential improved real estate or a mobile home as of its compliance date.
In the
Several financial institution and trade group commenters stated that requiring notice for outstanding loans by
Some commenters also requested additional time for providing the option to escrow notice for lenders that lose the small lender exception. The Agencies proposed that the notice be provided by
Second, the Agencies proposed to require a lender or its servicer to begin escrowing premiums and fees for flood insurance as soon as reasonably practicable after the lender or servicer receives the borrower's request to escrow. As the Agencies explained in the
FOOTNOTE 59 See 12 CFR 1005.17(f). END FOOTNOTE
FOOTNOTE 60 See 12 CFR 1026.56(i). END FOOTNOTE
Several commenters supported the Agencies' proposal, noting that regulated lending institutions have had experience with the "as soon as reasonably practicable" standard under Regulation E and Regulation Z and that no greater specificity in the language is necessary. Some commenters requested further guidance on when lenders must begin escrowing after a borrower's request. Given that the Agencies believe a standard timeline may be difficult to establish for different institutions, and in light of the experience that regulated lending institutions already have with the "as soon as reasonably practicable" concept under Regulation E and Regulation Z, the Agencies are adopting the provision as proposed.
Third, to facilitate compliance, the Agencies proposed a model clause for the notice on the option to escrow in Appendix B. The Agencies' model clause for the option to escrow notice and the comments the Agencies received in connection with this proposal, will be discussed in more detail below in the SUPPLEMENTARY INFORMATION to Appendices A & B.
__.__ Required Use of Standard Flood Hazard Determination Form
In connection with the detached structures exemption in section 102(c) of the FDPA, made by section 13 of HFIAA, discussed above, the Agencies proposed in the
Several commenters criticized this proposed amendment. They suggested the Agencies clarify that, although a lender need not perform a flood hazard determination for any properties exempt from the mandatory flood insurance purchase requirement, a lender still may need to obtain a flood hazard determination and charge a fee for the determination even if the property or structure qualifies for the exemption. Two commenters noted that lenders generally are not aware of detached structures until the flood hazard determination lists the number of buildings located on a property or until an appraisal or survey, occurring after the lender has ordered a determination, identifies the detached structures.
The Agencies agree with these commenters that conducting a flood hazard determination may be necessary to ascertain the number of buildings located on the property. In addition, the lender otherwise may not be aware that there is a detached structure until after a flood hazard determination is ordered. Therefore, conducting a flood hazard determination remains necessary to ensure compliance with the flood insurance requirements. Accordingly, the final rule does not include the proposed exception to the flood hazard determination requirement for properties and structures exempt from the mandatory flood insurance purchase requirement.
Finally, the
__.__ Force Placement of
Pursuant to section 102(e) of the FDPA, as amended by section 100244 of Biggert-Waters, the Agencies proposed to amend their rules for the force placement of flood insurance. /61/ The
FOOTNOTE 61 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. 12 CFR 1024.37(a). END FOOTNOTE
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 requirement, 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 Biggert-Waters, the Agencies proposed 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 the borrower's 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 lapses is the expiration date provided by the policy. The
A number of commenters, including trade associations and lenders, generally supported the proposed amendment allowing regulated lending institutions to charge borrowers for the cost of premiums and fees incurred for coverage beginning on the date of lapse or insufficient coverage. These commenters noted that this amendment would make it clear that force-placed insurance resulting from expired or lapsed policies should be dated to the date of expiration to ensure continuous flood coverage. Some trade association commenters supported the Agencies' approach as consistent with Congressional intent and long-standing industry practice adopted to ensure continuous coverage as required by the FDPA.
A number of commenters agreed with the Agencies' interpretation that the date of lapse is the expiration date provided in the borrower's flood insurance policy and asserted this definition is consistent with industry usage. Other commenters, however, disagreed with the Agencies' interpretation, with one trade association suggesting the regulations should clearly state that a lapse is any period in which flood insurance coverage is not continuously maintained that protects the interest of the named insured. Another commenter objected by noting that the term is an insurance term of art and means more than the date coverage expires. This commenter further stated that the term "lapse" can mean more than just the expiration date of coverage depending on an insurer's business practices. Lastly, an insurance association commenter suggested defining a "lapse" to occur when a policy has been not renewed for some reason or has been cancelled for non-payment, and therefore it would be more appropriate to use "non-renewed or cancelled" rather than "expiration date" as provided in the
The Agencies understand that flood insurance policies under the NFIP will often provide policyholders with a "grace period" of typically 30 days following the expiration date to pay the renewal premiums and fees to restore the policy and ensure continuous coverage. However, the Agencies also understand that any flood insurance coverage provided by the NFIP policy during the grace period would cover only the lender's interest. The borrower's interest would be covered during the grace period only if the borrower pays the renewal premium within the grace period. /62/ Because there may be a lack of continuous flood coverage protecting the borrower's interest during this "grace period," the Agencies consider the policy to have lapsed as of the expiration date provided by the policy. The Agencies also consider policies that are cancelled for any reason as having lapsed as of the date of cancellation because the borrower's interests are no longer covered by the policy. Therefore, the Agencies have amended their interpretation from the original proposal to provide that the date on which the flood insurance coverage lapsed is the expiration date provided by the policy or the date the flood insurance policy is cancelled.
FOOTNOTE 62 National Flood Insurance Program, Flood Insurance Manual at REN 2-3 (
The Agencies also received several comments requesting general clarification on the 45-day notice requirement. Some commenters sought clarification on whether a regulated lending institution, or a servicer acting on its behalf, can send the 45-day notice of force placement to the borrower prior to the actual expiration of the current policy so that the institution is prepared to renew on the date it expires or whether the institution must wait until policy expiration to send the notice. The Agencies note that, to ensure that adequate flood insurance coverage is maintained throughout the term of the loan and to comply with the Federal flood statutes, a regulated lending institution or its servicer must notify a borrower whenever flood insurance on the collateral has expired or is less than the amount required for the property. The regulated lending institution or its servicer must send this notice upon making a determination that the flood insurance coverage is inadequate or has expired, such as upon receipt of the notice of cancellation or expiration from the insurance provider or as a result of an internal flood policy monitoring system. Notice is also required when a regulated lending institution learns that a property requires flood insurance coverage because it is in an SFHA as a result of a flood map change. The FDPA specifically provides that the lender or servicer for a loan must send a notice upon its determination that the collateral property securing the loan is either not covered by flood insurance or is covered by such insurance in an amount less than the amount required. /63/ In accordance with this statutory requirement, the final rule clarifies that the required 45-day notice must be sent following the date of lapse or insufficient coverage of the borrower's policy.
FOOTNOTE 63 See 42 U.S.C. 4012a(e). END FOOTNOTE
The Agencies also received suggestions on alternative force placement notification processes. A few commenters recommended the Agencies add a second 15-day reminder, /64/ as required for force-placed hazard insurance under the CFPB's rule, to simplify compliance for loan servicers subject to RESPA's Regulation X. Some commenters, including trade association commenters, recommended the Agencies issue guidance that would authorize a lender to follow a notification process similar to
FOOTNOTE 64 Under Regulation X, the CFPB requires a servicer to send two written notices before a servicer can assess a force placement charge on a borrower: (1) A notice at least 45 days before assessment of a charge, and (2) a notice at least 30 days after the initial notice and at least 15 days before assessment of a force placement charge. 12 CFR 1024.37(c)-(d). END FOOTNOTE
FOOTNOTE 65 MPPP requires three notification letters to be sent to the borrower: (1) 45 Days prior to expiration or upon determination, (2) 30 days following the first notification letter, and (3) after the end of 45 day notification period along with the flood insurance policy declarations page. 44 CFR 62.23. END FOOTNOTE
With respect to the notification regarding the renewal of a force-placed flood insurance policy, some industry commenters requested additional guidance. One commenter stated that the Agencies should do more to reduce the need for force-placed flood insurance, and suggested that the Agencies coordinate with the CFPB to mitigate gaps in the regulations pertaining to flood insurance policies. The Agencies may provide guidance in the future regarding notification in connection with the renewal of a force-placed flood insurance policy.
Additionally, several commenters sought clarification on the date on which a regulated lending institution or its servicer may force-place flood insurance. Some commenters inquired as to whether the appropriate date is when the lender or servicer discovers the insufficient coverage or after the expiration of the 45-day notice period. Other commenters also asserted a 45-day waiting period creates liability for the institution and is contrary to the intent of the Federal flood statutes to ensure continuous insurance coverage. The Agencies agree with the commenters who suggested that the regulation provide that lenders or servicers may purchase force-placed insurance immediately after the borrower's original policy lapses. Biggert-Waters clarifies that a regulated lending institution or its servicer has the statutory authority to 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. Therefore, Biggert-Waters permits a lender or servicer to force place insurance immediately after the borrower's policy has lapsed or did not provide sufficient coverage. The Agencies' interpretation seeks to ensure that the protections provided by flood coverage for both the borrower and lender will be continuous. Based on the Federal flood statutes, the final rule clarifies that a regulated lending institution, or a servicer acting on its behalf, may force place flood insurance that would provide coverage anytime during the 45-day notice period and would not have to wait 45 days after providing notice to force place.
Some commenters, however, objected to the
FOOTNOTE 66 Section 1306(c) of the NFIA, 42 U.S.C. 4013(c), as amended by the Act. See FEMA WYO Bulletin W-13017, issued
In addition to requesting clarification on when a regulated lending institution or servicer can force place flood insurance, numerous commenters also sought clarification on the date on which a regulated lending institution or its servicer may charge for force-placed insurance. One commenter asked whether a regulated lending institution can force place flood insurance at the expiration of the current policy, but not charge the customer until the end of the 45-day notice period. The Agencies note that Biggert-Waters and the final regulations provide that a 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 sufficient coverage. As discussed above, the Agencies interpret this provision to mean that a regulated lending institution or its servicer can force place flood insurance beginning on the day the borrower's policy lapsed or did not provide sufficient coverage, and also, as of that day, the institution can charge the borrower for the force-placed insurance. /67/ However, if the borrower obtains a flood insurance policy that overlaps with the force-placed policy, the lender or servicer must refund any premiums paid by the borrower for this overlap period. For example, if a borrower has not renewed a flood insurance policy that expires on
FOOTNOTE 67 Under Regulation X, the CFPB requires a servicer to wait 45 days before a servicer can assess a force placement charge on a borrower. 12 CFR 1024.37(c)-(d). END FOOTNOTE
Finally, the Agencies received several comments regarding retroactive billing. One commenter suggested a regulated lending institution or its servicer should not be permitted to charge the borrower for lapsed coverage if the institution or servicer fails to identify a lapse within 60 days. Another commenter asserted it is unreasonable to allow an institution to delay sending notices in order to charge retroactively a borrower for a lengthy period of force-placed flood insurance coverage. Additionally, several commenters requested the Agencies to define clearly the date back to which a lender may charge force-placed flood insurance premiums and suggested this date to be when a lender discovers that flood insurance coverage "did not provide a sufficient coverage amount." The plain language of the statute provides that the lender or servicer may charge for premiums and fees incurred for coverage beginning on the date on which flood insurance coverage lapsed or did not provide a sufficient coverage amount. Further, when the lending institution determines there is a coverage lapse or insufficient coverage, the FDPA requires the institution to send a notice to the borrower. The Agencies also observe that, for purposes of safety and soundness, regulated lending institutions should ensure continuous coverage of flood insurance for the building or mobile home and any personal property securing a designated loan.
Additionally, the Agencies interpret Biggert-Waters 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 continuous coverage. 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. If an institution, despite its monitoring efforts, discovers a policy with insufficient coverage, for example due to a re-mapping, the institution may charge back to the date of insufficient coverage provided the institution has purchased a policy that covers the property for flood loss and that policy was effective as of the date of insufficient coverage. However, if purchasing a new policy is necessary to force place insurance upon discovery of insufficient coverage, an institution may not charge back to the date of lapse or insufficient coverage because the policy did not provide coverage for the borrower prior to purchase.
Termination of
As provided in section 102(e)(3) of the FDPA, which was added by section 100244 of Biggert-Waters, the Agencies proposed 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.
The Agencies realize that, although regulated lending institutions and servicers can request that a force-placed insurance policy be terminated, it is the insurer that actually cancels the policy. The
Although some commenters generally supported the proposed termination and refund requirements, a few commenters objected. One commenter suggested that the Agencies withdraw this requirement for existing loans and allow a substantial period for compliance prospectively. Another commenter asserted this requirement would mean a lender is "stuck with" a portion of the premium for the force-placed insurance that was purchased only because the borrower did not satisfy an obligation of the mortgage agreement to purchase flood insurance. The Agencies understand lenders' concerns regarding the termination and refund provisions. However, Biggert-Waters specifically requires the refund of force-placed insurance premiums for any overlap period and does not provide an exception to the requirement for outstanding loans.
Other commenters sought further clarifications on the proposed requirements. One commenter, for example, presented a scenario in which an existing policy expires on
Another commenter suggested the Agencies clarify that the lender's refund obligation is subject to the insurer's refund of the premium. The Agencies note that Biggert-Waters does not impose such a condition precedent upon the lender's refund.
A commenter urged the Agencies to adopt a limit on how far back a regulated lending institution may be required to refund overlapping flood insurance to encourage borrowers to be diligent in reviewing notices and prompt in notifying the lender or servicer. The Agencies understand the difficulties in refunding premiums for force-placed insurance for extensive overlap periods due to the borrower not notifying the lender promptly. Nonetheless, the Agencies note that Biggert-Waters makes clear that a lender is required to refund any premiums and fees a borrower has paid for which the borrower provides sufficient documentation of overlapping coverage. Accordingly, Biggert-Waters does not provide a limitation on the time period for which a borrower can submit documentation of overlapping coverage. However, the Agencies believe that a borrower receiving force placement notices and faced with the burden of associated fees and premiums would be motivated to provide prompt notification to the lender of the borrower's own policy rather than be required to pay the additional fees and premiums during any period of overlapping coverage. Based on a review of the comments, the Agencies are adopting the termination and refund provision as proposed.
In addition, the Agencies note that section 102(e)(3) of the FDPA, as amended, and the Agencies' final 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 Biggert-Waters, the
Among the clarifications requested, several trade associations asked what constitutes a "sufficient demonstration" for purposes of confirming a borrower's existing flood insurance coverage. Another commenter suggested the Agencies clarify that sufficient evidence of insurance coverage must include items specified in FEMA Bulletin W-13013. /68/ This commenter also suggested inclusion of the policy term effective dates, the current flood coverage amount, limitations and exclusions, the mortgagee's identity, and, if the coverage is provided by a private flood policy, some documentation that the policy satisfies either the Biggert-Waters definition of private flood insurance or the mandatory purchase requirement. A large lender commenter requested that the Agencies clarify that, in addition to the minimum required information, the declarations page must contain the correct amount, dates, and other information to fulfill the mandatory purchase requirements. This commenter also recommended that a copy of the policy be provided to the lender or servicer and that the lender or servicer have 45 days to check for compliance with any required private flood insurance criteria as conditions for terminating the force-placed insurance based on a borrower's private policy.
FOOTNOTE 68 FEMA Bulletin W-13013, issued
A copy of the Flood Insurance Application and premium payment, or a copy of the declarations page, is sufficient evidence of proof of purchase for new policies. The NFIP does not recognize binders. However, for informational purposes only, the NFIP recognizes certificates or evidences of flood insurance, and similar forms, provided for renewal policies if the following information is included: The policy form/type, term, and number; insured's name and mailing address; property location; current and rated flood risk zone; grandfathering status; mortgagee name and address; coverage limits; deductibles; and annual premium. END FOOTNOTE
As provided by the
Another area of concern identified by commenters is that the requirement to accept the declarations page as sufficient demonstration may cause lenders to accept a private flood insurance policy based on the declarations page, only to later determine that the policy is unacceptable. As the Agencies discussed in the
Several commenters expressed concerns about the premature cancellation of a force-placed policy resulting in its replacement by another force-placed policy when the regulated lending institution determines that adequate insurance was not in place by the borrower. These commenters suggested that the Agencies clarify that a regulated lending institution or servicer is not required to cancel the force-placed policy until it has completed any necessary inquiries and receives valid evidence of compliant flood insurance coverage.
The Agencies understand the commenters' concerns with regard to premature cancellation of a force-placed policy and the administrative burden of terminating such a policy and refunding any paid premiums to the borrower. Consistent with Biggert-Waters, the final rule provides regulated lending institutions and servicers with 30 days from the receipt of the borrower's confirmation of existing flood insurance to conduct all necessary inquiries regarding whether the borrower's flood insurance policy satisfies the minimum mandatory purchase requirement. /69/ The Agencies note that any further inquiry regarding the borrower's policy along with the termination and refund of premiums for the overlap period must be completed within the 30-day period following receipt of confirmation of a borrower's existing flood insurance coverage.
FOOTNOTE 69 See 42 U.S.C. 4012(a)(e)(3). END FOOTNOTE
Finally, several commenters asserted that regulated lending institutions and servicers should have the discretion to accept other documents that may also demonstrate a borrower has adequate flood insurance coverage. The Agencies clarify that although a declarations page is the one option that a lender must accept, there are circumstances in which a lender can, subject to safe and sound banking practices, accept alternative evidence of insurance documents acceptable to the lender in order to cancel force-placed insurance. The Agencies note that the final rule establishes the only information that a lender or servicer may require as sufficient demonstration of flood insurance coverage; however, if other information is submitted, then the institution may accept it. The Agencies, therefore, adopt the provision as proposed in the
Other Comments
In addition to the solicited comments, the Agencies received comments addressing force-placed insurance in general that are not specific to the
These consumer associations also requested that the Agencies require regulated lending institutions or servicers to advance insurance premiums rather than letting a borrower's policy lapse for nonpayment. These commenters urged that institutions and servicers must exhaust all options to keep homeowners' existing flood insurance policies in place before force placing insurance. The Agencies note, however, that the Federal flood statutes do not contain provisions similar to those relied upon by the CFPB in its mortgage servicing rule, which require a servicer to advance funds to a borrower's escrow account for the purpose of paying for 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). /70/ Although the final rule does not require a regulated lending institution to advance premiums, the Agencies note that nothing prohibits an institution from doing so to benefit the consumer.
FOOTNOTE 70 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. See 78 FR 10696, 10714 (
A commenter requested that the Agencies clarify the applicability of the force placement provisions to re-mapping scenarios. The Agencies reiterate that if at any time during the life of the loan, a regulated lending institution or its servicer determines flood insurance is absent or insufficient, including following a map change, the regulated lending institution or its servicer must initiate force placement procedures by notifying the borrower of the mandatory purchase requirement and providing the borrower an opportunity to obtain the necessary amount of coverage. If the borrower fails to purchase the required amount of insurance within 45 days after the lender provides notice, the institution or servicer must force place flood insurance on the borrower's behalf.
Finally, the Agencies received comments from a number of different organizations discussing the escrowing of force-placed insurance premiums and fees. The Agencies addressed these comments above in the SUPPLEMENTARY INFORMATION related to __.__
Escrow Requirement
__.__ Determination Fees
As discussed in the SUPPLEMENTARY INFORMATION related to __.__ Authority, purpose, and scope, the Agencies are adopting the change in title of the head of
__.__ Notice of Special Flood Hazards and Availability of Federal Disaster Relief Assistance
Section 100239 of Biggert-Waters added a new section 102(b)(6) to the FDPA (42 U.S.C. 4012a(b)(6)), which requires 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 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 Biggert-Waters amended 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. Therefore, the final rule provides that the disclosures set forth in section 102(b)(6) of the FDPA be included in the Notice of Special Flood Hazards. The Agencies also proposed model language for the disclosure in the sample form of notice contained in Appendix A, as discussed further below.
In order to reduce the compliance burden of amending the Notice of Special Flood Hazards, the Agencies are implementing these changes to the regulation effective
__.__ Notice of Servicer's Identity
As discussed in the SUPPLEMENTARY INFORMATION related to __.__ Authority, purpose, and scope, the Agencies are adopting the change in title of the head of
Appendices A & B
Appendix A
As discussed in the SUPPLEMENTARY INFORMATION accompanying the revisions to _._.__ Escrow requirement above, the Agencies proposed in the
Commenters were supportive of the Agencies proposing model language and that the notice be included in or with the Notice of Special Flood Hazards. However, the Agencies received comments with recommendations for improving the model language, which the Agencies are including in this final rule. In particular, these suggestions are meant to clarify that borrowers "may" be required to escrow flood insurance premiums and fees to take into account instances when the notice might be provided to a borrower of a loan excepted from the escrow requirement.
One municipal government commenter suggested that the Agencies also include an explanation of the term "escrow." The Agencies are concerned that such an explanation could complicate the notice, because the concept of escrow is not unique to flood insurance. Additionally, escrow is already explained in the RESPA Special Information Booklet that is provided to consumers applying for Federally related mortgages. /71/ As a result, the Agencies decline to require additional language to explain the term "escrow" in the Notice of Special Flood Hazards.
FOOTNOTE 71 12 U.S.C. 2604(b)(9). END FOOTNOTE
Furthermore, in the SUPPLEMENTARY INFORMATION accompanying the revisions to __.__ Exemptions above, the Agencies discussed a comment suggesting that the language required by section 13(b) of HFIAA to be contained in the RESPA Special Information Booklet also be included in the Notice of Special Flood Hazards. The commenter noted that some borrowers might not receive the RESPA Special Information Booklet. The Agencies believe that this is a concise disclosure that would be helpful to provide in the Notice of Special Flood Hazards without detracting from all the other disclosures required in the notice. Therefore, the Agencies are amending the Notice of Special Flood Hazards to include the language that is required to be included in the RESPA Special Information Booklet by section 13(b) of HFIAA.
Moreover, as noted above, the
Finally, the changes to Appendix A are effective on
Appendix B
As discussed above in the SUPPLEMENTARY INFORMATION accompanying the revisions to __.__ Escrow requirement, the final rule requires lenders to provide a notice of the option to escrow to borrowers of loans outstanding as of
In the
A financial institution commenter inquired whether a lender may add additional language to the sample clause set forth in Appendix B. The Agencies note that the sample clause provides suggested language and that this would not preclude a regulated lending institution from inserting additional language that it believes would help a borrower better understand his or her options regarding the escrow of flood insurance premiums and fees. The commenter also recommended minor language and format changes to the sample clause, which the Agencies are adopting, among other changes to the language to improve readability.
Consistent with HFIAA, the escrow provisions requiring the option to escrow notice will not be effective until
Appendix C
The Agencies are not adopting the notice proposed as Appendix C in the
VI. Regulatory Analysis
Regulatory Flexibility Act
OCC: Pursuant to the Regulatory Flexibility Act (RFA), an agency must prepare a regulatory flexibility analysis for all proposed and final rules that describes the impact of the rule on small entities. /72/ Under section 605(b) of the RFA, this analysis is not required if the head of the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities and publishes its certification and a short explanatory statement in the
FOOTNOTE 72 See 5 U.S.C.
The OCC currently supervises approximately 1,106 small entities--339 Federal savings associations, 748 national banks, and 19 trust companies (collectively, small banks). /73/ To determine the number of banks that may be affected by the rule, we determined the number of banks that self-identified by reporting mortgage servicing assets or other activity associated with one-to-four family residential mortgage loans in the Q4 2014 Call Report or were identified by OCC examiners as a Home Mortgage Disclosure Act (HMDA) filer or bank that originates mortgage loans. We identified 1,162 such banks of which there are approximately 796 small banks that the rule could impact. /74/ Thus, we assume the rule impacts a substantial number of small banks.
FOOTNOTE 73 We base our estimate of the number of small entities on the
FOOTNOTE 74 For purposes of determining if the rule could impact a substantial number of small entities, we assume that all small banks have a policy in place to require the escrow of taxes and insurance. END FOOTNOTE
The OCC classifies the economic impact of total costs on a bank 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 bank is approximately
Therefore, pursuant to section 605(b) of the RFA, the OCC hereby certifies that this final rule will not have a significant economic impact on a substantial number of small entities. Accordingly, a regulatory flexibility analysis is not required.
Board: The RFA requires an agency to perform an assessment of the impact a rule is expected to have on small entities. Based on its analysis, and for the reasons stated below, the Board believes that this final rule will not have a significant economic impact on a substantial number of small entities.
1. Statement of the need for, and objectives of, the final rule. The Board is adopting revisions to Regulation H to implement certain provisions of Biggert-Waters and HFIAA over which the Agencies, including the Board, have jurisdiction. Consistent with HFIAA, the final rule exempts any structure that is a part of residential property but is detached from the primary residential structure of such property and does not serve as a residence from the mandatory flood insurance purchase requirement.
The final rule also implements the provisions in the FDPA, as amended by the Biggert-Waters Act and HFIAA, requiring 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 that is made, increased, extended, or renewed on or after
Furthermore, the final rule implements the requirement in HFIAA that regulated lending institutions offer and make available to a borrower the option to escrow flood insurance premiums and fees for loans that are outstanding as of
Finally, the final rule adopts revisions to the force placement provisions consistent with Biggert-Waters to clarify that a regulated lending institution or its servicer may 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 final rule also provides 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-place coverage for any period during which the borrower's flood insurance coverage and the lender-placed coverage overlapped.
2. Summary of issues raised by comments in response to the initial regulatory flexibility analysis. The Board did not receive any comments on the initial regulatory flexibility analysis.
3. Small entities affected by the final rule. All State member banks that are subject to Regulation H would be subject to the proposed rule. As of
4. Recordkeeping, reporting, and compliance requirements. The final rule would provide an exemption from a requirement for certain detached structures, but would also impose new compliance requirements with the final escrow provisions. With respect to the final rule exempting certain detached structures from the mandatory flood insurance purchase requirement, the Board believes the rules will not have a significant impact on small entities. First, not all designated loans are secured by detached structures that are eligible for the exemption. The final rule will have no impact with respect to such loans. Second, for designated loans that are secured by detached structures eligible for the exemption, lenders, including small lenders, may choose to continue requiring flood insurance on such structures as they currently do even though the FDPA does not mandate it, as discussed above in the SUPPLEMENTARY INFORMATION. As a result, the final rule would not have any impact in such instances. If a lender does choose to exempt detached structures that secure a designated loan from the mandatory flood insurance purchase requirement, the Board expects that the impact would be minimal because these types of structures typically constitute a smaller portion of the collateral securing designated loans.
Furthermore, as discussed in detail above in the SUPPLEMENTARY INFORMATION, regulated lending institutions with total assets less than
The Biggert-Waters force placement provisions went into effect upon enactment of Biggert-Waters on
5. Significant alternatives to the final revisions. The Board has not identified any significant alternatives that would reduce the regulatory burden associated with this final rule on small entities.
FDIC: The
The RFA requires an agency to prepare an analysis that describes the potential impact of a proposed rule on small entities and include it in a notice of proposed rulemaking, making it available for public comment. 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 SBA to include banking organizations with total assets of less than or equal to
As of
Additionally, Biggert-Waters includes reimbursement provisions related to force placement of flood insurance. The provisions set out the circumstances under which a regulated lending institution must terminate force-placed insurance and refund to the borrower all premiums and fees paid by the borrower for lender-placed coverage for any period during which the borrower's flood insurance coverage and the lender-placed coverage overlapped. Biggert-Waters' force placement provisions already went into effect upon passage of the Act on
FCA: Pursuant to section 605(b) of the RFA, the FCA hereby certifies that the final rule will not have a significant economic impact on a substantial number of small entities. Each of the banks in the
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. /75/ For purposes of this analysis, NCUA considers small credit unions to be those having under
FOOTNOTE 75 5 U.S.C. 603(a). END FOOTNOTE
FOOTNOTE 76 Interpretive Ruling and Policy Statement 03-2, 68 FR 31949 (
The final rule requires a credit union or servicer to escrow the premiums and fees for required flood insurance for any loans secured by residential improved real estate or a mobile home that is made, increased, extended, or renewed on or after
In addition, the final rule adopts revisions to the force placement provisions to clarify that a credit union or its servicer may charge a borrower for the cost of flood insurance coverage from the date the borrower's coverage lapsed or became insufficient. The final rule also provides for the termination of force-placed insurance and the refund of premiums and fees paid by a borrower for any period of overlapping insurance coverage. The force placement provisions in the final rule were effective on
For these reasons, NCUA finds that this final rule affects relatively few federally insured, small credit unions and the associated cost is minimal. Accordingly, NCUA certifies that this rule will not have a significant economic impact on a substantial number of small entities.
Unfunded Mandates Reform Act of 1995
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) (2 U.S.C.
Overall, we estimate the total costs associated with this final rule will range from approximately
Accordingly, because the OCC has determined that this final rule would not result in expenditures by State, local, and tribal governments, or by the private sector, of
Paperwork Reduction Act of 1995
The OCC, Board,
FOOTNOTE 77 The FCA has determined that the final rule does not involve a collection of information pursuant to the PRA for System institutions because System institutions are Federally chartered instrumentalities of
In accordance with the PRA (44 U.S.C. 3506; 5 CFR 1320 Appendix A.1), the Board reviewed the final rule under the authority delegated to the Board by the
The PRA 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 Board's OMB control number is 7100-0280. The
The OCC,
Biggert-Waters required escrow for all new and outstanding loans in an SFHA, unless certain exceptions applied. HFIAA added several new exceptions, and most notably, ties the escrow requirement to a triggering event (the origination, refinance, increase, extension, or renewal of a loan on or after
FOOTNOTE 78 OCC's and NCUA's burden estimates have been slightly adjusted from the
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 PRA 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 PRA 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 final rule. Entities subject to the rule may also need to develop new disclosures to meet the rule's timing requirements.
The total estimated burden represents averages for all respondents regulated by the PRA Agencies. The PRA Agencies expect that the amount of time required to implement each of the changes for a given institution may vary based on the size and complexity of the respondent.
The PRA 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 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 rule contains model disclosures in Appendices A and B that may be used to satisfy the requirements.
Burden Estimates
OCC:
Number of Respondents: 1,550.
Burden for Existing Recordkeeping Requirements: 21,700 hours.
Burden for Existing Disclosure Requirements: 23,250 hours.
Burden Added by Final Rule: 62,000 hours.
Total Burden for Collection for Final Rule: 106,950 hours.
Board:
Number of Respondents: 850.
Burden for Existing Recordkeeping Requirements: 14,308 hours.
Burden for Existing Disclosure Requirements: 17,780 hours.
Burden Added by Final Rule: 34,000 hours.
Total Burden for Collection for Final Rule: 66,088 hours.
FDIC:
Number of Respondents: 4,103.
Burden for Existing Recordkeeping Requirements: 57,442 hours.
Burden for Existing Disclosure Requirements: 71,474 hours.
Burden Added by Final Rule: 164,120 hours.
Total Burden for Collection for Final Rule: 293,036 hours.
NCUA:
Number of Respondents: 4,033.
Burden for Existing Recordkeeping Requirements: 47,892 hours.
Burden for Existing Disclosure Requirements: 59,824 hours.
Burden Added by Final Rule: 161,320 hours.
Total Burden for Collection for Final Rule: 269,036 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 PRA Agencies' functions; including whether the information has practical utility; (2) the accuracy of the PRA 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
All comments received, including attachments and other supporting materials, are part of the public record and subject to public disclosure. Do not include any information in your comment or supporting materials that you consider confidential or inappropriate for public disclosure.
Board:
FDIC: You may submit comments, which should refer to "
* Agency Web site: http://www.fdic.gov/regulations/laws/federal/. Follow the instructions for submitting comments on the FDIC Web site.
* Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments.
* Email: comments@FDIC.gov. Include "
* Mail:
* Hand Delivery: Comments may be hand delivered to the guard station at the rear of the 550 17th
Public Inspection: All comments received will be posted without change to http://www.fdic.gov/regulations/laws/ federal/ including any personal information provided.
NCUA:
Additionally, commenters may send a copy of their comments to the OMB desk officer for the PRA Agencies by mail to the
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,
12 CFR Part 339
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.
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, chapter I of title 12 of the Code of Federal Regulations is amended as follows:
1. Effective
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
Authority: 12 U.S.C. 93a, 1462a, 1463, 1464, and 5412(b)(2)(B); 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128.
(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 SUBSEC 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
For 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
(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) 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.
(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) National bank means a national bank or a Federal branch or agency of a foreign bank.
(i) NFIP means the National Flood Insurance Program authorized under the Act.
(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:
(l) 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
(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.
(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.
The flood insurance requirement prescribed by
(a) Any State-owned property covered under a policy of self-insurance satisfactory to the Administrator of
(b) Property securing any loan with an original principal balance of
(c) Any structure that is a part of any residential property but is detached from the primary residential structure of such property and does not serve as a residence. For purposes of this paragraph (c):
(1) "A structure that is a part of a residential property" is a structure used primarily for personal, family, or household purposes, and not used primarily for agricultural, commercial, industrial, or other business purposes;
(2) A structure is "detached" from the primary residential structure if it is not joined by any structural connection to that structure; and
(3) "Serve as a residence" shall be based upon the good faith determination of the national bank or Federal savings association that the structure is intended for use or actually used as a residence, which generally includes sleeping, bathroom, or kitchen facilities.
If a national bank or Federal savings association requires the escrow of taxes, insurance premiums, fees, or any other charges for a loan secured by residential improved real estate or a mobile home that is made, increased, extended, or renewed on or after
(a) Use of form. A national bank or Federal savings association shall use the standard flood hazard determination form developed by the Administrator of
(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.
(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
(b) Termination of force-placed insurance --(1) Termination and refund. Within 30 days of receipt by a national bank or Federal savings association, or by a servicer acting on its 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 by 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 a servicer acting on its behalf, 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.
(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
(3) Reflects the Administrator of
(i) Affects the area in which the building or mobile home securing the loan is located; or
(ii) By determination of the Administrator of
(4) Results in the purchase of flood insurance coverage by the lender, or its servicer, on behalf of the borrower under
(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.
(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
(2) A description of the flood insurance purchase requirements set forth in section 102(b) of the Flood Disaster Protection Act of 1973, as amended (42 U.S.C. 4012a(b));
(3) A statement, where applicable, that flood insurance coverage is available under the NFIP and may also be available from private insurers; and
(4) A statement whether Federal disaster relief assistance may be available in the event of damage to the building or mobile home caused by flooding in a Federally declared disaster.
(c) Timing of notice. The 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) 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 sample 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.
(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
(b) Transfer of servicing rights. The national bank or Federal savings association shall notify the Administrator of
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 Director of the
Federal law allows a lender and borrower jointly to request the Director of
__ The community in which the property securing the loan is located participates in the National Flood Insurance Program (NFIP). Federal law will not allow us to make you the loan that you have applied for if you do not purchase flood insurance. The flood insurance must be maintained for the life of the loan. If you fail to purchase or renew flood insurance on the property, Federal law authorizes and requires us to purchase the flood insurance for you at your expense.
* Flood insurance coverage under the NFIP may be purchased through an insurance agent who will obtain the policy either directly through the NFIP or through an insurance company that participates in the NFIP. Flood insurance also may be available from private insurers that do not participate in the NFIP.
* At a minimum, flood insurance purchased must cover the lesser of:
(1) the outstanding principal balance of the loan; or
(2) the maximum amount of coverage allowed for the type of property under the NFIP.
Flood insurance coverage under the NFIP is limited to the overall value of the property securing the loan minus the value of the land on which the property is located.
* Federal disaster relief assistance (usually in the form of a low-interest loan) may be available for damages incurred in excess of your flood insurance if your community's participation in the NFIP is in accordance with NFIP requirements.
__ Flood insurance coverage under the NFIP is not available for the property securing the loan because the community in which the property is located does not participate in the NFIP. In addition, if the non-participating community has been identified for at least one year as containing a special flood hazard area, properties located in the community will not be eligible for Federal disaster relief assistance in the event of a Federally-declared flood disaster.
2. Effective
(a) In general --(1) Applicability. Except as provided in paragraphs (a)(2) or (c) of this section, a national bank or a 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
(2) Exceptions. Paragraph (a)(1) of this section does not apply if:
(i) The loan is an extension of credit primarily for business, commercial, or agricultural purposes;
(ii) The loan is in a subordinate position to a senior lien secured by the same residential improved real estate or mobile home for which the borrower has obtained flood insurance coverage that meets the requirements of
(iii) Flood insurance coverage for the residential improved real estate or mobile home is provided by a policy that:
(A) Meets the requirements of
(B) Is provided by a condominium association, cooperative, homeowners association, or other applicable group; and
(C) The premium for which is paid by the condominium association, cooperative, homeowners association, or other applicable group as a common expense;
(iv) The loan is a home equity line of credit;
(v) The loan is a nonperforming loan, which is a loan that is 90 or more days past due and remains nonperforming until it is permanently modified or until the entire amount past due, including principal, accrued interest, and penalty interest incurred as the result of past due status, is collected or otherwise discharged in full; or
(vi) The loan has a term of no longer than 12 months.
(3) Duration of exception. If a national bank or Federal savings association, or a servicer acting its behalf, determines at any time during the term of a designated loan secured by residential improved real estate or a mobile home that is made, increased, extended, or renewed on or after
(4) Escrow account. The national bank or Federal savings association, 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 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
(b) Notice. For any loan for which a national bank or Federal savings association is required to escrow under paragraphs (a)(1) or (c)(2) of this section or may be required to escrow under paragraphs (a)(3) of this section during the term of the loan, the national bank or Federal savings association, or a servicer acting on its behalf, shall mail or deliver a written notice with the notice provided under
(c) Small lender exception --(1) Qualification. Except as may be required under applicable State law, paragraphs (a), (b), and (d) of this section do not apply to a national bank or Federal savings association:
(i) That has total assets of less than
(ii) On or before
(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 any 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 any 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 (c)(1) of this section, but no longer qualifies for the exception because it had assets of
(d) Option to escrow --(1) In general. A national bank or Federal savings association, or a servicer acting on its behalf, shall offer and make available to the borrower the option to escrow all premiums and fees for any flood insurance required under
(i) The loan or the national bank or Federal savings association qualifies for an exception from the escrow requirement under paragraphs (a)(2) or (c) of this section, respectively;
(ii) The borrower is already escrowing all premiums and fees for flood insurance for the loan; or
(iii) The national bank or Federal savings association is required to escrow flood insurance premiums and fees pursuant to paragraph (a) of this section.
(2) Notice. For any loan subject to paragraph (d) of this section, the national bank or Federal savings association, or a servicer acting on its behalf, shall mail or deliver to the borrower no later than
(3) Timing. The national bank or Federal savings association or the servicer acting on its behalf, must begin escrowing premiums and fees for flood insurance as soon as reasonably practicable after the bank or savings association, or servicer, receives the borrower's request to escrow.
3. Effective
* * * * *
(b) Contents of notice. The written notice must include the following information:
(1) A warning, in a form approved by the Administrator of
(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.
* * * * *
4. Effective
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 law allows a lender and borrower jointly to request the Administrator of
__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.
* Although you may not be required to maintain flood insurance on all structures, you may still wish to do so, and your mortgage lender may still require you to do so to protect the collateral securing the mortgage. If you choose not to maintain flood insurance on a structure and it floods, you are responsible for all flood losses relating to that structure.
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 contact an insurance agent as to the availability, cost, and comparisons of flood insurance coverage.
[Escrow Requirement for Residential Loans
Federal law may require 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. If your lender notifies you that an escrow account is required for your loan, then you must pay your flood insurance premiums and fees to the lender or its servicer with the same frequency as you make loan payments for the duration of your loan. These premiums and fees will be deposited in the escrow account, which will be used to pay the flood 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.
5. Effective
APPENDIX B TO PART 22--SAMPLE CLAUSE FOR OPTION TO ESCROW FOR OUTSTANDING LOANS
Escrow Option Clause
You have the option to escrow all premiums and fees for the payment on your flood insurance policy that covers any residential building or mobile home that is located in an area with special flood hazards and that secures your loan. If you choose this option:
* Your payments will be deposited in an escrow account to be paid to the flood insurance provider.
* The escrow amount for flood insurance will be added to the regular mortgage payment that you make to your lender or its servicer.
* The payments you make into the escrow account will accumulate over time and the funds will be used to pay your flood insurance policy when your lender or servicer receives a notice from your flood insurance provider that the flood insurance premium is due.
To choose this option, follow the instructions below. If you have any questions about the option, contact [Insert Name of Lender or Servicer] at [Insert Contact Information].
[Insert Instructions for Selecting to Escrow]
PART 172--[REMOVED]
6. Effective
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 amended as set forth below:
PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL RESERVE SYSTEM (REGULATION H)
7. 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.
8. Effective
(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
(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
(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 NFIP.
(7) NFIP means the National Flood Insurance Program authorized under the Act.
(8) Residential improved real estate means real estate upon which a home or other residential building is located or to be located.
(9) Servicer means the person responsible for:
(i) Receiving any scheduled, periodic payments from a borrower under the terms of a loan, including amounts for taxes, insurance premiums, and other charges with respect to the property securing the loan; and
(ii) Making payments of principal and interest and any other payments from the amounts received from the borrower as may be required under the terms of the loan.
(10) Special flood hazard area means the land in the flood plain within a community having at least a one percent chance of flooding in any given year, as designated by the Administrator of
(11) 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 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.
(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
(2) Property securing any loan with an original principal balance of
(3) Any structure that is a part of any residential property but is detached from the primary residential structure of such property and does not serve as a residence. For purposes of this paragraph (d)(3):
(i) "A structure that is a part of a residential property" is a structure used primarily for personal, family, or household purposes, and not used primarily for agricultural, commercial, industrial, or other business purposes;
(ii) A structure is "detached" from the primary residential structure if it is not joined by any structural connection to that structure; and
(iii) "Serve as a residence" shall be based upon the good faith determination of the member bank that the structure is intended for use or actually used as a residence, which generally includes sleeping, bathroom, or kitchen facilities.
(e) Escrow requirement. If a member bank requires the escrow of taxes, insurance premiums, fees, or any other charges for a loan secured by residential improved real estate or a mobile home that is made, increased, extended, or renewed after
(f) Required use of standard flood hazard determination form --(1) Use of form. A state member bank shall use the standard flood hazard determination form developed by the Administrator of
(2) Retention of form. A state member bank shall retain a copy of the completed standard flood hazard determination form, in either hard copy or electronic form, for the period of time the state member 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 member 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) 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
(iii) Reflects the Administrator of
(A) Affects the area in which the building or mobile home securing the loan is located; or
(B) By determination of the Administrator of
(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
(ii) A description of the flood insurance purchase requirements set forth in section 102(b) of the Flood Disaster Protection Act of 1973, as amended (42 U.S.C. 4012a(b));
(iii) A statement, where applicable, that flood insurance coverage is available under the NFIP and may also be available from private insurers; and
(iv) A statement whether Federal disaster relief assistance may be available in the event of damage to the building or mobile home caused by flooding in a Federally declared disaster.
(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 sample 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
(2) Transfer of servicing rights. The member bank shall notify the Administrator of
Appendix A to
Notice of Special Flood Hazards and Availability of Federal Disaster Relief Assistance
We are giving you this notice to inform you that:
The building or mobile home securing the loan for which you have applied is or will be located in an area with special flood hazards.
The area has been identified by the Director of the
Federal law allows a lender and borrower jointly to request the Director of
__ The community in which the property securing the loan is located participates in the National Flood Insurance Program (NFIP). Federal law will not allow us to make you the loan that you have applied for if you do not purchase flood insurance. The flood insurance must be maintained for the life of the loan. If you fail to purchase or renew flood insurance on the property, Federal law authorizes and requires us to purchase the flood insurance for you at your expense.
* Flood insurance coverage under the NFIP may be purchased through an insurance agent who will obtain the policy either directly through the NFIP or through an insurance company that participates in the NFIP. Flood insurance also may be available from private insurers that do not participate in the NFIP.
* At a minimum, flood insurance purchased must cover the lesser of:
(1) the outstanding principal balance of the loan; or
(2) the maximum amount of coverage allowed for the type of property under the NFIP.
Flood insurance coverage under the NFIP is limited to the overall value of the property securing the loan minus the value of the land on which the property is located.
* Federal disaster relief assistance (usually in the form of a low-interest loan) may be available for damages incurred in excess of your flood insurance if your community's participation in the NFIP is in accordance with NFIP requirements.
__ Flood insurance coverage under the NFIP is not available for the property securing the loan because the community in which the property is located does not participate in the NFIP. In addition, if the non-participating community has been identified for at least one year as containing a special flood hazard area, properties located in the community will not be eligible for Federal disaster relief assistance in the event of a Federally declared flood disaster.
9. Effective
a. Revising paragraph (e).
b. Revising paragraph (i)(1).
c. Revising Appendix A to
d. Adding Appendix B to
* * * * *
(e) Escrow requirement --(1) In general --(i) Applicability. Except as provided in paragraphs (e)(1)(ii) or (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 designated loan secured by residential improved real estate or a mobile home that is made, increased, extended, or renewed on or after
(ii) Exceptions. Paragraph (e)(1)(i) of this section does not apply if:
(A) The loan is an extension of credit primarily for business, commercial, or agricultural purposes;
(B) The loan is in a subordinate position to a senior lien secured by the same residential improved real estate or mobile home for which the borrower has obtained flood insurance coverage that meets the requirements of paragraph (c) of this section;
(C) Flood insurance coverage for the residential improved real estate or mobile home is provided by a policy that:
( 1) Meets the requirements of paragraph (c) of this section;
( 2) Is provided by a condominium association, cooperative, homeowners association, or other applicable group; and
( 3) The premium for which is paid by the condominium association, cooperative, homeowners association, or other applicable group as a common expense;
(D) The loan is a home equity line of credit;
(E) The loan is a nonperforming loan, which is a loan that is 90 or more days past due and remains nonperforming until it is permanently modified or until the entire amount past due, including principal, accrued interest, and penalty interest incurred as the result of past due status, is collected or otherwise discharged in full; or
(F) The loan has a term of not longer than 12 months.
(iii) Duration of exception. If a member bank, or a servicer acting on behalf of the bank, determines at any time during the term of a designated loan secured by residential improved real estate or a mobile home that is made, increased, extended, or renewed on or after
(iv) 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 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
(2) Notice. For any loan for which a member bank is required to escrow under paragraphs (e)(1) or (e)(3)(ii) of this section or may be required to escrow under paragraph (e)(1)(iii) of this section during the term of the loan, the member bank, or a servicer acting on its behalf, shall mail or deliver a written notice with the notice provided under paragraph (i) of this section informing the borrower that the member bank is required to escrow all premiums and fees for required flood insurance, using language that is substantially similar to model clauses on the escrow requirement in appendix A to this section.
(3) Small lender exception --(i) Qualification. Except as may be required under applicable State law, paragraphs (e)(1), (2), and (4) of this section do not apply to a member bank:
(A) That has total assets of less than
(B) On or before
( 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 any 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 any 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
(4) Option to escrow. (i) In general. A member bank, or a servicer acting on its behalf, shall offer and make available to the borrower the option to escrow 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 on
(A) The loan or the member bank qualifies for an exception from the escrow requirement under paragraphs (e)(1)(ii) or (e)(3) of this section, respectively;
(B) The borrower is already escrowing all premiums and fees for flood insurance for the loan; or
(C) The member bank is required to escrow flood insurance premiums and fees pursuant to paragraph (e)(1) of this section.
(ii) Notice. For any loan subject to paragraph (e)(4)(i) of this section, the member bank, or a servicer acting on its behalf, shall mail or deliver to the borrower no later than
(iii) Timing. The member bank or servicer must begin escrowing premiums and fees for flood insurance as soon as reasonably practicable after the member bank or servicer receives the borrower's request to escrow.
* * * * *
(i) * * *
(1) Contents of notice. The written notice must include the following information:
(i) A warning, in a form approved by the Administrator of
(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 flooding in a Federally declared disaster.
* * * * *
Appendix A to
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 law allows a lender and borrower jointly to request the Administrator of
__ 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.
* Although you may not be required to maintain flood insurance on all structures, you may still wish to do so, and your mortgage lender may still require you to do so to protect the collateral securing the mortgage. If you choose not to maintain flood insurance on a structure and it floods, you are responsible for all flood losses relating to that structure.
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 contact an insurance agent as to the availability, cost, and comparisons of flood insurance coverage.
[Escrow Requirement for Residential Loans
Federal law may require 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. If your lender notifies you that an escrow account is required for your loan, then you must pay your flood insurance premiums and fees to the lender or its servicer with the same frequency as you make loan payments for the duration of your loan. These premiums and fees will be deposited in the escrow account, which will be used to pay the flood 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
Escrow Option Clause
You have the option to escrow all premiums and fees for the payment on your flood insurance policy that covers any residential building or mobile home that is located in an area with special flood hazards and that secures your loan. If you choose this option:
* Your payments will be deposited in an escrow account to be paid to the flood insurance provider.
* The escrow amount for flood insurance will be added to the regular mortgage payment that you make to your lender or its servicer.
* The payments you make into the escrow account will accumulate over time and the funds will be used to pay your flood insurance policy when your lender or servicer receives a notice from your flood insurance provider that the flood insurance premium is due.
To choose this option, follow the instructions below. If you have any questions about the option, contact [Insert Name of Lender or Servicer] at [Insert Contact Information].
[Insert Instructions for Selecting to Escrow]
12 CFR CHAPTER III
Authority and Issuance
For the reasons set forth in the joint preamble, the Board of Directors of the
10. Effective October 1, 2015, 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
(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 SUBSEC 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
As used in this part:
Act means the National Flood Insurance Act of 1968, as amended (42 U.S.C. 4001-4129).
Administrator of
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.
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.
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.
FDIC-supervised institution means any insured depository institution for which the
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.
NFIP means the National Flood Insurance Program authorized under the Act.
Residential improved real estate means real estate upon which a home or other residential building is located or to be located.
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.
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
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.
(a) In general. An
(b) Table funded loans. An
The flood insurance requirement prescribed by
(a) Any state-owned property covered under a policy of self-insurance satisfactory to the Administrator of
(b) Property securing any loan with an original principal balance of $5,000 or less and a repayment term of one year or less; or
(c) Any structure that is a part of any residential property but is detached from the primary residential structure of such property and does not serve as a residence. For purposes of this paragraph (c):
(1) "A structure that is a part of a residential property" is a structure used primarily for personal, family, or household purposes, and not used primarily for agricultural, commercial, industrial, or other business purposes;
(2) A structure is "detached" from the primary residential structure if it is not joined by any structural connection to that structure; and
(3) "Serve as a residence" shall be based upon the good faith determination of the
If an
(a) Use of form. An
(b) Retention of form. An
(a) Notice and purchase of coverage. If an
(b) Termination of force-placed insurance-- (1) Termination and refund. Within 30 days of receipt by an
(i) Notify the insurance provider to terminate any insurance purchased by the
(ii) Refund to the borrower all premiums paid by the borrower for any insurance purchased by the
(2) Sufficiency of demonstration. For purposes of confirming a borrower's existing flood insurance coverage under paragraph (b) of this section, an
(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
(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
(3) Reflects the Administrator of
(i) Affects the area in which the building or mobile home securing the loan is located; or
(ii) By determination of the Administrator of
(4) Results in the purchase of flood insurance coverage by the lender or its servicer on behalf of the borrower under
(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.
(a) Notice requirement. When an
(b) Contents of notice. The written notice must include the following information:
(1) A warning, in a form approved by the Administrator of
(2) A description of the flood insurance purchase requirements set forth in section 102(b) of the Flood Disaster Protection Act of 1973, as amended (42 U.S.C. 4012a(b));
(3) A statement, where applicable, that flood insurance coverage is available under the NFIP and may also be available from private insurers; and
(4) A statement whether Federal disaster relief assistance may be available in the event of damage to the building or mobile home caused by flooding in a Federally-declared disaster.
(c) Timing of notice. The
(d) Record of receipt. The
(e) Alternate method of notice. Instead of providing the notice to the borrower required by paragraph (a) of this section, an
(f) Use of sample form of notice. An
(a) Notice requirement. When an
(b) Transfer of servicing rights. The
Appendix A to Part 339--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 Director of the
Federal law allows a lender and borrower jointly to request the Director of
___ The community in which the property securing the loan is located participates in the National Flood Insurance Program (NFIP). Federal law will not allow us to make you the loan that you have applied for if you do not purchase flood insurance. The flood insurance must be maintained for the life of the loan. If you fail to purchase or renew flood insurance on the property, Federal law authorizes and requires us to purchase the flood insurance for you at your expense.
* Flood insurance coverage under the NFIP may be purchased through an insurance agent who will obtain the policy either directly through the NFIP or through an insurance company that participates in the NFIP. Flood insurance also may be available from private insurers that do not participate in the NFIP.
* At a minimum, flood insurance purchased must cover the lesser of:
(1) the outstanding principal balance of the loan; or
(2) the maximum amount of coverage allowed for the type of property under the NFIP.
Flood insurance coverage under the NFIP is limited to the overall value of the property securing the loan minus the value of the land on which the property is located.
* Federal disaster relief assistance (usually in the form of a low-interest loan) may be available for damages incurred in excess of your flood insurance if your community's participation in the NFIP is in accordance with NFIP requirements.
__ Flood insurance coverage under the NFIP is not available for the property securing the loan because the community in which the property is located does not participate in the NFIP. In addition, if the non-participating community has been identified for at least one year as containing a special flood hazard area, properties located in the community will not be eligible for Federal disaster relief assistance in the event of a Federally-declared flood disaster.
11. Effective January 1, 2016,
(a) In general-- (1) Applicability. Except as provided in paragraphs (a)(2) or (c) of this section, an
(2) Exceptions. Paragraph (a)(1) of this section does not apply if:
(i) The loan is an extension of credit primarily for business, commercial, or agricultural purposes;
(ii) The loan is in a subordinate position to a senior lien secured by the same residential improved real estate or mobile home for which the borrower has obtained flood insurance coverage that meets the requirements of
(iii) Flood insurance coverage for the residential improved real estate or mobile home is provided by a policy that:
(A) Meets the requirements of
(B) Is provided by a condominium association, cooperative, homeowners association, or other applicable group; and
(C) The premium for which is paid by the condominium association, cooperative, homeowners association, or other applicable group as a common expense;
(iv) The loan is a home equity line of credit;
(v) The loan is a nonperforming loan, which is a loan that is 90 or more days past due and remains nonperforming until it is permanently modified or until the entire amount past due, including principal, accrued interest, and penalty interest incurred as the result of past due status, is collected or otherwise discharged in full; or
(vi) The loan has a term of not longer than 12 months.
(3) Duration of exception. If an
(4) Escrow account. The
(b) Notice. For any loan for which an
(c) Small lender exception --(1) Qualification. Except as may be required under applicable State law, paragraphs (a), (b) and (d) of this section do not apply to an
(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 any 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 any loans secured by residential improved real estate or a mobile home.
(2) Change in status. If an
(d) Option to escrow --(1) In general. An
(i) The loan or the
(ii) The borrower is already escrowing all premiums and fees for flood insurance for the loan; or
(iii) The
(2) Notice. For any loan subject to paragraph (d) of this section, the
(3) Timing. The
12. Effective January 1, 2016,
* * * * *
(b) Contents of notice. The written notice must include the following information:
(1) A warning, in a form approved by the Administrator of
(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 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.
13. Effective January 1, 2016, Appendix A to Part 339 is revised to read as follows:
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 law allows a lender and borrower jointly to request the Administrator of
__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.
* Although you may not be required to maintain flood insurance on all structures, you may still wish to do so, and your mortgage lender may still require you to do so to protect the collateral securing the mortgage. If you choose not to maintain flood insurance on a structure and it floods, you are responsible for all flood losses relating to that structure.
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 contact an insurance agent as to the availability, cost, and comparisons of flood insurance coverage.
[Escrow Requirement for Residential Loans
Federal law may require 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. If your lender notifies you that an escrow account is required for your loan, then you must pay your flood insurance premiums and fees to the lender or its servicer with the same frequency as you make loan payments for the duration of your loan. These premiums and fees will be deposited in the escrow account, which will be used to pay the flood 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.
14. Effective January 1, 2016, Appendix B to Part 339 is added to read as follows:
Appendix B to Part 339--Sample Clause for Option to Escrow for Outstanding Loans
Escrow Option Clause
You have the option to escrow all premiums and fees for the payment on your flood insurance policy that covers any residential building or mobile home that is located in an area with special flood hazards and that secures your loan. If you choose this option:
* Your payments will be deposited in an escrow account to be paid to the flood insurance provider.
* The escrow amount for flood insurance will be added to the regular mortgage payment that you make to your lender or its servicer.
* The payments you make into the escrow account will accumulate over time and the funds will be used to pay your flood insurance policy when your lender or servicer receives a notice from your flood insurance provider that the flood insurance premium is due.
To choose this option, follow the instructions below. If you have any questions about the option, contact [Insert Name of Lender or Servicer] at [Insert Contact Information].
[Insert Instructions for Selecting to Escrow]
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 revised as follows:
PART 614--LOAN POLICIES AND OPERATIONS
15. 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.
16. Effective October 1, 2015, subpart S is revised 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.
614.4932 Exemptions.
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
Subpart S--Flood Insurance Requirements
(a) Purpose. This subpart implements 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 SUBSEC 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
For purposes of this subpart:
1968 Act means the National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973, as amended (42 U.S.C. 4001-4129).
Administrator of
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.
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.
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.
Mobile home means a structure, transportable in one or more sections, that is built on a permanent chassis and designed for use with or without a permanent foundation when attached to the required utilities. The term mobile home does not include a recreational vehicle. For purposes of this subpart, 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.
NFIP means the National Flood Insurance Program authorized under the 1968 Act.
Residential improved real estate means real estate upon which a home or other residential building is located or to be located.
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.
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
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.
(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 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 purposes of this subpart.
The flood insurance requirement prescribed by
(a) Any State-owned property covered under a policy of self-insurance satisfactory to the Administrator of
(b) Property securing any loan with an original principal balance of $5,000 or less and a repayment term of one year or less; or
(c) Any structure that is a part of any residential property but is detached from the primary residential structure of such property and does not serve as a residence. For purposes of this paragraph (c):
(1) "A structure that is a part of a residential property" is a structure used primarily for personal, family, or household purposes, and not used primarily for agricultural, commercial, industrial, or other business purposes;
(2) A structure is "detached" from the primary residential structure if it is not joined by any structural connection to that structure; and
(3) "Serve as a residence" shall be based upon the good faith determination of the System institution that the structure is intended for use or actually used as a residence, which generally includes sleeping, bathroom, or kitchen facilities.
If a System institution requires the escrow of taxes, insurance premiums, fees, or any other charges for a loan secured by residential improved real estate or a mobile home that is made, increased, extended or renewed on or after October 4, 1996, the institution shall also require the escrow of all premiums and fees for any flood insurance required under
(a) Use of form. A System institution shall use the standard flood hazard determination form developed by the Administrator of
(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.
(a) Notice and purchase of coverage. If a System institution, or a servicer acting on behalf of the System institution, determines at any time during the term of a designated loan, that the building or mobile home and any personal property securing the designated loan is not covered by flood insurance or is covered by flood insurance in an amount less than the amount required under
(b) Termination of force-placed insurance --(1) Termination and refund. Within 30 days of receipt by a System institution, or by a servicer acting on its behalf, 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 by 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 existing flood insurance coverage under paragraph (b) of this section, a System institution, or a servicer acting on its behalf, 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.
(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 behalf of the System institution, may charge a reasonable fee for determining whether the building or mobile home securing the loan is located or will be located in a special flood hazard area. A determination fee may also include, but is not limited to, a fee for life-of-loan monitoring.
(b) Borrower fee. The determination fee authorized by paragraph (a) of this section may be charged to the borrower if the determination:
(1) Is made in connection with a making, increasing, extending, or renewing of the loan that is initiated by the borrower;
(2) Reflects the Administrator of
(3) Reflects the Administrator of
(i) Affects the area in which the building or mobile home securing the loan is located; or
(ii) By determination of the Administrator of
(4) Results in the purchase of flood insurance coverage by the lender, or its servicer, on behalf of the borrower under
(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.
(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 in all cases 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
(2) A description of the flood insurance purchase requirements set forth in section 102(b) of the Flood Disaster Protection Act of 1973, as amended (42 U.S.C. 4012a(b));
(3) A statement, where applicable, that flood insurance coverage is available under the NFIP and may also be available from private insurers; and
(4) A statement whether Federal disaster relief assistance may be available in the event of damage to the building or mobile home caused by flooding in a Federally declared disaster.
(c) Timing of notice. The 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 it 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 it owns the loan.
(f) Use of sample 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 subpart within a reasonable time before the completion of the transaction. The notice presented in appendix A to this subpart satisfies the borrower notice requirements of the 1968 Act.
(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, it shall notify the Administrator of
(b) Transfer of servicing rights. The System institution shall notify the Administrator of
Appendix A to Subpart S of Part 614--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 Director of the
Federal law allows a lender and borrower jointly to request the Director of
__ The community in which the property securing the loan is located participates in the National Flood Insurance Program (NFIP). Federal law will not allow us to make you the loan that you have applied for if you do not purchase flood insurance. The flood insurance must be maintained for the life of the loan. If you fail to purchase or renew flood insurance on the property, Federal law authorizes and requires us to purchase the flood insurance for you at your expense.
* Flood insurance coverage under the NFIP may be purchased through an insurance agent who will obtain the policy either directly through the NFIP or through an insurance company that participates in the NFIP. Flood insurance also may be available from private insurers that do not participate in the NFIP.
* At a minimum, flood insurance purchased must cover the lesser of:
(1) The outstanding principal balance of the loan; or
(2) the maximum amount of coverage allowed for the type of property under the NFIP.
Flood insurance coverage under the NFIP is limited to the overall value of the property securing the loan minus the value of the land on which the property is located.
* Federal disaster relief assistance (usually in the form of a low-interest loan) may be available for damages incurred in excess of your flood insurance if your community's participation in the NFIP is in accordance with NFIP requirements.
__ Flood insurance coverage under the NFIP is not available for the property securing the loan because the community in which the property is located does not participate in the NFIP. In addition, if the non-participating community has been identified for at least one year as containing a special flood hazard area, properties located in the community will not be eligible for Federal disaster relief assistance in the event of a Federally-declared flood disaster.
17. Effective January 1, 2016,
(a) In general --(1) Applicability. Except as provided in paragraph (a)(2) or 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
(2) Exceptions. Paragraph (a)(1) of this section does not apply if:
(i) The loan is an extension of credit primarily for business, commercial, or agricultural purposes;
(ii) The loan is in a subordinate position to a senior lien secured by the same residential improved real estate or mobile home for which the borrower has obtained flood insurance coverage that meets the requirements of
(iii) Flood insurance coverage for the residential improved real estate or mobile home is provided by a policy that:
(A) Meets the requirements of
(B) Is provided by a condominium association, cooperative, homeowners association, or other applicable group; and
(C) The premium for which is paid by the condominium association, cooperative, homeowners association, or other applicable group as a common expense;
(iv) The loan is a home equity line of credit;
(v) The loan is a nonperforming loan, which is a loan that is 90 or more days past due and remains nonperforming until it is permanently modified or until the entire amount past due, including principal, accrued interest, and penalty interest incurred as the result of past due status, is collected or otherwise discharged in full; or
(vi) The loan has a term of no longer than 12 months.
(3) Duration of exception. If a System institution, or a servicer acting its behalf, determines at any time during the term of a designated loan secured by residential improved real estate or a mobile home that is made, increased, extended, or renewed on or after January 1, 2016, that an exception under paragraph (a)(2) of this section does not apply, then the System institution, or the servicer acting on its behalf, shall require the escrow of all premiums and fees for any flood insurance required under SEC 614.4930 as soon as reasonably practicable and, if applicable, shall provide any disclosure required under section 10 of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2609) (RESPA).
(4) 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 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. For any loan for which a System institution is required to escrow under paragraph (a)(1) or paragraph (c)(2) of this section or may be required to escrow under paragraph (a)(3) of this section during the term of the loan, the System institution, or a servicer acting on its behalf, shall mail or deliver a written notice with the notice provided under SEC 614.4955 informing the borrower that the System institution is required to escrow all premiums and fees for required flood insurance, using language that is substantially similar to model clauses on the escrow requirement in appendix A to this subpart.
(c) Small lender exception --(1) Qualification. Except as may be required under applicable State law, paragraphs (a), (b), and (d) 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 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 any 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 any 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 paragraph (c)(1) 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 System institution must escrow premiums and fees for flood insurance pursuant to paragraph (a) of this section for any designated loan made, increased, extended, or renewed on or after July 1 of the first calendar year of changed status.
(d) Option to escrow --(1) In general. A System institution, or a servicer acting on its behalf, shall offer and make available to the borrower the option to escrow all premiums and fees for any flood insurance required under SEC 614.4930 for any loan secured by residential improved real estate or a mobile home that is outstanding on January 1, 2016, or July 1 of the first calendar year in which the System institution has had a change in status pursuant to paragraph (c)(2) of this section, unless:
(i) The loan or the System institution qualifies for an exception from the escrow requirement under paragraph (a)(2) or (c) of this section, respectively;
(ii) The borrower is already escrowing all premiums and fees for flood insurance for the loan; or
(iii) The System institution is required to escrow flood insurance premiums and fees pursuant to paragraph (a) of this section.
(2) Notice. For any loan subject to paragraph (d) of this section, the System institution, or a servicer acting on its behalf, shall mail or deliver to the borrower no later than June 30, 2016, or September 30 of the first calendar year in which the System institution has had a change in status pursuant to paragraph (c)(2) of this section, a notice in writing, or if the borrower agrees, electronically, informing the borrower of the option to escrow all premiums and fees for any required flood insurance and the method(s) by which the borrower may request the escrow, using language similar to the model clause in appendix B to this subpart.
(3) Timing. The System institution, or the servicer acting on its behalf, must begin escrowing premiums and fees for flood insurance as soon as reasonably practicable after the System institution, or servicer, receives the borrower's request to escrow.
18. Effective January 1, 2016, SEC 614.4955(b) is revised to read as follows:
SEC 614.4955 Notice of special flood hazards and availability of Federal disaster relief assistance.
* * * * *
(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.
* * * * *
19. Effective January 1, 2016, Appendix A to Subpart S is revised to read as follows:
Appendix A to Subpart S of Part 614--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.
* Although you may not be required to maintain flood insurance on all structures, you may still wish to do so, and your mortgage lender may still require you to do so to protect the collateral securing the mortgage. If you choose not to maintain flood insurance on a structure and it floods, you are responsible for all flood losses relating to that structure.
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 contact an insurance agent as to the availability, cost, and comparisons of flood insurance coverage.
[Escrow Requirement for Residential Loans
Federal law may require 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. If your lender notifies you that an escrow account is required for your loan, then you must pay your flood insurance premiums and fees to the lender or its servicer with the same frequency as you make loan payments for the duration of your loan. These premiums and fees will be deposited in the escrow account, which will be used to pay the flood 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.
20. Effective January 1, 2016, Appendix B to Subpart S is added to read as follows:
Appendix B to Subpart S of Part 614--Sample Clause for Option to Escrow for Outstanding Loans
Escrow Option Clause
You have the option to escrow all premiums and fees for the payment on your flood insurance policy that covers any residential building or mobile home that is located in an area with special flood hazards and that secures your loan. If you choose this option:
* Your payments will be deposited in an escrow account to be paid to the flood insurance provider.
* The escrow amount for flood insurance will be added to the regular mortgage payment that you make to your lender or its servicer.
* The payments you make into the escrow account will accumulate over time and the funds will be used to pay your flood insurance policy when your lender or servicer receives a notice from your flood insurance provider that the flood insurance premium is due.
To choose this option, follow the instructions below. If you have any questions about the option, contact [Insert Name of Lender or Servicer] at [Insert Contact Information].
[Insert Instructions for Selecting to Escrow]
National Credit Union Administration
12 CFR CHAPTER VII
Authority and Issuance
For the reasons set forth in the joint preamble, the NCUA Board amends part 760 of chapter VII of title 12 of the Code of Federal Regulations as follows:
PART 760--LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS
21. The authority citation for part 760 continues to read as follows:
Authority: 12 U.S.C. 1757, 1789; 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128.
22. Effective October 1, 2015, part 760 is revised to read as follows:
PART 760--LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS
Sec.
760.1 Authority, purpose, and scope.
760.2 Definitions.
760.3 Requirement to purchase flood insurance where available.
760.4 Exemptions.
760.5 Escrow requirement.
760.6 Required use of standard flood hazard determination form.
760.7 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
SEC 760.1 Authority, purpose, and scope.
(a) Authority. This part is issued pursuant to 12 U.S.C. 1757, 1789 and 42 U.S.C. 4012a, 4104a, 4104b, 4106, 4128.
(b) Purpose. The purpose of this part is to implement the requirements of the National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973, as amended (42 U.S.C. 4001-4129).
(c) Scope. This part, except for SUBSEC 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.
As used in this part:
Act means the National Flood Insurance Act of 1968, as amended (42 U.S.C. 4001-4129).
Administrator of FEMA means the Administrator of the Federal Emergency Management Agency.
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.
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.
Credit union means a Federal or State-chartered credit union that is insured by the National Credit Union Share Insurance Fund.
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.
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.
NFIP means the National Flood Insurance Program authorized under the Act.
Residential improved real estate means real estate upon which a home or other residential building is located or to be located.
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.
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.
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.
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;
(b) Property securing any loan with an original principal balance of $5,000 or less and a repayment term of one year or less; or
(c) Any structure that is a part of any residential property but is detached from the primary residential structure of such property and does not serve as a residence. For purposes of this paragraph (c):
(1) "A structure that is a part of a residential property" is a structure used primarily for personal, family, or household purposes, and not used primarily for agricultural, commercial, industrial, or other business purposes;
(2) A structure is "detached" from the primary residential structure if it is not joined by any structural connection to that structure; and
(3) "Serve as a residence" shall be based upon the good faith determination of the credit union that the structure is intended for use or actually used as a residence, which generally includes sleeping, bathroom, or kitchen facilities.
SEC 760.5 Escrow requirement.
If a credit union requires the escrow of taxes, insurance premiums, fees, or any other charges for a loan secured by residential improved real estate or a mobile home that is made, increased, extended, or renewed on or after November 1, 1996, the credit union shall also require the escrow of all premiums and fees for any flood insurance required under SEC 760.3. The credit union, or a servicer acting on behalf of the credit union, shall deposit the flood insurance premiums on behalf of the borrower in an escrow account. 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.
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 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 behalf of the credit union, 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 under the NFIP and may also be available from private insurers; and
(4) A statement whether Federal disaster relief assistance may be available in the event of damage to the building or mobile home caused by flooding in a Federally-declared disaster.
(c) Timing of notice. The credit union shall provide the notice required by paragraph (a) of this section to the borrower 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 sample 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 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 credit union'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 credit union 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 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 Director of the Federal Emergency Management Agency (FEMA) as a special flood hazard area using FEMA's Flood Insurance Rate Map or the Flood Hazard Boundary Map for the following community: ___. This area has at least a one percent (1%) chance of a flood equal to or exceeding the base flood elevation (a 100-year flood) in any given year. During the life of a 30-year mortgage loan, the risk of a 100-year flood in a special flood hazard area is 26 percent (26%).
Federal law allows a lender and borrower jointly to request the Director of FEMA to review the determination of whether the property securing the loan is located in a special flood hazard area. If you would like to make such a request, please contact us for further information.
__The community in which the property securing the loan is located participates in the National Flood Insurance Program (NFIP). Federal law will not allow us to make you the loan that you have applied for if you do not purchase flood insurance. The flood insurance must be maintained for the life of the loan. If you fail to purchase or renew flood insurance on the property, Federal law authorizes and requires us to purchase the flood insurance for you at your expense.
* Flood insurance coverage under the NFIP may be purchased through an insurance agent who will obtain the policy either directly through the NFIP or through an insurance company that participates in the NFIP. Flood insurance also may be available from private insurers that do not participate in the NFIP.
* At a minimum, flood insurance purchased must cover the lesser of:
(1) The outstanding principal balance of the loan; or
(2) the maximum amount of coverage allowed for the type of property under the NFIP.
Flood insurance coverage under the NFIP is limited to the overall value of the property securing the loan minus the value of the land on which the property is located.
* Federal disaster relief assistance (usually in the form of a low-interest loan) may be available for damages incurred in excess of your flood insurance if your community's participation in the NFIP is in accordance with NFIP requirements.
__Flood insurance coverage under the NFIP is not available for the property securing the loan because the community in which the property is located does not participate in the NFIP. In addition, if the non-participating community has been identified for at least one year as containing a special flood hazard area, properties located in the community will not be eligible for Federal disaster relief assistance in the event of a Federally-declared flood disaster.
23. Effective January 1, 2016, SEC 760.5 is revised to read as follows:
SEC 760.5 Escrow requirement.
(a) In general --(1) Applicability. Except as provided in paragraphs (a)(2) or (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 designated loan secured by residential improved real estate or a mobile home that is made, increased, extended, or renewed on or after January 1, 2016, payable with the same frequency as payments on the designated loan are required to be made for the duration of the loan.
(2) Exceptions. Paragraph (a)(1) of this section does not apply if:
(i) The loan is an extension of credit primarily for business, commercial, or agricultural purposes;
(ii) The loan is in a subordinate position to a senior lien secured by the same residential improved real estate or mobile home for which the borrower has obtained flood insurance coverage that meets the requirements of SEC 760.3(a);
(iii) Flood insurance coverage for the residential improved real estate or mobile home is provided by a policy that:
(A) Meets the requirements of SEC 760.3(a);
(B) Is provided by a condominium association, cooperative, homeowners association, or other applicable group; and
(C) The premium for which is paid by the condominium association, cooperative, homeowners association, or other applicable group as a common expense;
(iv) The loan is a home equity line of credit;
(v) The loan is a nonperforming loan, which is a loan that is 90 or more days past due and remains nonperforming until it is permanently modified or until the entire amount past due, including principal, accrued interest, and penalty interest incurred as the result of past due status, is collected or otherwise discharged in full; or
(vi) The loan has a term of not longer than 12 months.
(3) Duration of exception. 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 secured by residential improved real estate or a mobile home that is made, increased, extended, or renewed on or after January 1, 2016, that an exception under paragraph (a)(2) of this section does not apply, then the credit union or its servicer shall require the escrow of all premiums and fees for any flood insurance required under SEC 760.3(a) as soon as reasonably practicable and, if applicable, shall provide any disclosure required under section 10 of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2609) (RESPA).
(4) 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 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. For any loan for which a credit union is required to escrow under paragraph (a) or paragraph (c)(2) of this section or may be required to escrow under paragraph (a)(3) of this section during the term of the loan, the credit union, or a servicer acting on behalf of the credit union, shall mail or deliver a written notice with the notice provided under SEC 760.9 informing the borrower that the credit union is required to escrow all premiums and fees for required flood insurance, using language that is substantially similar to model clauses on the escrow requirement in appendix A.
(c) Small lender exception --(1) Qualification. Except as may be required under applicable State law, paragraphs (a), (b) and (d) 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 any 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 any 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 (c)(1) 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 credit union must escrow premiums and fees for flood insurance pursuant to paragraph (a) of this section for any designated loan made, increased, extended, or renewed on or after July 1 of the first calendar year of changed status.
(d) Option to escrow --(1) In general. A credit union, or a servicer acting on behalf of the credit union, shall offer and make available to the borrower the option to escrow all premiums and fees for any flood insurance required under SEC 760.3 for any loan secured by residential improved real estate or a mobile home that is outstanding on January 1, 2016, or July 1 of the first calendar year in which the credit union has had a change in status pursuant to paragraph (c)(2) of this section, unless:
(i) The credit union or the loan qualifies for an exception from the escrow requirement under paragraphs (a)(2) or (c) of this section, respectively;
(ii) The borrower is already escrowing all premiums and fees for flood insurance for the loan; or
(iii) The credit union is required to escrow flood insurance premiums and fees pursuant to paragraph (a) of this section.
(2) Notice. For any loan subject to paragraph (d) of this section, the credit union, or a servicer acting on behalf of the credit union, shall mail or deliver to the borrower no later than June 30, 2016, or September 30 of the first calendar year in which the credit union has had a change in status pursuant to paragraph (c)(2) of this section, a notice in writing, or if the borrower agrees, electronically, informing the borrower of the option to escrow all premiums and fees for any required flood insurance and the method(s) by which the borrower may request the escrow, using language similar to the model clause in appendix B to this part.
(3) Timing. The credit union or servicer must begin escrowing premiums and fees for flood insurance as soon as reasonably practicable after the credit union or servicer receives the borrower's request to escrow.
24. Effective January 1, 2016, SEC 760.9(b) is revised to read as follows:
SEC 760.9 Notice of special flood hazards and availability of Federal disaster relief assistance.
* * * * *
(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 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.
* * * * *
25. Effective January 1, 2016, Appendix A to Part 760 is revised to read as follows:
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.
* Although you may not be required to maintain flood insurance on all structures, you may still wish to do so, and your mortgage lender may still require you to do so to protect the collateral securing the mortgage. If you choose not to maintain flood insurance on a structure and it floods, you are responsible for all flood losses relating to that structure.
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 contact an insurance agent as to the availability, cost, and comparisons of flood insurance coverage.
[Escrow Requirement for Residential Loans
Federal law may require 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. If your lender notifies you that an escrow account is required for your loan, then you must pay your flood insurance premiums and fees to the lender or its servicer with the same frequency as you make loan payments for the duration of your loan. These premiums and fees will be deposited in the escrow account, which will be used to pay the flood 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.
26. Effective January 1, 2016, Appendix B to Part 760 is added to read as follows:
Appendix B to Part 760--Sample Clause for Option to Escrow for Outstanding Loans
Escrow Option Clause
You have the option to escrow all premiums and fees for the payment on your flood insurance policy that covers any residential building or mobile home that is located in an area with special flood hazards and that secures your loan. If you choose this option:
* Your payments will be deposited in an escrow account to be paid to the flood insurance provider.
* The escrow amount for flood insurance will be added to the regular mortgage payment that you make to your lender or its servicer.
* The payments you make into the escrow account will accumulate over time and the funds will be used to pay your flood insurance policy when your lender or servicer receives a notice from your flood insurance provider that the flood insurance premium is due.
To choose this option, follow the instructions below. If you have any questions about the option, contact [Insert Name of Lender or Servicer] at [Insert Contact Information].
[Insert Instructions for Selecting to Escrow]
Dated: June 16, 2015.
Thomas J. Curry,
Comptroller of the Currency.
By order of the Board of Governors of the Federal Reserve System, June 18, 2015.
Robert deV. Frierson,
Secretary of the Board.
By order of the Board of Directors of the Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
Dated at Washington, DC, this 16th day of June, 2015.
By order of the Board of the Farm Credit Administration.
Dale L. Aultman,
Secretary.
Dated at McLean, VA, this 16th day of June, 2015.
By order of the Board of the National Credit Union Administration.
Gerard Poliquin,
Secretary of the Board.
Dated at Alexandria, VA, this 18th day of June, 2015.
[FR Doc. 2015-15956 Filed 7-20-15; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P; 6705-01-P; 7535-01-U
Sources Sought Notice – V– Ambulance Service
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