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



[[Page 65107]]

Vol. 78

Wednesday,

No. 210

October 30, 2013

Part III





Department of the Treasury





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Office of the Comptroller of the Currency





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12 CFR Parts 22 and 172





Federal Reserve System





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12 CFR Part 208





Federal Deposit Insurance Corporation





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12 CFR Parts 339 and 391





Farm Credit Administration





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12 CFR Part 614





National Credit Union Administration





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12 CFR Part 760





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Loans in Areas Having Special Flood Hazards; Proposed Rule

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

[[Page 65108]]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Parts 22, 172

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

FEDERAL RESERVE SYSTEM

12 CFR Part 208

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

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Parts 339, 391

RIN 3064-AE03

FARM CREDIT ADMINISTRATION

12 CFR Part 614

RIN 3052-AC93

NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 760

RIN 3133-AE18


Loans in Areas Having Special Flood Hazards

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

ACTION: Joint notice of proposed rulemaking.

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

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

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

[[Page 65109]]

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

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

SUPPLEMENTARY INFORMATION: 

I. Background

A. Introduction

    The Biggert-Waters Flood Insurance Reform Act of 2012 \1\ (the 
Act), signed into law by the President on July 6, 2012, significantly 
revised Federal flood insurance statutes. Section 100209 of the Act, 
relating to the escrow of flood insurance payments, and section 100239 
of the Act, relating to the acceptance of private flood insurance 
coverage, amended provisions of the Flood Disaster Protection Act 
(FDPA) \2\ that require the Agencies to issue implementing regulations. 
Section 100244 of the Act, relating to force-placed insurance, 
necessitates conforming revisions to the Agencies' current flood 
insurance regulations. The Agencies jointly are issuing this proposal 
to revise their regulations accordingly. In connection with the 
issuance of this proposal, the Agencies have coordinated and consulted 
with the Federal Financial Institutions Examination Council (FFIEC), as 
is required by certain provisions of the flood insurance statutes.\3\ 
The Agencies' proposal would implement only certain provisions of the 
Act over which the Agencies have jurisdiction. Accordingly, the 
Agencies encourage lenders to consult the Act for further information 
about revisions to the flood insurance statutes that will not be 
implemented through this rulemaking.
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    \1\ Public Law 112-141, 126 Stat. 916 (2012).
    \2\ Public Law 93-234, 87 Stat. 975 (1973).
    \3\ See 42 U.S.C. 4012a(b)(1). The heads of four of the five 
Agencies (OCC, Board, FDIC, and NCUA) comprise part of the 
membership of the FFIEC.

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[[Page 65110]]

B. Flood Insurance Statutes

    The National Flood Insurance Act of 1968 (1968 Act) \4\ and the 
FDPA govern the National Flood Insurance Program (NFIP).\5\ The 1968 
Act made Federally subsidized flood insurance available to owners of 
improved real estate or mobile homes located in special flood hazard 
areas if the community where the improved real estate or mobile home is 
located participates in the NFIP. A special flood hazard area (SFHA) is 
an area within a floodplain having a one percent or greater chance of 
flood occurrence in any given year.\6\ SFHAs are delineated on maps 
issued by FEMA for individual communities.\7\ A community establishes 
its eligibility to participate in the NFIP by adopting and enforcing 
floodplain management measures to regulate new construction and by 
making substantial improvements within its SFHAs to eliminate or 
minimize future flood damage.\8\
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    \4\ Public Law 90-448, 82 Stat. 572 (1968).
    \5\ These statutes are codified at 42 U.S.C. 4001-4129. The 
Federal Emergency Management Agency (FEMA) administers the NFIP; its 
regulations implementing the NFIP appear at 44 CFR parts 59-77.
    \6\ 44 CFR 59.1.
    \7\ 44 CFR part 65.
    \8\ 44 CFR part 60.
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    Until the adoption of the FDPA in 1973, the purchase of flood 
insurance was voluntary. The FDPA required the mandatory purchase of 
flood insurance and directed the OCC, Board, FDIC, NCUA, and the former 
Office of Thrift Supervision (OTS) \9\ to issue regulations governing 
the lending institutions that they supervised. The resulting 
regulations directed these lending institutions to require flood 
insurance on improved real estate or mobile homes serving as collateral 
for a loan (secured property) if the secured property was located in a 
SFHA in a participating community. The regulations also required 
lenders to notify borrowers that the secured property is located in a 
SFHA and that Federal disaster assistance is available with respect to 
the property in the event of a flood.
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    \9\ Title III of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act, Public Law 111-203, 124 Stat. 1376 (2010), (Dodd-
Frank Act), transferred the powers, duties, and functions formerly 
performed by the OTS among the FDIC, as to State savings 
associations, the OCC, as to Federal savings associations, and the 
Board as to savings and loan holding companies. The OTS was 
abolished 90 days after the transfer date.
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    Title V of the Riegle Community Development and Regulatory 
Improvement Act of 1994, also known as the National Flood Insurance 
Reform Act of 1994 (Reform Act), comprehensively amended the Federal 
flood insurance statutes.\10\ The Reform Act established new 
requirements on Federally regulated lending institutions, such as the 
escrow for flood insurance premiums under certain conditions and 
mandatory force-placement of flood insurance coverage. The Reform Act 
was intended to increase compliance with the mandatory flood insurance 
purchase requirements and participation in the NFIP in order to provide 
additional income to the National Flood Insurance Fund and to decrease 
the financial burden of flooding on the Federal government, taxpayers, 
and flood victims. In addition, the Reform Act broadened the definition 
of ``Federal entity for lending regulation'' to include the FCA, 
thereby increasing the number of regulated lending institutions subject 
to the mandatory flood insurance purchase requirement to include 
lenders regulated by the FCA.
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    \10\ Public Law 103-325, 108 Stat. 2255 (1994) (codified as 
amended at 42 U.S.C. 4001 et seq. (1994)).
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    The Reform Act required the Agencies to revise their flood 
insurance regulations and required the FCA to promulgate flood 
insurance regulations for the first time. The Agencies fulfilled these 
requirements by issuing a joint final rule in August 1996.\11\
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    \11\ 61 FR 45684 (Aug. 29, 1996).
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C. The Biggert-Waters Act Amendments

    Among other changes,\12\ the Act significantly amends the NFIP 
requirements, over which the Agencies have jurisdiction. Specifically, 
the Act: (i) Increases the maximum civil money penalty (CMP) that the 
Agencies may impose per violation when there is a pattern or practice 
of flood violations and eliminates the limit on the total amount of 
penalties that the Agencies may assess against a regulated lending 
institution during any calendar year; \13\ (ii) requires regulated 
lending institutions to escrow premiums and fees for flood insurance on 
residential improved real estate, unless the regulated lending 
institution meets the statutory small institution exception; \14\ (iii) 
directs regulated lending institutions to accept private flood 
insurance, as defined by the Act, and to notify borrowers of the 
availability of private flood insurance; \15\ and (iv) amends the 
force-placement requirement to clarify that regulated lending 
institutions may charge a borrower for the cost of premiums and fees 
incurred for coverage beginning on the date on which the flood 
insurance coverage lapsed or did not provide sufficient coverage and to 
prescribe the procedures for terminating force-placed insurance.\16\
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    \12\ The Agencies note, for example, that section 100222 of the 
Act mandates a revision to the Special Information Booklet required 
under section 5 of the Real Estate Settlement Procedures Act of 1974 
(RESPA) (12 U.S.C. 2604(b)) to include a notice to the borrower of 
the availability of flood insurance under the NFIP or from a private 
insurance company, whether or not the real estate is located in an 
area having special flood hazards. The requirement to revise the 
Special Information Booklet is the responsibility of the Bureau of 
Consumer Financial Protection (CFPB) under RESPA. In addition, 
section 100204 of the Act directs the Administrator of FEMA to make 
flood insurance available to cover residential properties of five or 
more residences. The maximum coverage made available to such 
residential properties will be equal to the coverage made available 
to commercial properties. Policies for such properties will be made 
available by FEMA at a later date.
    \13\ Section 100208 of the Act, amending section 102(f)(5) of 
the FDPA (42 U.S.C. 4012a(f)(5)).
    \14\ Section 100209 of the Act, amending section 102(d) of the 
FDPA (42 U.S.C. 4012a(d)). Congress further amended section 42 
U.S.C. 4012a(d) subsequent to the enactment of the Act to clarify 
that the flood insurance escrow requirement applies only to loans 
secured by residential improved real estate. See Public Law 112-281, 
125 Stat. 2485 (Jan. 14, 2013).
    \15\ Section 100239 of the Act, amending section 102(b) of the 
FDPA (42 U.S.C. 4012a(b)) and section 1364(a)(3)(C) of the 1968 Act 
(42 U.S.C. 4104a(a)(3)(C)).
    \16\ Section 100244 of the Act, amending section 102(e) of the 
FDPA (42 U.S.C. 4012a(e)).
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    The civil money penalty provisions,\17\ and the force-placement 
requirements were effective upon enactment. In contrast, both the 
escrow and private flood insurance provisions will become effective 
when the Agencies finalize implementing regulations. The Agencies 
previously published guidance regarding the effective dates of these 
amendments.\18\
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    \17\ Some of the Agencies have revised their regulations to 
incorporate these increased civil money penalties. See OCC: 77 FR 
66529 (Nov. 11, 2012) and 77 FR 76354 (Dec. 28, 2012); Board: 77 FR 
68680 (Nov. 16, 2012); FDIC: 77 FR 74573 (Dec. 17, 2012); and FCA: 
78 FR 24336 (April 25, 2013). The NCUA is in the process of updating 
its rule to reflect this civil money penalty change.
    \18\ ``Interagency Statement on the Impact of Biggert-Waters 
Act,'' March 29, 2013 (Board: CA 13-2; OCC: Bulletin 2013-10; FDIC: 
FIL 14-2013, FCA: Information Memorandum, March 29, 2013; NCUA: 13-
RA-03).
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II. Summary of the Proposal

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

[[Page 65111]]

to conform to each Agency's current regulation.
    First, the Agencies' proposal generally would require regulated 
lending institutions, or servicers acting on their behalf, to escrow 
premiums and fees for flood insurance for any loans secured by 
residential improved real estate or a mobile home, unless the 
institutions qualify for the statutory exception. Except as may be 
required under applicable State law, a regulated lending institution is 
not required to escrow if it has total assets of less than $1 billion 
and, as of the Act's date of enactment, July 6, 2012, was not required 
by Federal or State law to escrow taxes or insurance for the term of 
the loan and did not have a policy to require escrow of taxes and 
insurance. The Agencies are proposing to implement the exception 
substantially as set forth in the statute.
    Second, consistent with the Act, the Agencies' proposal would 
require that regulated lending institutions accept private flood 
insurance that meets the statutory definition to satisfy the mandatory 
purchase requirement. The proposal also specifically requests comment 
on whether the Agencies should use their authority under the FDPA to 
include a provision in the final rules that expressly permits regulated 
lending institutions to accept a flood insurance policy issued by a 
private insurer that does not meet the Act's definition of ``private 
flood insurance'' to satisfy the FDPA's general mandatory purchase 
requirement. The Agencies are also soliciting comment on what criteria 
the Agencies might require for such a policy. Alternatively, the 
Agencies solicit comment on whether it is appropriate to include a 
provision in the final rules that specifically requires regulated 
lending institutions to accept only policies issued by private insurers 
that meet the statutory definition, and if included, what would be the 
effect of such a provision on the availability of privately issued 
flood insurance.
    Third, the Agencies' proposal includes new and revised sample 
notice forms and clauses. Specifically, the proposal amends the current 
Sample Form of Notice of Special Flood Hazards and Availability of 
Federal Disaster Relief Assistance, set forth as Appendix A in the 
Agencies' respective regulations, to add language concerning the 
availability of private flood insurance coverage (pursuant to the 
notice requirements under section 100239 of the Act) and the escrow 
requirement. The proposal also adds an additional sample notice form, 
Notice of Requirement to Escrow for Outstanding Loans, as Appendix B to 
assist institutions in complying with the proposal's requirement to 
inform existing borrowers about the new escrow requirement. An 
institution would provide this notice for existing loans when neither 
the Notice of Special Flood Hazards and Availability of Federal 
Disaster Relief Assistance nor the notice of force-placement is 
provided. Finally, as Appendix C, the Agencies are proposing a sample 
clause regarding the new escrow requirement that may be included with 
the force-placement notice.
    Fourth, the proposal would amend the force-placement of flood 
insurance provisions to clarify that a lender or its servicer has the 
authority to charge a borrower for the cost of flood insurance coverage 
commencing on the date on which the borrower's coverage lapsed or 
became insufficient. The proposal also would stipulate the 
circumstances under which a lender or its servicer must terminate 
force-placed flood insurance coverage and refund payments to a 
borrower. It also sets forth the documentary evidence a lender must 
accept to confirm that a borrower has obtained an appropriate amount of 
flood insurance coverage.
    Fifth, the Agencies propose needed technical corrections. For 
example, the Agencies' current flood insurance regulations refer to the 
``Director'' of the FEMA. The correct title for the head of that agency 
is ``Administrator.'' \19\ The Agencies' proposal would correct all 
references to the head of FEMA.
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    \19\ 6 U.S.C. 313.
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    Finally, the OCC and the FDIC propose to integrate their flood 
insurance regulations for national banks and Federal savings 
associations and for State non-member banks and State savings 
associations, respectively. Specifically, the OCC proposes to add 
language to its flood insurance regulation for national banks, 12 CFR 
part 22, to make it applicable to both national banks and Federal 
savings associations, and to remove its regulation for Federal savings 
associations, 12 CFR part 172. Similarly, the FDIC proposes to add 
language to 12 CFR part 339, its flood regulation for State non-member 
banks, to make it applicable to both State non-member banks and State 
savings associations and to remove its flood regulation for State 
savings associations, 12 CFR part 391 subpart D. Parts 22, 172, 339, 
and 391 subpart D, are nearly identical and contain no substantive 
differences, as they were originally adopted through an interagency 
rulemaking process.\20\
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    \20\ The OCC republished the former OTS rule as an OCC rule with 
respect to Federal savings associations and the FDIC republished the 
former OTS rule with respect to State savings associations in 2011, 
with only nomenclature changes. See 76 FR 49140 (Aug. 9, 2011) (OCC) 
and 76 FR 47811 (Aug. 5, 2011) (FDIC).
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III. Legal Authority

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

[[Page 65112]]

100239(a)(1), which amended section 102(b) of the FDPA, provides that 
nothing in that subsection shall be construed to supersede or limit the 
Agencies' authority to establish requirements relating to the financial 
solvency, strength, or claims-paying ability of private insurance 
companies from which a regulated lending institution will accept 
private flood insurance.
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    \21\ See 12 U.S.C. 1 and 93a; 12 U.S.C. 321 (granting the Board 
authority to impose conditions for membership in the Federal Reserve 
System); 12 U.S.C. 1820(g) (granting the FDIC authority to prescribe 
regulations to carry out the FDI Act; See also section 39 of the 
Federal Deposit Insurance Act (12 U.S.C. 1831p-1)
    \22\ The Federal Credit Union Act (12 U.S.C. 1751 et seq.) and 
section 5.17 of the Farm Credit Act of 1971, as amended, (12 U.S.C. 
2252). Sections 106, 201, and 206 of the Federal Credit Union Act 
(12 U.S.C. 1756, 1781, and 1786) provide NCUA with the authority to 
examine and supervise Federally insured credit unions to protect the 
credit union system and the safety and soundness of the National 
Credit Union Share Insurance Fund.
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    Finally, section 102(d) of the FDPA (42 U.S.C. 4012a(d)), as 
amended by section 100209 of the Act and Public Law No. 112-281,\23\ 
states that the Agencies (after consultation and coordination with the 
FFIEC) must by regulation require all premiums and fees for flood 
insurance under the 1968 Act for residential improved real estate or a 
mobile home be paid to the regulated lending institution or servicer 
for any loan secured by the improved real estate or mobile home with 
the same frequency as payments on the loan are made for the duration of 
the loan. The statute requires that such funds be deposited in an 
escrow account on behalf of the borrower and used to pay the flood 
insurance provider when premiums are due. Section 102(d) of the FDPA, 
as amended, also authorizes the Agencies to implement the exception to 
this requirement for certain regulated lending institutions with assets 
less than $1 billion.
---------------------------------------------------------------------------

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

IV. Section-by-Section Analysis

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

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

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

    Private flood insurance. The Agencies are proposing to add a new 
definition for ``private flood insurance'' consistent with section 
100239 of the Act, which added a new section 102(b)(7) to the FDPA. 
Under section 102(b)(7) of the FDPA, ``private flood insurance'' means 
an insurance policy that: (i) Is issued by an insurance company that is 
licensed, admitted or otherwise approved to engage in the business of 
insurance in the State or jurisdiction in which the insured building is 
located by the insurance regulator of the State or jurisdiction or, in 
the case of a policy of difference in condition, multiple peril, all 
risk, or other blanket coverage insuring nonresidential commercial 
property, is recognized, or not disapproved, as a surplus lines insurer 
by the insurance regulator of the State or jurisdiction; \24\ (ii) 
provides flood coverage at least as broad as the coverage provided by a 
standard flood insurance policy (SFIP) under the NFIP, including when 
considering deductibles, exclusions, and conditions offered by the 
insurer; (iii) includes a requirement for the insurer to give 45 days' 
written notice of cancellation or non-renewal of flood insurance 
coverage to the insured and the regulated lending institution; (iv) 
includes information about the availability of flood insurance coverage 
under the NFIP; (v) includes a mortgage interest clause similar to the 
clause contained in an SFIP; (vi) includes a provision requiring an 
insured to file suit not later than one year after the date of a 
written denial for all or part of a claim under a policy; and (vii) 
contains cancellation provisions that are as restrictive as the 
provisions contained in an SFIP.
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    \24\ The Agencies note that with respect to alien (non-U.S.) 
surplus lines insurers, States may not prohibit a surplus lines 
broker from placing non-admitted insurance with, or procuring non-
admitted insurance from, a non-U.S., non-admitted insurer that is 
listed on the Quarterly Listing of Alien Insurers maintained by the 
National Association of Insurance Commissioners' (NAIC) 
International Insurer's Department (IID List). See The Nonadmitted 
and Reinsurance Reform Act of (NRRA), Title V of the Dodd-Frank Act, 
Public Law 111-203 (July 21, 2011).
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    Other definitions. The Agencies also are proposing technical 
amendments to change the references to the head of FEMA from Director 
to Administrator in the definitions and to renumber the definitions to 
accommodate the inclusion of the new definition for ``private flood 
insurance.''
    OCC-only definitions. The OCC also proposes the following 
amendments to the definition section for purposes of integrating its 
national bank and Federal savings association flood insurance rules. 
First, the proposed rule provides that the term ``Federal savings 
association'' means a Federal savings association as defined in 12 
U.S.C. 1813(b)(2) and any service corporations thereof. This definition 
is identical to the definition of ``Federal savings association'' in 12 
CFR part 172, except that part 172 specifically referenced 
``subsidiaries.'' Current 12 CFR part 22 does not specifically include 
a reference to bank operating subsidiaries because such subsidiaries 
are subject to the rules applicable to the operations of their parent 
bank pursuant to 12 CFR 5.34. Because Federal savings association 
operating subsidiaries also are subject to the same rules applicable to 
the parent savings association, as provided by 12 CFR 159.3(h), the 
inclusion of ``subsidiary'' in this definition is unnecessary and its 
removal will not affect the applicability of 12 CFR part 22 to Federal 
savings association operating subsidiaries.
    Second, the OCC proposes to remove the definition of ``bank,'' 
which the rule currently defines as meaning a national bank. Instead, 
the term ``bank'' is replaced with ``national bank'' throughout the 
rule.
    FDIC-only definition. The FDIC also proposes the following 
amendments to the definitional section for purposes of integrating its 
State nonmember bank and State savings association flood insurance 
rules. The FDIC proposes to remove the definition of ``bank'' and 
replace it with ``FDIC-supervised institution'' which would be defined 
to mean any insured depository institution for which the Federal 
Deposit Insurance Corporation is the appropriate Federal banking agency 
pursuant to section 3(g) of the Federal Deposit Insurance Act, 12 
U.S.C. 1813(g).

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

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

[[Page 65113]]

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

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

Private flood insurance
    The Agencies also are proposing to amend this section to implement 
section 102(b)(1)(B) of the FDPA, as added by section 100239(a)(1) of 
the Act, which requires that all regulated lending institutions accept 
private flood insurance if certain conditions are met. Specifically, 
the proposal would require a regulated lending institution to accept 
private flood insurance that meets the definition of this term to 
satisfy the FDPA's insurance requirement, provided that the private 
flood insurance policy also meets the conditions set forth in the 
general mandatory purchase requirement. Therefore, a regulated lending 
institution may only accept private flood insurance coverage under this 
provision if the building or mobile home and any personal property that 
secures the mortgage loan is covered for the term of that loan by the 
amount of flood insurance required by section 102(b)(1)(A) of the FDPA. 
As described above in ------.------ Definitions, this proposal also 
would amend the Agencies' regulations to include the statutory 
definition of ``private flood insurance.''
    The Agencies understand that there have been concerns regarding the 
ability of regulated lending institutions to evaluate whether a flood 
insurance policy meets the definition of ``private flood insurance'' 
set forth in the Act because some regulated lending institutions lack 
the necessary technical expertise. To facilitate compliance in this 
regard, the Agencies are proposing a safe harbor to allow lenders to 
rely on the expertise of State insurance regulators. Under the proposed 
safe harbor, if a State insurance regulator makes a written 
determination that a flood insurance policy issued by a private insurer 
meets the definition of ``private flood insurance'' set forth in the 
Act, then the Agencies will deem such policy to meet the statutory 
definition of ``private flood insurance.''
    The Agencies note that regulating insurance providers is generally 
the domain of State insurance regulators. As a result, State insurance 
regulators may be the appropriate parties to determine whether a flood 
insurance policy meets all the criteria set forth in the statutory 
definition of ``private flood insurance.'' The Agencies solicit comment 
on whether: (i) Any mechanism exists or may be developed by State 
regulators to make such a determination; (ii) a written determination 
would facilitate lenders' acceptance of flood insurance by private 
insurers; (iii) such a safe harbor would alleviate the concerns of 
regulated lending institutions in evaluating private flood policies; 
and (iv) a safe harbor would enable the growth of the private flood 
insurance market.
    Although section 102(b)(1)(B) of the FDPA, as added by section 
100239(a)(1) of the Act, requires a regulated lending institution to 
accept private flood insurance that meets the statutory definition, the 
Agencies note that the statute is silent about whether a regulated 
lending institution may accept a flood insurance policy issued by a 
private insurer that does not meet the statutory definition. The 
Agencies believe that the Congressional intent of the statute was to 
stimulate the private flood insurance market.\26\ Consequently, in 
addition to requiring regulated lending institutions to accept private 
flood insurance policies that comply with the statutory definition of 
``private flood insurance,'' the Agencies are considering whether to 
include a provision in the final rules that expressly permits regulated 
lending institutions to accept, as satisfaction of the FDPA's mandatory 
purchase requirement, a flood insurance policy issued by a private 
insurer that does not meet the Act's definition of ``private flood 
insurance.'' The Agencies would include this provision pursuant to 
their authority under the FDPA to issue regulations directing lending 
institutions not to make, increase, extend, or renew any loan secured 
by property in a SFHA unless the property is covered by ``flood 
insurance.'' \27\
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    \26\ The Act's reforms were designed to improve the NFIP's 
financial integrity and stability as well as to ``increase the role 
of private markets in the management of flood insurance risk.'' H. 
Rep. No. 112-102, at 1 (2011); see also 158 Cong. Rec. H4622 (daily 
ed. June 29, 2012) (statement of Rep. Biggert).
    \27\ See 42 U.S.C. 4012a(b).
---------------------------------------------------------------------------

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

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

[[Page 65114]]

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

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

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

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

    Regulated lending institutions have previously relied upon FEMA's 
``Mandatory Purchase of Flood Insurance Guidelines'' (Guidelines) for 
guidance when determining whether a private insurance policy conforms 
to the flood insurance requirements. FEMA had advised that, to the 
extent that the private policy differs from the NFIP's policy, the 
differences should be carefully examined before accepting the policy. 
On February 4, 2013, FEMA rescinded the Guidelines and advised lenders 
to ``consult their respective regulatory agency for information 
regarding compliance with the mandatory purchase requirements.'' \32\ 
The Agencies note that currently institutions continue to have the 
discretion to accept flood insurance issued by a private insurer 
pursuant to section 102(b)(1)(A) of the FDPA.
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    \32\ FEMA Letter, February 4, 2013. See http://www.fema.gov/library/viewRecord.do?fromSearch=fromsearch&id=2954.
---------------------------------------------------------------------------

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

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

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

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

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

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

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

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

[[Page 65115]]

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

[[Page 65116]]

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

[[Page 65117]]

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

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

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

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

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

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

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

[[Page 65118]]

--.-- Force placement of flood insurance.

    Pursuant to section 102(e) of the FDPA, as amended by section 
100244 of the Act, the Agencies are proposing to amend their rules for 
the force-placement of flood insurance.\40\ The proposal implements 
section 100244 of the Act by setting forth when a regulated lending 
institution or its servicer may begin to charge the borrower for force-
placed insurance, the circumstances under which a regulated lending 
institution or its servicer must terminate force-placed insurance and 
refund payments, and what documentary evidence is sufficient to 
demonstrate a borrower has flood insurance coverage.
---------------------------------------------------------------------------

    \40\ The Agencies note that section 1463(a) of the Dodd-Frank 
Act sets forth requirements relating to the force placement of 
hazard insurance. The CFPB has excluded flood insurance required 
under the FDPA from the force placement requirements in its rule 
implementing this provision. 78 FR 10696, 10880 (February 14, 2013).
---------------------------------------------------------------------------

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

--.-- Determination fees.

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

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

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

[[Page 65119]]

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

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

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

Appendices A, B, & C

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

V. Regulatory Analysis

Regulatory Flexibility Act

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

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

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

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

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

[[Page 65120]]

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

[[Page 65121]]

insurance for any loan secured by residential improved real estate or a 
mobile home. The proposed rule would also implement the requirement 
that credit unions accept any private insurance policy that meets the 
statutory definition of ``private flood insurance'', and includes 
provisions related to the force placement of flood insurance.
---------------------------------------------------------------------------

    \44\ 5 U.S.C. 603(a).
    \45\ Interpretive Ruling and Policy Statement 03-2, 68 FR 31949 
(May 29, 2003), as amended by Interpretative Ruling and Policy 
Statement 13-1, 78 FR 4032 (Jan. 18, 2013).
---------------------------------------------------------------------------

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

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

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

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

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

[[Page 65122]]

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

List of Subjects

12 CFR Part 22

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

12 CFR Part 172

    Flood insurance, Reporting and recordkeeping requirements, Savings 
associations.

12 CFR Part 208

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

12 CFR Part 339

    Flood insurance, Reporting and recordkeeping requirements, Savings 
associations.

12 CFR Part 391

    Flood insurance, Reporting and recordkeeping requirements, Savings 
associations.

12 CFR Part 614

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

12 CFR Part 760

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

Office of the Comptroller of the Currency

12 CFR CHAPTER I

Authority and Issuance

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

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

PART 22--LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS

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

[[Page 65123]]

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

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


Sec.  22.1  Purpose and scope.

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


Sec.  22.2  Definitions.

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


Sec.  22.3  Requirement to purchase flood insurance where available.

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


Sec.  22.4  Exemptions.

    The flood insurance requirement prescribed by Sec.  22.3 does not 
apply with respect to:
    (a) Any State-owned property covered under a policy of self-
insurance satisfactory to the Administrator of FEMA, who publishes and 
periodically revises the list of States falling within this exemption; 
or
    (b) Property securing any loan with an original principal balance 
of $5,000 or less and a repayment term of one year or less.

[[Page 65124]]

Sec.  22.5  Escrow requirement.

    (a) In general. (1) Applicability. Except as provided in paragraph 
(c) of this section, a national bank or Federal savings association, or 
a servicer acting on its behalf, shall require the escrow of all 
premiums and fees for any flood insurance required under Sec.  22.3(a) 
for any loan secured by residential improved real estate or a mobile 
home that is outstanding or entered into on or after July 6, 2014, 
payable with the same frequency as payments on the loan are made for 
the duration of the loan, unless the national bank or Federal savings 
association has determined that:
    (i) The loan is an extension of credit primarily for business, 
commercial, or agricultural purposes;
    (ii) The borrower has obtained flood insurance coverage that meets 
the requirements of Sec.  22.3(a) for the residential improved real 
estate or mobile home securing the loan and is currently paying 
premiums and fees through an escrow account established by another 
lender; or
    (iii) Flood insurance coverage for the residential improved real 
estate or mobile home is provided by a policy that is purchased by a 
common interest community instead of the borrower, such as an NFIP 
Residential Condominium Building Association Policy (RCBAP), that meets 
the requirements of Sec.  22.3(a).
    (2) Timing. A national bank or Federal savings association that is 
subject to paragraph (a) of this section, other than due to a change in 
status under paragraph (c)(2) of this section or for acquired loans 
subject to paragraph (d) of this section, shall begin escrowing 
premiums and fees for flood insurance:
    (i) For any designated loan outstanding on July 6, 2014, with the 
first loan payment on or after the first renewal date of the borrower's 
flood insurance policy on or after July 6, 2014;
    (ii) For any designated loan made on or after July 6, 2014, upon 
loan consummation; or
    (iii) For any loan that becomes a designated loan after July 6, 
2014, with the first loan payment after the flood insurance policy is 
established.
    (3) Escrow Account. The national bank or Federal savings 
association, or a servicer acting on behalf of the national bank or 
Federal savings association, shall deposit the flood insurance premiums 
and fees on behalf of the borrower in an escrow account. This escrow 
account will be subject to escrow requirements adopted pursuant to 
section 10 of the Real Estate Settlement Procedures Act of 1974 (12 
U.S.C. 2609) (RESPA), which generally limits the amount that may be 
maintained in escrow accounts for certain types of loans and requires 
escrow account statements for those accounts, only if the loan is 
otherwise subject to RESPA. Following receipt of a notice from the 
Administrator of FEMA or other provider of flood insurance that 
premiums are due, the national bank or Federal savings association, or 
a servicer acting on behalf of the national bank or Federal savings 
association, shall pay the amount owed to the insurance provider from 
the escrow account by the date when such premiums are due.
    (b) Notice. A national bank or Federal savings association that is 
required to comply with paragraph (a) of this section, or a servicer 
acting on behalf of the national bank or Federal savings association, 
shall mail or deliver a written notice informing the borrower that the 
national bank or Federal savings association is required to escrow all 
premiums and fees for required flood insurance:
    (1) For loans subject to paragraphs (a)(2)(i), (c)(2)(i), or (d) of 
this section, at least 90 days before the escrow of premiums and fees 
under paragraphs (a)(2)(i), (c)(2)(i), or (d), using language that is 
substantially similar to the model form in appendix B;
    (2) For loans subject to paragraphs (a)(2)(ii) or (c)(2)(ii) of 
this section, with the notice provided under Sec.  22.9, using language 
that is substantially similar to model clauses on the escrow 
requirement in appendix A; or
    (3) For loans subject to paragraphs (a)(2)(iii) or (c)(2)(iii) of 
this section, with the notice provided under Sec.  22.7, using language 
that is substantially similar to model clauses on the escrow 
requirement in appendix C.
    (c) Exception. (1) Qualification. Except as may be required under 
applicable State law, paragraphs (a)(1) and (2) of this section do not 
apply to a national bank or Federal savings association:
    (i) That has total assets of less than $1 billion as of December 31 
of either of the two prior calendar years; and
    (ii) On or before July 6, 2012:
    (A) Was not required under Federal or State law to deposit taxes, 
insurance premiums, fees, or any other charges in an escrow account for 
the entire term of a loan secured by residential improved real estate 
or a mobile home; and
    (B) Did not have a policy of consistently and uniformly requiring 
the deposit of taxes, insurance premiums, fees, or any other charges in 
an escrow account for loans secured by residential improved real estate 
or a mobile home.
    (2) Change in status. If a national bank or Federal savings 
association previously qualified for the exception in paragraph Sec.  
22.5(c)(1), but no longer qualifies for the exception because it had 
assets of $1 billion or more for two consecutive calendar year ends, 
the national bank or Federal savings association must begin escrowing 
premiums and fees for flood insurance pursuant to Sec.  22.3(a):
    (i) For any designated loan outstanding on July 1 of the succeeding 
calendar year, with the first loan payment on or after the first 
renewal date of the borrower's flood insurance policy on or after July 
1 of the succeeding calendar year;
    (ii) For any designated loan made on or after July 1 of the 
succeeding calendar year, upon loan consummation; or
    (iii) For any loan that becomes a designated loan after July 1 of 
the succeeding calendar year, with the first loan payment after the 
flood insurance policy is established.
    (d) Change in ownership. If a national bank or Federal savings 
association that is required to comply with paragraph (a) of this 
section acquires a designated loan covered by flood insurance required 
under Sec.  22.3(a) that becomes subject to paragraph (a) of this 
section as a result of the bank's or savings association's acquisition 
of the loan, the bank or savings association must begin escrowing 
premiums and fees for flood insurance pursuant to paragraph (a) of this 
section with the first loan payment on or after the first renewal date 
of the borrower's flood insurance policy on or after the date that is 
six months from the transfer date of the loan.


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

    (a) Use of form. A national bank or Federal savings association 
shall use the standard flood hazard determination form developed by the 
Administrator of FEMA when determining whether the building or mobile 
home offered as collateral security for a loan is or will be located in 
a special flood hazard area in which flood insurance is available under 
the Act. The standard flood hazard determination form may be used in a 
printed, computerized, or electronic manner. A national bank or Federal 
savings association may obtain the standard flood hazard determination 
form from FEMA's Web site at www.fema.gov.
    (b) Retention of form. A national bank or Federal savings 
association shall retain a copy of the completed standard flood hazard 
determination form, in either hard copy or electronic form, for the 
period of time the bank or savings association owns the loan.

[[Page 65125]]

Sec.  22.7  Force-placement of flood insurance.

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


Sec.  22.8  Determination fees.

    (a) General. Notwithstanding any Federal or State law other than 
the Flood Disaster Protection Act of 1973 as amended (42 U.S.C. 4001-- 
4129), any national bank or Federal savings association, or a servicer 
acting on behalf of the national bank or Federal savings association, 
may charge a reasonable fee for determining whether the building or 
mobile home securing the loan is located or will be located in a 
special flood hazard area. A determination fee may also include, but is 
not limited to, a fee for life-of-loan monitoring.
    (b) Borrower fee. The determination fee authorized by paragraph (a) 
of this section may be charged to the borrower if the determination:
    (1) Is made in connection with a making, increasing, extending, or 
renewing of the loan that is initiated by the borrower;
    (2) Reflects the Administrator of FEMA's revision or updating of 
flood plain areas or flood-risk zones;
    (3) Reflects the Administrator of FEMA's publication of a notice or 
compendium that:
    (i) Affects the area in which the building or mobile home securing 
the loan is located;
    (ii) By determination of the Administrator of FEMA, may reasonably 
require a determination whether the building or mobile home securing 
the loan is located in a special flood hazard area; or
    (4) Results in the purchase of flood insurance coverage by the 
lender, or its servicer, on behalf of the borrower under Sec.  22.7.
    (c) Purchaser or transferee fee. The determination fee authorized 
by paragraph (a) of this section may be charged to the purchaser or 
transferee of a loan in the case of the sale or transfer of the loan.


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

    (a) Notice requirement. When a national bank or Federal savings 
association makes, increases, extends, or renews a loan secured by a 
building or a mobile home located or to be located in a special flood 
hazard area, the bank or savings association shall mail or deliver a 
written notice to the borrower and to the servicer in all cases whether 
or not flood insurance is available under the Act for the collateral 
securing the loan.
    (b) Contents of notice. The written notice must include the 
following information:
    (1) A warning, in a form approved by the Administrator of FEMA, 
that the building or the mobile home is or will be located in a special 
flood hazard area;
    (2) A description of the flood insurance purchase requirements set 
forth in section 102(b) of the Flood Disaster Protection Act of 1973, 
as amended (42 U.S.C. 4012a(b));
    (3) A statement, where applicable, that flood insurance coverage is 
available from private insurance companies that issue standard flood 
insurance policies on behalf of the NFIP or directly from the NFIP;
    (4) A statement that flood insurance that provides the same level 
of coverage as a standard flood insurance policy under the NFIP also 
may be available from a private insurance company that issues policies 
on behalf of the company;
    (5) A statement that the borrower is encouraged to compare the 
flood insurance coverage, deductibles, exclusions, conditions and 
premiums associated with flood insurance policies issued on behalf of 
the NFIP and policies issued on behalf of private insurance companies 
and that the borrower should direct inquiries regarding the 
availability, cost, and comparisons of flood insurance coverage to an 
insurance agent; and
    (6) A statement whether Federal disaster relief assistance may be 
available in the event of damage to the building or mobile home caused 
by flooding in a Federally declared disaster.
    (c) Timing of notice. The national bank or Federal savings 
association shall provide the notice required by paragraph (a) of this 
section to the borrower within a reasonable time before the completion 
of the transaction, and to the servicer as promptly as practicable 
after the bank or savings association provides notice to the borrower 
and in any event no later than the time the bank or savings association 
provides other similar notices to the servicer concerning hazard 
insurance and taxes. Notice to the servicer may be made electronically 
or may take the form of a copy of the notice to the borrower.
    (d) Record of receipt. The national bank or Federal savings 
association shall retain a record of the receipt of the notices by the 
borrower and the servicer for the period of time it owns the loan.

[[Page 65126]]

    (e) Alternate method of notice. Instead of providing the notice to 
the borrower required by paragraph (a) of this section, a national bank 
or Federal savings association may obtain satisfactory written 
assurance from a seller or lessor that, within a reasonable time before 
the completion of the sale or lease transaction, the seller or lessor 
has provided such notice to the purchaser or lessee. The national bank 
or Federal savings association shall retain a record of the written 
assurance from the seller or lessor for the period of time it owns the 
loan.
    (f) Use of prescribed form of notice. A national bank or Federal 
savings association will be considered to be in compliance with the 
requirement for notice to the borrower of this section by providing 
written notice to the borrower containing the language presented in 
appendix A to this part within a reasonable time before the completion 
of the transaction. The notice presented in appendix A to this part 
satisfies the borrower notice requirements of the Act.


Sec.  22.10  Notice of servicer's identity.

    (a) Notice requirement. When a national bank or Federal savings 
association makes, increases, extends, renews, sells, or transfers a 
loan secured by a building or mobile home located or to be located in a 
special flood hazard area, it shall notify the Administrator of FEMA 
(or the Administrator's designee) in writing of the identity of the 
servicer of the loan. The Administrator of FEMA has designated the 
insurance provider to receive the national bank's or Federal savings 
association's notice of the servicer's identity. This notice may be 
provided electronically if electronic transmission is satisfactory to 
the Administrator of FEMA's designee.
    (b) Transfer of servicing rights. The national bank or Federal 
savings association shall notify the Administrator of FEMA (or the 
Administrator's designee) of any change in the servicer of a loan 
described in paragraph (a) of this section within 60 days after the 
effective date of the change. This notice may be provided 
electronically if electronic transmission is satisfactory to the 
Administrator of FEMA's designee. Upon any change in the servicing of a 
loan described in paragraph (a) of this section, the duty to provide 
notice under this paragraph (b) shall transfer to the transferee 
servicer.

APPENDIX A TO PART 22--SAMPLE FORM OF NOTICE OF SPECIAL FLOOD HAZARDS 
AND AVAILABILITY OF FEDERAL DISASTER RELIEF ASSISTANCE

Notice of Special Flood Hazards and Availability of Federal Disaster 
Relief Assistance

    We are giving you this notice to inform you that:
    The building or mobile home securing the loan for which you have 
applied is or will be located in an area with special flood hazards.
    The area has been identified by the Administrator of the Federal 
Emergency Management Agency (FEMA) as a special flood hazard area 
using FEMA's Flood Insurance Rate Map or the Flood Hazard Boundary 
Map for the following community: ------. This area has a one percent 
(1%) chance of a flood equal to or exceeding the base flood 
elevation (a 100-year flood) in any given year. During the life of a 
30-year mortgage loan, the risk of a 100-year flood in a special 
flood hazard area is 26 percent (26%).
    Federal law allows a lender and borrower jointly to request the 
Administrator of FEMA to review the determination of whether the 
property securing the loan is located in a special flood hazard 
area. If you would like to make such a request, please contact us 
for further information.
    -- The community in which the property securing the loan is 
located participates in the National Flood Insurance Program (NFIP). 
Federal law will not allow us to make you the loan that you have 
applied for if you do not purchase flood insurance. The flood 
insurance must be maintained for the life of the loan. If you fail 
to purchase or renew flood insurance on the property, Federal law 
authorizes and requires us to purchase the flood insurance for you 
at your expense.
     At a minimum, flood insurance purchased must cover the 
lesser of:
    (1) the outstanding principal balance of the loan; or
    (2) the maximum amount of coverage allowed for the type of 
property under the NFIP.
    Flood insurance coverage under the NFIP is limited to the 
building or mobile home and any personal property that secures your 
loan and not the land itself.
     Federal disaster relief assistance (usually in the form 
of a low-interest loan) may be available for damages incurred in 
excess of your flood insurance if your community's participation in 
the NFIP is in accordance with NFIP requirements.

Availability of Private Flood Insurance Coverage

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

[Escrow Requirement for Residential Loans

    Federal law requires a lender or its servicer to escrow all 
premiums and fees for flood insurance that covers any residential 
building or mobile home securing a loan that is located in an area 
with special flood hazards. These premiums and fees must be paid to 
the lender or its servicer with the same frequency as your loan 
payments for the duration of your loan and will be deposited in an 
escrow account on your behalf to be paid to the flood insurance 
provider. Upon receipt of a notice from the flood insurance provider 
that the premiums are due, the premiums shall be paid from the 
escrow account to the insurance provider.]
    --Flood insurance coverage under the NFIP is not available for 
the property securing the loan because the community in which the 
property is located does not participate in the NFIP. In addition, 
if the non-participating community has been identified for at least 
one year as containing a special flood hazard area, properties 
located in the community will not be eligible for Federal disaster 
relief assistance in the event of a Federally declared flood 
disaster.

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

Notice of Escrow Requirement

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

How the Escrow Will Work

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

When the Escrow Will Start

    When you receive your next flood insurance bill with the renewal 
of your policy from your flood insurance provider, you are 
responsible for making that payment directly to your insurance 
provider.
    We will begin collecting the premiums and fees for your flood 
insurance escrow account with your mortgage loan payment following 
this renewal date for the next policy term. For example, if your 
flood insurance policy renewal date is September 15 and your next 
mortgage loan payment is October 1, the bank will begin collecting 
the flood insurance premiums and fees for escrow with the October 1 
mortgage loan payment.

[[Page 65127]]

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

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

Escrow Requirement Clause

    Federal law requires a lender or its servicer to escrow all 
premiums and fees for flood insurance that covers any residential 
building or mobile home securing a loan that is located in an area 
with special flood hazards. You must make payments of these premiums 
and fees to [Insert Name of Lender or Servicer] with the same 
frequency as your loan payments for the duration of your loan. Your 
payments will be deposited in an escrow account on your behalf to be 
paid to the flood insurance provider. Upon receipt of a notice from 
the flood insurance provider that the flood insurance premium is 
due, [Insert Name of Lender or Servicer] will pay the premium from 
the escrow account to the insurance provider.

PART 172--[REMOVED]

0
2. Remove part 172.

Federal Reserve System

12 CFR CHAPTER II

Authority and Issuance

    For the reasons set forth in the joint preamble, part 208 of 
chapter II of title 12 of the Code of Federal Regulations is proposed 
to be amended as set forth below:

PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL 
RESERVE SYSTEM (REGULATION H)

0
1. The authority citation for part 208 continues to read as follows:

    Authority: 12 U.S.C. 36, 248(a), 248(c), 321-338a, 371d, 461, 
481-486, 601, 611, 1814, 1823(j), 1828(o), 1831o, 1831p-1, 3105, 
3310, 3331-3351, and 3906-3909; 15 U.S.C. 78b, 781(b), 781(g), 
781(i), 78o-4(c)(5), 78q, 78q-1, and 78w; 31 U.S.C. 5318; 42 U.S.C. 
4012a, 4104a, 4104b, 4106, and 4128.

0
2. Revise Sec.  208.25 as follows:


Sec.  208.25  Loans in areas having special flood hazards.

    (a) Purpose and scope--(1) Purpose. The purpose of this section is 
to implement the requirements of the National Flood Insurance Act of 
1968 and the Flood Disaster Protection Act of 1973, as amended (42 
U.S.C. 4001-4129).
    (2) Scope. This section, except for paragraphs (f) and (h) of this 
section, applies to loans secured by buildings or mobile homes located 
or to be located in areas determined by the Administrator of the 
Federal Emergency Management Agency to have special flood hazards. 
Paragraphs (f) and (h) of this section apply to loans secured by 
buildings or mobile homes, regardless of location.
    (b) Definitions. For purposes of this section:
    (1) Act means the National Flood Insurance Act of 1968, as amended 
(42 U.S.C. 4001-4129).
    (2) Administrator of FEMA means the Administrator of the Federal 
Emergency Management Agency.
    (3) Building means a walled and roofed structure, other than a gas 
or liquid storage tank, that is principally above ground and affixed to 
a permanent site, and a walled and roofed structure while in the course 
of construction, alteration, or repair.
    (4) Community means a State or a political subdivision of a State 
that has zoning and building code jurisdiction over a particular area 
having special flood hazards.
    (5) Designated loan means a loan secured by a building or mobile 
home that is located or to be located in a special flood hazard area in 
which flood insurance is available under the Act.
    (6) Mobile home means a structure, transportable in one or more 
sections, that is built on a permanent chassis and designed for use 
with or without a permanent foundation when attached to the required 
utilities. The term mobile home does not include a recreational 
vehicle. For purposes of this section, the term mobile home means a 
mobile home on a permanent foundation. The term mobile home includes a 
manufactured home as that term is used in the National Flood Insurance 
Program.
    (7) NFIP means the National Flood Insurance Program authorized 
under the Act.
    (8) Private flood insurance means an insurance policy that:
    (i) Is issued by an insurance company that is:
    (A) Licensed, admitted, or otherwise approved to engage in the 
business of insurance in the State or jurisdiction which the insured 
building is located, by the insurance regulator of that State or 
jurisdiction; or
    (B) Recognized, or not disapproved, as a surplus lines insurer by 
the insurance regulator of the State or jurisdiction where the property 
to be insured is located in the case of a policy of difference in 
conditions, multiple peril, all risk, or other blanket coverage;
    (ii) Provides flood insurance coverage which is at least as broad 
as the coverage provided under a standard flood insurance policy under 
the NFIP, including when considering deductibles, exclusions, and 
conditions offered by the insurer;
    (iii) Includes all of the following:
    (A) A requirement for the insurer to give 45 days' written notice 
of cancellation or non-renewal of flood insurance coverage to:
    (1) The insured; and
    (2) The member bank that made the designated loan secured by the 
property for which the insurance is providing coverage;
    (B) Information about the availability of flood insurance coverage 
under the NFIP;
    (C) A mortgage interest clause similar to the clause contained in 
the standard flood insurance policy under the NFIP; and
    (D) A provision requiring an insured to file suit not later than 
one year after the date of a written denial of all or part of a claim 
under the policy; and
    (iv) Contains cancellation provisions that are as restrictive as 
the provisions contained in a standard flood insurance policy under the 
NFIP.
    (9) Residential improved real estate means real estate upon which a 
home or other residential building is located or to be located.
    (10) Servicer means the person responsible for:
    (i) Receiving any scheduled, periodic payments from a borrower 
under the terms of a loan, including amounts for taxes, insurance 
premiums, and other charges with respect to the property securing the 
loan; and
    (ii) Making payments of principal and interest and any other 
payments from the amounts received from the borrower as may be required 
under the terms of the loan.
    (11) Special flood hazard area means the land in the flood plain 
within a community having at least a one percent chance of flooding in 
any given year, as designated by the Administrator of FEMA.
    (12) Table funding means a settlement at which a loan is funded by 
a contemporaneous advance of loan funds and an assignment of the loan 
to the person advancing the funds.
    (c) Requirement to purchase flood insurance where available--(1) In 
general. A member bank shall not make, increase, extend, or renew any 
designated loan unless the building or mobile home and any personal 
property securing the loan is covered by flood

[[Page 65128]]

insurance for the term of the loan. The amount of insurance must be at 
least equal to the lesser of the outstanding principal balance of the 
designated loan or the maximum limit of coverage available for the 
particular type of property under the Act. Flood insurance coverage 
under the Act is limited to the building or mobile home and any 
personal property that secures a loan and not the land itself.
    (2) Table funded loans. A member bank that acquires a loan from a 
mortgage broker or other entity through table funding shall be 
considered to be making a loan for the purposes of this section.
    (3) Private flood insurance. (i) Mandatory acceptance. A member 
bank must accept private flood insurance, as defined in paragraph 
(b)(8) of this section, as satisfaction of the flood insurance coverage 
requirement, provided that coverage under the flood insurance policy 
meets the requirement for coverage under paragraph (c)(1) of this 
section.
    (ii) Safe harbor. A flood insurance policy shall be deemed to meet 
the definition of private flood insurance in paragraph (b)(8) of this 
section for purposes of paragraph (c)(1) of this section if a State 
insurance regulator makes a determination in writing that the policy 
meets the definition of private flood insurance in paragraph (b)(8) of 
this section.
    (d) Exemptions. The flood insurance requirement prescribed by 
paragraph (c) of this section does not apply with respect to:
    (1) Any State-owned property covered under a policy of self-
insurance satisfactory to the Administrator of FEMA, who publishes and 
periodically revises the list of States falling within this exemption; 
or
    (2) Property securing any loan with an original principal balance 
of $5,000 or less and a repayment term of one year or less.
    (e) Escrow requirement. (1) In general. (i) Applicability. Except 
as provided in paragraph (e)(3) of this section, a member bank, or a 
servicer acting on its behalf, shall require the escrow of all premiums 
and fees for any flood insurance required under paragraph (c) of this 
section for any loan secured by residential improved real estate or a 
mobile home that is outstanding or entered into on or after July 6, 
2014, payable with the same frequency as payments on the loan are made 
for the duration of the loan, unless the member bank has determined 
that:
    (A) The loan is an extension of credit primarily for business, 
commercial, or agricultural purposes; or
    (B) The borrower has obtained flood insurance coverage that meets 
the requirements of paragraph (c)(1) of this section for the 
residential improved real estate or mobile home securing the loan and 
is currently paying premiums and fees through an escrow account 
established by another lender; or
    (C) Flood insurance coverage for the residential improved real 
estate or mobile home is provided by a policy that is purchased by a 
common interest community instead of the borrower, such as an NFIP 
Residential Condominium Building Association Policy (RCBAP), that meets 
the requirements of paragraph (c) of this section.
    (ii) Timing. A member bank that is subject to paragraph (e)(1) of 
this section, other than due to a change in status under paragraph 
(e)(3)(ii) of this section or for acquired loans subject to paragraph 
(e)(4) of this section, shall begin escrowing premiums and fees for 
flood insurance:
    (A) for any designated loan outstanding on July 6, 2014, with the 
first loan payment on or after the first renewal date of the borrower's 
flood insurance policy on or after July 6, 2014;
    (B) For any designated loan made on or after July 6, 2014, upon 
loan consummation; or
    (C) For any loan that becomes a designated loan after July 6, 2014, 
with the first loan payment after the flood insurance policy is 
established.
    (iii) Escrow account. The member bank, or a servicer acting on its 
behalf, shall deposit the flood insurance premiums and fees on behalf 
of the borrower in an escrow account. This escrow account will be 
subject to escrow requirements adopted pursuant to section 10 of the 
Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2609) (RESPA), 
which generally limits the amount that may be maintained in escrow 
accounts for certain types of loans and requires escrow account 
statements for those accounts, only if the loan is otherwise subject to 
RESPA. Following receipt of a notice from the Administrator of FEMA or 
other provider of flood insurance that premiums are due, the member 
bank, or a servicer acting on its behalf, shall pay the amount owed to 
the insurance provider from the escrow account by the date when such 
premiums are due.
    (2) Notice. A member bank that is required to comply with paragraph 
(e)(1) of this section, or a servicer acting on its behalf, shall mail 
or deliver a written notice informing the borrower that the member bank 
is required to escrow all premiums and fees for required flood 
insurance:
    (i) For loans subject to paragraphs (e)(1)(ii)(A), (e)(3)(ii)(A), 
or (e)(4) of this section, at least 90 days before the escrow of 
premiums and fees under paragraphs (e)(1)(ii)(A), (e)(3)(ii)(A), or 
(e)(4) of this section, using language that is substantially similar to 
the model form in appendix B; or
    (ii) For loans subject to paragraphs (e)(1)(ii)(B) or (e)(3)(ii)(B) 
of this section, with the notice provided under paragraph (i) of this 
section, using language that is substantially similar to model clauses 
on the escrow requirement in appendix A; or
    (iii) For loans subject to paragraphs (e)(1)(ii)(C) or 
(e)(3)(ii)(C) of this section, with the notice provided under paragraph 
(g) of this section, using language that is substantially similar to 
model clauses on the escrow requirement in appendix C.
    (3) Exception. (i) Qualification. Except as may be required under 
applicable State law, paragraphs (e)(1) and (2) of this section do not 
apply to a member bank:
    (A) That has total assets of less than $1 billion as of December 31 
of either of the two prior calendar years; and
    (B) On or before July 6, 2012:
    (1) Was not required under Federal or State law to deposit taxes, 
insurance premiums, fees, or any other charges in an escrow account for 
the entire term of a loan secured by residential improved real estate 
or a mobile home; and
    (2) Did not have a policy of consistently and uniformly requiring 
the deposit of taxes, insurance premiums, fees, or any other charges in 
an escrow account for loans secured by residential improved real estate 
or a mobile home.
    (ii) Change in status. If a member bank previously qualified for 
the exception in paragraph (e)(3)(i) of this section, but no longer 
qualifies for the exception because it had assets of $1 billion or more 
for two consecutive calendar year ends, the member bank must begin 
escrowing premiums and fees for flood insurance pursuant to paragraph 
(e)(1) of this section:
    (A) For any designated loan outstanding on July 1 of the succeeding 
calendar year, with the first loan payment on or after the first 
renewal date of the borrower's flood insurance policy on or after July 
1 of the succeeding calendar year; or
    (B) For any designated loan made on or after July 1 of the 
succeeding calendar year, upon loan consummation; or
    (C) For any loan that becomes a designated loan after July 1 of the 
succeeding calendar year, with the first

[[Page 65129]]

loan payment after the flood insurance policy is established.
    (4) Change in ownership. If a member bank that is required to 
comply with paragraph (e)(1) of this section acquires a designated loan 
covered by flood insurance required under paragraph (c) of this section 
that becomes subject to paragraph (e)(1) of this section as a result of 
the member bank's acquisition of the loan, the member bank must begin 
escrowing premiums and fees for flood insurance pursuant to paragraph 
(e)(1) of this section with the first loan payment on or after the 
first renewal date of the borrower's flood insurance policy on or after 
the date that is six months from the transfer date of the loan.
    (f) Required use of standard flood hazard determination form.--(1) 
Use of form. A member bank shall use the standard flood hazard 
determination form developed by the Administrator of FEMA when 
determining whether the building or mobile home offered as collateral 
security for a loan is or will be located in a special flood hazard 
area in which flood insurance is available under the Act. The standard 
flood hazard determination form may be used in a printed, computerized, 
or electronic manner. A member bank may obtain the standard flood 
hazard determination form from FEMA's Web site at www.fema.gov.
    (2) Retention of form. A member bank shall retain a copy of the 
completed standard flood hazard determination form, in either hard copy 
or electronic form, for the period of time the bank owns the loan.
    (g) Force placement of flood insurance. (1) Notice and purchase of 
coverage. If a member bank, or a servicer acting on behalf of the bank, 
determines at any time during the term of a designated loan that the 
building or mobile home and any personal property securing the 
designated loan is not covered by flood insurance or is covered by 
flood insurance in an amount less than the amount required under 
paragraph (c) of this section, then the bank or its servicer shall 
notify the borrower that the borrower should obtain flood insurance, at 
the borrower's expense, in an amount at least equal to the amount 
required under paragraph (c) of this section, for the remaining term of 
the loan. If the borrower fails to obtain flood insurance within 45 
days after notification, then the member bank or its servicer shall 
purchase insurance on the borrower's behalf. The member bank or its 
servicer may charge the borrower for the cost of premiums and fees 
incurred in purchasing the insurance, including premiums or fees 
incurred for coverage beginning on the date on which flood insurance 
coverage lapsed or did not provide a sufficient coverage amount.
    (2) Termination of force-placed insurance. (i) Termination and 
refund. Within 30 days of receipt by a member bank, or a servicer 
acting on its behalf, of a confirmation of a borrower's existing flood 
insurance coverage, the member bank or its servicer shall:
    (A) Notify the insurance provider to terminate any insurance 
purchased by the member bank or its servicer under paragraph (g)(1) of 
this section; and
    (B) Refund to the borrower all premiums paid by the borrower for 
any insurance purchased by the member bank or its servicer under 
paragraph (g)(1) of this section during any period during which the 
borrower's flood insurance coverage and the insurance coverage 
purchased by the member bank or its servicer were each in effect, and 
any related fees charged to the borrower with respect to the insurance 
purchased by the member bank or its servicer during such period.
    (ii) Sufficiency of demonstration. For purposes of confirming a 
borrower's existing flood insurance coverage under paragraph (g)(2)(i) 
of this section, a member bank or its servicer shall accept from the 
borrower an insurance policy declarations page that includes the 
existing flood insurance policy number and the identity of, and contact 
information for, the insurance company or agent.
    (h) Determination fees.--(1) General. Notwithstanding any Federal 
or State law other than the Flood Disaster Protection Act of 1973, as 
amended (42 U.S.C. 4001-4129), any member bank, or a servicer acting on 
behalf of the bank, may charge a reasonable fee for determining whether 
the building or mobile home securing the loan is located or will be 
located in a special flood hazard area. A determination fee may also 
include, but is not limited to, a fee for life-of-loan monitoring.
    (2) Borrower fee. The determination fee authorized by paragraph 
(h)(1) of this section may be charged to the borrower if the 
determination:
    (i) Is made in connection with a making, increasing, extending, or 
renewing of the loan that is initiated by the borrower;
    (ii) Reflects the Administrator of FEMA's revision or updating of 
flood plain areas or flood-risk zones;
    (iii) Reflects the Administrator of FEMA's publication of a notice 
or compendium that:
    (A) Affects the area in which the building or mobile home securing 
the loan is located; or
    (B) By determination of the Administrator of FEMA, may reasonably 
require a determination whether the building or mobile home securing 
the loan is located in a special flood hazard area; or
    (iv) Results in the purchase of flood insurance coverage by the 
lender or its servicer on behalf of the borrower under paragraph (g) of 
this section.
    (3) Purchaser or transferee fee. The determination fee authorized 
by paragraph (h)(1) of this section may be charged to the purchaser or 
transferee of a loan in the case of the sale or transfer of the loan.
    (i) Notice of special flood hazards and availability of Federal 
disaster relief assistance. When a member bank makes, increases, 
extends, or renews a loan secured by a building or a mobile home 
located or to be located in a special flood hazard area, the bank shall 
mail or deliver a written notice to the borrower and to the servicer in 
all cases whether or not flood insurance is available under the Act for 
the collateral securing the loan.
    (1) Contents of notice. The written notice must include the 
following information:
    (i) A warning, in a form approved by the Administrator of FEMA, 
that the building or the mobile home is or will be located in a special 
flood hazard area;
    (ii) A description of the flood insurance purchase requirements set 
forth in section 102(b) of the Flood Disaster Protection Act of 1973, 
as amended (42 U.S.C. 4012a(b));
    (iii) A statement, where applicable, that flood insurance coverage 
is available from private insurance companies that issue standard flood 
insurance policies on behalf of the NFIP or directly from the NFIP;
    (iv) A statement that flood insurance that provides the same level 
of coverage as a standard flood insurance policy under the NFIP also 
may be available from a private insurance company that issues policies 
on behalf of the company;
    (v) A statement that the borrower is encouraged to compare the 
flood insurance coverage, deductibles, exclusions, conditions and 
premiums associated with flood insurance policies issued on behalf of 
the NFIP and policies issued on behalf of private insurance companies 
and that the borrower should direct inquiries regarding the 
availability, cost, and comparisons of flood insurance coverage to an 
insurance agent; and
    (vi) A statement whether Federal disaster relief assistance may be 
available in the event of damage to the building or mobile home caused 
by

[[Page 65130]]

flooding in a Federally declared disaster.
    (2) Timing of notice. The member bank shall provide the notice 
required by paragraph (i)(1) of this section to the borrower within a 
reasonable time before the completion of the transaction, and to the 
servicer as promptly as practicable after the bank provides notice to 
the borrower and in any event no later than the time the bank provides 
other similar notices to the servicer concerning hazard insurance and 
taxes. Notice to the servicer may be made electronically or may take 
the form of a copy of the notice to the borrower.
    (3) Record of receipt. The member bank shall retain a record of the 
receipt of the notices by the borrower and the servicer for the period 
of time the bank owns the loan.
    (4) Alternate method of notice. Instead of providing the notice to 
the borrower required by paragraph (i)(1) of this section, a member 
bank may obtain satisfactory written assurance from a seller or lessor 
that, within a reasonable time before the completion of the sale or 
lease transaction, the seller or lessor has provided such notice to the 
purchaser or lessee. The member bank shall retain a record of the 
written assurance from the seller or lessor for the period of time the 
bank owns the loan.
    (5) Use of prescribed form of notice. A member bank will be 
considered to be in compliance with the requirement for notice to the 
borrower of this paragraph (i) of this section by providing written 
notice to the borrower containing the language presented in appendix A 
of this section within a reasonable time before the completion of the 
transaction. The notice presented in appendix A of this section 
satisfies the borrower notice requirements of the Act.
    (j) Notice of servicer's identity. (1) Notice requirement. When a 
member bank makes, increases, extends, renews, sells, or transfers a 
loan secured by a building or mobile home located or to be located in a 
special flood hazard area, the bank shall notify the Administrator of 
FEMA (or the Administrator's designee) in writing of the identity of 
the servicer of the loan. The Administrator of FEMA has designated the 
insurance provider to receive the member bank's notice of the 
servicer's identity. This notice may be provided electronically if 
electronic transmission is satisfactory to the Administrator of FEMA's 
designee.
    (2) Transfer of servicing rights. The member bank shall notify the 
Administrator of FEMA (or the Administrator's designee) of any change 
in the servicer of a loan described in paragraph (j)(1) of this section 
within 60 days after the effective date of the change. This notice may 
be provided electronically if electronic transmission is satisfactory 
to the Administrator of FEMA's designee. Upon any change in the 
servicing of a loan described in paragraph (j)(1) of this section, the 
duty to provide notice under this paragraph (j)(2) of this section 
shall transfer to the transferee servicer.

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

Notice of Special Flood Hazards and Availability of Federal Disaster 
Relief Assistance

    We are giving you this notice to inform you that:
    The building or mobile home securing the loan for which you have 
applied is or will be located in an area with special flood hazards.
    The area has been identified by the Administrator of the Federal 
Emergency Management Agency (FEMA) as a special flood hazard area 
using FEMA's Flood Insurance Rate Map or the Flood Hazard Boundary 
Map for the following community: --------. This area has a one 
percent (1%) chance of a flood equal to or exceeding the base flood 
elevation (a 100-year flood) in any given year. During the life of a 
30-year mortgage loan, the risk of a 100-year flood in a special 
flood hazard area is 26 percent (26%).
    Federal law allows a lender and borrower jointly to request the 
Administrator of FEMA to review the determination of whether the 
property securing the loan is located in a special flood hazard 
area. If you would like to make such a request, please contact us 
for further information.
    -- The community in which the property securing the loan is 
located participates in the National Flood Insurance Program (NFIP). 
Federal law will not allow us to make you the loan that you have 
applied for if you do not purchase flood insurance. The flood 
insurance must be maintained for the life of the loan. If you fail 
to purchase or renew flood insurance on the property, Federal law 
authorizes and requires us to purchase the flood insurance for you 
at your expense.
     At a minimum, flood insurance purchased must cover the 
lesser of:
    (1) the outstanding principal balance of the loan; or
    (2) the maximum amount of coverage allowed for the type of 
property under the NFIP.
    Flood insurance coverage under the NFIP is limited to the 
building or mobile home and any personal property that secures your 
loan and not the land itself.
     Federal disaster relief assistance (usually in the form 
of a low-interest loan) may be available for damages incurred in 
excess of your flood insurance if your community's participation in 
the NFIP is in accordance with NFIP requirements.

Availability of Private Flood Insurance Coverage

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

[Escrow Requirement for Residential Loans

    Federal law requires a lender or its servicer to escrow all 
premiums and fees for flood insurance that covers any residential 
building or mobile home securing a loan that is located in an area 
with special flood hazards. These premiums and fees must be paid to 
the lender or its servicer with the same frequency as your loan 
payments for the duration of your loan and will be deposited in an 
escrow account on your behalf to be paid to the flood insurance 
provider. Upon receipt of a notice from the flood insurance provider 
that the premiums are due, the premiums shall be paid from the 
escrow account to the insurance provider. ]
    --Flood insurance coverage under the NFIP is not available for 
the property securing the loan because the community in which the 
property is located does not participate in the NFIP. In addition, 
if the non-participating community has been identified for at least 
one year as containing a special flood hazard area, properties 
located in the community will not be eligible for Federal disaster 
relief assistance in the event of a Federally declared flood 
disaster.

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

Notice of Escrow Requirement

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

How the Escrow Will Work

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

When the Escrow Will Start

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

[[Page 65131]]

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

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

Escrow Requirement Clause

    Federal law requires a lender or its servicer to escrow all 
premiums and fees for flood insurance that covers any residential 
building or mobile home securing a loan that is located in an area 
with special flood hazards. You must make payments of these premiums 
and fees to [Insert Name of Lender or Servicer] with the same 
frequency as your loan payments for the duration of your loan. Your 
payments will be deposited in an escrow account on your behalf to be 
paid to the flood insurance provider. Upon receipt of a notice from 
the flood insurance provider that the flood insurance premium is 
due, [Insert Name of Lender or Servicer] will pay the premium from 
the escrow account to the insurance provider.

Federal Deposit Insurance Corporation

12 CFR CHAPTER III

Authority and Issuance

    For the reasons set forth in the joint preamble, the Board of 
Directors of the FDIC proposes to amend chapter III of title 12 of the 
Code of Federal Regulations to read as follows:
0
1. Part 339 is revised to read as follows:

PART 339--LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS

Sec.
339.1 Authority, purpose, and scope.
339.2 Definitions.
339.3 Requirement to purchase flood insurance where available.
339.4 Exemptions.
339.5 Escrow requirement.
339.6 Required use of standard flood hazard determination form.
339.7 Force-placement of flood insurance.
339.8 Determination fees.
339.9 Notice of special flood hazards and availability of Federal 
disaster relief assistance.
339.10 Notice of servicer's identity.
Appendix A to Part 339--Sample Form of Notice of Special Flood 
Hazards and Availability of Federal Disaster Relief Assistance
Appendix B to Part 339--Sample Form of Notice of Requirement to 
Escrow for Outstanding Loans
Appendix C to Part 339--Sample Escrow Requirement Clause for Loans 
that Become Designated Loans


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


Sec.  339.1  Authority, purpose, and scope.

    (a) Authority. This part is issued pursuant to 12 U.S.C. 1462a, 
1463, 1464, 1819 (Tenth), 5412(b)(2)(C) and 42 U.S.C. 4012a, 4104a, 
4104b, 4106, and 4128.
    (b) Purpose. The purpose of this part is to implement the 
requirements of the National Flood Insurance Act of 1968 and the Flood 
Disaster Protection Act of 1973, as amended (42 U.S.C. 4001-4129).
    (c) Scope. This part, except for Sec. Sec.  339.6 and 339.8, 
applies to loans secured by buildings or mobile homes located or to be 
located in areas determined by the Administrator of the Federal 
Emergency Management Agency to have special flood hazards. Sections 
339.6 and 339.8 apply to loans secured by buildings or mobile homes, 
regardless of location.


Sec.  339.2  Definitions.

    (a) Act means the National Flood Insurance Act of 1968, as amended 
(42 U.S.C. 4001-4129).
    (b) Administrator of FEMA means the Administrator of the Federal 
Emergency Management Agency.
    (c) Building means a walled and roofed structure, other than a gas 
or liquid storage tank, that is principally above ground and affixed to 
a permanent site, and a walled and roofed structure while in the course 
of construction, alteration, or repair.
    (d) Community means a State or a political subdivision of a State 
that has zoning and building code jurisdiction over a particular area 
having special flood hazards.
    (e) Designated loan means a loan secured by a building or mobile 
home that is located or to be located in a special flood hazard area in 
which flood insurance is available under the Act.
    (f) FDIC-supervised institution means any insured depository 
institution for which the Federal Deposit Insurance Corporation is the 
appropriate Federal banking agency pursuant to section 3(g) of the 
Federal Deposit Insurance Act, 12 U.S.C. 1813(g).
    (g) Mobile home means a structure, transportable in one or more 
sections, that is built on a permanent chassis and designed for use 
with or without a permanent foundation when attached to the required 
utilities. The term mobile home does not include a recreational 
vehicle. For purposes of this part, the term mobile home means a mobile 
home on a permanent foundation. The term mobile home includes a 
manufactured home as that term is used in the NFIP.
    (h) NFIP means the National Flood Insurance Program authorized 
under the Act.
    (i) Private flood insurance means an insurance policy that:
    (1) Is issued by an insurance company that is
    (A) Licensed, admitted, or otherwise approved to engage in the 
business of insurance in the State or jurisdiction in which the insured 
building is located, by the insurance regulator of that State or 
jurisdiction; or
    (B) In the case of a policy of difference in conditions, multiple 
peril, all risk, or other blanket coverage insuring nonresidential 
commercial policy, is recognized, or not disapproved, as a surplus 
lines insurer by the insurance regulator of the State where the 
property to be insured is located;
    (2) Provides flood insurance coverage that is at least as broad as 
the coverage provided under a standard flood insurance policy under the 
NFIP, including when considering deductibles, exclusions, and 
conditions offered by the insurer;
    (3) Includes all of the following:
    (A) A requirement for the insurer to give 45 days' written notice 
of cancellation or non-renewal of flood insurance coverage to the 
insured and the FDIC-supervised institution;
    (B) Information about the availability of flood insurance coverage 
under the NFIP;
    (C) A mortgage interest clause similar to the clause contained in a 
standard flood insurance policy under the NFIP; and
    (D) A provision requiring an insured to file suit not later than 
one year after the date of a written denial of all or part of a claim 
under the policy; and
    (4) Contains cancellation provisions that are as restrictive as the 
provisions contained in a standard flood insurance policy under the 
NFIP.
    (j) Residential improved real estate means real estate upon which a 
home or other residential building is located or to be located.
    (k) Servicer means the person responsible for:

[[Page 65132]]

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


Sec.  339.3  Requirement to purchase flood insurance where available.

    (a) In general. An FDIC-supervised institution shall not make, 
increase, extend, or renew any designated loan unless the building or 
mobile home and any personal property securing the loan is covered by 
flood insurance for the term of the loan. The amount of insurance must 
be at least equal to the lesser of the outstanding principal balance of 
the designated loan or the maximum limit of coverage available for the 
particular type of property under the Act. Flood insurance coverage 
under the Act is limited to the building or mobile home and any 
personal property that secures a loan and not the land itself.
    (b) Table funded loans. An FDIC-supervised institution that 
acquires a loan from a mortgage broker or other entity through table 
funding shall be considered to be making a loan for the purpose of this 
part.
    (c) Private flood insurance. (1) Mandatory acceptance. An FDIC-
supervised institution must accept private flood insurance, as defined 
in Sec.  339.2(i), as satisfaction of the flood insurance coverage 
requirement, provided that coverage under the flood insurance policy 
meets the requirement for coverage under paragraph (a) of this section.
    (2) Safe harbor. A flood insurance policy shall be deemed to meet 
the definition of private flood insurance in Sec.  339.2(i) for 
purposes of paragraph (a) of this section if a State insurance 
regulator makes a determination in writing that the policy meets the 
definition of private flood insurance in Sec.  339.2(i).


Sec.  339.4  Exemptions.

    The flood insurance requirement prescribed by Sec.  339.3 does not 
apply with respect to:
    (a) Any state-owned property covered under a policy of self-
insurance satisfactory to the Administrator of FEMA, who publishes and 
periodically revises the list of states falling within this exemption; 
or
    (b) Property securing any loan with an original principal balance 
of $5,000 or less and a repayment term of one year or less.


Sec.  339.5  Escrow requirement.

    (a) In general. (1) Applicability. Except as provided in paragraph 
(c) of this section, an FDIC-supervised institution, or a servicer 
acting on its behalf, shall require the escrow of all premiums and fees 
for any flood insurance required under Sec.  339.3(a) for any loan 
secured by residential improved real estate or a mobile home that is 
outstanding or entered into on or after July 6, 2014, payable with the 
same frequency as payments on the loan are made for the duration of the 
loan, unless the FDIC-supervised institution has determined that:
    (i) The loan is an extension of credit primarily for business, 
commercial, or agricultural purposes; or
    (ii) The borrower has obtained flood insurance coverage that meets 
the requirements of Sec.  339.3(a) for the residential improved real 
estate or mobile home securing the loan and is currently paying 
premiums and fees through an escrow account established by another 
lender; or
    (iii) Flood insurance coverage for the residential improved real 
estate or mobile home is provided by a policy that is purchased by a 
common interest community instead of the borrower, such as an NFIP 
Residential Condominium Building Association Policy (RCBAP), that meets 
the requirements of Sec.  339.3(a).
    (2) Timing. An FDIC-supervised institution that is subject to 
paragraph (a) of this section, other than due to a change in status 
under paragraph (c)(2) of this section or for acquired loans subject to 
paragraph (d) of this section, shall begin escrowing premiums and fees 
for flood insurance:
    (i) For any designated loan outstanding on July 6, 2014, with the 
first loan payment on or after the first renewal date of the borrower's 
flood insurance policy on or after July 6, 2014;
    (ii) For any designated loan made on or after July 6, 2014, upon 
loan consummation; or
    (iii) For any loan that becomes a designated loan after July 6, 
2014, with the first loan payment after the flood insurance policy is 
established.
    (3) Escrow account. The FDIC-supervised institution, or a servicer 
acting on its behalf, shall deposit the flood insurance premiums and 
fees on behalf of the borrower in an escrow account. This escrow 
account will be subject to escrow requirements adopted pursuant to 
section 10 of the Real Estate Settlement Procedures Act of 1974 (12 
U.S.C. 2609) (RESPA), which generally limits the amount that may be 
maintained in escrow accounts for certain types of loans and requires 
escrow account statements for those accounts, only if the loan is 
otherwise subject to RESPA. Following receipt of a notice from the 
Administrator of FEMA or other provider of flood insurance that 
premiums are due, the FDIC-supervised institution, or a servicer acting 
on its behalf, shall pay the amount owed to the insurance provider from 
the escrow account by the date when such premiums are due.
    (b) Notice. An FDIC-supervised institution that is required to 
comply with paragraph (a) of this section, or a servicer acting on its 
behalf, shall mail or deliver a written notice informing the borrower 
that the FDIC-supervised institution is required to escrow all premiums 
and fees for required flood insurance:
    (1) For loans subject to paragraphs (a)(2)(i), (c)(2)(i), or (d) of 
this section, at least 90 days before the escrow of premiums and fees 
under paragraphs (a)(2)(i), (c)(2)(i), or (d), using language that is 
substantially similar to the model form in appendix B; or
    (2) For loans subject to paragraphs (a)(2)(ii) or (c)(2)(ii) of 
this section, with the notice provided under Sec.  339.9, using 
language that is substantially similar to model clauses on the escrow 
requirement in appendix A; or
    (3) For loans subject to paragraphs (a)(2)(iii) or (c)(2)(iii) of 
this section, with the notice provided under Sec.  339.7, using 
language that is substantially similar to model clauses on the escrow 
requirement in appendix C.
    (c) Exception.
    (1) Qualification. Except as may be required under applicable State 
law, paragraphs (a)(1) and (2) of this section do not apply to an FDIC-
supervised institution:
    (i) That has total assets of less than $1 billion as of December 31 
of either of the two prior calendar years; and
    (ii) On or before July 6, 2012:
    (A) Was not required under Federal or State law to deposit taxes, 
insurance premiums, fees, or any other charges in an escrow account for 
the entire term of

[[Page 65133]]

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


Sec.  339.6  Required use of standard flood hazard determination form.

    (a) Use of form. An FDIC-supervised institution shall use the 
standard flood hazard determination form developed by the Administrator 
of FEMA when determining whether the building or mobile home offered as 
collateral security for a loan is or will be located in a special flood 
hazard area in which flood insurance is available under the Act. The 
standard flood hazard determination form may be used in a printed, 
computerized, or electronic manner. An FDIC-supervised institution may 
obtain the standard flood hazard determination form from FEMA's Web 
site at www.fema.gov.
    (b) Retention of form. An FDIC-supervised institution shall retain 
a copy of the completed standard flood hazard determination form, in 
either hard copy or electronic form, for the period of time the FDIC-
supervised institution owns the loan.


Sec.  339.7  Force-placement of flood insurance.

    (a) Notice and purchase of coverage. If an FDIC-supervised 
institution, or a servicer acting on its behalf, determines at any time 
during the term of a designated loan, that the building or mobile home 
and any personal property securing the designated loan is not covered 
by flood insurance or is covered by flood insurance in an amount less 
than the amount required under Sec.  339.3, then the FDIC-supervised 
institution or its servicer shall notify the borrower that the borrower 
should obtain flood insurance, at the borrower's expense, in an amount 
at least equal to the amount required under Sec.  339.3, for the 
remaining term of the loan. If the borrower fails to obtain flood 
insurance within 45 days after notification, then the FDIC-supervised 
institution or its servicer shall purchase insurance on the borrower's 
behalf. The FDIC-supervised institution or its servicer may charge the 
borrower for the cost of premiums and fees incurred in purchasing the 
insurance, including premiums or fees incurred for coverage beginning 
on the date on which flood insurance coverage lapsed or did not provide 
a sufficient coverage amount.
    (b) Termination of force-placed insurance. (1) Termination and 
refund. Within 30 days of receipt by an FDIC-supervised institution, or 
a servicer acting on its behalf, of a confirmation of a borrower's 
existing flood insurance coverage, the FDIC-supervised institution or 
its servicer shall:
    (A) Notify the insurance provider to terminate any insurance 
purchased by the FDIC-supervised institution or its servicer under 
paragraph (a) of this section; and
    (B) Refund to the borrower all premiums paid by the borrower for 
any insurance purchased by the FDIC-supervised institution or its 
servicer under paragraph (a) of this section during any period during 
which the borrower's flood insurance coverage and the insurance 
coverage purchased by the FDIC-supervised institution or its servicer 
were each in effect, and any related fees charged to the borrower with 
respect to the insurance purchased by the FDIC-supervised institution 
or its servicer during such period.
    (2) Sufficiency of demonstration. For purposes of confirming a 
borrower's existing flood insurance coverage under paragraph (b) of 
this section, an FDIC-supervised institution or its servicer shall 
accept from the borrower an insurance policy declarations page that 
includes the existing flood insurance policy number and the identity 
of, and contact information for, the insurance company or agent.


Sec.  339.8  Determination fees.

    (a) General. Notwithstanding any Federal or State law other than 
the Flood Disaster Protection Act of 1973, as amended (42 U.S.C. 4001-
4129), any FDIC-supervised institution, or a servicer acting on its 
behalf, may charge a reasonable fee for determining whether the 
building or mobile home securing the loan is located or will be located 
in a special flood hazard area. A determination fee may also include, 
but is not limited to, a fee for life-of-loan monitoring.
    (b) Borrower fee. The determination fee authorized by paragraph (a) 
of this section may be charged to the borrower if the determination:
    (1) Is made in connection with a making, increasing, extending, or 
renewing of the loan that is initiated by the borrower;
    (2) Reflects the Administrator of FEMA's revision or updating of 
floodplain areas or flood-risk zones;
    (3) Reflects the Administrator of FEMA's publication of a notice or 
compendium that:
    (i) Affects the area in which the building or mobile home securing 
the loan is located; or
    (ii) By determination of the Administrator of FEMA, may reasonably 
require a determination whether the building or mobile home securing 
the loan is located in a special flood hazard area; or
    (4) Results in the purchase of flood insurance coverage by the 
lender or its servicer on behalf of the borrower under Sec.  339.7.
    (c) Purchaser or transferee fee. The determination fee authorized 
by paragraph (a) of this section may be charged to the purchaser or 
transferee of a loan in the case of the sale or transfer of the loan.


Sec.  339.9  Notice of special flood hazards and availability of 
Federal disaster relief assistance.

    (a) Notice requirement. When an FDIC-supervised institution makes, 
increases, extends, or renews a loan secured by a building or a mobile 
home located or to be located in a special flood hazard area, the FDIC-
supervised

[[Page 65134]]

institution shall mail or deliver a written notice to the borrower and 
to the servicer in all cases whether or not flood insurance is 
available under the Act for the collateral securing the loan.
    (b) Contents of notice. The written notice must include the 
following information:
    (1) A warning, in a form approved by the Administrator of FEMA, 
that the building or the mobile home is or will be located in a special 
flood hazard area;
    (2) A description of the flood insurance purchase requirements set 
forth in section 102(b) of the Flood Disaster Protection Act of 1973, 
as amended (42 U.S.C. 4012a(b));
    (3) A statement, where applicable, that flood insurance coverage is 
available from private insurance companies that issue flood insurance 
policies on behalf of the NFIP or directly from the NFIP;
    (4) A statement that flood insurance that provides the same level 
of coverage as a standard flood insurance policy under the NFIP may 
also be available from a private insurance company that issues policies 
on behalf of the company.
    (5) A statement that the borrower is encouraged to compare the 
flood insurance coverage, deductibles, exclusions, conditions and 
premiums associated with flood insurance policies issued on behalf of 
the NFIP and policies issued on behalf of private insurance companies 
and that the borrower should direct inquiries regarding the 
availability, cost, and comparisons of flood insurance coverage to an 
insurance agent; and
    (6) A statement whether Federal disaster relief assistance may be 
available in the event of damage to the building or mobile home caused 
by flooding in a Federally-declared disaster.
    (c) Timing of notice. The FDIC-supervised institution shall provide 
the notice required by paragraph (a) of this section to the borrower 
within a reasonable time before the completion of the transaction, and 
to the servicer as promptly as practicable after the FDIC-supervised 
institution provides notice to the borrower and in any event no later 
than the time the FDIC-supervised institution provides other similar 
notices to the servicer concerning hazard insurance and taxes. Notice 
to the servicer may be made electronically or may take the form of a 
copy of the notice to the borrower.
    (d) Record of receipt. The FDIC-supervised institution shall retain 
a record of the receipt of the notices by the borrower and the servicer 
for the period of time the FDIC-supervised institution owns the loan.
    (e) Alternate method of notice. Instead of providing the notice to 
the borrower required by paragraph (a) of this section, an FDIC-
supervised institution may obtain satisfactory written assurance from a 
seller or lessor that, within a reasonable time before the completion 
of the sale or lease transaction, the seller or lessor has provided 
such notice to the purchaser or lessee. The FDIC-supervised institution 
shall retain a record of the written assurance from the seller or 
lessor for the period of time the FDIC-supervised institution owns the 
loan.
    (f) Use of prescribed form of notice. An FDIC-supervised 
institution will be considered to be in compliance with the requirement 
for notice to the borrower of this section by providing written notice 
to the borrower containing the language presented in appendix A to this 
part within a reasonable time before the completion of the transaction. 
The notice presented in appendix A to this part satisfies the borrower 
notice requirements of the Act.


Sec.  339.10  Notice of servicer's identity.

    (a) Notice requirement. When an FDIC-supervised institution makes, 
increases, extends, renews, sells, or transfers a loan secured by a 
building or mobile home located or to be located in a special flood 
hazard area, the FDIC-supervised institution shall notify the 
Administrator of FEMA (or the Administrator of FEMA's designee) in 
writing of the identity of the servicer of the loan. The Administrator 
of FEMA has designated the insurance provider to receive the FDIC-
supervised institution's notice of the servicer's identity. This notice 
may be provided electronically if electronic transmission is 
satisfactory to the Administrator of FEMA's designee.
    (b) Transfer of servicing rights. The FDIC-supervised institution 
shall notify the Administrator of FEMA (or the Administrator of FEMA's 
designee) of any change in the servicer of a loan described in 
paragraph (a) of this section within 60 days after the effective date 
of the change. This notice may be provided electronically if electronic 
transmission is satisfactory to the Administrator or his or her 
designee. Upon any change in the servicing of a loan described in 
paragraph (a) of this section, the duty to provide notice under this 
paragraph (b) shall transfer to the transferee servicer.

Appendix A to Part 339--Sample Form of Notice of Special Flood Hazards 
and Availability of Federal Disaster Relief Assistance

    We are giving you this notice to inform you that:
    The building or mobile home securing the loan for which you have 
applied is or will be located in an area with special flood hazards.
    The area has been identified by the Administrator of the Federal 
Emergency Management Agency (FEMA) as a special flood hazard area 
using FEMA's Flood Insurance Rate Map or the Flood Hazard Boundary 
Map for the following community: --------. This area has a one 
percent (1%) chance of a flood equal to or exceeding the base flood 
elevation (a 100-year flood) in any given year. During the life of a 
30-year mortgage loan, the risk of a 100-year flood in a special 
flood hazard area is 26 percent (26%).
    Federal law allows a lender and borrower jointly to request the 
Administrator of FEMA to review the determination of whether the 
property securing the loan is located in a special flood hazard 
area. If you would like to make such a request, please contact us 
for further information.
    -- The community in which the property securing the loan is 
located participates in the National Flood Insurance Program (NFIP). 
Federal law will not allow us to make you the loan that you have 
applied for if you do not purchase flood insurance. The flood 
insurance must be maintained for the life of the loan. If you fail 
to purchase or renew flood insurance on the property, Federal law 
authorizes and requires us to purchase the flood insurance for you 
at your expense.
     At a minimum, flood insurance purchased must cover the 
lesser of:
    (1) the outstanding principal balance of the loan; or
    (2) the maximum amount of coverage allowed for the type of 
property under the NFIP.
    Flood insurance coverage under the NFIP is limited to the 
building or mobile home and any personal property that secures your 
loan and not the land itself.
     Federal disaster relief assistance (usually in the form 
of a low-interest loan) may be available for damages incurred in 
excess of your flood insurance if your community's participation in 
the NFIP is in accordance with NFIP requirements.

Availability of Private Flood Insurance Coverage

    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

[[Page 65135]]

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

[Escrow Requirement for Residential Loans

    Federal law requires a lender or its servicer to escrow all 
premiums and fees for flood insurance that covers any residential 
building or mobile home securing a loan that is located in an area 
with special flood hazards. These premiums and fees must be paid to 
the lender or its servicer with the same frequency as your loan 
payments for the duration of your loan and will be deposited in an 
escrow account on your behalf to be paid to the flood insurance 
provider. Upon receipt of a notice from the flood insurance provider 
that the premiums are due, the premiums shall be paid from the 
escrow account to the insurance provider.]
    --Flood insurance coverage under the NFIP is not available for 
the property securing the loan because the community in which the 
property is located does not participate in the NFIP. In addition, 
if the non-participating community has been identified for at least 
one year as containing a special flood hazard area, properties 
located in the community will not be eligible for Federal disaster 
relief assistance in the event of a Federally-declared flood 
disaster.

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

Notice of Escrow Requirement

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

How the Escrow Will Work

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

When the Escrow Will Start

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

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

Escrow Requirement Clause

    Federal law requires a lender or its servicer to escrow all 
premiums and fees for flood insurance that covers any residential 
building or mobile home securing a loan that is located in an area 
with special flood hazards. You must make payments of these premiums 
and fees to [Insert Name of Lender or Servicer] with the same 
frequency as your loan payments for the duration of your loan. Your 
payments will be deposited in an escrow account on your behalf to be 
paid to the flood insurance provider. Upon receipt of a notice from 
the flood insurance provider that the flood insurance premium is 
due, [Insert Name of Lender or Servicer] will pay the premium from 
the escrow account to the insurance provider.

PART 391--FORMER OFFICE OF THRIFT SUPERVISION REGULATIONS

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

    Authority: 12 U.S.C. 1819.

Subpart D--[Removed and Reserved]

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

Farm Credit Administration

12 CFR CHAPTER VI

Authority and Issuance

    For the reasons stated in the preamble, part 614 of chapter VI, 
title 12 of the Code of Federal Regulations is proposed to be amended 
as follows:

PART 614--LOAN POLICIES AND OPERATIONS

0
1. The authority citation for part 614 continues to read as follows:

    Authority: 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128; secs. 
1.3, 1.5, 1.6, 1.7, 1.9, 1.10, 2.0, 2.2, 2.3, 2.4, 2.10, 2.12, 2.13, 
2.15, 3.0, 3.1, 3.3, 3.7, 3.8, 3.10, 3.20, 3.28, 4.12, 4.12A, 4.13, 
4.13B, 4.14, 4.14A, 4.14C, 4.14D, 4.14E, 4.18, 4.19, 4.36, 4.37, 
5.9, 5.10, 5.17, 7.0, 7.2, 7.6, 7.7, 7.8, 7.12, 7.13, 8.0, 8.5 of 
the Farm Credit Act (12 U.S.C. 2011, 2013, 2014, 2015, 2017, 2018, 
2071, 2073, 2074, 2075, 2091, 2093, 2094, 2096, 2121, 2122, 2124, 
2128, 2129, 2131, 2141, 2149, 2183, 2184, 2199, 2201, 2202, 2202a, 
2202c, 2202d, 2202e, 2206, 2207, 2219a, 2219b, 2243, 2244, 2252, 
2279a, 2279a-2, 2279b, 2279b-1, 2279b-2, 2279f, 2279f-1, 2279aa, 
2279aa-5); sec. 413 of Pub. L. 100-233, 101 Stat. 1568, 1639.

0
2. Part 614 is amended by revising subpart S to read as follows:

Subpart S--Flood Insurance Requirements

Sec.
614.4920 Purpose and scope.
614.4925 Definitions.
614.4930 Requirement to purchase flood insurance where available.
614.4935 Escrow requirement.
614.4940 Required use of standard flood hazard determination form.
614.4945 Force placement of flood insurance.
614.4950 Determination fees.
614.4955 Notice of special flood hazards and availability of Federal 
disaster relief assistance.
614.4960 Notice of servicer's identity.
    Appendix A to Subpart S of Part 614--Sample Form of Notice of 
Special Flood Hazards and Availability of Federal Disaster Relief 
Assistance
    Appendix B to Subpart S of Part 614--Sample Form of Notice of 
Requirement to Escrow for Outstanding Loans
    Appendix C to Subpart S of Part 614--Sample Escrow Requirement 
Clause for Loans that Become Designated Loans

Subpart S--Flood Insurance Requirements


Sec.  614.4920  Purpose and scope.

    (a) Purpose. This subpart implements the requirements of the 
National Flood Insurance Act of 1968 and the Flood Disaster Protection 
Act of 1973, as amended (42 U.S.C. 4001-4129).
    (b) Scope. This subpart, except for Sec. Sec.  614.4940 and 
614.4950, applies to loans secured by buildings or mobile homes located 
or to be located in areas determined by the Administrator of the 
Federal Emergency Management Agency to have special flood hazards. 
Sections 614.4940 and 614.4950 apply to loans secured by buildings or 
mobile homes, regardless of location.


Sec.  614.4925  Definitions.

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

[[Page 65136]]

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


Sec.  614.4930   Requirement to purchase flood insurance where 
available.

    (a) In general. A System institution shall not make, increase, 
extend, or renew any designated loan unless the building or mobile home 
and any personal property securing the loan is covered by flood 
insurance purchased under the NFIP or private flood insurance, as that 
term is defined in Sec.  614.4925, for the term of the loan. The amount 
of insurance must be at least equal to the lesser of the outstanding 
principal balance of the designated loan or the maximum limit of 
coverage available for the particular type of property under the 1968 
Act. Flood insurance coverage under the 1968 Act is limited to the 
building or mobile home and any personal property that secures a loan 
and not the land itself.
    (b) Table funded loans. A System institution that acquires a loan 
from a mortgage broker or other entity through table funding shall be 
considered to be making a loan for the purpose of this subpart.
    (c) Private flood insurance.
    (1) Mandatory acceptance. A System institution must accept private 
flood insurance, as defined in Sec.  614.4925, as satisfaction of the 
flood insurance coverage requirement, provided that coverage under the 
flood insurance policy meets the requirement for coverage under 
paragraph (a) of this section.
    (2) Safe harbor. A flood insurance policy shall be deemed to meet 
the definition of private flood insurance in Sec.  614.4925 for 
purposes of paragraph (a) of this section if a State insurance 
regulator makes a determination in writing that the policy meets the 
definition of private flood insurance in Sec.  614.4925.
    (d) The flood insurance requirement of paragraph (a) of this 
section does not apply with respect to:
    (1) Any State-owned property covered under a policy of self-
insurance satisfactory to the Administrator of FEMA, who publishes and 
periodically revises the list of States falling within this exemption; 
or
    (2) Property securing any loan with an original principal balance 
of $5,000 or less and a repayment term of 1 year or less.


Sec.  614.4935   Escrow requirement.

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

[[Page 65137]]

    (ii) For any designated loan made on or after July 6, 2014, upon 
loan consummation; or
    (iii) For any loan that becomes a designated loan after July 6, 
2014, with the first loan payment after the flood insurance policy is 
established.
    (3) Escrow account. The System institution, or a servicer acting on 
its behalf, shall deposit the flood insurance premiums and fees on 
behalf of the borrower in an escrow account. This escrow account will 
be subject to escrow requirements adopted pursuant to section 10 of the 
Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2609) (RESPA), 
which generally limits the amount that may be maintained in escrow 
accounts for certain types of loans and requires escrow account 
statements for those accounts, only if the loan is otherwise subject to 
RESPA. Following receipt of a notice from the Administrator of FEMA or 
other provider of flood insurance that premiums are due, the System 
institution, or a servicer acting on its behalf, shall pay the amount 
owed to the insurance provider from the escrow account by the date when 
such premiums are due.
    (b) Notice. A System institution that is required to comply with 
paragraph (a) of this section, or a servicer acting on its behalf, 
shall mail or deliver a written notice informing the borrower that the 
System institution is required to escrow all premiums and fees for 
required flood insurance:
    (1) For loans subject to paragraph (a)(2)(i) or (c)(2)(i) or (d) of 
this section, at least 90 days before the escrow of premiums and fees 
under paragraph (a)(2)(i) or (c)(2)(i) or (d), using language that is 
substantially similar to the model form in Appendix B; or
    (2) For loans subject to paragraph (a)(2)(ii) or (c)(2)(ii) of this 
section, with the notice provided under Sec.  614.4945, using language 
that is substantially similar to model clauses on the escrow 
requirement in Appendix A; or
    (3) For loans subject to paragraph (a)(2)(iii) or (c)(2)(iii) of 
this section, with the notice provided under Sec.  614.4955, using 
language that is substantially similar to model clauses on the escrow 
requirement in Appendix C.
    (c) Exception. (1) Qualification. Except as may be required under 
applicable State law, paragraph (a)(1) and (2) of this section do not 
apply to a System institution:
    (i) That has total assets of less than $1 billion as of December 31 
of either of the 2 prior calendar years; and
    (ii) On or before July 6, 2012:
    (A) Was not required under Federal or State law to deposit taxes, 
insurance premiums, fees, or any other charges in an escrow account for 
the entire term of a loan secured by residential improved real estate 
or a mobile home; and
    (B) Did not have a policy of consistently and uniformly requiring 
the deposit of taxes, insurance premiums, fees, or any other charges in 
an escrow account for loans secured by residential improved real estate 
or a mobile home.
    (2) Change in status. If a System institution previously qualified 
for the exception in Sec.  614.4935(c)(1), but no longer qualifies for 
the exception because it had assets of $1 billion or more for 2 
consecutive calendar year ends, the System institution must begin 
escrowing premiums and fees for flood insurance pursuant to Sec.  
614.4930(a):
    (i) For any designated loan outstanding on July 1 of the succeeding 
calendar year, with the first loan payment on or after the first 
renewal date of the borrower's flood insurance policy on or after July 
1 of the succeeding calendar year; or
    (ii) For any designated loan made on or after July 1 of the 
succeeding calendar year, upon loan consummation; or
    (iii) For any loan that becomes a designated loan after July 1 of 
the succeeding calendar year, with the first loan payment after the 
flood insurance policy is established.
    (d) Change in ownership. If a System institution that is required 
to comply with paragraph (a) of this section acquires a designated loan 
covered by flood insurance required under Sec.  614.4930(a) that 
becomes subject to paragraph (a) of this section as a result of the 
System institution's acquisition of the loan, the System institution 
must begin escrowing premiums and fees for flood insurance pursuant to 
paragraph (a) of this section with the first loan payment on or after 
the first renewal date of the borrower's flood insurance policy on or 
after the date that is 6 months from the transfer date of the loan.


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

    (a) Use of form. A System institution shall use the standard flood 
hazard determination form developed by the Administrator of FEMA when 
determining whether the building or mobile home offered as collateral 
security for a loan is or will be located in a special flood hazard 
area in which flood insurance is available under the Act. The standard 
flood hazard determination form may be used in a printed, computerized, 
or electronic manner. A System institution may obtain the standard 
flood hazard determination form from FEMA's Web site at www.fema.gov.
    (b) Retention of form. A System institution shall retain a copy of 
the completed standard flood hazard determination form, in either hard 
copy or electronic form, for the period of time the System institution 
owns the loan.


Sec.  614.4945  Force-placement of flood insurance.

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

[[Page 65138]]

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


Sec.  614.4950   Determination fees.

    (a) General. Notwithstanding any federal or state law other than 
the Flood Disaster Protection Act of 1973, as amended (42 U.S.C. 4001-
4129), any System institution, or a servicer acting on its behalf, may 
charge a reasonable fee for determining whether the building or mobile 
home securing the loan is located or will be located in a special flood 
hazard area. A determination fee may also include, but is not limited 
to, a fee for life-of-loan monitoring.
    (b) Borrower fee. The determination fee authorized by paragraph (a) 
of this section may be charged to the borrower if the determination:
    (1) Is made in connection with a making, increasing, extending, or 
renewing of the loan that is initiated by the borrower;
    (2) Reflects the Administrator of FEMA's revision or updating of 
floodplain areas or flood-risk zones;
    (3) Reflects the Administrator of FEMA's publication of a notice or 
compendium that:
    (i) Affects the area in which the building or mobile home securing 
the loan is located; or
    (ii) By determination of the Administrator of FEMA, may reasonably 
require a determination whether the building or mobile home securing 
the loan is located in a special flood hazard area; or
    (4) Results in the purchase of flood insurance coverage by the 
lender or its servicer on behalf of the borrower under Sec.  614.4945.
    (c) Purchaser or transferee fee. The determination fee authorized 
by paragraph (a) of this section may be charged to the purchaser or 
transferee of a loan in the case of the sale or transfer of the loan.


Sec.  614.4955   Notice of special flood hazards and availability of 
Federal disaster relief assistance.

    (a) Notice requirement. When a System institution makes, increases, 
extends, or renews a loan secured by a building or a mobile home 
located or to be located in a special flood hazard area, the System 
institution shall mail or deliver a written notice to the borrower and 
to the servicer of the loan. Notice is required whether or not flood 
insurance is available under the 1968 Act for the collateral securing 
the loan.
    (b) Contents of notice. The written notice must include the 
following information:
    (1) A warning, in a form approved by the Administrator of FEMA, 
that the building or the mobile home is or will be located in a special 
flood hazard area;
    (2) A description of the flood insurance purchase requirements set 
forth in section 102(b) of the Flood Disaster Protection Act of 1973, 
as amended (42 U.S.C. 4012a(b));
    (3) A statement, where applicable, that flood insurance coverage is 
available from private insurance companies that issue flood insurance 
policies on behalf of the NFIP or directly from the NFIP; and
    (4) A statement that flood insurance that provides the same level 
of coverage as a standard flood insurance policy under the NFIP may be 
available from a private insurance company that issues policies on 
behalf of the company.
    (5) A statement that the borrower is encouraged to compare the 
flood insurance coverage, deductibles, exclusions, conditions and 
premiums associated with flood insurance policies issued on behalf of 
the NFIP and policies issued on behalf of private insurance companies 
and that the borrower should direct inquiries regarding the 
availability, cost, and comparisons of flood insurance coverage to an 
insurance agent; and
    (6) A statement whether federal disaster relief assistance may be 
available in the event of damage to the building or mobile home caused 
by flooding in a federally declared disaster.
    (c) Timing of notice. The System institution shall provide the 
notice required by paragraph (a) of this section to the borrower within 
a reasonable time before the completion of the transaction, and to the 
servicer as promptly as practicable after the System institution 
provides notice to the borrower and in any event no later than the time 
the System institution provides other similar notices to the servicer 
concerning hazard insurance and taxes. Notice to the servicer may be 
made electronically or may take the form of a copy of the notice to the 
borrower.
    (d) Record of receipt. The System institution shall retain a record 
of the receipt of the notices by the borrower and the servicer for the 
period of time the System institution owns the loan.
    (e) Alternate method of notice. Instead of providing the notice to 
the borrower required by paragraph (a) of this section, a System 
institution may obtain satisfactory written assurance from a seller or 
lessor that, within a reasonable time before the completion of the sale 
or lease transaction, the seller or lessor has provided such notice to 
the purchaser or lessee. The System institution shall retain a record 
of the written assurance from the seller or lessor for the period of 
time the System institution owns the loan.
    (f) Use of prescribed form of notice. A System institution will be 
considered to be in compliance with the requirement for notice to the 
borrower of this section by providing written notice to the borrower 
containing the language presented in appendix A to this part within a 
reasonable time before the completion of the transaction. The notice 
presented in appendix A to this part satisfies the borrower notice 
requirements of the 1968 Act.


Sec.  614.4960  Notice of servicer's identity.

    (a) Notice requirement. When a System institution makes, increases, 
extends, renews, sells, or transfers a loan secured by a building or 
mobile home located or to be located in a special flood hazard area, 
the System institution shall notify the Administrator of FEMA (or the 
Administrator of FEMA's designee) in writing of the identity of the 
servicer of the loan. The Administrator of FEMA has designated the 
insurance provider to receive the System institution's notice of the 
servicer's identity. This notice may be provided electronically if 
electronic transmission is satisfactory to the Administrator of FEMA's 
designee.
    (b) Transfer of servicing rights. The System institution shall 
notify the Administrator of FEMA (or the Administrator of FEMA's 
designee) of any change in the servicer of a loan described in 
paragraph (a) of this section within 60 days after the effective date 
of the change. This notice may be provided electronically if electronic 
transmission is satisfactory to the Administrator of FEMA's designee. 
Upon any change in the servicing of a loan described in paragraph (a) 
of this section, the duty to provide notice under this paragraph (b) 
shall transfer to the transferee servicer.

Appendix A to Subpart S of Part 614--Sample Form of Notice of Special 
Flood Hazards and Availability of Federal Disaster Relief Assistance

    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

[[Page 65139]]

flood hazard area using FEMA's Flood Insurance Rate Map or the Flood 
Hazard Boundary Map for the following community: --------. This area 
has at least a one percent (1%) chance of a flood equal to or 
exceeding the base flood elevation (a 100-year flood) in any given 
year. During the life of a 30-year mortgage loan, the risk of a 100-
year flood in a special flood hazard area is 26 percent (26%).
    Federal law allows a lender and borrower jointly to request the 
Administrator of FEMA to review the determination of whether the 
property securing the loan is located in a special flood hazard 
area. If you would like to make such a request, please contact us 
for further information.
    -------- The community in which the property securing the loan 
is located participates in the National Flood Insurance Program 
(NFIP). Federal law will not allow us to make you the loan that you 
have applied for if you do not purchase flood insurance. The flood 
insurance must be maintained for the life of the loan. If you fail 
to purchase or renew flood insurance on the property, federal law 
authorizes and requires us to purchase the flood insurance for you 
at your expense.
     Flood insurance coverage under the NFIP may be 
purchased through an insurance agent who will obtain the policy 
either directly through the NFIP or through an insurance company 
that participates in the NFIP. Flood insurance also may be available 
from private insurers that do not participate in the NFIP.
     At a minimum, flood insurance purchased must cover the 
lesser of:
    (1) the outstanding principal balance of the loan; or
    (2) the maximum amount of coverage allowed for the type of 
property under the NFIP.
    Flood insurance coverage under the NFIP is limited to the 
improvements that have been made to the real property that secure 
the loan and not the land itself.
     Federal disaster relief assistance (usually in the form 
of a low-interest loan) may be available for damages incurred in 
excess of your flood insurance if your community's participation in 
the NFIP is in accordance with NFIP requirements.

Availability of Private Flood Insurance Coverage

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

[Escrow Requirement for Residential Loans

    Federal law requires a lender or its servicer to escrow all 
premiums and fees for flood insurance that covers any residential 
building or mobile home securing a loan that is located in an area 
with special flood hazards. These premiums and fees must be paid to 
the lender or its servicer with the same frequency as your loan 
payments for the duration of your loan and will be deposited in an 
escrow account on your behalf to be paid to the flood insurance 
provider. Upon receipt of a notice from the flood insurance provider 
that the premiums are due, the premiums shall be paid from the 
escrow account to the insurance provider.]
    -- Flood insurance coverage under the NFIP is not available for 
the property securing the loan because the community in which the 
property is located does not participate in the NFIP. In addition, 
if the non-participating community has been identified for at least 
one year as containing a special flood hazard area, properties 
located in the community will not be eligible for federal disaster 
relief assistance in the event of a federally-declared flood 
disaster.

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

Notice of Escrow Requirement

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

How the Escrow Will Work

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

When the Escrow Will Start

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

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

Escrow Requirement Clause

    Federal law requires a lender or its servicer to escrow all 
premiums and fees for flood insurance that covers any residential 
building or mobile home securing a loan that is located in an area 
with special flood hazards. You must make payments of these premiums 
and fees to [Insert Name of Lender or Servicer] with the same 
frequency as your loan payments for the duration of your loan. Your 
payments will be deposited in an escrow account on your behalf to be 
paid to the flood insurance provider. Upon receipt of a notice from 
the flood insurance provider that the flood insurance premium is 
due, [Insert Name of Lender or Servicer] will pay the premium from 
the escrow account to the insurance provider.

National Credit Union Administration

12 CFR CHAPTER VII

Authority and Issuance

    For the reasons set forth in the joint preamble, the NCUA Board 
proposes to revise part 760 of chapter VII of title 12 of the Code of 
Federal Regulations to read as follows:

PART 760--LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS

Sec.
760.1 Authority, purpose, and scope.
760.2 Definitions.
760.3 Requirement to purchase flood insurance where available.
760.4 Exemptions.
760.5 Escrow requirement.
760.6 Required use of standard flood hazard determination form.
760.7 Force-placement of flood insurance.
760.8 Determination fees.
760.9 Notice of special flood hazards and availability of Federal 
disaster relief assistance.
760.10 Notice of servicer's identity.
Appendix A to Part 760--Sample Form of Notice of Special Flood 
Hazards and Availability of Federal Disaster Relief Assistance
Appendix B to Part 760--Sample Form of Notice of Requirement to 
Escrow for Outstanding Loans
Appendix C to Part 760--Sample Escrow Requirement Clause for Loans 
that Become Designated Loans


    Authority: 12 U.S.C. 1757, 1789; 42 U.S.C. 4012a, 4104a, 4104b, 
4106, and 4128.


Sec.  760.1  Authority, purpose, and scope.

    (a) Authority. This part is issued pursuant to 12 U.S.C. 1757, 1789 
and 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128.
    (b) Purpose. The purpose of this part is to implement the 
requirements of the

[[Page 65140]]

National Flood Insurance Act of 1968 and the Flood Disaster Protection 
Act of 1973, as amended (42 U.S.C. 4001-4129).
    (c) Scope. This part, except for Sec. Sec.  760.6 and 760.8, 
applies to loans secured by buildings or mobile homes located or to be 
located in areas determined by the Administrator of the Federal 
Emergency Management Agency to have special flood hazards. Sections 
760.6 and 760.8 apply to loans secured by buildings or mobile homes, 
regardless of location.


Sec.  760.2  Definitions.

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


Sec.  760.3  Requirement to purchase flood insurance where available.

    (a) In general. A credit union shall not make, increase, extend, or 
renew any designated loan unless the building or mobile home and any 
personal property securing the loan is covered by flood insurance for 
the term of the loan. The amount of insurance must be at least equal to 
the lesser of the outstanding principal balance of the designated loan 
or the maximum limit of coverage available for the particular type of 
property under the Act. Flood insurance coverage under the Act is 
limited to the building or mobile home and any personal property that 
secures a loan and not the land itself.
    (b) Table funded loan. A credit union that acquires a loan from a 
mortgage broker or other entity through table funding shall be 
considered to be making a loan for the purposes of this part.
    (c) Private flood insurance.
    (1) Mandatory acceptance. A credit union must accept private flood 
insurance, as defined in Sec.  760.2(i), as satisfaction of the flood 
insurance coverage requirement, provided that coverage under the flood 
insurance policy meets the requirement for coverage under paragraph (a) 
of this section.
    (2) Safe harbor. A flood insurance policy shall be deemed to meet 
the definition of private flood insurance in Sec.  760.2(i) for 
purposes of paragraph (a) of this section if a State insurance 
regulator makes a determination in writing that the policy meets the 
definition of private flood insurance in Sec.  760.2(i).


Sec.  760.4  Exemptions.

    The flood insurance requirement prescribed by Sec.  760.3 does not 
apply with respect to:
    (a) Any State-owned property covered under a policy of self-
insurance satisfactory to the Administrator of FEMA, who publishes and 
periodically revises the list of States falling within this exemption; 
or
    (b) Property securing any loan with an original principal balance 
of $5,000 or less and a repayment term of one year or less.


Sec.  760.5  Escrow requirement.

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

[[Page 65141]]

made for the duration of the loan, unless the credit union has 
determined that:
    (i) The loan is an extension of credit primarily for business, 
commercial, or agricultural purposes;
    (ii) The borrower has obtained flood insurance coverage that meets 
the requirement of Sec.  760.3(a) for the residential improved real 
estate or mobile home securing the loan and is currently paying 
premiums and fees through an escrow account established by another 
lender; or
    (iii) Flood insurance coverage for the residential improved real 
estate or mobile home is provided by a policy that is purchased by a 
common interest community instead of the borrower, such as an NFIP 
Residential Condominium Building Association Policy (RCBAP), that meets 
the requirements of Sec.  760.3(a).
    (2) Timing. A credit union that is subject to paragraph (a) of this 
section, other than due to a change in status under paragraph (c)(2) of 
this section or for acquired loans subject to paragraph (d) of this 
section, shall begin escrowing premiums and fees for flood insurance:
    (i) For any designated loan outstanding on July 6, 2014, with the 
first loan payment on or after the first renewal date of the borrower's 
flood insurance policy on or after July 6, 2014;
    (ii) For any designated loan made on or after July 6, 2014, upon 
loan consummation; or
    (iii) For any loan that becomes a designated loan after July 6, 
2014, with the first loan payment after the flood insurance policy is 
established.
    (3) Escrow account. The credit union, or a servicer acting on 
behalf of the credit union, shall deposit the flood insurance premiums 
and fees on behalf of the borrower in an escrow account. This escrow 
account will be subject to escrow requirements adopted pursuant to 
section 10 of the Real Estate Settlement Procedures Act of 1974 (12 
U.S.C. 2609) (RESPA), which generally limits the amount that may be 
maintained in escrow accounts for certain types of loans and requires 
escrow account statements for those accounts, only if the loan is 
otherwise subject to RESPA. Following receipt of a notice from the 
Administrator of FEMA or other provider of flood insurance that 
premiums are due, the credit union, or a servicer acting on behalf of 
the credit union, shall pay the amount owed to the insurance provider 
from the escrow account by the date when such premiums are due.
    (b) Notice. A credit union that is required to comply with 
paragraph (a) of this section, or a servicer acting on behalf of the 
credit union, shall mail or deliver a written notice informing the 
borrower that the credit union is required to escrow all premiums and 
fees for required flood insurance:
    (1) For loans subject to paragraphs (a)(2)(i), (c)(2)(i), or (d) of 
this section, at least 90 days before the escrow of premiums and fees 
under paragraphs (a)(2)(i), (c)(2)(i), or (d), using language that is 
substantially similar to the model form in appendix B;
    (2) For loans subject to paragraphs (a)(2)(ii) or (c)(2)(ii) of 
this section, with the notice provided under Sec.  760.9, using 
language that is substantially similar to model clauses on the escrow 
requirement in appendix A; or
    (3) For loans subject to paragraphs (a)(2)(iii) or (c)(2)(iii) of 
this section, with the notice provided under Sec.  760.7, using 
language that is substantially similar to model clauses on the escrow 
requirement in appendix C.
    (c) Exception.
    (1) Qualification. Except as may be required under applicable State 
law, paragraphs (a)(1) and (2) of this section do not apply to a credit 
union:
    (i) That has total assets of less than $1 billion as of December 31 
of either of the two prior calendar years; and
    (ii) On or before July 6, 2012:
    (A) Was not required under Federal or State law to deposit taxes, 
insurance premiums, fees, or any other charges in an escrow account for 
the entire term of a loan secured by residential improved real estate 
or a mobile home; and
    (B) Did not have a policy of consistently and uniformly requiring 
the deposit of taxes, insurance premiums, fees, or any other charges in 
an escrow account for loans secured by residential improved real estate 
or a mobile home.
    (2) Change in status. If a credit union previously qualified for 
the exception in paragraph Sec.  760.5(c)(1), but no longer qualifies 
for the exception because it had assets of $1 billion or more for two 
consecutive calendar year ends, the credit union must begin escrowing 
premiums and fees for flood insurance pursuant to Sec.  760.3(a):
    (i) For any designated loan outstanding on July 1 of the succeeding 
calendar year, with the first loan payment on or after the first 
renewal date of the borrower's flood insurance policy on or after July 
1 of the succeeding calendar year;
    (ii) For any designated loan made on or after July 1 of the 
succeeding calendar year, upon loan consummation; or
    (iii) For any loan that becomes a designated loan after July 1 of 
the succeeding calendar year, with the first loan payment after the 
flood insurance policy is established.
    (d) Change in ownership. If a credit union that is required to 
comply with paragraph (a) of this section acquires a designated loan 
covered by flood insurance required under Sec.  760.3(a) that becomes 
subject to paragraph (a) of this section as a result of the credit 
union's acquisition of the loan, the credit union must begin escrowing 
premiums and fees for flood insurance pursuant to paragraph (a) of this 
section with the first loan payment on or after the first renewal date 
of the borrower's flood insurance policy on or after the date that is 
six months from the transfer date of the loan.


Sec.  760.6  Required use of standard flood hazard determination form.

    (a) Use of form. A credit union shall use the standard flood hazard 
determination form developed by the Administrator of FEMA when 
determining whether the building or mobile home offered as collateral 
security for a loan is or will be located in a special flood hazard 
area in which flood insurance is available under the Act. The standard 
flood hazard determination form may be used in a printed, computerized, 
or electronic manner. A credit union may obtain the standard flood 
hazard determination form from FEMA's Web site at www.fema.gov.
    (b) Retention of form. A credit union shall retain a copy of the 
completed standard flood hazard determination form, in either hard copy 
or electronic form, for the period of time the credit union owns the 
loan.


Sec.  760.7  Force-placement of flood insurance.

    (a) Notice and purchase of coverage. If a credit union, or a 
servicer acting on behalf of the credit union, determines at any time 
during the term of a designated loan that the building or mobile home 
and any personal property securing the designated loan is not covered 
by flood insurance, or is covered by flood insurance in an amount less 
than the amount required under Sec.  760.3, then the credit union or 
its servicer shall notify the borrower that the borrower should obtain 
flood insurance, at the borrower's expense, in an amount at least equal 
to the amount required under Sec.  760.3, for the remaining term of the 
loan. If the borrower fails to obtain flood insurance within 45 days 
after notification, then the credit union or its servicer shall 
purchase insurance on the borrower's behalf. The credit union or its 
servicer may charge the borrower for the cost of premiums and fees 
incurred in purchasing the insurance, including premiums or fees 
incurred for coverage

[[Page 65142]]

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


Sec.  760.8  Determination fees.

    (a) General. Notwithstanding any Federal or State law other than 
the Flood Disaster Protection Act of 1973, as amended (42 U.S.C. 4001-
4129), any credit union, or a servicer acting on behalf of the credit 
union, may charge a reasonable fee for determining whether the building 
or mobile home securing the loan is located or will be located in a 
special flood hazard area. A determination fee may also include, but is 
not limited to, a fee for life-of-loan monitoring.
    (b) Borrower fee. The determination fee authorized by paragraph (a) 
of this section may be charged to the borrower if the determination:
    (1) Is made in connection with a making, increasing, extending, or 
renewing of the loan that is initiated by the borrower;
    (2) Reflects the Administrator of FEMA's revision or updating of 
floodplain areas or flood-risk zones;
    (3) Reflects the Administrator of FEMA's publication of a notice or 
compendium that:
    (i) Affects the area in which the building or mobile home securing 
the loan is located; or
    (ii) By determination of the Administrator of FEMA, may reasonably 
require a determination whether the building or mobile home securing 
the loan is located in a special flood hazard area; or
    (4) Results in the purchase of flood insurance coverage by the 
credit union or its servicer on behalf of the borrower under Sec.  
760.7.
    (c) Purchaser or transferee fee. The determination fee authorized 
by paragraph (a) of this section may be charged to the purchaser or 
transferee of a loan in the case of the sale or transfer of the loan.


Sec.  760.9  Notice of special flood hazards and availability of 
Federal disaster relief assistance.

    (a) Notice requirement. When a credit union makes, increases, 
extends, or renews a loan secured by a building or a mobile home 
located or to be located in a special flood hazard area, the credit 
union shall mail or deliver a written notice to the borrower and to the 
servicer in all cases whether or not flood insurance is available under 
the Act for the collateral securing the loan.
    (b) Contents of notice. The written notice must include the 
following information:
    (1) A warning, in a form approved by the Administrator of FEMA, 
that the building or the mobile home is or will be located in a special 
flood hazard area;
    (2) A description of the flood insurance purchase requirements set 
forth in section 102(b) of the Flood Disaster Protection Act of 1973, 
as amended (42 U.S.C. 4012a(b));
    (3) A statement, where applicable, that flood insurance coverage is 
available from private insurance companies that issue flood insurance 
policies on behalf of the NFIP or directly from the NFIP;
    (4) A statement that flood insurance that provides the same level 
of coverage as a standard flood insurance policy under the NFIP may 
also be available from a private insurance company that issues policies 
on behalf of the company;
    (5) A statement that the borrower is encouraged to compare the 
flood insurance coverage, deductibles, exclusions, conditions and 
premiums associated with flood insurance policies issued on behalf of 
the NFIP and policies issued on behalf of private insurance companies 
and that the borrower should direct inquiries regarding the 
availability, cost, and comparisons of flood insurance coverage to an 
insurance agent; and
    (6) A statement whether Federal disaster relief assistance may be 
available in the event of damage to the building or mobile home caused 
by flooding in a Federally-declared disaster.
    (c) Timing of notice. The credit union shall provide the notice 
required by paragraph (a) of this section to the borrower within a 
reasonable time before the completion of the transaction and to the 
servicer as promptly as practicable after the credit union provides 
notice to the borrower and in any event no later than the time the 
credit union provides other similar notices to the servicer concerning 
hazard insurance and taxes. Notice to the servicer may be made 
electronically or may take the form of a copy of the notice to the 
borrower.
    (d) Record of receipt. The credit union shall retain a record of 
the receipt of the notices by the borrower and the servicer for the 
period of time the credit union owns the loan.
    (e) Alternate method of notice. Instead of providing the notice to 
the borrower required by paragraph (a) of this section, a credit union 
may obtain satisfactory written assurance from a seller or lessor that, 
within a reasonable time before the completion of the sale or lease 
transaction, the seller or lessor has provided such notice to the 
purchaser or lessee. The credit union shall retain a record of the 
written assurance from the seller or lessor for the period of time the 
credit union owns the loan.
    (f) Use of prescribed form of notice. A credit union will be 
considered to be in compliance with the requirement for notice to the 
borrower of this section by providing written notice to the borrower 
containing the language presented in appendix A to this part within a 
reasonable time before the completion of the transaction. The notice 
presented in appendix A to this part satisfies the borrower notice 
requirements of the Act.


Sec.  760.10  Notice of servicer's identity.

    (a) Notice requirement. When a credit union makes, increases, 
extends, renews, sells, or transfers a loan secured by a building or 
mobile home located or to be located in a special flood hazard area, 
the credit union shall notify the Administrator of FEMA (or the 
Administrator's designee) in writing of the identity of the servicer of 
the loan. The Administrator of FEMA has designated the insurance 
provider to receive the credit union's notice of the servicer's 
identity. This notice may be provided electronically if electronic

[[Page 65143]]

transmission is satisfactory to the Administrator of FEMA's designee.
    (b) Transfer of servicing rights. The credit union shall notify the 
Administrator of FEMA (or the Administrator's designee) of any change 
in the servicer of a loan described in paragraph (a) of this section 
within 60 days after the effective date of the change. This notice may 
be provided electronically if electronic transmission is satisfactory 
to the Administrator of FEMA's designee. Upon any change in the 
servicing of a loan described in paragraph (a) of this section, the 
duty to provide notice under this paragraph (b) shall transfer to the 
transferee servicer.

Appendix A to Part 760--Sample Form of Notice of Special Flood Hazards 
and Availability of Federal Disaster Relief Assistance

    We are giving you this notice to inform you that:
    The building or mobile home securing the loan for which you have 
applied is or will be located in an area with special flood hazards.
    The area has been identified by the Administrator of the Federal 
Emergency Management Agency (FEMA) as a special flood hazard area 
using FEMA's Flood Insurance Rate Map or the Flood Hazard Boundary 
Map for the following community: --------. This area has a one 
percent (1%) chance of a flood equal to or exceeding the base flood 
elevation (a 100-year flood) in any given year. During the life of a 
30-year mortgage loan, the risk of a 100-year flood in a special 
flood hazard area is 26 percent (26%).
    Federal law allows a lender and borrower jointly to request the 
Administrator of FEMA to review the determination of whether the 
property securing the loan is located in a special flood hazard 
area. If you would like to make such a request, please contact us 
for further information.
    -- The community in which the property securing the loan is 
located participates in the National Flood Insurance Program (NFIP). 
Federal law will not allow us to make you the loan that you have 
applied for if you do not purchase flood insurance. The flood 
insurance must be maintained for the life of the loan. If you fail 
to purchase or renew flood insurance on the property, Federal law 
authorizes and requires us to purchase the flood insurance for you 
at your expense.
     At a minimum, flood insurance purchased must cover the 
lesser of:
    (1) the outstanding principal balance of the loan; or
    (2) the maximum amount of coverage allowed for the type of 
property under the NFIP.
    Flood insurance coverage under the NFIP is limited to the 
building or mobile home and any personal property that secures your 
loan and not the land itself.
     Federal disaster relief assistance (usually in the form 
of a low-interest loan) may be available for damages incurred in 
excess of your flood insurance if your community's participation in 
the NFIP is in accordance with NFIP requirements.

Availability of Private Flood Insurance Coverage

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

[Escrow Requirement for Residential Loans

    Federal law requires a lender or its servicer to escrow all 
premiums and fees for flood insurance that covers any residential 
building or mobile home securing a loan that is located in an area 
with special flood hazards. These premiums and fees must be paid to 
the lender or its servicer with the same frequency as your loan 
payments for the duration of your loan and will be deposited in an 
escrow account on your behalf to be paid to the flood insurance 
provider. Upon receipt of a notice from the flood insurance provider 
that the premiums are due, the premiums shall be paid from the 
escrow account to the insurance provider.]
    -- Flood insurance coverage under the NFIP is not available for 
the property securing the loan because the community in which the 
property is located does not participate in the NFIP. In addition, 
if the non-participating community has been identified for at least 
one year as containing a special flood hazard area, properties 
located in the community will not be eligible for Federal disaster 
relief assistance in the event of a Federally-declared flood 
disaster.

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

Notice of Escrow Requirement

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

How the Escrow Will Work

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

When the Escrow Will Start

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

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

Escrow Requirement Clause

    Federal law requires a lender or its servicer to escrow all 
premiums and fees for flood insurance that covers any residential 
building or mobile home securing a loan that is located in an area 
with special flood hazards. You must make payments of these premiums 
and fees to [Insert Name of Lender or Servicer] with the same 
frequency as your loan payments for the duration of your loan. Your 
payments will be deposited in an escrow account on your behalf to be 
paid to the flood insurance provider. Upon receipt of a notice from 
the flood insurance provider that the flood insurance premium is 
due, [Insert Name of Lender or Servicer] will pay the premium from 
the escrow account to the insurance provider.

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

[[Page 65144]]

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

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

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