[Federal Register Volume 60, Number 167 (Tuesday, August 29, 1995)]
[Notices]
[Pages 44881-44890]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-21400]



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FEDERAL EMERGENCY MANAGEMENT AGENCY

Mortgage Portfolio Protection Program

AGENCY: Federal Insurance Administration, FEMA.

ACTION: Notice.

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SUMMARY: The Federal Insurance Administration (FIA), the Directorate 
within the Federal Emergency Management Agency (FEMA) responsible for 
the administration of the National Flood Insurance Program (NFIP), is 
announcing changes to the Mortgage Portfolio Protection Program (MPPP) 
and its response to comments and suggestions received regarding the 
MPPP. Changes have also been made to the MPPP Guidelines (and 
Appendices), where applicable, to comply with requirements mandated by 
the National Flood Insurance Reform Act of 1994 which was enacted on 
September 23, 1994.

EFFECTIVE DATE: October 1, 1994.

FOR FURTHER INFORMATION CONTACT: Tere Martin or Ed Connor, Federal 
Emergency Management Agency, Federal Insurance Administration, 500 C 
Street, SW., Washington, DC 20472. Mrs. Martin's telephone number is 
(202) 646-3430; and Mr. Connor's telephone number is (202) 646-3429.

SUPPLEMENTARY INFORMATION: In 1991, the Federal Insurance 
Administration (FIA) developed the Mortgage Portfolio Protection 
Program (MPPP) as a mechanism to be used as a last resort and at the 
option of a lending institution for securing flood insurance coverage 
for properties which are part of the lending institution's mortgage 
portfolio. The goals of the MPPP were and are, through the MPPP 
notification process, to encourage property owners whose structures are 
potentially susceptible to flood damage to purchase a conventional 
National Flood Insurance Program (NFIP) flood insurance policy, or, 
failing that, have the lending institution obtain an MPPP policy on the 
structure.
    After two years' experience with the MPPP, on March 24, 1993, the 
FIA published a Notice in the Federal Register (58 FR 15874-15875) 
requesting public comments on the MPPP as outlined in the Federal 
Register of March 1, 1991 (56 FR 8882-8891).
    Four questions were included in the 1993 Notice which were to be 
the subject of any responses.
    A total of eight responses were received: two from different 
corporate parts of an insurance company participating in FIA's Write 
Your Own (WYO) Program that also participate in the MPPP, two from two 
other WYO companies participating in the MPPP, one from a WYO company 
not participating in the MPPP, two from vendor companies that service 
WYO companies, and one from a local government.
    Regarding the questions, comments received, and FIA's response, 
they are as follows:

(1) Does the MPPP Work as Designed?

    Five responses were received on this question. One WYO company 
stated that there was interest in the Program and that it was working 
for those lenders that used it but that there will be no serious 
participation until the threat of some type of financial penalty 
(against lenders that don't comply with the law) becomes reality 
through passage of pending legislation. It should be pointed out that 
the National Flood Insurance Reform Act of 1994 (the Reform Act) 
enacted September 23, 1994, contains provisions requiring increased 
compliance with the flood insurance purchase requirement mandated by 
the Flood Disaster Protection Act of 1973. The reform legislation 
clarifies the flood insurance purchase requirement, gives lenders more 
tools to comply, and applies financial penalties for noncompliance. 
Another WYO company indicated that it believed that the Program as 
designed will not be used a lot in view of the high rates it 
contemplates. It believed, however, that the Program helped convince 
lenders of the need for compliance, and helped them design a method to 
review the portfolios and obtain the information needed to issue 
conventionally underwritten flood policies. One WYO company that does 
NOT participate in the MPPP stated that the Program apparently is not 
working as it was intended because not many policies have been issued 
through the Program; that company also commented that there was some 
apparent misuse, such as a mortgagee using the Program at loan 
origination, and commented that the Program has apparently not improved 
compliance with the mandatory purchase provision. A WYO vendor stated 
that, when utilized, the MPPP seemed to work well as a compliance tool 
at the borrower's level and that the problem lies in persuading the 
lending community to utilize the MPPP, the thought being that the cost 
and coordination of conducting the portfolio audit and obtaining zone 
determination services is a deterrent. The respondent from the local 
government stated that such a program is worthwhile and one which would 
save much post-purchase agony and confusion resulting from either the 
lack of investigation or ignorance of the system. That respondent felt 
that a Program like the MPPP would especially help the first time home 

[[Page 44882]]
buyers who, in all likelihood, would have no concept of flood insurance 
requirements or even its existence.
    The FIA believes that the MPPP is working as it was intended. The 
MPPP was intended to be a tool to assist lenders who were interested in 
bringing their portfolios into compliance with flood insurance 
requirements. It was never the intent to have a large number of 
policies sold under the MPPP but simply to provide the necessary 
administrative vehicle for interested lenders to encourage borrowers to 
purchase flood insurance when required and, when there was no positive 
response from the borrower, to allow the lender to obtain the required 
coverage to either bring its mortgage loan portfolio into compliance 
with Federal requirements or to allow it to remain in compliance.
(2) What Improvements Should be Made to the Program?

    Five responses were received on this question. One WYO company 
suggested that the stated intended use of the MPPP be clarified to 
state that it is intended to be used when the lender has reviewed one 
or more loans in its portfolio and determined such loan or loans to be 
on a building(s) located in a special flood hazard area (SFHA). That 
company commented that the existing language appears to state that the 
MPPP may only be used in conjunction with a mortgage portfolio review. 
The company believes that such a clarification would make the entire 
Program much more accessible to the lender. The FIA agrees and such a 
change is included in this Notice. Although the existing language was 
intended to limit the use of the MPPP to correcting flood insurance 
deficiencies of mortgage loan portfolios, it was not intended to limit 
such use to flood insurance needs derived from portfolio reviews only. 
This same WYO company also suggested that the requirement that WYO 
companies using the program maintain copies of the notification letters 
required to be sent by the lender to the borrower, when the lender, 
instead of the WYO company, actually assumes the responsibility of 
notifying the borrower, be changed. It reasoned that such lenders often 
will not provide copies of such letters to the WYO company. It 
therefore suggested that, under such circumstances, the WYO company, 
instead, be required to obtain a letter from an officer of the lending 
institution using the MPPP stating that it is complying with the 
mandatory letter notification requirements of the MPPP, and also to 
obtain samples of the letter notifications such a lender uses in this 
regard. The FIA believes that there is sufficient flexibility in the 
language contained in the answer to Question #21 of Addendum #4, 
National Flood Insurance Program Mortgage Portfolio Protection Program 
(MPPP) Questions and Answers, to allow WYO companies to address such 
circumstances, particularly because such circumstances were 
contemplated and addressed in the answer that appears in the 1991 
Notice to Question #20 of Addendum #4. This same WYO company also 
suggested that coverage be provided against losses that might occur on 
loans during the 45 day letter cycle and to deduct the premium from the 
loss payment. Similarly, a WYO vendor suggested that the time frame of 
the letter notification cycle correspond to the 30 day protection 
period for the mortgagee in the mortgage clause to prevent any lapse of 
coverage. This vendor also suggested that the program allow for the 
acceleration of the issuance of the MPPP application prior to the end 
of the notification cycle so as to avoid any lapse of coverage for the 
lender. The FIA does not agree with the first three of these four 
suggestions. The FIA believes that the borrower must be given 
sufficient time to respond to the lender's notice. Coverage can then 
only begin following receipt of premium and after the appropriate 
waiting period. The MPPP was designed to be used by a lender when it 
discovers that flood insurance is missing from a loan on which it is 
required. It was not designed to be used to bring about flood coverage 
on a loan which currently has coverage but the lender believes the 
borrower may not renew. The existing mortgage clause and renewal 
provisions of the NFIP are sufficient to allow a lender that monitors 
the renewal of existing policies on loans in its portfolio to renew 
that policy on behalf of the mortgagor within a limited period of time 
after the policy expires to avoid any lapse of coverage to protect the 
interests of the lender. Also, there is no need for an MPPP, nor can it 
be used when there is an existing policy and the underwriting 
information is therefore available to write (or renew) that policy. 
Regarding the last of these suggestions, a WYO company may prepare an 
MPPP application in advance of the completion of the notification cycle 
so that the coverage is effective upon the completion of the cycle. Of 
course the WYO company must receive payment for that coverage far 
enough in advance of that date to comply with the waiting period 
requirement. Under the NFIP's waiting period rules, the payment must be 
received at least 30 days in advance of the completion of the 
notification cycle to comply with the new waiting period requirement 
established by the Reform Act. However, under the provisions of 
paragraph (e)(2) in section 524 of the Reform Act, the borrower should 
not be billed in his escrow account or otherwise for the premium until 
45 days after receiving notification that flood insurance is required. 
This means that, initially, the premium must come from a source other 
than the borrower. Another WYO company suggested that FIA obtain the 
assistance of the different Federal entities who require this insurance 
in performing regular audits on compliance and notifying lenders who 
fail to comply of their failure to comply and the requirement of flood 
insurance on these properties. A second WYO vendor suggested that 
strict enforcement measures should be incorporated into regulations and 
a way be provided of verifying that insurance has been placed and 
provide stiff penalties if it has not. The FIA works directly with both 
the Federal financial institution regulatory and non-regulatory 
agencies on an ongoing basis to bring about the compliance intended by 
the Flood Disaster Protection Act of 1973. Great progress has been made 
in the past several years regarding the increased focus on flood 
insurance compliance in compliance reviews by these agencies. The 
Reform Act contains provisions to strengthen the mandatory flood 
insurance purchase requirements and FIA is now working with the federal 
entities for lending regulation in implementing the various mandatory 
provisions of the Reform Act. A WYO vendor suggested that if the goal 
(of the MPPP) is to sell policies as opposed to forcing the purchase of 
Standard Flood Insurance Policies, the MPPP rates are prohibitive, and 
should be reduced. As previously stated, the principal goal of the MPPP 
is to provide a voluntary, administrative tool to the mortgage lending 
and servicing industries that will assist them with their efforts to 
comply with mandatory flood insurance requirements. Its use is intended 
to allow flood insurance coverage to be obtained on any loan 
discovered, following loan origination, to be in need of such coverage 
when the borrower, having been notified of the need of and requirement 
for such coverage, refuses to obtain the coverage. The sale of 
additional policies, either conventionally underwritten or MPPP rated, 
although not the primary goal of the MPPP, is a logical secondary goal 
that will result from the use of the MPPP by the lending and servicing 
industries. The reason the rates are high 

[[Page 44883]]
is the lack of underwriting information available on that property due 
to the non-responsiveness of the borrower. Without such data the FIA 
must assume that the flood risk to which that property is exposed is 
high and charge rates that reflect such high risk. A WYO vendor 
suggested that WYO companies be given more leeway in customizing the 
letter verbiage. The FIA believes that such leeway already exists. The 
beginning of the Initial Portfolio Review Letter Notification Process 
portion of Addendum #1 of the MPPP Guidelines and Requirements states 
that ``The lender/servicer [or their authorized representative] may add 
their own messages, make minor editorial modifications to the messages 
to conform to the style and practice of the WYO company or lender and 
structure the letter to their liking, but they may not alter the 
meaning or intent of the messages listed here for any of the letters.'' 
A WYO vendor suggested that the MPPP policy renewal process be 
simplified. It was suggested that the three letter renewal cycle be 
replaced with a single letter indicating that coverage can be obtained 
at standard rates. The issue of modifying the MPPP renewal process has 
also been raised by others outside of this process. The FIA agrees that 
some simplification to this process would be in the best interest of 
the MPPP without compromising the safeguards designed to protect the 
borrower. The FIA believes, however, that such simplification should be 
limited to reducing the number of renewal letters required to two 
instead of the currently required three or suggested one. This change 
is reflected in this Notice. A WYO vendor suggested that lenders be 
allowed to sign a generic vendor MPPP cancellation request form instead 
of the borrower (insured), since they must sign the application for the 
issuance of an MPPP policy. FIA agrees that a change in this 
requirement is needed, since it is reasonable to assume that the 
borrower will be as unlikely to respond to the lender's request for the 
borrower's signature on a cancellation request as the borrower was on 
the request to purchase the conventionally underwritten policy. This 
change is reflected in this Notice.
(3) Should the MPPP Become a Permanent Part of the National Flood 
Insurance Program?

    Five comments were received on this question. Two WYO companies, 
one WYO vendor, and a local government believed that the MPPP should be 
made a permanent part of the NFIP. One WYO company that does not 
participate in the MPPP believes that the MPPP should be discontinued 
until there is more stringent enforcement of the mandatory purchase 
provisions of the NFIP, due to the lack of apparent use of the MPPP. 
The FIA believes that there is a continuing need for the MPPP 
capability to be available to the mortgage lending and servicing 
industries and will therefore make the MPPP available on a permanent 
basis as part of the NFIP. There is also little additional cost 
incurred in continuing the MPPP since it is already developed.

(4) What Data and Indicators are Available for Determining How Many 
Conventionally Underwritten Flood Insurance Policies Have Been Written 
as a Result of the MPPP Pilot?

    Three comments were received on this question. These comments 
indicated that most of the policies written as a result of the use of 
the MPPP have been written initially either as a conventionally 
underwritten policy or were cancelled and converted to a conventionally 
underwritten policy shortly after being written as an MPPP policy. Most 
felt that there was no way to measure this, however. One WYO company 
vendor indicated that, utilizing property address tracking mechanisms, 
a system could be developed to provide such data. The FIA believes that 
any benefits that might be realized from undertaking the effort to 
explore the feasibility of developing such a capability would not be 
worth the time and expense to the NFIP, in light of its limited 
resources, and higher priorities for those resources.
    WYO companies wishing to participate in the MPPP must sign an 
agreement to adhere to the MPPP Guidelines and Requirements for each 
new Arrangement year. After we have processed all Arrangements for each 
year, we will publish after each October 1, in the Federal Register, an 
updated list with the address and name of the contact person for each 
WYO company that has signed up for that Arrangement year.
    The revised Mortgage Portfolio Protection Program Write Your Own 
Company Guidelines and Requirements, as referenced in this document, is 
reproduced in its entirety as Appendix A to this notice.

    Dated: August 17, 1995.
Elaine A. McReynolds,
Administrator, Federal Insurance Administration.

Appendix A--Federal Emergency Management Agency, Federal Insurance 
Administration, National Flood Insurance Program; Mortgage Portfolio 
Protection Program, Write Your Own Company Guidelines and Requirements

Background

    The Mortgage Portfolio Protection Program (MPPP) was introduced on 
January 1, 1991, as an additional tool, provided by the Federal 
Insurance Administration (FIA), to assist the mortgage lending and 
servicing industries, in response to their requests of the past few 
years, in bringing their mortgage portfolios into compliance with the 
flood insurance requirements of the Flood Disaster Protection Act of 
1973.
    The MPPP is not intended to act as a substitute for the need for 
mortgagees to review all mortgage loan applications at the time of loan 
origination and comply with flood insurance requirements as 
appropriate.
    It is expected that the proper implementation of the various 
requirements of this MPPP will result in mortgagors, following their 
notification of the need for flood insurance, to either show evidence 
of such a policy, or to contact their local insurance agent or 
appropriate Write Your Own (WYO) company to purchase the necessary 
coverage. It is also intended that flood insurance policies be written 
under the MPPP only as a last resort, and only on mortgages whose 
mortgagors have failed to respond to the various notifications required 
by this MPPP.
    The following represents the criteria and requirements that must be 
followed by all parties engaged in the sale of flood insurance under 
the National Flood Insurance Program's Mortgage Portfolio Protection 
Program:

Requirements for Participating in the MPPP

1. General

    a. All mortgagors notified, in conjunction with this Program, of 
their need to purchase flood insurance must be encouraged to obtain a 
Standard Flood Insurance Policy (SFIP) from their local agent.
    b. When a mortgagee or a mortgage servicing company discovers, at 
any time following loan origination, that one or more of the loans in 
its portfolio is determined to be located in a Special Flood Hazard 
Area (SFHA), and that 

[[Page 44884]]
there is no evidence of flood insurance on such property (ies), then 
the MPPP may be used by such lender/servicer to obtain (force place) 
the required flood insurance coverage. The MPPP process can be 
accomplished with limited underwriting information and with special 
flat flood insurance rates.
    c. In the event of a loss, the policy will have to be reformed if 
the wrong rate has been applied for the zone in which the property is 
located. Also, the amount of coverage may have to be changed if the 
building occupancy does not support that amount.
    d. It will be the WYO company's responsibility to notify the 
mortgagor of all coverage limitations at the inception of coverage and 
to impose those limitations that are applicable at the time of loss 
adjustment.

2. WYO Arrangement Article III--Fees

    With the implementation of the MPPP, there is no change in the 
method of WYO company allowance from that which is provided in the 
Financial Assistance/Subsidy Arrangement for all flood insurance 
written.

3. Use of WYO Company Fees for Lenders/Servicers or Others

    a. No portion of the allowance that a WYO company retains under the 
WYO Financial Assistance/Subsidy Arrangement for the MPPP may be used 
to pay, reimburse or otherwise remunerate a lending institution, 
mortgage servicing company, or other similar type of company that the 
WYO company may work with to assist in its flood insurance compliance 
efforts.
    b. The only exception to this is a situation where the lender/
servicer may be actually due a commission on any flood insurance 
policies written on any portion of the institution's portfolio because 
it was written through a licensed property insurance agent on their 
staff or through a licensed insurance agency owned by the institution 
or servicing company.

4. Notification

    a. WYO Company/Mortgagee--Any WYO company participating in the MPPP 
must notify the lender or servicer, for which it is providing the MPPP 
capability, of the requirements of the MPPP. The WYO company must 
obtain signed evidence from each such lender or servicer indicating 
their receipt of this information, and keep a copy in its files. An 
example of such evidence of receipt follows as Addendum #5.
    b. Mortgagee to Mortgagor--In order to participate in the MPPP, the 
lender (or its authorized representative, which will typically be the 
WYO company providing the coverage through the MPPP) must notify the 
borrower of the following, at a minimum:
    (1) The requirements of the Flood Disaster Protection Act of 1973,
    (2) The flood zone location of the borrower's property,
    (3) The requirement for flood insurance,
    (4) The fact that the lender has no evidence of the borrower's 
having flood insurance,
    (5) The amount of coverage being required and its cost under the 
MPPP, and
    (6) The options of the borrower for obtaining conventionally 
underwritten flood insurance coverage and the potential cost benefits 
of doing so.
    A more detailed discussion of the notification requirements is made 
a part of this program document in both Section 15 and as Addendums 1 
and 2.

5. Eligibility

    a. Type of Use--The MPPP will be allowed only in conjunction with 
mortgage portfolio reviews and the servicing of those portfolios by 
lenders and mortgage servicing companies. The MPPP is not allowed to be 
used in conjunction with any form of loan origination.
    b. Type of Property--The standard NFIP rules apply, and all types 
of property eligible for coverage under the NFIP will be eligible for 
coverage under the MPPP.

6. Source of Offering

    The force placement capability will be offered by the WYO companies 
only and not by the NFIP Servicing Agent (National Con-Serv [NCSI]).

7. Dual Interest

    The policy will be written covering the interest of both the 
mortgagee and the mortgagor. The name of the mortgagor must be included 
on the Application Form. It is not, however, necessary to include the 
mortgagee as a named insured because the Mortgage Clause (Article 9.P 
of the Dwelling Form and Article 8.L of the General Property Form) 
affords building coverage to any mortgagee named as mortgagee on the 
Flood Insurance Application. If contents coverage for the mortgagee is 
desired, the mortgagee should be included as a named insured.

8. Term of Policy

    NFIP policies written under the MPPP will be for a term of one year 
only (subject to the renewal notification process).

9. Coverage Offered

    Both building and contents coverage will be available under the 
MPPP. The coverage limits available under the Regular Program will be 
$250,000 for building coverage and $100,000 for contents. If the WYO 
company wishes to provide higher limits that are available to other 
occupancy types such as other residential or non-residential, it may do 
so only if it can indicate that occupancy type as appropriate. If the 
mortgaged property is in an Emergency Program Community, then the 
coverage limits available will be $35,000 for building coverage and 
$10,000 for contents. Again, if the higher limits are desired for other 
types of property, then the building occupancy type must be provided at 
the inception of the policy or when that information may become 
available, but it must be prior to any loss.

10. Policy Form

    The current SFIP Dwelling Form and General Property Form will be 
used, depending upon the type of structure insured. In the absence of 
building occupancy information, the Dwelling Form should be used.

11. Waiting Period

    The NFIP rules for the waiting period and effective dates apply to 
the MPPP.

12. Premium Payment

    The current rules applicable to the NFIP will apply. The lender or 
servicer (or Payor) has the option to follow its usual business 
practices regarding premium payment, so long as the NFIP rules are 
followed.

13. Underwriting--Application

    a. The MPPP will require less underwriting data than is normally 
required under the standard NFIP rules and regulations. The MPPP data 
requirements for rating, processing and reporting are, at a minimum:
    (1) Name and mailing address of insured (mortgagor--also see Dual 
Interest),
    (2) Address of insured (mortgaged) property,
    (3) Community information (complete NFIP map panel number and date; 
program type, Emergency or Regular) countywide maps,
    (4) Occupancy type (so statutory coverage limits are not exceeded. 
This data may be difficult to obtain. Also see Coverage Offered.),
    (5) NFIP flood zone where property is located (lender must 
determine, in order to determine if flood insurance requirements are 
necessary and to use the MPPP), 

[[Page 44885]]

    (6) Amount of coverage,
    (7) Name and address of mortgagee,
    (8) Mortgage loan number,
    (9) Policy number.
    b. No elevation certificates will be required as there will be no 
elevation rating.
    c. For more detailed information regarding reporting requirements, 
see the WYO Transaction Record Reporting and Processing (TRRP) Plan.

14. Rates (per $100 of insurance)

------------------------------------------------------------------------
                        Zone                          Building  Contents
------------------------------------------------------------------------
A Zone--All building/occupancy types................     $1.25     $1.25
V Zone--All building/occupancy types................     $3.00     $3.00
A99 Zone--All building/occupancy types..............       .35       .35
------------------------------------------------------------------------

15. Policy Declaration Page Notification Requirements

    In addition to the routine information, such as amounts of 
coverage, deductibles and premiums, that a WYO company may place on the 
Policy declarations page issued to each insured under the NFIP, the 
following messages are required:
    a. This policy is being provided for you as it is required by 
Federal law as has been mentioned in the previous notices sent to you 
on this issue. Since your mortgage company has not received proof of 
flood insurance coverage on your property in response to those notices, 
we provide this policy at their request.
    b. The rates charged for this policy may be considerably higher 
than those that may be available to you if you contact your local 
insurance agent (or the WYO company at ...).
    c. The amounts of insurance coverage provided in this policy may 
not be sufficient to protect your full equity in the property in the 
event of a loss.
    d. You may contact your local insurance agent (or WYO company at 
...) to replace this policy with a conventionally underwritten Standard 
Flood Insurance Policy, at any time, and typically at a significant 
savings in premium.
    The WYO company may add other messages to the declarations page and 
make minor editorial modifications to the language of these messages if 
it believes any are necessary to conform to the style or practices of 
that WYO company, but any such additional messages or modifications may 
not change the meaning or intent of the above messages.
    Since the amount of underwriting data obtained at the time of 
policy inception will typically be limited, the extent of any coverage 
limitations (such as, when replacement coverage is not available or 
coverage is limited because the building has a basement or is 
considered an elevated building with an enclosure) will be difficult to 
determine. It is, therefore, the responsibility of the WYO company to 
notify the mortgagor/insured of all coverage limitations at the 
inception of coverage and impose any that are applicable at the time of 
the loss adjustment.

16. Policy Reformation--Policy Correction

    Article 9.F.2. of the Dwelling Policy and Article 8.E.2. of the 
General Property Policy will apply as appropriate.
    Examples of circumstances under which reformation or correction 
might be needed would be:
    Policy Reformation--The wrong flat rate was applied for the zone in 
which the property was actually located.
    Policy Correction--The amount of coverage exceeds the amount 
available under the NFIP for the type of building occupancy that 
represents the building insured. In such cases, the amount of coverage 
would have to be adjusted to the amount available and any appropriate 
premium adjustments made.

17. Coverage Basis--Actual Cash Value or Replacement Cost

    There are no changes from the standard practices of the NFIP for 
these provisions. The coverage basis will depend on the type of 
occupancy of the building covered and the amount of coverage carried.

18. Deductible

    A $500 Deductible is applicable for policies written under the 
MPPP.

19. Expense Constant and Federal Policy Fee

    There is no change from the standard practice. The Expense Constant 
and Federal Policy Fee in effect at the time the MPPP policy is written 
must be used.

20. Renewability

    The MPPP policy is a one-year policy. Any renewal of that policy 
can occur only following the full notification process spelled out in 
addendum #2 that must take place between the lender (or its authorized 
representative) and the insured/mortgagor, when the insured/mortgagor 
has failed to provide evidence of obtaining a substitute flood 
insurance policy.

21. Cancellations

    a. Existing Policy--When the mortgagor provides evidence of a flood 
insurance policy, from any source, that is currently in effect and has 
been in effect prior to the effective date of the MPPP policy, the MPPP 
policy may be cancelled flat with a full refund of premium, provided 
that the policy in effect is acceptable to the mortgagee. If the 
existing policy is an NFIP policy (WYO or direct business), the NFIP 
rules require that one of the NFIP policies must be cancelled. The full 
premium, including the expense constant and Federal policy fee, will be 
returned to the payor. The WYO servicing allowance is not earned by the 
WYO company.
    b. New Flood Insurance Policy--When the mortgagor/borrower 
purchases a flood insurance policy, from any source, following 
notification of the need for the policy, the MPPP policy may be 
cancelled but on a pro-rata basis. Any premium refund may be calculated 
with or without the pro rata share of the expense constant and Federal 
policy fee, depending on the company's normal business practice.
    c. Other--The NFIP Insurance Manual rules for Cancellation/
Nullification Notices are to be followed, when applicable.
    d. Signature Requirement--The signature required on the 
Cancellation/Nullification Request Form is that of an authorized 
representative of the mortgage lender whose name appears on the NFIP 
flood insurance application form that resulted in the MPPP policy being 
purchased or the signature of an authorized representative of a 
subsequent owner of that loan.

22. Endorsement

    An MPPP policy may not be endorsed to convert it directly to a 
conventionally underwritten SFIP. Rather, a new policy application, 
with a new policy number, must be completed according to the 
underwriting requirements of the SFIP, as contained in the NFIP 
Insurance Manual. The MPPP policy may be endorsed to assign it under 
rules of the NFIP. It may also be endorsed for other reasons such as 
increasing coverage.

23. Assignment to a Third Party

    Current NFIP rules remain unchanged; therefore, an MPPP policy may 
be assigned to another mortgagor or mortgagee. Any such assignment must 
be through an endorsement, however.

24. Article XIII--Restrictions Other Flood Insurance

    ARTICLE XIII of the Arrangement is also applicable to the MPPP and, 
as 

[[Page 44886]]
such, does not allow a company to sell other flood insurance that may 
be in competition with NFIP coverage. This restriction, however, 
applies solely to policies providing flood insurance. It also does not 
apply to insurance policies provided by a WYO company in which flood is 
only one of several perils provided, or when the flood insurance 
coverage amounts are in excess of the statutory limits provided under 
the NFIP or when the coverage itself is of such a nature that it is 
unavailable under the NFIP, such as blanket portfolio coverage.
Mortgage Portfolio Protection Program (MPPP) Guidelines and 
Requirements--Addendum #1

Initial Portfolio Review Letter Notification Process

    Once it has been determined by the lender/servicer or its 
representative that flood insurance is needed on mortgages in the 
lender's portfolio, and there is no evidence of flood insurance, and it 
decides to use FIA's MPPP to assist in bringing the lender's portfolio 
into compliance with flood insurance, then the following notification 
process must be used.
    This process will consist of three initial notification letters. 
Each letter will contain certain messages, at a minimum, in the body of 
the letter. The lender/servicer (or their authorized representative) 
may add their own messages, make minor editorial modifications to the 
messages to conform to the style and practice of the WYO company or 
lender and structure the letter to their liking, but they may not alter 
the meaning or intent of the messages listed here for any of the 
letters.
    Each letter will contain mandatory messages on one or more of the 
following items: (1) The requirements of the Flood Disaster Protection 
Act of 1973, (2) reminding the insured of the previous letters sent 
that resulted in the current flood insurance policy, (3) the high 
premiums on the current policy, (4) potentially inadequate coverage 
limits, (5) coverage limitations, and (6) the options available to the 
insured.

Initial Notification Letter to Mortgagor

    The first letter is to be issued after the review of the lender's 
portfolio reveals the need for the flood insurance coverage and the 
absence of it. This letter must contain, at a minimum, the following 
messages:
    1. ``The Flood Disaster Protection Act of 1973, a Federal law, 
requires that flood insurance be purchased and maintained on mortgage 
loans for buildings (and their contents, if appropriate) for the life 
of the loan for buildings located in a Special Flood Hazard Area shown 
on a map published by FEMA. This applies to such loans from lending 
institutions that are under the jurisdiction of a Federal regulatory 
agency or instrumentality.''
    2. ``We have determined that your property (building), on which we 
hold the mortgage loan, is located in a SFHA and, therefore, you are 
required by law to have a policy of flood insurance on that property.''
     This letter must then include language advising the 
mortgagor that in the event they wish to challenge the zone 
determination, they should provide written factual evidence supporting 
their challenge obtained from a community official, registered 
engineer, architect or surveyor, stating the specifics of the location 
of the building and the reason for their challenge. The letter must 
include reference to the appeal process required in Section 524 of the 
National Flood Insurance Reform Act of 1994, after regulations are 
promulgated to establish the procedures and process for such review. 
FEMA expects to issue the regulations by late October 1995.
     The lender/servicer is reminded that since the Act places 
the responsibility of determining the flood zone location of each 
mortgaged property on the lender/servicer, he cannot discharge that 
responsibility by simply obtaining some form of self certification from 
the mortgagor. If the lender wishes to change its original 
determination on the location of the mortgagor's property based upon 
information submitted by the mortgagor, the lender/servicer must 
convince itself, after reviewing that submission, that its original 
determination was in error and make any such change based on that 
review. He should not simply accept unsubstantiated allegations, from 
whatever source, as to the building's flood zone location. The ultimate 
responsibility for making such determinations under the statute rests 
with the mortgagee, not the mortgagor.
    3. ``There is no evidence in your mortgage loan file of your having 
a flood insurance policy on your property. In case this information is 
in error, please contact us at ____________________.''
    4. ``If you do not have a flood insurance policy on this property, 
you may wish to contact your local insurance agent (or WYO company at 
____________________).''
    5. ``If you do not respond within 45 days of this letter, either 
providing evidence of a flood insurance policy in effect on this 
property, or requesting that we provide you with such coverage, the 
necessary flood insurance coverage will be provided for you. In that 
event, since certain insurance underwriting information about your 
property that is necessary to determine the appropriate flood insurance 
rate for your policy would not have been obtained, due to your not 
responding, the Federal government's Mortgage Portfolio Protection 
Program's flood insurance rates will have to be used. These rates may 
be considerably higher than those that could be obtained for you if you 
respond to this notice.''
    This letter, or an attachment, must also include such other 
information as: (1) the name of the lender/servicer, (2) the mortgage 
loan number, (3) the address of the property in question, (4) the flood 
zone in which the property has been determined to be located, (5) the 
amount of flood insurance being required, and (6) coverage limitations.

The Second Initial Notification Letter

    This letter will be sent 30 days following the first initial 
notification letter if no response has been received from the 
mortgagor. It will contain, at a minimum, the following messages:
    1. ``About a month ago you were notified that Federal law requires 
all mortgages, such as yours, on properties determined to be located in 
a Special Flood Hazard Area, to be covered by a policy of flood 
insurance.''
    2. ``That letter mentioned that if you did not respond positively 
within 45 days from that letter, it would be necessary to obtain a 
policy of flood insurance for you.''
    3. ``This is to remind you that since you have not responded to the 
earlier notice as yet, and if you do not respond within the next 
fifteen days (or the actual expiration date), flood insurance, as 
mentioned previously, will be obtained on your property, on your 
behalf.''
    4. ``In the event that you do not respond and the coverage must be 
obtained as mentioned, the cost of that coverage may be significantly 
higher than the premium that you could obtain if you were to contact 
your local insurance agent (or WYO company at ...).''

Third and Final Initial Notification Letter

    This letter must be sent to the mortgagor accompanying the flood 
insurance policy declarations page.
    This letter must be sent as soon after the end of the 45 day 
notification period as possible, if no positive response has been 
received to the two previous 

[[Page 44887]]
notification letters. It must contain the following messages, at a 
minimum:
    1. ``This letter is to inform you that a policy of flood insurance 
has been obtained on your behalf, to cover the mortgage on your 
property, as required by the Flood Disaster Protection Act of 1973.''
    2. ``You have been notified on two previous occasions explaining 
the circumstances surrounding your need to have flood insurance 
coverage and explaining your options, but to date no response has been 
received.''
    3. ``Attached is the flood insurance policy purchased on your 
behalf and its accompanying declarations page that explains: the amount 
of coverage purchased on your behalf, its cost, some limitations to 
that coverage, and the options you may still wish to exercise to obtain 
similar coverage, but typically at a significantly lower cost.''
    4. ``If you purchase another flood insurance policy and notify us, 
or contact us to request that we purchase a substitute policy under the 
NFIP for you, we will cancel this policy and issue you a refund for the 
unearned portion of the premium, if we deem that the other policy is 
acceptable to satisfy the requirements.''

Mortgage Portfolio Protection Program (MPPP) Guidelines and 
Requirements--Addendum #2

MPPP Renewal/Expiration Notification Process

    When an MPPP policy has been purchased and the expiration date of 
that policy is approaching the end of its one year term, and the 
insured has not requested or produced a substitute policy of flood 
insurance, the following notification process will be followed.
    This process will consist of a total of three (or, at the lender's 
option, two) renewal MPPP letters. Each letter will contain certain 
required messages within the body of the letter. The lender/servicer 
(or their authorized representative) may add their own messages, make 
minor editorial modifications to the messages to conform to the style 
and practice of the WYO company or lender and structure the letter to 
their liking, but they may not alter the meaning or intent of the 
messages listed here for any of the letters.
    Each letter will contain mandatory messages on one or more of the 
following items: (1) reminding the insured of the previous letters sent 
that resulted in the current flood insurance policy that is about to 
expire; (2) the requirements of the Flood Disaster Protection Act of 
1973; (3) the high premiums on the current policy; (4) potentially 
inadequate coverage limits; (5) coverage limitations, and (6) the 
options available to the insured.

First MPPP Renewal/Expiration Notice (Letter)

    The first MPPP renewal letter will be sent to the insured/mortgagor 
at least 45 days prior to the renewal/expiration of the MPPP policy. It 
will, at a minimum, contain the following messages:
    1. ``This letter is to notify you that the flood insurance policy 
that was required to be purchased on your property about a year ago is 
about to expire.''
    2. ``When you were originally notified of the need for this 
coverage, it was explained that the Flood Disaster Protection Act of 
1973, a Federal law, requires that flood insurance be purchased and 
maintained for the life of the loan, on mortgage loans for buildings 
(and their contents, if appropriate) located in a Special Flood Hazard 
Area shown on a map produced by the Federal Emergency Management 
Agency.''
    3. ``The premium on the flood insurance policy currently in effect 
and written on your behalf, and due to expire, may be considerably 
higher than would be the case if you had responded to the suggestions 
contained in the previous notices sent you, recommending that you 
contact your local insurance agent (or the WYO company) to obtain a 
conventionally underwritten Standard Flood Insurance Policy.''
    4. ``As has been mentioned in previous notices, you may wish to 
replace this policy with a conventionally underwritten Standard Flood 
Insurance Policy now, and benefit from rates that potentially are 
significantly lower than the rates being used with this policy.''
    5. ``Failure to respond to this notice within 45 days (or by 
[date]) will result in this policy being renewed, and at rates that are 
most likely to be much higher than are otherwise available.''

Second MPPP Renewal/Expiration Notice (Letter)

    The requirement for the Second MPPP Renewal/Expiration Notice 
(Letter) is optional on the part of the participating WYO company. If 
such a company decides not to issue the second of the three notices 
(letters), then the Third MPPP Renewal/Expiration Notice (Letter) 
required in the March 1, 1991, Federal Register will serve as the 
second and final notice required. The language of such a letter may be 
modified, if needed, to reflect the fact that only two such letters 
were sent.

Third MPPP Renewal/Expiration Notice (Letter)

    The third and final notice will be sent out as part of the renewed 
MPPP policy. The notice containing the following required messages may 
be sent as a cover letter or an attachment to the Policy declarations 
page and policy itself, or the required messages may be included on the 
declarations page that accompanies the renewal policy. It must contain 
the following messages:
    1. ``Since you have not responded to our previous notices that your 
flood insurance policy, which is required by Federal law, was about to 
expire, we have renewed that policy for the next year.''
    2. ``As has been previously explained, the Flood Disaster 
Protection Act of 1973, a Federal law, requires that flood insurance be 
purchased and maintained on mortgage loans for buildings (and their 
contents, if appropriate) for the life of the loan, for property 
located in a Special Flood Hazard Area shown on a map produced by the 
Federal Emergency Management Agency.''
    3. ``The premium on this flood insurance policy just renewed may be 
considerably higher than would be the case if you had contacted your 
local insurance agent (or WYO company at ...), which you may still do, 
to obtain a conventionally underwritten Standard Flood Insurance 
Policy.''
    4. ``If you purchase another flood insurance policy and notify us, 
or contact us to request that we purchase a substitute policy under the 
NFIP for you, we will cancel this policy and issue you a refund for the 
unearned portion of the premium, if we deem that the other policy is 
acceptable to satisfy the requirements.''

National Flood Insurance Program Mortgage Portfolio Protection Program 
(MPPP)--Addendum #3

Portfolio Review Considerations for Lenders/Servicers Prior to 
Participating in the MPPP--Questions and Answers

    1. Q. What is the MPPP and who is this Q & A aimed at?
    A. The MPPP is a tool for providing flood insurance coverage to 
properties which are part of a lending institution's mortgage portfolio 
when such properties have been determined to be in a Special Flood 
Hazard Area and therefore subject to the flood insurance purchase 
requirement mandated by Federal law. The MPPP is aimed at WYO 
companies, lenders/servicers participating in the MPPP, Federal 
regulatory agencies and other interested parties.
    2. Q. What is the first step in using the MPPP?

[[Page 44888]]

    A. The MPPP is only intended to be utilized when the lender (or its 
representative) has reviewed its portfolio and determined which of the 
loans are on buildings located in a Special Flood Hazard Area (SFHA), 
and, therefore, in need of flood insurance.
    3. Q. What source of information should the MPPP participant, or 
their authorized representative, be using in reviewing a loan 
portfolio, to determine flood zone location of the properties in 
question?
    A. The flood insurance maps published by the Federal Emergency 
Management Agency (FEMA), augmented by other official documentation 
available from local officials or other sources, as may be deemed 
necessary.
    The Flood Disaster Protection Act of 1973, which imposes the flood 
insurance requirement, makes specific reference to ``areas identified 
by the Secretary (since changed to Director [of FEMA]) as an area 
having special flood hazards''. The National Flood Insurance Act of 
1968, as amended, charged FEMA with the responsibility of identifying 
areas which have special flood hazards. Therefore, the official source 
of information that serves as the basis for identifying such areas is 
the maps published by FEMA.
    4. Q. What if a source of information other than the FEMA maps is 
used as the basis for determining the flood zone location of 
properties?
    A. The lender may be risking erroneous determinations, thereby 
potentially placing the lender in a position of a liability exposure, 
bad customer relations and/or problems with its Federal regulatory 
agency or worse.
    5. Q. Does it mean that if the system used to make these flood zone 
determinations is not based on the FEMA maps that it should not be 
used?
    A. Due to the potential for problems as mentioned above, the lender 
must be careful as to the basis behind the system it uses to make these 
flood zone determinations. Also, since the lender must keep evidence of 
the determination in every mortgage file, if that evidence doesn't 
reflect the map panel used to make the determination, the lender may 
have difficulty proving to its Federal regulatory agency, or in court 
if the need arose, that the lender is complying with the law.
    6. Q. What flood zone determination information should the lenders 
keep in each mortgagor's file to indicate evidence of compliance?
    A. Pursuant to Section 528 of the National Flood Insurance Reform 
Act of 1994, FEMA is developing a Standard Flood Hazard Determination 
Form (SFHDF) for use by lenders when determining, in the case of a loan 
secured by improved real estate or a mobile home, whether the building 
or mobile home is located in a special flood hazard area. The SFHDF 
contains a section for recording flood zone determination information. 
FEMA expects to issue the regulation establishing the SFHDF by late 
June 1995. All lenders subject to the Reform Act will have to place a 
copy of the SFHDF in each mortgagor's file to indicate evidence of 
compliance.
    7. Q. What version of the flood map should be used in conjunction 
with the MPPP portfolio review?
    A. The FEMA map in effect at the time of the portfolio review is 
the map that must be used. The provisions of the Flood Disaster 
Protection Act of 1973 as amended by the Reform Act (1) require the 
lender to notify the borrower that the borrower should obtain flood 
insurance, at the borrower's expense, if, at any time during the term 
of the loan, the lender determines the improved real estate or mobile 
home securing the loan is located in an area identified by FEMA as an 
area having special flood hazards and in which flood insurance is 
available but the property is not covered by flood insurance; and (2) 
require the lender to purchase coverage on behalf of the borrower if 
the borrower fails to purchase such flood insurance within 45 days 
after notification by the lender.
    8. Q. Doesn't the fact that the MPPP was designed to assist 
lenders/servicers in bringing their portfolios into compliance with 
flood insurance requirements mean that they will be dealing with loans 
that can range from being very new to being many years old, and that 
the maps that may have been in effect at the time of the loan 
origination might not be readily available now?
    A. Yes. This does not present a problem since, as mentioned in no. 
7 above, compliance with the requirements of the Reform Act requires 
use of the map in effect at the time of the review rather than the map 
in effect at the time of the loan origination.
    9. Q. Once the lender/servicer's portfolio has been reviewed and 
determinations have been made as to which properties need flood 
insurance, is there anything critical that the lender (or its 
representative) should consider before beginning the process of mailing 
the initial notices to their mortgagors?
    A. Yes, how the mailing will be handled and the results of that 
mailing. There is a strong likelihood that, once the mailings begin, a 
certain percentage of the mortgagor recipients of those notices will 
challenge the notices. Some of those challenges will be directed, in 
one way or another, to the lender/servicer, regardless of any 
instructions in the notices. The lender should therefore determine at 
the outset whether it wants the notices to be sent all at once, or 
metered out so many at a time. The larger the volume, the more 
consideration to the metering approach that should be given.
    Also, the lender needs to consider how it wants the review of its 
portfolio carried out. If the results of the review are provided to the 
lender all at the same time and the lender decides to send the notices 
to the mortgagors so many at a time, it may be exposing itself to 
additional liability. This could occur since the lender was aware of 
all the mortgages in its portfolio that needed flood insurance, but 
acted on only a certain number at a time. The lender, therefore, needs 
to consider having the portfolio review carried out in such a fashion 
that the results of each portion of that review are made available to 
the lender as soon as they are available from the party conducting the 
review, and are acted upon as soon as possible thereafter.

National Flood Insurance Program Mortgage Portfolio Protection Program 
(MPPP) Questions and Answers--Addendum #4

    1. Q. What is the MPPP and what is it designed to do?
    A. The MPPP is a tool made available to the lending and mortgage 
servicing industries that provides them with the capability to write 
flood insurance policies quicker and easier that will assist them with 
their efforts to bring their portfolios into compliance with flood 
insurance requirements.
    2. Q. Is this available to lenders for all their loans?
    A. No! It may only be used in conjunction with loan portfolios. It 
may not be used as a compliance vehicle for loan originations.
    3. Q. Is the MPPP mandatory for lenders/servicers?
    A. No! It is voluntary, but lenders/servicers that believe their 
loan portfolios may not be in compliance with flood insurance 
requirements are strongly encouraged to use it if they believe it could 
be helpful.
    4. Q. What are the benefits of the MPPP?
    A. The specific benefits will vary with the category of participant 
as follows:
     For lenders/servicers.
     Portfolios can be brought into compliance satisfying the 
law and regulators.

[[Page 44889]]

     Reduce, limit or eliminate certain potential liability.
     Protect equity (lender/servicer, borrower).
     For WYO companies.
     Increased policy sales/fees.
     Increased lender/servicer client base.
     For insurance agents.
     Increased policy sales.
    5. Q. Is it possible for WYO companies and insurance agents to 
benefit from the MPPP even if they don't directly participate in it?
    A. Yes! Property insurance (fire and auto) is already being sold by 
insurance agents to many of these same borrowers because lenders 
require it in conjunction with home mortgages and auto loans. As a 
result, many agents already have established business relationships 
with their local lenders. These agents could alert these lenders to the 
availability of the MPPP and advise them as to how to proceed even if 
the agent was not going to directly participate.
    At the same time the agent could offer to assist the lender with 
determining the flood zone location of the addresses of all new 
mortgage loan applications for that lender and ask, in return, for the 
opportunity to write all the flood insurance policies on those 
properties that are determined to need it. The notices that will be 
sent to the borrowers will generate inquiries and sales.
    6. Q. How will flood policies actually be sold under the MPPP?
    A. Policies will be written through the insurance companies 
participating in FIA's Write Your Own (WYO) Program.
    7. Q. Will all the insurance companies participating in the WYO 
Program be writing policies under the MPPP?
    A. Any WYO company may write policies under the MPPP, but only 
those that traditionally have dealt with the lending industry are 
expected to participate in this Program. Any such company that does 
wish to participate must agree in writing to comply with the 
requirements of the MPPP.
    8. Q. Will FIA maintain and publish a list of the WYO companies 
that participate in the MPPP?
    A. Yes! Such a list will be developed and both modified and 
republished as needed.
    9. Q. What is the first thing a lender/servicer should do if it 
wishes to utilize the MPPP?
    A. The lender must review its loan portfolio and determine which of 
the properties are located in Special Flood Hazard Areas (SFHA).
    10. Q. When a lender/servicer decides to utilize the MPPP, must 
they use the MPPP to service their portfolio all at the same time?
    A. No! Lenders/servicers should carefully analyze the pros and cons 
of phasing in their portfolio compliance effort. (See the Q & A that 
FIA has developed on ``Portfolio Review Considerations'').
    11. Q. Is use of the MPPP limited to only those properties located 
in SFHAs?
    A. Yes!
    12. Q. What will happen if a policy is written through the MPPP, 
but the property is not located in an SFHA?
    A. If no loss has occurred at the time the situation is discovered 
but the mortgagee wants the borrower to have flood insurance even 
though the property is not in an SFHA, the situation can be corrected 
by cancelling the MPPP policy and rewriting the coverage under a 
conventional Standard Flood Insurance Policy (SFIP) with a refund of 
any premium overpayment. If such a situation is discovered after a 
flood loss has occurred, the claim will be honored. However, the MPPP 
policy would have to be cancelled and the coverage rewritten under a 
conventional SFIP with a refund of any premium overpayment. The loss 
should then be reported under the new policy number. Under both 
scenarios, the effective date of the conventional SFIP would be the 
same as that of the cancelled MPPP policy.
    13. Q. What differences are there between a flood policy sold under 
the traditional flood insurance program and one under the MPPP?
    A. The actual policy and coverage are the same, but there are 
differences primarily in the areas of:
     Rates,
     A letter notification process to the borrowers,
     The underwriting information necessary.
    14. Q. What are the rate differences?
    A. The rates under the MPPP are, on the average, several times 
those used under the traditional flood insurance program.
    15. Q. Why are the MPPP rates so high?
    A. Due to the fact that the borrower did not respond to the notices 
sent, key information necessary to underwrite the risk is not 
available. Therefore, it is necessary to assume that those properties 
have a very high risk and the rates charged reflect that risk.
    16. Q. Does the borrower have any option in avoiding the MPPP 
policy with its higher cost?
    A. Yes! They can simply contact their local insurance agent, obtain 
a conventionally underwritten flood insurance policy and present it to 
their lender/servicer.
    17. Q. If a borrower pays off the mortgage loan, can the MPPP then 
be cancelled?
    A. Yes, but any refund due the borrower will be paid on a pro-rata 
basis.
    18. Q. If the borrower or lender/servicer sells or assigns the 
mortgage to another borrower or lender/servicer, can the MPPP policy be 
assigned?
    A. Yes! The Standard Flood Insurance Policy language allows for the 
assignment of all NFIP policies. Any such assignment of an NFIP policy 
must be done by way of an endorsement.
    19. Q. Must a WYO company participating in the MPPP maintain copies 
of all its MPPP documents?
    A. The companies are responsible for the data on each Application 
Form, in keeping with its normal practices. Although some of the data 
beyond that required does not have to be reported, the companies are 
still responsible for it. The WYO companies may use their normal 
business practices in determining which form they will use to retain 
data, forms or other required information.
    20. Q. Who initiates the letter notification process required by 
the MPPP?
    A. The letter notification process is one of the requirements of 
the MPPP. The FIA requires any WYO company that wishes to participate 
in the MPPP to agree to comply with all those requirements. However, 
lenders/servicers differ on how their force placed hazard insurance 
notices are sent to their borrowers. Some lenders insist on sending 
such notices directly. Others let the insurance company, with whom the 
force placed policies are written, send out the notices. Since the MPPP 
is a part of the NFIP, then any policies written through the MPPP must 
have been written in compliance with all of its requirements, 
regardless of the entity that actually sends the notices.
    21. Q. Must the lender or WYO company maintain copies of the 
notification letters?
    A. The WYO company is responsible for assuring that the letters are 
sent regardless of whether they or the lender actually sends them. The 
WYO company must maintain some form of evidence that the letters are 
being sent. It will be the WYO company's decision as to the form the 
evidence takes, such as paper copies, micro fiche, computer images or a 
record of the mortgagor addresses to whom the letters were sent with an 
indication as to the date when those mortgagors were notified.
    22. Q. What does a WYO company do if all of the information FIA 
requires on 

[[Page 44890]]
the declarations (DEC) page won't fit on that page?
    A. The company may wish to include some of that information on the 
DEC page and some on an ``endorsement.'' In such a case, it should 
indicate an endorsement number on the DEC page.
    23. Q. Does a policy DEC page have to be issued each time an MPPP 
policy is renewed?
    A. Yes, and it must accompany the final renewal notification 
letter.
    24. Q. When an MPPP is renewed, can the same policy number that was 
assigned to the original MPPP policy be used?
    A. Yes!
    25. Q. Will the rating credits that will be available in a 
community participating in the Community Rating System (CRS) apply to a 
policy written under the MPPP?
    A. No!
    26. Q. The MPPP requirements call for the full map panel number and 
date to be obtained. What does the WYO company do with that information 
since the NFIP Application Form in use today doesn't contain enough 
space to even capture all this information?
    A. The WYO companies have never been required to use NFIP forms in 
the WYO program, but have been free to develop their own forms. They 
are, however, responsible for all required data, some of which must be 
reported and some of which isn't, but must be kept in the company 
files. The data requirements for the MPPP follow the same conditions. 
The full map panel number for that panel used to determine flood zone 
location and rate the policy is the one that must be captured and 
maintained. The majority of the maps FIA has published for many years 
have the ten digit number, suffix and date for each panel. Some of the 
maps still in use have only the six digit community number and date. 
The six digit community number cannot be used when the ten digit number 
exists.
    27. Q. Is contents coverage under the MPPP optional?
    A. Yes! The lender must decide whether or not it will require it as 
part of the MPPP policy.
    28. Q. What is meant by the term ``coverage limitations'' that is 
mentioned in the MPPP materials?
    A. Primarily Actual Cash Value coverage instead of Replacement Cost 
coverage, when appropriate. It could also apply, however, to the 
situation where only an amount to cover the loan balance is purchased 
which may be insufficient to cover the full insurable value of the 
property. The WYO company will have to determine what limitations may 
apply depending on the decisions of the lender/servicer as to how it 
wants to use the MPPP and the amount of underwriting information 
obtained.
    29. Q. The notification process contains standards for the letters 
being mailed and the MPPP policy being written such as 45, 30, and 15 
days. Must these standards be strictly adhered to?
    A. There are a number of standards similar to this in the NFIP and 
some limited flexibility has been built into the actual implementation 
process through the underwriting review process that FIA uses with the 
companies. FIA is preparing modifications of that review process to 
incorporate the MPPP criteria and will attempt to incorporate such 
flexibility into these changes.
    30. Q. May WYO companies, under the requirements of the MPPP, use 
any portion of the MPPP fee they retain, for any purpose other than as 
a commission to an insurance agent or agency for their writing the 
policy, such as for flood zone determinations or the tracking of loans?
    A. No!

The National Flood Insurance Program's Mortgage Portfolio Protection 
Program Implementation Package; Addendum #5

Receipt for Materials and Agreement to Adhere to Criteria and 
Requirements

    The Federal Insurance Administration (FIA) has published a package 
of materials for implementing their Mortgage Portfolio Protection 
Program (MPPP). This package contains the Criteria and Requirements 
that the insurance companies participating in FIA's MPPP through FIA's 
Write Your Own (WYO) program and any lending institutions and/or 
mortgage servicing or similar companies must adhere to when 
participating in the MPPP.
    The Implementation Package contains the following:
     A cover letter from the FIA Administrator to the WYO 
companies and other users of the MPPP.
     A Guide for WYO Companies, Lending Institutions, Mortgage 
Servicers and Other Potential Users
     Addendum #1--Initial Portfolio Review Letter Notification 
Process
     Addendum #2--Portfolio Review Renewal Letter Notification 
Process
     Addendum #3--Portfolio Considerations Q & A
     Addendum #4--MPPP Q & A
     Addendum #5--Receipt for Materials and Agreement to Adhere to 
Criteria and Requirements (this document)
    This ``Receipt and Agreement,'' together with the Package 
referenced above, must be presented by any WYO company that offers the 
MPPP to a lender/servicer; and the lender/servicer that agrees to 
participate in the MPPP to assist in bringing its portfolio into 
compliance with flood insurance requirements must sign this ``Receipt 
and Agreement'' as evidence of having actually received the Package and 
agreeing to comply with the criteria and requirements contained 
therein.
    This acknowledges that the package of implementation materials for 
the Federal Insurance Administration's (FIA) Mortgage Portfolio 
Protection Program (MPPP) has been received.

----------------------------------------------------------------------
(Name of WYO company representative providing the Package)

----------------------------------------------------------------------
(Name of the WYO company being represented)

----------------------------------------------------------------------
(Date of receipt)

----------------------------------------------------------------------
(Name of lender/mortgage representative receiving the Package)

----------------------------------------------------------------------
(Name of lender/mortgage servicer being represented)

----------------------------------------------------------------------
(Date of receipt)

    Note: WYO companies are required to keep a copy of this Receipt 
in their files for each lender/mortgage servicer to which they 
provide services under the MPPP. Lenders/mortgage servicers may wish 
to do the same.

[FR Doc. 95-21400 Filed 8-28-95; 8:45 am]
BILLING CODE 6718-03-P