[Federal Register Volume 60, Number 19 (Monday, January 30, 1995)]
[Rules and Regulations]
[Pages 5583-5586]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-2249]



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FEDERAL EMERGENCY MANAGEMENT AGENCY

44 CFR Part 61

RIN 3067-AC29


National Flood Insurance Program; Insurance Coverage and Rates

AGENCY: Federal Insurance Administration, FEMA.

ACTION: Final rule.

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SUMMARY: This final rule amends the National Flood Insurance Program 
(NFIP) regulations to increase the waiting period before which flood 
insurance coverage becomes effective under the Standard Flood Insurance 
Policy and to increase the limits of coverage available under the NFIP. 
This final rule is necessary to comply with the waiting period 
requirement and maximum flood insurance coverage amounts established by 
the National Flood Insurance Reform Act of 1994. The intent of this 
final rule is to establish a 30-day waiting period, with certain 
exceptions, before flood insurance coverage becomes effective under the 
Standard Flood Insurance Policy and to provide higher limits of flood 
insurance coverage to current and new policyholders.

EFFECTIVE DATE: March 1, 1995.

FOR FURTHER INFORMATION CONTACT: Charles M. Plaxico, Jr., Federal 
Emergency Management Agency, Federal Insurance Administration, 500 C 
Street SW., Washington, DC 20472, (202) 646-3422.

SUPPLEMENTARY INFORMATION: As part of the implementation of the 
National Flood Insurance Reform Act of 1994 (the Reform Act), on 
November 15, 1994, the Federal Emergency Management Agency (FEMA) 
published in the Federal Register (Vol. 59, page 58808) a proposed rule 
to increase the waiting period from five days to 30 days before flood 
insurance coverage becomes effective under the Standard Flood Insurance 
Policy and to increase the limits of coverage available under the 
National Flood Insurance Program.
    The Reform Act provided for two exceptions to the 30-day waiting 
period, i.e., (1) when the initial purchase of flood insurance is in 
connection with the making, increasing, extension, or renewal of a loan 
and (2) when the initial purchase of flood insurance occurs during the 
one-year period following notice of the issuance of a revised flood map 
for a community.
    A 45-day period was provided for review and comment on the proposed 
changes. FEMA received comments on the proposed changes from five 
respondents. The tally of comments included representatives from three 
private insurance companies participating in the NFIP Write Your Own 
(WYO) Program, one bank, and a national trade association representing 
savings and community financial institutions.
    All five respondents commented on the waiting period.
    One WYO company respondent commented that imposing a longer waiting 
period before coverage becomes effective ``will have a potential 
negative impact on efforts to market flood insurance'' and that 
imposing a longer waiting period will also result ``in an increase in 
disaster assistance payments since, at the time of a flood, people not 
yet flooded will be less inclined to buy flood insurance.'' Whatever 
the validity of these points may be, the longer waiting period must be 
implemented since, as the respondent pointed out, the Reform Act 
mandates such action.
    Another WYO company respondent noted that the waiting period does 
not apply to the initial purchase of flood insurance in connection with 
the making, increasing, extension, or renewal of a loan and inquired 
whether this exception extends to transactions related to refinancing 
and home equity loans. The exception extends to such transactions so 
long as the purchase of flood insurance is the initial purchase of such 
insurance. The regulations currently provide for no waiting period in 
the case of a title transfer, so long as the policy is applied for and 
the premium is paid at or prior to the title transfer. It is important 
to point out that the Reform Act does not provide for this exception 
and, therefore, the current provision related to title transfers will 
not apply on and after March 1, 1995. This provision has, in essence, 
been replaced by the loan closing exception which, in most cases, has 
the same result.
    The national trade association respondent commented on the 
exception to the waiting period in connection with the purchase of new 
flood insurance coverage for one year after notice of a remapping or 
redesignation of a flood zone. That respondent noted that the 
``provision presupposes that the servicer of the loan has an obligation 
to require purchase by a borrower within a specific period of time 
following the publication of a notice of remapping or redesignation'' 
and further commented that ``it is not clear under either the statute 
or the proposal just what the nature of the servicer's obligation is as 
it relates to this form of purchase obligation. The Conference 
Committee Report refers to `tripwires' and suggests that the obligation 
to require purchase by the borrower may only arise when a lender is 
`making, increasing, extending or renewing' a loan.''
    Based on its interpretation, this respondent commented that ``it 
would be inappropriate to include the one-year limitation * * * because 
the purchase obligation could arise at any time, not just within one 
year of publication of map amendments.'' This respondent further 
commented that the specific one-year limitation is not included in the 
language of the statute and suggested that, ``Until the issue of timing 
of the purchase requirement can be resolved'', FEMA should eliminate 
the one-year limitation and replace the opening phrase with the 
following language: ``At any time following the issuance of a 
revised''.
    FEMA is not clear about the respondent's concern and points out 
that the specific one-year period related to map revisions is indeed 
included in the statute (sec. 579 of the Reform Act) which revises 
section 1306 of the National Flood Insurance Act of 1968 to add 
subsection (c). The specific reference to the one-year period is in 
section 1306(c)(2)(B).
    As pointed out in the Supplementary Information section of the 
proposed rule, the Reform Act provides that the [[Page 5584]] one-year 
period starts on the date of publication of the notice of the revision 
and requires that the notice be published not later than 30 days after 
the effective date of the map revision. Since agents using flood maps 
automatically get copies of revised maps with the effective date of the 
revision shown on the map but may not see the new notice that is 
required, FEMA is interpreting the period for this exception to be the 
13-month period beginning on the effective date of the map revision. 
Due to a technical oversight, this 13-month interpretation was not 
included in the regulatory text of the proposed rule. This oversight 
has been corrected and the exception to the waiting period in 
connection with the purchase of new flood insurance coverage made 
pursuant to a remapping or redesignation of a flood zone is revised in 
this final rule to reflect the 13-month period.
    A WYO company respondent made reference to the current procedure 
for allowing for the renewal of policies with the same policy number 
after the 30-day grace period but within 90 days of the policy 
expiration. In such an instance, current procedures require that the 5-
day waiting period be calculated from the date the renewal premium 
payment is received. In those instances where the policy has lapsed for 
more than 90 days, a new application is required. This respondent has 
expressed concern that ``using the 30-day waiting period would require 
a new application on any renewal payments received sixty (60) or more 
days after expiration, as the addition of the waiting period would 
extend the lapsed coverage to ninety (90) days or more.''
    This concern indicates a misunderstanding of one of the FEMA rules 
regarding policy renewal when the renewal payment is received after the 
30-day grace period. The respondent mistakenly believes that the 
premium has to be received early enough so that the 30-day waiting 
period is over and the coverage is in force by the 90th day. However, 
in that situation, in order not to be required to submit a new 
application, it is sufficient that the premium be received within 90 
days after expiration. If the renewal notice and premium are received 
on day 90, the policy bearing the former policy number may be placed in 
force 30 days following receipt, without a new application.
    That respondent and another WYO company respondent expressed 
concern as to the impact the 30-day waiting period will have on 
policies issued through the Mortgage Portfolio Protection Program 
(MPPP). Both of these respondents pointed out that, since the MPPP 
guidelines require a 45-day notification letter cycle prior to 
application for force-place flood insurance coverage, imposing the 30-
day waiting period for policies issued under the MPPP will result in a 
minimum of 75 days before coverage could be in effect. The other WYO 
company respondent further commented that, in accordance with the 
provisions of the Reform Act, ``if the lender and borrower dispute the 
flood zone in writing to the Director and the Director does not respond 
for 45 days, the collateral is still listed as being in a flood zone, 
and the customer does not purchase the required insurance, collateral 
could potentially be uninsured for an additional 45 days increasing the 
total to 120 days.'' Based on their concerns, these respondents urged 
that the 30-day waiting period not be applicable in those instances 
where the lender is purchasing the flood insurance coverage for the 
borrower, even though the cost of the policy will be passed on to the 
borrower.
    While FEMA appreciates their concerns, the statute is quite 
specific concerning the exceptions to the 30-day waiting period and, 
since the examples cited by these respondents do not fall within those 
exceptions, FEMA cannot waive the 30-day waiting period for these 
situations. Therefore, the revisions to the waiting period are 
incorporated into the final rule as originally proposed, except for the 
change related to the 13-month period in connection with the remapping 
or redesignation of a flood zone as discussed above.
    As pointed out in the proposed rule, however, the Reform Act 
requires FEMA to conduct a study to determine the appropriateness of 
existing requirements regarding the effective date and time of coverage 
under flood insurance contracts obtained through the national flood 
insurance program. Congress stipulated that, in conducting the study, 
the Director shall determine whether any delay between the time of 
purchase of flood insurance coverage and the time of initial 
effectiveness of the coverage should differ for various classes of 
properties or for various circumstances under which such insurance was 
purchased. The comments received from the respondents will be 
considered as FEMA conducts this study.
    Two of the respondents commented on the proposal to increase the 
limits of coverage under the NFIP.
    A WYO company inquired whether a primary single family residence 
that is currently insured in the maximum amount of coverage and thus 
qualifies for replacement cost coverage would still be entitled to 
replacement cost should a loss occur between the time the increased 
limits of coverage take effect and the time the policy is due for 
renewal. The company questioned whether, in such an instance, the loss 
would be settled on a replacement cost or actual cash value basis. The 
company also inquired regarding the same scenario when the insured has 
a three-year policy and in the case of a condominium building which is 
insured under the Residential Condominium Building Association Policy. 
FEMA will be issuing implementing instructions which will address this 
issue and will be sent to this WYO company and all other WYO companies. 
This WYO company also inquired about the effective date should an agent 
submit a request to increase limits for a residential structure to the 
new $250,000 maximum before March 1. In setting forth its 
understanding, the company correctly concluded that if the endorsement 
(with appropriate premium, of course) is submitted before March 1, 
1995, the endorsement would become effective after five days or on 
March 1 (whichever is later) and that any endorsement (with appropriate 
premium) submitted on or after March 1, 1995, would become effective 
after a 30-day waiting period (unless one of the exceptions applied, of 
course).
    In commenting on the maximum amounts of coverage to be available 
after March 1, 1995, the national trade association respondent urged 
FEMA ``to work in conjunction with the bank regulatory agencies on a 
state and federal level to coordinate the obligations of financial 
institutions.'' This respondent pointed out that some existing federal 
regulations require institutions to ``maintain coverage `for the term 
of the loan' in an amount `at least equal to the outstanding principal 
balance of the loan or the maximum coverage available with respect to 
the particular type of property under the Act, whichever is less.''' 
This respondent expressed the belief that compliance with those 
regulations may require that additional insurance be purchased ``in 
those instances where insurance must be maintained in the amount of the 
maximum available under the flood insurance program'' and thus 
questioned whether the current loan servicer is obligated to act 
immediately to increase the amount of coverage or whether a reasonable 
time period will be available for the purchase of additional insurance. 
This respondent suggested that, given the complexities of present-day 
loan [[Page 5585]] servicing, a significant period of time, such as 180 
days following the date of availability of the increased coverage, be 
provided to allow lenders/servicers sufficient time to arrange or cause 
the borrower to obtain any required additional coverage.
    This respondent pointed out that section 524 of the Reform Act 
``specifies the notifications required for a property in a designated 
flood plain `covered by such insurance in an amount less than the 
amount required for the property''' and suggested that FEMA ``clarify 
that these procedures are the same steps to be followed in the event 
additional insurance is required.'' It was suggested that the 
notification and standard hazard determination forms being promulgated 
pursuant to sections 527 and 528 of the Reform Act ``include language 
to alert the borrower to the potential requirement to purchase 
additional insurance at a future date.'' This suggestion will be 
considered as the notification and standard hazard determination forms 
are being developed. The final authority regarding regulations relating 
to the obligations of financial institutions rests with the various 
federal entities for lending regulation. However, FEMA does have a 
consulting/coordinating role with those federal entities and will pass 
these comments along to those entities for their consideration.

National Environmental Policy Act

    This final rule is categorically excluded from the requirements of 
44 CFR Part 10, Environmental Consideration. No environmental impact 
assessment has been prepared.

Executive Order 12898, Environmental Justice

    The socioeconomic conditions relating to this final rule were 
reviewed and a finding was made that no disproportionately high and 
adverse effect on minority or low income populations result from this 
final rule.

Executive Order 12866, Regulatory Planning and Review

    This final rule is not a significant regulatory action within the 
meaning of Section 2(f) of E.O. 12866 of September 30, 1993, 58 FR 
51735, and has not been reviewed by the Office of Management and 
Budget. Nevertheless, this final rule adheres to the regulatory 
principles set forth in E.O. 12866.

Paperwork Reduction Act

    This final rule does not contain a collection of information 
requirement as described in section 3504(h) of the Paperwork Reduction 
Act.

Executive Order 12612, Federalism

    This final rule involves no policies that have federalism 
implications under Executive Order 12612, Federalism, dated October 26, 
1987.

Executive Order 12778, Civil Justice Reform

    This final rule meets the applicable standards of section 2(b)(2) 
of Executive Order 12778.

List of Subjects in 44 CFR Part 61

    Flood insurance, Reporting and recordkeeping requirements.
    Accordingly, 44 CFR part 61 is amended as follows:

PART 61--INSURANCE COVERAGE AND RATES

    1. The authority citation for Part 61 continues to read as follows:

    Authority: 42 U.S.C. 4001 et seq.; Reorganization Plan No. 3 of 
1978, 43 FR 41943, 3 CFR, 1978 Comp., p. 329; E.O. 12127 of Mar. 31, 
1979, 44 FR 19367, 3 CFR, 1979 Comp., p. 376.

    2. Section 61.6 is revised to read as follows:


Sec. 61.6  Maximum amounts of coverage available.

    (a) Pursuant to section 1306 of the Act, the following are the 
limits of coverage available under the emergency program and under the 
regular program.

------------------------------------------------------------------------
                                              Regular program           
                                  --------------------------------------
                                    Emergency                   Total   
                                    program\1\     Second       amount  
                                   first layer     layer      available 
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    Single Family Residential                                           
                                                                        
Except in Hawaii, Alaska, Guam,                                         
 U.S. Virgin Islands.............       35,000      215,000      250,000
In Hawaii, Alaska, Guam, U.S.                                           
 Virgin Islands..................       50,000      200,000      250,000
                                                                        
        Other Residential                                               
                                                                        
Except in Hawaii, Alaska, Guam,                                         
 U.S. Virgin Islands.............      100,000      150,000      250,000
In Hawaii, Alaska, Guam, U.S.                                           
 Virgin Islands..................      150,000      100,000      250,000
                                                                        
          Nonresidential                                                
                                                                        
Small business...................      100,000      400,000      500,000
Churches and other properties....      100,000      400,000      500,000
                                                                        
           Contents\2\                                                  
                                                                        
Residential......................       10,000       90,000      100,000
Small business...................      100,000      400,000      500,000
Churches, other properties.......      100,000      400,000     500,000 
------------------------------------------------------------------------
\1\Only first layer available under emergency program.                  
\2\Per unit.                                                            

    (b) In the insuring of a residential condominium building in a 
regular program community, the maximum limit of building coverage is 
$250,000 times the number of units in the building (not to exceed the 
building's replacement cost).
    3. Section 61.11 is amended as follows:
    a. By revising paragraphs (a), (b), and (c) to read as follows:


Sec. 61.11  Effective date and time of coverage under the Standard 
Flood Insurance Policy--New Business Applications and Endorsements.

    (a) During the 13-month period beginning on the effective date of a 
revised Flood Hazard Boundary Map or Flood Insurance Rate Map for a 
community, the effective date and time of any initial flood insurance 
coverage shall be 12:01 a.m. (local time) on the first calendar day 
after the application date and the presentment of payment of premium; 
for example, a flood insurance policy applied for with the payment of 
the premium on May 1 will [[Page 5586]] become effective at 12:01 a.m. 
on May 2.
    (b) Where the initial purchase of flood insurance is in connection 
with the making, increasing, extension, or renewal of a loan, the 
coverage with respect to the property which is the subject of the loan 
shall be effective as of the time of the loan closing, provided the 
written request for the coverage is received by the NFIP and the flood 
insurance policy is applied for and the presentment of payment of 
premium is made at or prior to the loan closing.
    (c) Except as provided by paragraphs (a) and (b) of this section, 
the effective date and time of any new policy or added coverage or 
increase in the amount of coverage shall be 12:01 a.m. (local time) on 
the 30th calendar day after the application date and the presentment of 
payment of premium; for example, a flood insurance policy applied for 
with the payment of the premium on May 1 will become effective at 12:01 
a.m. on May 31.
* * * * *
    b. In paragraph (e), by removing, in the second sentence, the 
phrase ``(P.O. Box 459, Lanham, Maryland 20706)''.
    c. By removing paragraphs (f) (1) and (2) and by redesignating 
paragraph (f)(3) as paragraph (g).
    d. In newly redesignated paragraph (g), by removing the word 
``this'' and after ``(f)'' add ``of this section''.

(Catalog of Federal Domestic Assistance No. 83.100, ``Flood 
Insurance'')

    Dated: January 23, 1995.
Elaine A. McReynolds,
Administrator, Federal Insurance Administration.
[FR Doc. 95-2249 Filed 1-27-95; 8:45 am]
BILLING CODE 6718-05-P