[Federal Register Volume 60, Number 201 (Wednesday, October 18, 1995)]
[Proposed Rules]
[Pages 53962-53985]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-25257]




[[Page 53961]]

  
  
  
  
  
  
  
  
  
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Part II

Department of the Treasury
Office of the Comptroller of the Currency



12 CFR Part 22

Federal Reserve System



12 CFR Part 208

Federal Deposit Insurance Corporation



12 CFR Part 339

Department of the Treasury
Office of Thrift Supervision



12 CFR Parts 563 and 572

Farm Credit Administration



12 CFR Part 614

National Credit Union Administration



12 CFR Part 760



_______________________________________________________________________



Loans in Areas Having Special Flood Hazards; Proposed Rule

  Federal Register / Vol. 60, No. 201 / Wednesday, October 18, 1995 / 
Proposed Rules   

[[Page 53962]]


DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 22

[Docket No. 95-24]
RIN 1557-AB47

FEDERAL RESERVE SYSTEM

12 CFR Part 208

[Regulation H, Docket No. R-0897]

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 339

RIN 3064-AB66

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Parts 563 and 572

[No. 95-179]
RIN 1550-AA82

FARM CREDIT ADMINISTRATION

12 CFR Part 614

RIN 3052-AB57

NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 760


Loans in Areas Having Special Flood Hazards

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

ACTION: Joint notice of proposed rulemaking.

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SUMMARY: The Comptroller of the Currency (OCC), Board of Governors of 
the Federal Reserve System (Board), Federal Deposit Insurance 
Corporation (FDIC), Office of Thrift Supervision (OTS), and National 
Credit Union Administration (NCUA) are proposing to amend their 
regulations, and the Farm Credit Administration (FCA) is proposing to 
issue new regulations, regarding loans in areas having special flood 
hazards. This action is required by statute and is intended to 
implement the provisions of the National Flood Insurance Reform Act of 
1994. Among other statutorily mandated provisions, the proposal would 
establish new escrow requirements for flood insurance premiums, 
explicit authority and the requirement for lenders and servicers to 
``force-place'' flood insurance under certain circumstances, enhanced 
flood hazard notice requirements, and new authority for lenders to 
charge fees for determining if a property is located in a special flood 
hazard area.

DATES: Comments must be received by December 18, 1995.

ADDRESSES: Comments should be directed to:
    OCC: Communications Division, Office of the Comptroller of the 
Currency, 250 E Street, SW., Washington, DC 20219, Attention: Docket 
No. 95-24. Comments may be inspected and photocopied at the same 
location. In addition, comments may be sent by facsimile transmission 
to FAX number 202/874-5274 or by electronic mail to 
[email protected].
    Board: William W. Wiles, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue, NW., 
Washington, DC 20551, Attention: Docket No. R-0897, or delivered to 
room B-2222, Eccles Building, between 8:45 a.m. and 5:15 p.m. Comments 
may be inspected in Room MP-500 between 9:00 a.m. and 5:00 p.m. 
weekdays, except as provided in Sec. 261.8 of the Board of Governors' 
rules regarding availability of information, 12 CFR 261.8.
    FDIC: Jerry L. Langley, Executive Secretary, Attention: Room F-402, 
Federal Deposit Insurance Corporation, 550 17th Street NW., Washington, 
DC 20429. Comments may be delivered to Room F-400, 1776 F Street, NW., 
Washington, DC 20429, on business days between 8:30 a.m. and 5:00 p.m. 
or sent by facsimile transmission to FAX number 202/898-3838. Internet: 
[email protected]. Comments will be available for inspection and 
photocopying in room 7118, 550 17th Street, NW., Washington, DC 20429, 
between 8:30 a.m. and 5:00 p.m. on business days.
    OTS: Chief, Dissemination Branch, Records Management and 
Information Policy, Office of Thrift Supervision, 1700 G Street NW., 
Washington, DC 20552, Attention: Docket No. 95-179. These submissions 
may be hand delivered to 1700 G Street, NW., from 9:00 a.m. to 5:00 
p.m. on business days or may be sent by facsimile transmission to FAX 
number (202/906-7755). Comments will be available for inspection at 
1700 G Street NW., from 1:00 p.m. until 4:00 p.m., on business days.
    FCA: Patricia W. DiMuzio, Associate Director, Regulation 
Development, Office of Examination, Farm Credit Administration, 1501 
Farm Credit Drive, McLean, VA 22102-5090. Copies of all comments will 
be available for examination by interested parties in Regulation 
Development, Office of Examination, Farm Credit Administration.
    NCUA: Becky Baker, Secretary of the Board, National Credit Union 
Administration, 1775 Duke Street, Alexandria, VA 22314-3428. Comments 
will be available for inspection at the same location. Send comments to 
Ms. Baker via the bulletin board by dialing 703/518-6480. Send one copy 
by U.S. mail or fax to FAX number 703/518-6319.

FOR FURTHER INFORMATION CONTACT:
    OCC: Carol Workman, Compliance Specialist (202/874-4858), 
Compliance Management; Margaret Hesse, Attorney, Community and Consumer 
Law Division (202/874-5750), Jacqueline Lussier, Senior Attorney, or 
Saumya Bhavsar, Attorney, Legislative and Regulatory Activities 
Division (202/874-5090), Office of Chief Counsel.
    Board: Diane Jackins, Senior Review Examiner, Jennifer Lowe, Review 
Examiner (202/452-3946), Division of Consumer and Community Affairs; 
Lawranne Stewart, Senior Attorney (202/452-3513), or Rick Heyke, 
Attorney (202/452-3688), Legal Division. For the hearing impaired only, 
Telecommunication Device for the Deaf (TDD), Earnestine Hill or 
Dorothea Thompson (202/452-3544).
    FDIC: Mark Mellon, Senior Attorney, Regulation and Legislation 
Section (202/898-3854), Legal Division, or Ken Baebel, Senior Review 
Examiner (202/942-3086), or Barbara L. Boehm, Consumer Affairs 
Specialist (202/942-3631), Division of Compliance and Consumer Affairs.
    OTS: Larry Clark, Program Manager, Compliance and Trust, Compliance 
Policy (202/906-5628); Catherine Shepard, Senior Attorney, Regulations 
and Legislation Division (202/906-7275), Office of Chief Counsel.
    FCA: Robert G. Magnuson, Policy Analyst, Regulation Development 
(703/883-4498), Office of Examination; or William L. Larsen, Senior 
Attorney, Regulatory Operations Division (703/883-4020), Office of 
General Counsel. For the hearing impaired only, TDD (703/883-4444).
    NCUA: Kimberly Iverson, Program Officer (703/518-6375), Office of 
Examination and Insurance; or Jeffrey 

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Mooney, Staff Attorney (703/518-6563), Office of General Counsel.

SUPPLEMENTARY INFORMATION:

I. Background

A. Introduction

    The Riegle Community Development and Regulatory Improvement Act, 
Pub. L. 103-325, 108 Stat. 2160 (CDRI Act), which the President signed 
into law on September 23, 1994, comprehensively revised the Federal 
flood insurance statutes. The flood insurance provisions of the CDRI 
Act require the OCC, Board, FDIC, OTS, and NCUA to revise their current 
flood insurance regulations. The FCA is required to promulgate flood 
insurance regulations for the first time. The six agencies are issuing 
this proposal jointly in order to fulfill these statutory requirements. 
All six of the agencies have coordinated and consulted with the Federal 
Financial Institutions Examination Council (FFIEC), as is required by 
certain of the CDRI Act flood insurance provisions.1

    \1\ The heads of five of the six agencies (OCC, Board, FDIC, 
OTS, and NCUA) comprise the membership of the FFIEC.
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    This preamble first briefly describes the National Flood Insurance 
Program (NFIP), then highlights the CDRI Act amendments to it that are 
of significance to the institutions supervised by the six agencies. 
Institutions are encouraged to consult the CDRI Act for further detail 
about the provisions described here as well as for amendments to the 
NFIP that do not require rulemaking by the six agencies.2

    \2\See, e.g., CDRI Act sections 521 (flood insurance purchase 
requirement for Federal disaster relief recipients may not be 
waived), 522 (Federal agency lenders subject to provisions of 
statute), 573 (increase in maximum flood insurance coverage 
amounts), 579 (delay of effective date of flood insurance policies), 
and 582 (flood disaster assistance barred in certain circumstances; 
duty to provide certain notices on transfer of property).
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    Following the description of the statutory background is a 
discussion of the substance of the proposed regulations. The agencies' 
proposals are substantively consistent, although the format of the 
regulatory text varies in order to accommodate the format currently in 
use at each agency.3 With respect to flood insurance regulations, 
these proposals satisfy the statutory obligations of the OCC, Board, 
FDIC, and OTS under section 303(a) of the CDRI Act. That section 
requires each of these agencies to review and streamline its 
regulations and to work jointly to make uniform all regulations and 
guidelines implementing common statutory or supervisory policies.

    \3\This proposal is also a component of the OCC's Regulation 
Review Program. Each of the agencies involved in this rulemaking is 
engaged in a similar effort to reduce unnecessary regulatory burden 
and to simplify and clarify its regulations.
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B. The National Flood Insurance Program

    The NFIP is administered primarily under two statutes: the National 
Flood Insurance Act of 1968 (1968 Act) and the Flood Disaster 
Protection Act of 1973 (1973 Act). These statutes are codified at 42 
U.S.C. 4001-4129.4 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 their community participates 
in the NFIP. A special flood hazard area (SFHA) is an area within a 
flood plain having a one percent or greater chance of flood occurrence 
in any given year.5 SFHAs are delineated on maps issued by FEMA 
for individual communities.6 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.7

    \4\The Federal Emergency Management Agency (FEMA) administers 
the NFIP; its regulations implementing the NFIP appear at 44 CFR 
parts 50-79 (1995).
    \5\44 CFR 59.1.
    \6\44 CFR part 65.
    \7\44 CFR part 60.
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    The 1973 Act amended the NFIP by requiring the OCC, Board, FDIC, 
OTS, and NCUA to issue regulations governing the lending institutions 
they supervise. The regulations directed lenders to require flood 
insurance on improved real estate or mobile homes serving as collateral 
for a loan (security property) if the security property was located in 
a SFHA in a participating community. To implement statutory amendments 
enacted in 1974, the regulations required lenders to notify borrowers 
that security property is located in a SFHA and of the availability of 
Federal disaster assistance with respect to the property in the event 
of a flood.

C. CDRI Act Amendments

    Title V of the CDRI Act, the National Flood Insurance Reform Act of 
1994 (Reform Act), comprehensively revises the NFIP. The Reform Act is 
intended to increase compliance with flood insurance 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.8

    \8\H.R. Conf. Rep. No. 652, 103d Cong., 2d Sess. 195 (1994) 
(Conference Report).
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    The Reform Act changed some of the terms used to refer to 
regulators and entities subject to the NFIP. The Reform Act refers to 
the six regulators collectively as the Federal entities for lending 
regulation. This preamble discussion refers to the six regulators as 
the Federal entities for lending regulation or the agencies. The Reform 
Act, and this preamble discussion, refer to the institutions supervised 
by the six agencies collectively as regulated lending institutions or 
lenders.9

    \9\In the statute, the term lender also refers to a Federal 
agency lender, which means a Federal agency that makes direct loans 
secured by improved real estate or a mobile home. This proposal does 
not apply to Federal agency lenders. See CDRI Act sections 511, 512, 
522.
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    The following provisions of the Reform Act are especially 
significant to regulated lending institutions. References to the 
appropriate sections of the CDRI Act are given in parentheses.
    Scope of coverage (sections 511, 512, 522). The Reform Act expanded 
the scope of coverage of the NFIP in several ways. First, it added the 
FCA to the list of regulators covered by the NFIP and added Farm Credit 
banks and other lenders supervised by the FCA to the list of covered 
financial institutions.
    Second, the Reform Act directed the Federal National Mortgage 
Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation 
(Freddie Mac) to implement procedures ``reasonably designed to ensure'' 
that property securing the residential mortgage loans they purchase is 
covered by flood insurance if the security property is located in a 
SFHA in a community that participates in the NFIP. Thus, entities not 
directly covered by Federal flood insurance laws will indirectly be 
required to satisfy the statutory flood insurance requirements if they 
sell residential mortgage loans to Fannie Mae or Freddie Mac.
    Third, as discussed more fully below, some of the Reform Act's 
provisions apply to loan servicers. The Reform Act defines the term 
servicer to include any person responsible for receiving any scheduled 
periodic payments from a borrower pursuant to the terms of a loan, 
including amounts for taxes, insurance premiums, and other charges with 
respect to the property securing a loan, and making the payments with 
respect to the amounts received from the borrower as may be required 
pursuant to the terms of the loan.
    Dates of Applicability. Except for the standard flood hazard 
determination 

[[Page 53964]]
form and escrow provisions described later in this preamble, the flood 
insurance provisions in the Reform Act that apply to insured banks, 
savings associations, and credit unions took effect on September 23, 
1994, the date of enactment of the Reform Act. The Reform Act 
specifically provides that the regulations implementing the flood 
insurance purchase requirement promulgated by the OCC, Board, FDIC, 
OTS, and NCUA that were in effect immediately before the date of 
enactment remain in effect until these agencies issue the new rules 
that the Reform Act requires. Thus, loans in compliance with the 
agencies' existing flood insurance rules that are made before new rules 
are finalized do not violate the requirements imposed by Federal flood 
insurance laws.
    The statutory provisions that apply to Fannie Mae and Freddie Mac 
take effect on September 23, 1995. Unlike the regulated lending 
institutions supervised by the other Federal entities for lending 
regulation, Farm Credit System (System) institutions were not part of 
the NFIP before passage of the Reform Act and are not subject to any 
current flood insurance regulations. In section 522 of the Reform Act, 
Congress made clear that System participation in the NFIP would not be 
required for a minimum of one year after enactment of the Reform Act, 
thus ensuring a transition period for integration of the System into 
the NFIP.
    As set forth below, a number of the Reform Act provisions require 
agency implementing regulations. These regulations will establish the 
basic framework for participation by System institutions in the NFIP. 
While it could be argued that System institutions should be required to 
comply as of September 23, 1995, with applicable statutory requirements 
of the Reform Act that do not require FCA regulations, the FCA believes 
that piecemeal applicability of Reform Act requirements before the 
fundamental regulatory framework envisioned by Congress is in place 
might be unfairly burdensome to institutions and unnecessarily 
difficult for the FCA to enforce.
    Further, the FCA believes that System lenders should have the 
opportunity to comment on NFIP implementing regulations before their 
requirements go into effect. Accordingly, the FCA will not criticize 
System institutions in examinations for failure to follow the 
requirements of the Reform Act until FCA implementing regulations are 
effective. Notwithstanding this interpretation of Reform Act 
applicability, to ensure a smooth integration of the System into the 
NFIP, the FCA encourages System lending institutions to initiate 
adequate preparations so that their lending activities will comply with 
NFIP requirements by the time final flood insurance regulations are 
adopted.
    Flood insurance requirement (section 522). Under the 1973 Act, 
regulated lending institutions could not ``make, increase, extend, or 
renew'' any loan secured by improved real estate or a mobile home 
located in a SFHA in a participating community unless the security 
property and any personal property securing the loan was covered for 
the life of the loan by flood insurance. The Reform Act continues this 
basic requirement but adds a new exemption for small, short-term 
loans--those with an original principal balance of $5,000 or less and a 
repayment term of one year or less.
    Escrow of flood insurance payments (section 523). The Reform Act 
directs the agencies to issue rules imposing a new escrow requirement 
for flood insurance payments. Under these rules, a regulated lending 
institution that requires the escrow of taxes, property insurance 
premiums, fees, or other charges for a loan secured by residential 
improved real estate must require the escrow of flood insurance 
premiums and fees as well. Loans secured by commercial property are not 
subject to this escrow requirement.
    Forced placement of flood insurance (section 524). The 1973 Act did 
not expressly authorize lenders to purchase--or force place--flood 
insurance on behalf of a borrower. The Reform Act explicitly confers 
forced placement authority on both lenders and servicers, and requires 
lenders and servicers to force place insurance under certain 
circumstances. If, at the time of origination or at any time during the 
term of a loan, the lender or servicer determines that the security 
property and any personal property securing the loan lack adequate 
flood insurance coverage, the lender or servicer must notify the 
borrower of the borrower's responsibility to obtain coverage at the 
borrower's expense. If the borrower fails to purchase flood insurance 
within 45 days after that notification, the lender or servicer must 
purchase the insurance on the borrower's behalf.
    The forced placement authority and requirement are self-
implementing, and apply to all loans outstanding on or after September 
23, 1994.\10\ In forced placement situations, the lender or servicer 
may pass the cost of the insurance--premiums and fees--on to the 
borrower.

    \10\With regard to the timing of the applicability of this 
requirement to System institutions, see discussion under ``Dates of 
applicability,'' supra.
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    The Reform Act also provides procedures for the resolution of 
disputed flood hazard determinations that would trigger the mandatory 
purchase requirement. At the joint request of the borrower and 
regulated lending institution, the Director of FEMA will review the 
determination and within 45 days make the final decision whether or not 
the building or mobile home is located in an area having special flood 
hazards. Review of a flood insurance determination may be requested 
whenever a determination occurs, either at origination or at any time 
during the term of the loan. FEMA published a notice of proposed 
rulemaking with respect to these procedures on June 15, 1995, 60 FR 
31442. The comment period closed on August 15, 1995.
    Penalties (section 525). The Reform Act authorizes the appropriate 
Federal entity for lending regulation to impose civil money penalties 
against a regulated lending institution that engages in a pattern or 
practice of violating the flood insurance statute or regulations. 
Notice and opportunity for hearing are required before civil money 
penalties may be imposed. Penalties may be assessed in amounts of up to 
$350 for each violation, not to exceed $100,000 per calendar year, for 
any single regulated lending institution.
    The agencies note that liability for civil money penalties remains 
with the regulated lending institution that committed the violation. 
Transfer of the loan does not extinguish the liability of the 
transferring lender; conversely, the transferee is not liable for 
violations committed by another lender that previously held the loan.
    The agencies also note that a lender that purchases or renews flood 
insurance in the appropriate amount on a borrower's behalf under the 
statute's forced placement provisions is deemed by the express language 
of the statute to have complied with the agencies' regulations 
requiring lenders to ensure adequate coverage on security property 
located in a SFHA.
    Flood determination fees (section 526). The 1973 Act did not 
expressly authorize regulated lending institutions to charge borrowers 
for the cost of making a flood insurance determination. The Reform Act 
provides that any person making a loan secured by improved real estate 
or a mobile home, or any servicer for such a loan, may charge a 
reasonable fee for the costs of determining whether the building or 
mobile home is located in a SFHA. The 

[[Page 53965]]
lender or servicer acting on behalf of the lender may charge the 
determination fee to the borrower or, in the case of a loan transfer or 
sale, the loan purchaser under prescribed circumstances. These include 
when the determination (1) is made in connection with the making, 
increasing, extending, or renewing of the loan that the borrower 
initiates, (2) is made in response to map changes by FEMA, or (3) 
results in the purchase of flood insurance under the forced placement 
provisions.
    Notice requirements (section 527). The 1968 Act, as amended, 
required regulated lending institutions to provide notice to purchasers 
or lessees if the property securing the loan is located in a SFHA. The 
Reform Act further amends the 1968 Act: (1) to add detail to the 
required contents of the notice; (2) to require regulated lending 
institutions to give notice of special flood hazards to loan servicers, 
as well as to purchasers or lessees; and (3) to require lenders to 
notify FEMA of the identity of the servicer of a loan subject to flood 
insurance requirements and of the identity of the new servicer if there 
is a change in loan servicers.
    The Reform Act also requires the Director of FEMA (or the 
Director's designee) to provide advance notice of the expiration of any 
flood insurance contract to the owner of the property covered by the 
contract, the loan servicer of any loan secured by such insured 
property, and (if known to the Director) the owner of the loan.
    Standard flood hazard determination form (section 528). The Reform 
Act requires FEMA to develop a standard form for recording a lender's 
determination whether security property for a given loan is located in 
a SFHA for which flood insurance is available. The Reform Act mandates 
that the form be developed by regulations issued 270 days after 
September 23, 1994, the date of enactment. FEMA published a notice of 
proposed rulemaking with respect to the form on April 7, 1995, 60 FR 
17758, and a final rule on July 6, 1995, 60 FR 35276. FEMA's final rule 
was effective upon publication in the Federal Register.
    The Reform Act also requires the Federal entities for lending 
regulation to issue regulations requiring regulated lending 
institutions to use the standard form developed by FEMA. The Reform Act 
mandates that the agencies' regulations be issued together with FEMA's 
rule establishing the form. The agencies published a final rule that 
complies with this statutory requirement on July 6, 1995. 60 FR 35286. 
Under this rule, as mandated by the Reform Act, regulated lending 
institutions must use the form beginning 180 days after the issuance of 
the rule, or January 2, 1996.
    Examination regarding compliance (section 529). The Reform Act 
requires each appropriate Federal entity for lending regulation to 
assess compliance with the NFIP when it conducts examinations of the 
regulated lending institutions it supervises. The OCC, Board, FDIC, 
OTS, and NCUA are required to report to Congress on compliance by 
insured depository institutions and insured credit unions with the 
requirements of the NFIP. The FCA has authority under the Farm Credit 
Act (12 U.S.C. 2001-2279bb-6) to assess compliance by Farm Credit 
System institutions with the NFIP.
    Availability of flood maps (section 575). Under the Reform Act, 
FEMA must make flood insurance rate maps and related information 
available free of charge to the Federal entities for lending regulation 
(and certain other governmental entities) and at a reasonable cost to 
all other persons. FEMA also must provide notice of any change to flood 
insurance map panels, including changes effected by letter of map 
amendment or letter of map revision, not later than 30 days after the 
map change or revision becomes effective. FEMA must either publish this 
notice in the Federal Register or provide notice by another, comparable 
method. Finally, every six months FEMA must publish a compendium of all 
changes and revisions to flood insurance map panels and all letters of 
map amendment and revision for which it published notice during the 
preceding six months. These compendia are available free of charge to 
the Federal entities for lending regulation (and certain other 
governmental entities) and for a fee set by FEMA to all other persons.

II. Description of the Proposal

A. Overview

    The Reform Act directs the Federal entities for lending regulation 
to write regulations implementing certain of its provisions and 
specifies their content. The OCC, Board, FDIC, OTS, and NCUA are 
proposing to revise their current flood insurance regulations11 to 
reflect the changes required by the Reform Act. The FCA is proposing 
new flood insurance regulations for the institutions it regulates. All 
of the agencies were mindful of the need to keep regulatory burden to a 
minimum as they prepared this proposal, and, accordingly, are proposing 
only regulatory requirements necessary to implement the Reform Act.

    \11\OTS's current flood insurance regulation is codified at 12 
CFR 563.48. For ease of reference, the OTS is creating a new part 
572 for its flood insurance regulation and repealing 12 CFR 563.48.
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    The purpose of the Reform Act is to strengthen and enhance the 
NFIP. It does not focus on the safety and soundness of financial 
institutions. Depending on the location and activities of a lender, 
adequate flood insurance coverage may be important from a safety and 
soundness perspective as a component of prudent underwriting and as a 
means of protecting the lender's ongoing interest in its collateral. 
Accordingly, this preamble notes issues that may raise safety and 
soundness concerns in some circumstances and invites comment on these 
issues so that the agencies can consider whether to provide informal 
guidance, separate from these implementing regulations, that addresses 
safe and sound banking practices with respect to flood insurance.
    In deciding whether guidance of this type is appropriate, the 
agencies will consider the fact that a lender's needs with respect to 
flood insurance vary widely depending on the type of lending the 
institution does and the geographic areas it serves. Therefore, each 
lender is generally in the best position to tailor its flood insurance 
policies and procedures to suit its business. The agencies encourage 
lenders to evaluate and, when necessary, modify their flood insurance 
programs to comport with both the requirements of Federal flood 
insurance laws and regulations and principles of safe and sound 
banking.

B. Topic-by-Topic Discussion

Authority, Purpose and Scope
    The agencies have expanded this section to add detailed statements 
of authority, purpose and scope. The FCA is proposing language similar 
to that proposed by the other agencies. The NCUA is proposing to 
replace the current question and answer format of its flood insurance 
regulations with standard regulation text so that its flood insurance 
regulations are consistent with the other agencies.
Loan Servicers
    The agencies propose to apply their regulations implementing the 
escrow, forced placement, and flood hazard determination fee provisions 
of the Reform Act to regulated lending institutions and to loan 
servicers acting on behalf of regulated lending institutions. The 
agencies propose to cover loan servicers in this way for several 
reasons. First, the agencies do 

[[Page 53966]]
not have jurisdiction over all servicers. Some servicers are not 
regulated lending institutions or their affiliates.
    Second, the agencies do not interpret the NFIP to impose 
obligations on loan servicers independent from the obligations it 
imposes on the owner of a loan.
    The NFIP looks to activities that are conducted by lenders rather 
than loan servicers--that is, the making, increasing, extending, or 
renewing of a loan--as the triggers for ensuring adequate flood 
insurance coverage. The mandatory purchase requirement under section 
102 of the 1973 Act (42 U.S.C. 4012a(b)) applies only to lenders.
    Moreover, the Conference Report indicates that a principal reason 
for the adoption of the forced placement provision was to remove any 
doubt that lenders have the legal authority to require borrowers to 
purchase flood insurance or, if the lender purchases the insurance, to 
require the borrower to pay for it. Conference Report at 199. The 
agencies conclude that loan servicers were covered by the provision so 
that they could perform for the lender the administrative tasks related 
to the forced placement of flood insurance--including providing the 
requisite notices to borrowers, arranging for the insurance, and 
collecting and transmitting insurance premiums--without fear of 
liability to the borrower for the imposition of unauthorized charges.
    Finally, section 102(f) of the 1973 Act (42 U.S.C. 4012a(f)) as 
added by section 525 of the CDRI Act does not authorize the agencies to 
seek civil money penalties against loan servicers that are not 
regulated lending institutions. The statute's failure to impose 
liability on servicers independent of lenders reinforces the conclusion 
that a servicer's obligation to comply with NFIP requirements arises 
from its contractual relationship with a lender. A lender thus may 
fulfill its duties under the NFIP by imposing its responsibilities on 
the servicer under a servicing contract. Accordingly, lenders should 
include in their loan servicing agreements language ensuring that the 
servicer will take all necessary steps with respect to escrow 
requirements, forced placement of flood insurance, flood hazard 
determinations, and notices if the lender or its servicer should 
determine that there are deficiencies in any of these aspects of 
servicing agreements.
Definitions
    The agencies have added or revised certain definitions, including 
definitions of the terms ``building,'' ``designated loan,''12 
``mobile home,'' and ``servicer.'' The agencies also added certain 
definitions that enable them to streamline the operative provisions of 
the regulation, including definitions of the terms ``Director,'' 
``residential improved real estate,'' and ``special flood hazard 
area.''

    \12\The definition of the term ``designated loan'' refers to 
loans ``secured by a building or mobile home'' because, as a 
practical matter, flood insurance is generally available only with 
respect to a structure or mobile home and not with respect to the 
land on which the structure or mobile home sits. This definition is 
unique to the agencies' flood insurance regulations and carries no 
implication about the nature or extent of the collateral that a 
lender otherwise requires as a matter of prudent underwriting.
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Flood Insurance Requirement
    The Reform Act did not change the basic requirement for the 
purchase of flood insurance when a security property is located in a 
special flood hazard area in a participating community, nor did it 
modify the minimum required amount of the insurance.13 The minimum 
amount continues to be the lesser of the amount of the outstanding 
principal balance of the loan or the maximum limit for coverage under 
the 1968 Act.14 Accordingly, the five agencies that currently have 
flood insurance regulations are not proposing any substantive amendment 
to the text that implements this portion of the statute.

    \13\See also section 573 of the CDRI Act, increasing the maximum 
flood insurance coverage limits.
    \14\In addition to the dollar limits in the 1968 Act, flood 
insurance coverage under the NFIP is limited to the overall value of 
the property less the value of the land.
---------------------------------------------------------------------------

Loan Purchase as Equivalent to Loan Origination
    The agencies' current regulations differ in their treatment of the 
issue whether the purchase of a loan constitutes the making of a loan 
for purposes of flood insurance. The OCC and the Board take the 
position that a loan purchase is not an event that triggers the 
obligation to make a flood hazard determination. The FDIC has not 
previously had an opportunity to express an opinion on the question.
    The OTS's current regulations, on the other hand, view the purchase 
of a loan as the equivalent of the making of a loan for flood 
determination purposes. In an effort to promote uniformity among the 
agencies, the OTS is considering aligning its position with that of the 
OCC and the Board, so that a loan purchase by a savings association 
would not trigger an obligation to make a flood hazard 
determination.15 Based on its regulations governing loan 
purchasing, NCUA previously took the position that if flood insurance 
would have been required for a Federal credit union to grant the loan, 
flood insurance would be necessary for the credit union to purchase the 
loan.

    \15\OTS has historically taken a different position on this 
question than the OCC and the Board. Section 102(b) of the 1973 Act 
(42 U.S.C. 4012a(b)) provides that regulated lending institutions 
may not ``make'' any loan secured by improved real estate or a 
mobile home located in a SFHA unless the security property is 
covered by an adequate policy of flood insurance. The OTS's 
predecessor, the Federal Home Loan Bank Board, considered the word 
``make'' to be broad enough to include loan purchases. Otherwise, 
savings institutions could evade flood insurance requirements by the 
simple expedient of purchasing, rather than originating, loans. See 
34 FR 5749 (Feb. 15, 1974). Accordingly, the OTS's regulations 
implementing the 1973 Act construe the phrase ``make a loan'' as 
including purchased loans, see 12 CFR 563.48(b).
---------------------------------------------------------------------------

    The OCC and the Board do not propose to revise their current 
regulatory language to add a loan purchase as a ``tripwire'' for 
determining whether adequate flood insurance exists. The statute 
identifies the events--the making, increasing, extending, or renewing 
of a loan--that trigger a lender's obligation to review the adequacy of 
flood insurance coverage on an affected loan. The Reform Act does not 
include loan purchase in this list of specified tripwires. The OCC and 
the Board note that a loan purchaser may always require as a condition 
of purchase that the seller determine whether the security property is 
located in a SFHA. The Reform Act authorizes the seller to charge a fee 
to the purchaser for making this determination.
    With respect to residential mortgage loans sold in the secondary 
market, the inclusion of loan purchase as a tripwire event may be 
unnecessary because of the expansion of the scope of the NFIP's 
coverage with regard to Fannie Mae and Freddie Mac. Fannie Mae and 
Freddie Mac are the largest volume purchasers of residential mortgage 
loans. As a practical matter, these entities establish the industry 
standards not only for the residential mortgage loans that they buy, 
but for all residential mortgage loans that the originator does not 
intend to keep in portfolio. The bulk of home loans sold to other 
purchasers, including regulated lending institutions, typically conform 
with Fannie Mae and Freddie Mac standards. Pursuant to the Reform Act 
amendments,16 those standards will include adequate flood 
insurance coverage on collateral securing loans sold to these entities. 
The OCC and the Board believe that including loan purchase as a 
regulatory tripwire could result in the imposition of duplicative (and 
potentially 

[[Page 53967]]
inconsistent) requirements on the seller and the purchaser of a 
residential mortgage loan sold in the secondary market.

    \16\Section 522 of the CDRI Act.
---------------------------------------------------------------------------

    As noted previously, the FDIC has not previously had an opportunity 
to express an opinion on the question of whether the purchase of a loan 
is equivalent to the making of a loan for purposes of Federal flood 
insurance laws. The FDIC now proposes, in the interest of regulatory 
consistency, to formally adopt the position adhered to by the OCC and 
the Board that a loan purchase is not an event that triggers the 
obligation to make a flood hazard determination.
    Given the Reform Act's extension of the flood insurance 
requirements to Fannie Mae and Freddie Mac, the OTS believes that 
coverage of loan purchases may no longer be necessary, especially if 
the agencies issue guidance on loan purchases, as discussed below. 
Therefore, the OTS, in an effort to promote consistent treatment for 
all regulated lending institutions, proposes to remove loan purchases 
from its flood insurance regulations. The OTS requests comment on this 
proposal.
    Prior to the Reform Act, the NCUA took the position that if flood 
insurance would have been required for a Federal credit union to grant 
the loan, flood insurance would be necessary for the credit union to 
purchase the loan. This position is based upon the requirements of 12 
CFR 701.23(b)(1) of the NCUA regulations, which state that a Federal 
credit union may only purchase a loan if it could have granted that 
loan or if the loan is restructured within 60 days after purchase so 
that it is a loan the Federal credit union could grant. The NCUA 
invites comment on whether it should maintain this position.
    All of the agencies are considering whether, as a supervisory 
matter, to provide guidance on the flood insurance policies that 
institutions should follow when they purchase loans, including 
nonconforming home loans, loans secured by commercial property, 
portfolios of loans, and loan participations. Loans in these categories 
may be subject to underwriting standards that differ significantly from 
those established by Fannie Mae, Freddie Mac, or other government-
sponsored enterprises for housing. Institutions with portfolios that 
include purchased loans may need to develop procedures to ensure that 
such purchases do not result in concentrations of loans secured by 
property subject to flood hazards for which insurance is not available 
or has not been obtained. The agencies invite comment on the need for 
this type of guidance and on what it should include.
Loan Acquisitions Involving Table Funding Arrangements.
    The agencies also invite comment regarding whether lenders who 
provide table funding to close loans originated by mortgage brokers or 
mobile home dealers should be deemed to be ``making'' or ``purchasing'' 
loans for purposes of the flood insurance requirements. In the typical 
table funding situation, the party providing the funding ordinarily 
reviews and approves the credit standing of the borrower and issues a 
commitment to the broker or dealer to purchase the loan at the time the 
loan is originated. Frequently, all loan documentation and other 
statutorily mandated notices are supplied by the party providing the 
funding, rather than the broker or dealer. The funding party provides 
the original funding for the mortgage loan ``at the table'' when the 
broker or dealer and the borrower close the loan. Concurrent with the 
loan closing, the funding party acquires the loan from the broker or 
dealer. Technically, however, the party providing the funding is 
purchasing rather than originating the loan.
    The Financial Accounting Standards Board (FASB)17 provides 
guidance on the issue whether the party providing the funding should 
account for a table funding arrangement as a loan purchase or loan 
origination, and what criteria should be used to evaluate whether a 
table funding arrangement constitutes a loan purchase or a loan 
origination. A mortgage loan acquired by the party providing the 
funding in a table funding arrangement should be accounted for as a 
purchase of the loan by the acquirer if the loan is legally structured 
as an origination by the broker or dealer and if the broker or dealer 
is independent of the provider of funds. In making these 
determinations, the broker or dealer must satisfy each of five 
criteria. Those criteria are:

    \17\See Financial Accounting Standards Board, EITF Abstracts, 
Emerging Issues Task Force Issue No. 92-10, ``Loan Acquisitions 
Involving Table Funding Arrangements,'' 1993.
---------------------------------------------------------------------------

    1. The broker or dealer is registered and licensed to originate 
and sell loans under the applicable laws of the states or other 
jurisdictions in which it conducts business;
    2. The broker or dealer originated, processed, and closed the 
loan in its own name and is the first titled owner of the loan, with 
the mortgage banking enterprise becoming a holder in due course;
    3. The broker or dealer is an independent third party and not an 
affiliate of the mortgage banking company. As a nonaffiliate, the 
correspondent must bear all of the costs of its place of business, 
including the costs of its origination operations;
    4. The broker or dealer must sell loans to more than one 
mortgage banking enterprise and not have an exclusive relationship 
with the acquirer; and
    5. The broker or dealer is not directly or indirectly 
indemnified by the mortgage banking enterprise for market or credit 
risks on loans originated by the broker or dealer. However, a 
commitment by the mortgage banking enterprise for the purchase of 
loans from the broker or dealer is not considered to be an 
indemnification for purposes of this requirement.

If any of the criteria is not met, then the loan should be accounted 
for as an originated loan by the provider of the funds.
    Under the Real Estate Settlement Procedures Act of 1974, as 
amended, (12 U.S.C. 2601-2617) (RESPA), table funding is defined as 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.18 A table-funded transaction is not a ``secondary market 
transaction.'' 24 CFR 3500.2. A bona fide transfer of a loan obligation 
in the secondary market is not covered by RESPA or Regulation X, with 
certain exceptions. 24 CFR 3500.5(b)(7). The regulation provides that 
in determining what constitutes a bona fide transfer of a loan 
obligation in the secondary market, HUD will consider the real source 
of funding and the real interest of the funding lender. Mortgage broker 
transactions that are table-funded are not ``secondary market 
transactions.'' Neither the creation of a dealer loan nor the first 
assignment of such loan to a lender is a ``secondary market 
transaction.''

    \18\ Regulations issued by the Department of Housing and Urban 
Development (HUD) under RESPA appear in 24 CFR part 3500 (Regulation 
X).
---------------------------------------------------------------------------

    In the agencies' view, a table-funded transaction is more like a 
loan origination by the provider of funds than a purchase of a loan in 
the secondary market by that entity. Thus, lenders who provide table 
funding to close loans originated by a mortgage broker or mobile home 
dealer will be considered to be making a loan for purposes of the flood 
insurance requirements. The agencies request comment on this position 
and whether the FASB or RESPA standard is a more appropriate guideline.
Applicability of Federal Flood Insurance Requirements to Subsidiaries
    The question whether Federal flood insurance legislation applies to 
mortgage banking subsidiaries of regulated lending institutions is 
mooted 

[[Page 53968]]
to some extent by the previously noted Reform Act amendment requiring 
Fannie Mae and Freddie Mac to ensure that any improved real estate or 
mobile home located in a SFHA that secures a mortgage loan these 
entities purchase is covered by the legally required amount of flood 
insurance. Since mortgage bankers generally securitize their mortgage 
loans and then sell them in the secondary market, any such loan that is 
sold to either Fannie Mae or Freddie Mac must comply with their 
requirements and therefore must be covered by flood insurance.
    Fannie Mae and Freddie Mac primarily purchase residential mortgage 
loans, however, and then usually for 1- to 4-family residential unit 
dwellings. As a result, most mortgage loans secured by commercial 
property or by residential property with more than 4 units are not 
subject to Fannie Mae or Freddie Mac requirements. Each agency's 
discussion with respect to the applicability of Federal flood insurance 
requirements to the subsidiaries of the institutions it regulates is 
set forth below.
    OCC and Board. National banks' operating subsidiaries are subject 
to the rules applicable to the operations of their parent banks as 
provided under 12 CFR 5.34. Similarly, state member banks' operating 
subsidiaries are subject to the rules applicable to the operations of 
their parent banks.
    FDIC. The FDIC is responsible for the federal supervision of state 
chartered banks which are not members of the Federal Reserve System. 
The FDIC has been given specific legal authority to fulfill that 
function through the prescription of such rules and regulations as the 
Board of Directors of the FDIC may deem necessary to carry out the 
provisions of the Federal Deposit Insurance Act (FDI Act) or any other 
law which the FDIC has the responsibility of administering or enforcing 
including Federal flood insurance legislation. See section 9(a)(Tenth) 
of the FDI Act (12 U.S.C. 1819(a)(Tenth)). The authority of the FDIC to 
regulate insured nonmember banks extends to activities that such 
institutions may conduct through subsidiaries. The FDIC therefore 
proposes to require by regulation that a subsidiary of an insured 
nonmember bank that engages in lending secured by real estate must 
comply with Federal flood insurance requirements. The FDIC invites 
comment from all interested parties on this proposed interpretation. 
The FDIC proposes to make subsidiaries of insured nonmember banks 
subject to Federal flood insurance requirements by defining the term 
``bank'' to include a subsidiary of such an institution. The FDIC 
invites comments on this proposed method.
    OTS. Operating subsidiaries of Federal savings associations are 
subject to the rules, including flood insurance regulations, applicable 
to their parent savings associations. 12 CFR 545.81(e). However, the 
current OTS regulations implementing the 1973 Act do not apply to a 
service corporation. 12 CFR 563.48(a); discussed in 39 FR 5749 (Feb. 
15, 1974). Because the Reform Act defines the term regulated lending 
institution to include, among other things, any bank, savings and loan 
association, or similar institution subject to the supervision of a 
Federal entity for lending regulation, the OTS is proposing to apply 
its flood insurance regulations to service corporations that engage in 
mortgage lending. The OTS believes this position is consistent with the 
statutory language and Congressional intent, and ensures uniform and 
consistent treatment for regulated financial institutions. The OTS 
requests comment on this proposal.
    FCA. Service corporations organized under the Farm Credit Act (12 
U.S.C. 2001-2279bb-6) are System institutions subject to the 
regulations applicable to the operations of their parent banks. 12 
U.S.C. 2213. Since System service corporations have no authority to 
extend credit, the applicability of these proposed flood insurance 
requirements to such organizations should not be in question. 12 U.S.C. 
2211.
    NCUA. A credit union, by itself, with other credit unions and/or 
with non-credit union parties, may invest in or loan money to a 
corporation or limited partnership, called a credit union service 
organization (CUSO), which provides services to its credit union 
investors. 12 CFR 701.27(d). CUSOs are not directly regulated by the 
NCUA; rather, NCUA establishes the conditions for Federal credit union 
investments in and loans to such organizations. 12 CFR 701.27(a). Since 
NCUA does not exercise direct regulatory or supervisory jurisdiction 
over them, NCUA believes that CUSOs are not regulated lending 
institutions subject to the Reform Act. However, CUSOs that originate 
mortgage loans generally do not warehouse those loans. Their loans are 
either sold directly to the secondary market or sold to the credit 
union. Therefore, as a practical matter, CUSOs must adhere to the 
Federal flood insurance requirements when making loans since, as 
described herein, loans purchased by credit unions or sold to Fannie 
Mae or Freddie Mac must conform with these requirements.
Exemptions
    Before its amendment by the Reform Act, the 1973 Act provided an 
exemption to the basic flood insurance requirement for State-owned 
property covered under a policy for self-insurance satisfactory to the 
Director of FEMA. 42 U.S.C. 4012a. The proposal retains this exemption 
and adds the Reform Act's new exemption for loans with an original 
principal balance of $5,000 or less and a repayment term of one year or 
less.
Escrow of Flood Insurance Payments
    The Reform Act requires the agencies to adopt rules providing that 
a regulated lending institution must require the escrow of flood 
insurance premiums for loans secured by residential properties if the 
lender requires the escrow of other funds to cover other charges 
associated with the loan, such as taxes, premiums for other types of 
insurance, and fees. The proposal implements this new requirement. 
Where appropriate, servicing agreements between a lender and loan 
servicer also should require a loan servicer to escrow flood insurance 
premiums.
    Escrow of flood insurance premiums is not required if the regulated 
lending institution does not require escrow of taxes, insurance 
premiums, or other payments. Thus, if a regulated lending institution 
terminates a loan escrow account, the lender is no longer required to 
escrow flood insurance premiums.
    Under section 523 of the CDRI Act (42 U.S.C. 4012a(d)), escrow 
accounts for flood insurance premiums are subject to the applicable 
provisions of section 10 of RESPA, 12 U.S.C. 2609. Section 10 generally 
limits the amount that may be maintained in an escrow account and 
requires certain escrow account statements.19 The regulations 
implementing section 10 appear at 24 CFR 3500.17 (1995). See also 60 FR 
8812 (Feb. 15, 1995) and 60 FR 24734 (May 9, 1995) (revising 
Sec. 3500.17). The requirement to escrow flood insurance premiums will 
take effect when the new 

[[Page 53969]]
rules implementing the Reform Act are final.

    \19\Certain loans are exempt from RESPA, however, including a 
loan for any purpose on property of 25 acres or more, or an 
extension of credit primarily for a business, commercial, or 
agricultural purpose. See 12 U.S.C. 2606; 24 CFR 3500.5. Thus RESPA 
is narrower in scope than the Federal flood insurance legislation. 
The agencies are of the opinion that section 10 of RESPA applies to 
flood insurance escrow accounts only if the underlying loan is 
covered by RESPA. For example, a lender that originates a loan in a 
special flood hazard area primarily for a business, commercial or 
agricultural purpose must escrow flood insurance premiums if it 
escrows other types of payments (such as payments for insurance or 
taxes) but the escrow account established for that loan need not 
comply with the requirements of section 10 of RESPA.
---------------------------------------------------------------------------

Forced Placement of Flood Insurance
    The Reform Act requires a regulated lending institution or servicer 
acting on its behalf to purchase--or ``force place''--flood insurance 
for the borrower if the regulated lending institution or servicer 
determines that adequate coverage is lacking. The statute does not 
prescribe how or when the regulated lending institution or servicer 
should make this determination. The Reform Act does say, however, that 
the determination may occur at the time of origination or at any time 
during the term of the loan. The forced placement provision applies to 
all loans outstanding on or after September 23, 1994.20

    \20\With regard to the timing of the applicability of this 
requirement to System institutions, see discussion under ``Dates of 
applicability,'' supra.
---------------------------------------------------------------------------

    The agencies note that the Reform Act contains provisions designed 
to make it easier for lenders and servicers to obtain actual notice of 
remappings or of the expiration of coverage of flood insurance. FEMA 
must publish notice of all remappings; and FEMA must provide advance 
notice of the expiration of insurance coverage to property owners, loan 
servicers, and (if known to FEMA) the owners of the loans.
Portfolio Review
    The Reform Act and the proposed rules do not require regulated 
lending institutions or servicers to undertake a review of all loans in 
portfolio as of September 23, 1994, that is, a retroactive portfolio 
review. First, the Reform Act does not revise the list of events that 
trigger a determination, that is, the making, increasing, renewing, or 
extension of a loan. Second, the Reform Act imposes no requirement for 
retroactive portfolio review. Finally, a requirement for retroactive 
portfolio review would impose a burden on regulated lending 
institutions that is both costly and unnecessary in light of the system 
of specific tripwires that the Reform Act establishes.
    Similarly, the agencies do not believe that the Reform Act requires 
regulated lending institutions or servicers to conduct portfolio 
reviews on a prospective basis. The 1968 and 1973 Acts as amended by 
the Reform Act do not prescribe portfolio review, or any other method, 
as the means that lenders or servicers should use to determine whether 
security property is adequately covered by flood insurance, nor does it 
require that determinations be made at any particular time.
    Because the Reform Act does not mandate review of loan portfolios, 
the agencies do not propose to establish such a requirement by 
regulation. Regulated lending institutions and their servicers will 
nonetheless need to develop policies and procedures to ensure that, 
where a determination has been made that property securing a loan is 
located in a SFHA, they are in compliance with the Reform Act's forced 
placement provision.
    In addition, it may be appropriate as a matter of safety and 
soundness for the agencies to ensure that institutions that are 
significantly exposed to the risks for which flood insurance is 
designed to compensate determine the adequacy of flood insurance 
coverage by (1) periodic reviews, or (2) reviews triggered by remapping 
of areas represented in a regulated lending institution's loan 
portfolio.
    The agencies solicit comment on the advisability of issuing 
guidance in this area and on how the guidance should differentiate 
among regulated lending institutions based on their levels of exposure 
to flood risk. In particular, the agencies invite comment describing 
the methods that regulated lending institutions already use or are 
considering for determining the adequacy of flood insurance coverage; 
the cost (or other burden) associated with portfolio reviews; and on 
whether the additional loans for which flood insurance would be 
required as a result of portfolio reviews would be significant in 
relation to a regulated lending institution's or servicer's portfolio.
Penalties
    The penalty provisions of the Reform Act are self-executing. They 
do not require the agencies to develop regulations to implement them, 
and the agencies are not proposing to do so.
Determination Fees
    The Reform Act authorizes a lender or servicer acting on behalf of 
a lender to charge a reasonable fee for making a flood hazard 
determination, notwithstanding any other Federal or State law. This fee 
may be charged to the borrower under certain circumstances specified in 
the statute: if the borrower initiates the transaction (the making, 
increasing, extending, or renewing of a loan) that triggers a flood 
hazard determination; if the determination reflects FEMA's revision of 
map areas subject to flooding; or if the determination results in the 
purchase of flood insurance under the forced placement provision. In 
the case of a sale or transfer of the loan, the fee may be charged to 
the purchaser or transferee. The proposal includes the same 
authorization to charge reasonable determination fees as the Reform 
Act.
    Section 526 of the CDRI Act (42 U.S.C. 4012a(h)) constitutes an 
authorization to charge fees in certain circumstances, notwithstanding 
the provisions of any other Federal or State law. It does not limit the 
ability of a lender to provide for determination fees in other 
circumstances under its lending contract, provided that such fees are 
not in conflict with other Federal or State laws.
Notice Requirements
    The proposal revises the current regulation to reflect the 
provisions added by the Reform Act that prescribe the minimum contents 
of a regulated lending institution's notice concerning special flood 
hazards to borrowers and loan servicers.
    The 1968 Act (42 U.S.C. 4104a) requires regulated lending 
institutions to notify the ``purchaser or lessee (or obtain 
satisfactory assurances that the seller or lessor has notified the 
purchaser or lessee)'' of special flood hazards. In this context, the 
terms ``purchaser'' and ``lessee'' refer to the person who will occupy 
a property. The Reform Act did not amend this statutory language. The 
current regulation states that the regulated lending institution must 
notify the borrower of special flood hazards and states that in lieu of 
such notification, a regulated lending institution may obtain 
satisfactory written assurance that the seller or lessor has so 
notified the borrower prior to the execution of the sale or lease 
agreement. Each of the agencies has used the word ``borrower'' in place 
of the ``purchaser'' or ``lessee'' designation contained in the 
statute, primarily to provide greater clarity. The proposal does not 
change this terminology.
    The agencies invite comment on the advisability of retaining this 
language.
    The notification to the borrower and servicer must include a 
warning that the building on the improved real estate or the mobile 
home is or will be located in an area having special flood hazards, a 
description of the flood insurance purchase requirements under section 
102(b) of the 1973 Act (42 U.S.C. 4012a(b)), a statement that insurance 
may be purchased under the NFIP and is also available from private 
insurers, and any other information that the Director of FEMA considers 
necessary to carry out the purposes of the NFIP. The proposal follows 
the statute and 

[[Page 53970]]
requires that these items be included in the notice.21

    \21\Readers should be aware that section 1364 of the 1968 Act as 
amended by section 527 of the CDRI Act requires that the notice of 
special flood hazards also list any other information that the 
Director of the FEMA considers necessary to carry out the purposes 
of the NFIP. The agencies have been informed by FEMA staff that at 
the present time there are no plans to require that any other 
information be listed on the notice.
---------------------------------------------------------------------------

    The current regulatory provision requiring lenders to provide 
notice to borrowers of the availability of Federal disaster relief 
assistance in the event of flooding implements a portion of the 1973 
Act (42 U.S.C. 4106(b)) that has not been amended substantively and, 
therefore, remains unchanged.
    The 1968 Act requires the lender to provide notice of special flood 
hazards within a reasonable period of time in advance of the signing of 
the documents involved in the transaction. The proposal reflects the 
Reform Act amendment that added the loan servicer to the entities that 
must be notified. However, in the agencies' view, it may not be 
possible in all cases for a lender to provide such advance notice to a 
loan servicer. The agencies request comment on the appropriate timing 
of the notification to the loan servicer.
    The current regulations require that the borrower, prior to 
closing, furnish the lender with a written acknowledgment of the 
receipt of the notices. The Reform Act mandates that the agencies' 
regulations require lenders to retain a record of the receipt of the 
notices by the borrower and the loan servicer. The proposed regulation 
reflects this change and deletes the acknowledgment provision.
    The agencies request comment on whether the final regulations 
should require the lender to retain a copy of each notice in its files.
    The substance of the ``safe harbor'' provision in the current 
regulations permitting lenders to rely on the language presented in 
sample notices that currently appear either in the body of the 
regulations or in an appendix to the regulations remains unchanged. The 
language in the sample notices is revised to reflect amendments to the 
1968 Act (42 U.S.C. 4104a(a)(3)) made by section 527 of the CDRI Act.
    The proposal also implements the new requirement that regulated 
lending institutions notify the Director of FEMA (or the Director's 
designee) of the identity of the loan servicer and of any change in the 
servicer with respect to any loan secured by improved real estate or a 
mobile home located in a SFHA. The agencies understand that the 
Director of FEMA intends to designate the insurance agent that writes 
the flood insurance to receive the notice.
    The agencies request comment on whether the final regulations 
should require the lender to retain a copy of the notice of the 
identity of the servicer in its files.
Use of Standard Flood Hazard Determination Form
    As mentioned in the Background section of this proposal, each 
agency has issued a final rule requiring the institutions they 
supervise to use the standard flood hazard determination form developed 
by FEMA when they determine whether improved real estate or a mobile 
home offered as collateral for a loan is located in a SFHA. For the 
convenience of the reader, the sections of the regulatory text 
established by those final rules are included in this proposal. The 
regulatory text contains nonsubstantive revisions made to reflect 
abbreviations and minor word changes to fit the format of the proposed 
regulations.
    The Reform Act permits lenders to rely on third-party 
determinations but only if the third party guarantees the accuracy of 
the information provided to the lender. Moreover, the Reform Act 
permits a lender to rely on a previous determination whether the 
security property is located in a special flood hazard area and exempts 
the lender from liability for errors in the previous determination, if 
the previous determination is not more than seven years old and the 
basis for it was recorded on the standard flood hazard determination 
form that FEMA has developed.
    There are two clearly defined exceptions to relying on a previous 
determination. A lender may not rely on a previous determination if 
FEMA's map revisions or updates have caused the security property to be 
located in a SFHA, or if the lender contacts FEMA and discovers that 
map revisions or updates affecting the security property have been made 
after the date of the previous determination.
Recordkeeping Requirements
    The rules of the five agencies that currently have flood insurance 
regulations include a requirement that an institution keep records 
sufficient to show how it has determined whether loans fall within the 
coverage of the NFIP and the implementing regulations. The proposal 
removes this provision because the proposed provisions on recordkeeping 
appear in the substantive sections to which they pertain, including the 
required use of the standard flood hazard determination form and the 
notification sections.
Agricultural Lending Considerations
    System lending institutions have raised preliminary questions 
regarding the operation of the NFIP, particularly with respect to the 
cost of insuring agricultural structures that secure loans. The FCA 
notes that questions regarding the operation and cost structure of the 
NFIP should be directed to FEMA as administrator of the NFIP. However, 
the FCA recognizes that System institutions are entering the NFIP for 
the first time and are concerned about their new administrative 
responsibilities under the NFIP as well as the costs of flood insurance 
to borrowers. The FCA is not in the position to respond fully to some 
of the concerns that have been raised regarding the NFIP, but FEMA 
officials indicate that the NFIP does differentiate between non-
residential agricultural buildings and other types of non-residential 
buildings for purposes of pricing flood insurance. Thus a barn, storage 
shed or other type of agricultural structure at a given elevation in a 
SFHA might cost less to insure against flood loss than another type of 
commercial structure more susceptible to flood damage. Where required, 
borrowers may insure their non-residential buildings using one policy 
with a schedule separately listing the buildings\22\ or on a separate 
policy for each building. Each building must be covered by flood 
insurance.

    \22\FEMA also permits use of schedules to list multiple 
structures for purposes of the standard flood hazard determination 
form. See 60 FR 35276, 35280 (July 6, 1995); 44 CFR part 65, App. A.
---------------------------------------------------------------------------

    Concern has also been expressed regarding treatment under the NFIP 
of improved property securing an agricultural loan that is located 
within a SFHA but on high ground making flooding unlikely. FEMA 
officials indicate that a borrower in such circumstances could apply to 
FEMA for a Letter of Map Amendment, which, if granted would exclude the 
building from the SFHA and eliminate the requirement for flood 
insurance on the structure. See 44 CFR part 70. As previously noted, 
questions regarding the operation of the NFIP generally should be 
directed to FEMA and NFIP officials.

III. Regulatory Flexibility Act

    Under section 605(b) of the Regulatory Flexibility Act (RFA) (5 
U.S.C. 605(b)), the initial regulatory flexibility analysis otherwise 
required under section 603 of the RFA (5 U.S.C. 603) is not required if 
the head of the agency certifies that the rule will not 

[[Page 53971]]
have a significant economic impact on a substantial number of small 
entities and the agency publishes such certification and a succinct 
statement explaining the reasons for such certification in the Federal 
Register along with its general notice of proposed rulemaking.
    Pursuant to section 605(b) of the RFA, the OCC, Board, FDIC, OTS, 
and NCUA hereby certify that this proposed rule will not have a 
significant economic impact on a substantial number of small entities. 
The agencies expect that this proposal will not: (1) Have significant 
secondary or incidental effects on a substantial number of small 
entities, or (2) create any additional burden on small entities. 
Moreover, this proposal is required by the Reform Act. Accordingly, a 
regulatory flexibility analysis is not required.
    As a general matter, the proposed rule does not impose standards 
that are in excess of industry standards with respect to flood 
insurance, as those standards are reflected in the underwriting 
standards for Fannie Mae and Freddie Mac. Further, for those lenders 
already covered by existing flood insurance requirements, the proposed 
rule does not represent a significant increase over the burden imposed 
under the current rules. For such lenders, the proposed rules would 
increase burden above that imposed under the current rules in the 
following respects: (1) Where the lender escrows other tax and 
insurance payments, premiums for required flood insurance must be 
escrowed as well; (2) the content of the notices currently provided to 
borrowers is modified; and (3) notice to FEMA of the servicer of the 
loan on property in a special flood hazard area is required.\23\ Each 
of these additions to the current rules is required by the Reform Act.

    \23\The provision concerning forced placement of flood insurance 
is self-implementing and is included in the proposed rules only to 
ensure that lenders are aware of the authority and requirements of 
that provision. Including the provision in the proposed rule does 
not impose any additional burden on lenders.
---------------------------------------------------------------------------

IV. Paperwork Reduction Act of 1995

    The OCC, FDIC, OTS, and NCUA invite comment on:
    (1) Whether the proposed collection of information contained in 
this notice of proposed rulemaking is necessary for the proper 
performance of each agency's functions, including whether the 
information has practical utility;
    (2) The accuracy of each agency's estimate of the burden of the 
proposed information collection;
    (3) Ways to enhance the quality, utility, and clarity of the 
information to be collected; and
    (4) Ways to minimize the burden of the information collection on 
respondents, including through the use of automated collection 
techniques or other forms of information technology.
    Respondents/recordkeepers are not required to respond to this 
collection of information unless it displays a currently valid OMB 
control number.
    OCC: The collection of information requirements contained in this 
notice of proposed rulemaking have been submitted to the Office of 
Management and Budget for review in accordance with the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on the collections 
of information should be sent to the Office of Management and Budget, 
Paperwork Reduction Project (1557), Washington, DC 20503, with copies 
to the Legislative and Regulatory Activities Division (1557), Office of 
the Comptroller of the Currency, 250 E Street, SW., Washington, DC 
20219.
    The collection of information requirements in this proposed rule 
are found in 12 CFR 22.6, 22.7, 22.9, and 22.10. This information is 
required to evidence compliance with the requirements of the National 
Flood Insurance Program with respect to lenders (national banks) and 
borrowers (anyone who applies for a loan secured by improved real 
property or a mobile home which may be located in a special flood 
hazard area). The likely respondents/recordkeepers are national banks.

Estimated average annual burden hours per respondent/recordkeeper: 
26 hours.
Estimated number of respondents and/or recordkeepers: 3,000.
Estimated total annual reporting and recordkeeping burden: 78,000 
hours.
Start-up costs to respondents: None.
Records are to be maintained for the period of time respondent/
recordkeeper owns the loan.

    Board: In accordance with section 3506 of the Paperwork Reduction 
Act of 1995 (44 U.S.C. Ch. 35; see also 5 CFR 1320 Appendix A Item 1), 
the Board reviewed the proposed rule under the authority delegated to 
the Board by the Office of Management and Budget. Comments on the 
collections of information should be sent to the Office of Management 
and Budget, Paperwork Reduction Project (7100-0280), Washington, DC 
20503, with copies of such comments to be sent to Mary M. McLaughlin, 
Federal Reserve Board Clearance Officer, Division of Research and 
Statistics, Mail Stop 97, Board of Governors of the Federal Reserve 
System, Washington, DC 20551.
    The collection of information requirements in this proposed 
regulation will be included in 12 CFR 208.23. This information is 
required to evidence compliance with the requirements of the National 
Flood Insurance Program with respect to lenders (state chartered member 
banks) and borrowers (anyone who applies for a loan secured by improved 
real property or a mobile home which may be located in a special flood 
hazard area). The respondents/recordkeepers are for-profit financial 
institutions, including small businesses.
    Respondent/recordkeepers are not required to respond to this 
collection of information unless it displays a currently valid OMB 
control number. The OMB control number is 7100-0280.
    It is estimated that there will be 975 respondent/recordkeepers and 
a total of 25,977 hours of annual hour paperwork burden. The estimated 
annual hour paperwork burden per respondent/recordkeeper is 26.6 hours, 
1 hour for recordkeeping and, when the property is located in a special 
flood hazard area, a total of 25.6 hours for: (a) Notifying the 
borrower and the servicer; (b) notifying the Director of the initial 
servicer; (c) if necessary, notifying the Director when the loan 
servicer has changed; and (d) if necessary, notifying the borrower 
regarding forced placement. Banks likely will add the required records 
to their existing usual and customary loan documentation. Thus there is 
estimated to be no significant annual cost burden over the annual hour 
burden. Additionally, the Board estimates that there is no associated 
capital or start up cost. Based on an hourly cost of $20, the annual 
cost to the public is estimated to be $519,540.
    Because the records would be maintained at state member banks and 
the notices are not provided to the Board, no issue of confidentiality 
under the Freedom of Information Act arises.
    Comments are invited on: (a) Whether the proposed collection of 
information is necessary for the proper performance of the Board's 
functions, including whether the information has practical utility; (b) 
the accuracy of the Board's estimate of the burden of the proposed 
information collection, including the cost of compliance; (c) ways to 
enhance the quality, utility, and clarity of the information to be 
collected; and (d) ways to minimize the burden of information 
collection on respondents, including through the use of automated 
collection techniques or other forms of information technology.
    FDIC: The collections of information contained in this notice of 
proposed rulemaking have been submitted to the 

[[Page 53972]]
Office of Management and Budget for review in accordance with the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on the 
collections of information should be sent to the Office of Management 
and Budget, Paperwork Reduction Project (3604-0092), Washington, DC 
20503, with copies of such comments to be sent to Steven F. Hanft, 
Office of the Executive Secretary, Room F-453, Federal Deposit 
Insurance Corporation, 550 17th Street, NW., Washington, DC 20429.
    The collections of information requirements in this proposed 
regulation are found in 12 CFR 339.6, 339.7, 339.9, and 339.10. This 
information is required to evidence compliance with the requirements of 
the National Flood Insurance Program with respect to lenders (state 
chartered nonmember banks) and borrowers (anyone who applies for a loan 
secured by improved real estate or a mobile home which may be located 
in a special flood hazard area).
    The likely respondents/recordkeepers are insured nonmember banks 
and their subsidiaries.

Estimated number of respondents/recordkeepers: 6,250.
Estimated average annual burden hours per respondent/recordkeeper: 
26 hours.
Estimated total annual reporting and recordkeeping burden: 162,500 
hours.
Start-up costs to respondents: None.
Records are to be maintained for the period of time respondent/
recordkeeper owns the loan.

    OTS: The reporting requirements contained in this notice of 
proposed rulemaking have been submitted to the Office of Management and 
Budget for review in accordance with the Paperwork Reduction Act of 
1995 (44 U.S.C. 3507(d)). Comments on the collections of information 
should be sent to the Office of Management and Budget, Paperwork 
Reduction Project (1550), Washington, DC 20503, with copies to the OTS, 
1700 G Street, NW., Washington, DC 20552.
    The recordkeeping requirements in this notice of proposed 
rulemaking are found in 12 CFR 572.6, 572.7, 572.9, and 572.10. The 
recordkeeping requirements set forth in this notice of proposed 
rulemaking are needed by the OTS in order to supervise savings 
associations and develop regulatory policy. The likely recordkeepers 
are OTS-regulated savings associations.

Estimated number of respondents and/or recordkeepers: 1,500.
Estimated average annual burden hours per recordkeeper: 26 hours.
Estimated total annual reporting and recordkeeping burden: 39,000 
hours.
Start-up costs to respondents: None.
Records are to be maintained for the period of time respondent/
recordkeeper owns the loan.

    NCUA: The collection of information requirements contained in this 
notice of proposed rulemaking will be submitted to the Office of 
Management and Budget (OMB) for review under the Paperwork Reduction 
Act. Written comments on the collection of information should be 
forwarded directly to the OMB Desk Officer indicated below at the 
following address: OMB Reports Management Branch, New Executive Office 
Building, Room 10202, Washington, DC 20503. Attn: Milo Sunderhauf. NCUA 
will publish a notice in the Federal Register once OMB action is taken 
on the submitted request.
    The collection of information requirements in this proposed 
regulation are found in 12 CFR 760.6, 760.7, 760.9 and 760.10. This 
information is required to evidence compliance with the requirements of 
the National Flood Insurance Program with respect to lenders (Federally 
insured credit unions) and borrowers (members that apply for a loan 
secured by improved real estate or a mobile home which may be located 
in a special flood hazard area). The likely recordkeepers are Federally 
insured credit unions.

Estimated number of respondents and/or recordkeepers: 700.
Estimated average annual burden hours per respondent/recordkeeper: 
26 hours.
Estimated total annual reporting and recordkeeping burden: 16,325 
hours.
Start-up costs to respondents: None.
Records are to be maintained for the period of time respondent/
recordkeeper owns the loan.

V. Executive Order 12866

    OCC and OTS: The OCC and the OTS have determined that this proposed 
rule is not a significant regulatory action as defined in Executive 
Order 12866.

VI. Executive Order 12612

    NCUA: This proposed rule, like the current 12 CFR part 760 it would 
replace, will apply to all Federally insured credit unions. The NCUA 
Board, pursuant to Executive Order 12612, has determined, however, that 
this proposed rule will not have a substantial direct effect on the 
States, on the relationship between the national government and the 
States, or on the distribution of power and responsibilities among 
various levels of government. Further, this proposed rule will not 
preempt provisions of State law or regulations.

VII. Unfunded Mandates Reform Act of 1995

    OCC and OTS: Section 202 of the Unfunded Mandates Reform Act of 
1995, Pub. L. 104-4, 109 Stat. 48 (1995) (Unfunded Mandates Act), 
requires that covered agencies prepare a budgetary impact statement 
before promulgating a rule that includes any 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 
the Unfunded Mandates Act also requires covered agencies to identify 
and consider a reasonable number of regulatory alternatives before 
promulgating a rule. As discussed in the preamble, the proposed rule 
revises current OCC and OTS flood insurance regulations as prescribed 
by Title V of the Riegle Community Development and Regulatory 
Improvement Act of 1994, Pub. L. 103-325, Title V, 108 Stat. 2160 
(1994) (Reform Act). The Reform Act specifically requires six agencies, 
including the OCC and OTS, to implement certain of the Reform Act's 
amendments through regulations. Therefore, to the extent that the 
proposed rules impose new Federal requirements, such requirements are 
statutorily mandated by the Reform Act. Nevertheless, the OCC and OTS 
have determined that the proposed rules will not result in expenditures 
by State, local, and tribal governments, or by the private sector, of 
more than $100 million in any one year. Accordingly, the OCC and OTS 
have not prepared a budgetary impact statement or specifically 
addressed the regulatory alternatives considered.

List of Subjects

12 CFR Part 22

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

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.

12 CFR Part 563

    Accounting, Advertising, Crime, Currency, Flood insurance, 
Investments, Reporting and recordkeeping 

[[Page 53973]]
requirements, Savings associations, Securities, Surety bonds.

12 CFR Part 572

    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, chapter I of title 
12 of the Code of Federal Regulations is proposed to be revised to read 
as follows:

PART 22--LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS

Sec.
22.1  Authority, 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  Forced placement of flood insurance.
22.8  Determination fees.
22.9  Notice of special flood hazards and availability of Federal 
disaster relief assistance.
22.10  Notice of servicer's identity.

Appendix A to Part 22--Sample Form of Notice of Special Flood Hazards 
and Availability of Federal Disaster Relief Assistance

    Authority: 12 U.S.C. 93a; 42 U.S.C. 4012a, 4104a, 4104b, 4106, 
and 4128.


Sec. 22.1  Authority, purpose, and scope.

    (a) Authority. This part is issued pursuant to 12 U.S.C. 93a 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 Secs. 22.6 and 22.8, applies to 
loans secured by buildings or mobile homes located or to be located in 
areas determined by the Director 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.

    (a) Act means the National Flood Insurance Act of 1968, as amended 
(42 U.S.C. 4001-4129).
    (b) Bank means a national bank or a bank located in the District of 
Columbia and subject to the supervision of the Comptroller of the 
Currency.
    (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) Director means the Director of the Federal Emergency Management 
Agency.
    (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.
    (h) NFIP means the National Flood Insurance Program authorized 
under the Act.
    (i) Residential improved real estate means real estate upon which a 
home or other residential building is located or to be located.
    (j) 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.
    (k) 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 Director.


Sec. 22.3  Requirement to purchase flood insurance where available.

    A bank shall not make, increase, extend, or renew any designated 
loan unless the building or mobile home and any personal property 
securing the loan is covered by flood insurance for the term of the 
loan. The amount of insurance must be at least equal to the lesser of 
the outstanding principal balance of the designated loan or the maximum 
limit of coverage available for the particular type of property under 
the Act.


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 Director, 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. 22.5  Escrow requirement.

    If a bank requires the escrow of taxes, insurance premiums, fees, 
or any other charges for a loan secured by residential improved real 
estate or a mobile home that is made, increased, extended, or renewed 
after [effective date of final regulation], then the bank shall also 
require the escrow of all premiums and fees for any flood insurance 
required under Sec. 22.3. The bank, or a servicer acting on behalf of 
the bank, shall deposit the flood insurance premiums on behalf of the 
borrower in an escrow account. Depending upon the type of loan, such 
escrow account may be subject to escrow requirements adopted pursuant 
to section 10 of the Real Estate Settlement Procedures Act of 1974 (12 
U.S.C. 2609), 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. Upon receipt of a notice from 
the Director or other provider of flood insurance that premiums are 
due, the bank or its servicer shall pay the amount owed to the 
insurance provider from the escrow account.


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

    (a) Use of form. A bank shall use the standard flood hazard 
determination form developed by the Director (as set forth in Appendix 
A of 44 CFR part 65) when determining whether the building or mobile 
home offered as collateral 

[[Page 53974]]
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.
    (b) Retention of form. A 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.


Sec. 22.7  Forced placement of flood insurance.

    If a bank, or a servicer acting on behalf of the bank, determines, 
at the time of origination or 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 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 Sec. 22.3, for the term of the loan. If the borrower fails to 
obtain flood insurance within 45 days after notification, then the bank 
or its servicer shall purchase insurance on the borrower's behalf. The 
bank or its servicer may charge the borrower for the cost of premiums 
and fees incurred in purchasing the insurance.


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 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.
    (b) Borrower fee. The determination fee 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 Director's revision or updating of floodplain 
areas or flood-risk zones;
    (3) Reflects the Director'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 Director, 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 under 
Sec. 22.7.
    (c) Purchaser or transferee fee. The fee 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 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.
    (b) Contents of notice. The written notice must include the 
following information:
    (1) A warning, in a form approved by the Director, that the 
building or the mobile home is or will be located in a special flood 
hazard area;
    (2) A description of the flood insurance purchase requirements set 
forth in section 102(b) of the Flood Disaster Protection Act of 1973, 
as amended (42 U.S.C. 4012a(b));
    (3) A statement, where applicable, that flood insurance coverage is 
available under the NFIP and may also be available from private 
insurers; and
    (4) A statement whether Federal disaster relief assistance may be 
available in the event of damage to the building or mobile home caused 
by flooding in a Federally-declared disaster.
    (c) Timing of notice. The bank shall provide the notice required by 
paragraph (a) of this section to the borrower and the servicer within a 
reasonable time before the completion of the transaction.
    (d) Record of receipt. The 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.
    (e) Alternate method of notice. Instead of providing the notice to 
the borrower required by paragraph (a) of this section, a bank may 
obtain satisfactory written assurance from the seller or lessor that, 
within a reasonable time before the completion of the sale or lease 
transaction, the seller or lessor has notified the borrower that the 
building or mobile home is or will be located in a special flood hazard 
area. The bank shall retain a record of the written assurance from the 
seller or lessor for the period of time the bank owns the loan.
    (f) Use of prescribed form of notice. A bank may comply with the 
notice requirements of this section by providing written notice to a 
borrower and to the servicer containing the language presented in 
appendix A to this part not less than ten days before the completion of 
the transaction (or not later than the bank's commitment if the period 
between the commitment and the completion of the transaction is less 
than ten days).


Sec. 22.10   Notice of servicer's identity.

    (a) Notice requirement. When a 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 Director (or the Director's designee) in writing of the 
identity of the servicer of the loan.
    (b) Transfer of servicing rights. The bank shall notify the 
Director (or the Director'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. 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

    We are giving you this notice to inform you that:
    ______ The building securing the loan for which you have applied 
is or will be located in an area with special flood hazards.
    ______ The mobile home securing the loan for which you have 
applied is or will be located in an area with special flood hazards.
    The area has been identified by the Director of the Federal 
Emergency Management Agency (FEMA) as a special flood hazard area 
using FEMA's Flood Insurance Rate Map or the Flood Hazard Boundary 
Map for the following community: ____________. This area has at 
least a one percent (1%) chance of being flooded in any given year. 
The risk grows each year. For example, during the life of a 30-year 
mortgage loan, the risk of a flood in a special flood hazard area is 
at least 26%.
    Federal law allows a lender and borrower jointly to request the 
Director of FEMA to review the determination of whether the property 
securing the loan is located in a special flood hazard area. If you 
would like to make such a request, please contact us for further 
information.
    ______ The community in which the property securing the loan is 
located participates in the National Flood Insurance Program (NFIP). 
Federal law will not allow us to make you the loan that you have 
applied for if you do not purchase flood insurance. The flood 
insurance must be maintained for the life of the loan.

[[Page 53975]]

     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 amount of the loan; or
    (2) The maximum amount of coverage allowed for the type of 
property under the NFIP.
     Federal disaster relief assistance (usually in the form 
of a low-interest loan) may be available for damages incurred in 
excess of your flood insurance if your community's participation in 
the NFIP is in accordance with NFIP requirements.
    ______ Flood insurance coverage under the NFIP is not available 
for the property securing the loan because the community in which 
the property is located does not participate in the NFIP. In 
addition, if the non-participating community has been identified for 
at least one year as containing a special flood hazard area, 
properties located in the community will not be eligible for Federal 
disaster relief assistance in the event of a Federally-declared 
flood disaster.

    Dated: September 11, 1995.
Eugene A. Ludwig,
Comptroller of the Currency.

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)

    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.


Sec. 208.8   [Amended]

    2. In Sec. 208.8, paragraph (e) is removed and reserved, and 
appendix A--Sample Notices is removed.
    3. A new Sec. 208.23 is added at the end of subpart A to read as 
follows:


Sec. 208.23   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 Director 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. (1) Act means the National Flood Insurance Act of 
1968, as amended (42 U.S.C. 4001-4129).
    (2) 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.
    (3) 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.
    (4) 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.
    (5) Director means the Director of the Federal Emergency Management 
Agency.
    (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.
    (7) NFIP means the National Flood Insurance Program authorized 
under the Act.
    (8) Residential improved real estate means real estate upon which a 
home or other residential building is located or to be located.
    (9) Servicer means the person responsible for:
    (i) Receiving any scheduled, periodic payments from a borrower 
under the terms of a loan, including amounts for taxes, insurance 
premiums, and other charges with respect to the property securing the 
loan; and
    (ii) Making payments of principal and interest and any other 
payments from the amounts received from the borrower as may be required 
under the terms of the loan.
    (10) Special flood hazard area means the land in the flood plain 
within a community having at least a one percent chance of flooding in 
any given year, as designated by the Director.
    (c) Requirement to purchase flood insurance where available. A 
state member bank shall not make, increase, extend, or renew any 
designated loan unless the building or mobile home and any personal 
property securing the loan is covered by flood insurance for the term 
of the loan. The amount of insurance must be at least equal to the 
lesser of the outstanding principal balance of the designated loan or 
the maximum limit of coverage available for the particular type of 
property under the Act.
    (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 Director, 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. If a state member bank requires the escrow 
of taxes, insurance premiums, fees, or any other charges for a loan 
secured by residential improved real estate or a mobile home that is 
made, increased, extended, or renewed after [effective date of final 
regulation], then the state member bank shall also require the escrow 
of all premiums and fees for any flood insurance required under 
paragraph (c) of this section. The state member bank, or a servicer 
acting on behalf of the bank, shall deposit the flood insurance 
premiums on behalf of the borrower in an escrow account. Depending upon 
the type of loan, such escrow account may be subject to escrow 
requirements adopted pursuant to section 10 of the Real Estate 
Settlement Procedures Act of 1974 (12 U.S.C. 2609), 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. Upon receipt of a notice from the Director or other provider 
of flood insurance that premiums are due, the state member bank or its 
servicer shall pay the amount owed to the insurance provider from the 
escrow account.
    (f) Required use of standard flood hazard determination form--(1) 
Use of form. A state member bank shall use the standard flood hazard 
determination form developed by the Director (as set forth in Appendix 
A of 44 CFR part 65) 

[[Page 53976]]
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.
    (2) Retention of form. A state member bank shall retain a copy of 
the completed standard flood hazard determination form, in either hard 
copy or electronic form, for the period of time the bank owns the loan.
    (g) Forced placement of flood insurance. If a state member bank, or 
a servicer acting on behalf of the bank, determines, at the time of 
origination or 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 term of the loan. 
If the borrower fails to obtain flood insurance within 45 days after 
notification, then the state member bank or its servicer shall purchase 
insurance on the borrower's behalf. The state member bank or its 
servicer may charge the borrower for the cost of premiums and fees 
incurred in purchasing the insurance.
    (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 state 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.
    (2) Borrower fee. The determination fee 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 Director's revision or updating of floodplain 
areas or flood-risk zones;
    (iii) Reflects the Director'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 Director, 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 under 
paragraph (g) of this section.
    (3) Purchaser or transferee fee. The fee 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--(1) Notice requirement. When a state member 
bank makes, increases, extends, or renews a loan secured by a building 
or 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.
    (2) Contents of notice. The written notice must include the 
following information:
    (i) A warning, in a form approved by the Director, 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 under the NFIP and may also be available from private 
insurers; and
    (iv) A statement whether Federal disaster relief assistance may be 
available in the event of damage to the building or mobile home caused 
by flooding in a Federally-declared disaster.
    (3) Timing of notice. The state member bank shall provide the 
notice required by paragraph (i)(1) of this section to the borrower and 
the servicer within a reasonable time before the completion of the 
transaction.
    (4) Record of receipt. The state 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.
    (5) Alternate method of notice. Instead of providing the notice to 
the borrower required by paragraph (i)(1) of this section, a state 
member bank may obtain satisfactory written assurance from the seller 
or lessor that, within a reasonable time before the completion of the 
sale or lease transaction, the seller or lessor has notified the 
borrower that the building or mobile home is or will be located in a 
special flood hazard area. The state 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.
    (6) Use of prescribed form of notice. A state member bank may 
comply with the notice requirements of this paragraph (i) by providing 
written notice to a borrower and to the servicer containing the 
language presented in appendix A to this section not less than ten days 
before the completion of the transaction (or not later than the bank's 
commitment if the period between the commitment and the completion of 
the transaction is less than ten days).
    (j) Notice of servicer's identity--(1) Notice requirement. When a 
state 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 
Director (or the Director's designee) in writing of the identity of the 
servicer of the loan.
    (2) Transfer of servicing rights. The state member bank shall 
notify the Director (or the Director'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. 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) shall transfer to 
the transferee servicer.

Appendix A to Sec. 208.23--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 securing the loan for which you have applied 
is or will be located in an area with special flood hazards.
    ______The mobile home securing the loan for which you have 
applied is or will be located in an area with special flood hazards.
    The area has been identified by the Director of the Federal 
Emergency Management Agency (FEMA) as a special flood hazard area 
using FEMA's Flood Insurance Rate Map or the Flood Hazard Boundary 
Map for the following community:____________. This area has at least 
a one percent (1%) chance of being flooded in any given year. The 
risk grows each year. For example, during the life of a 30-year 
mortgage loan, the risk of a flood in a special flood hazard area is 
at least 26%.
    Federal law allows a lender and borrower jointly to request the 
Director of FEMA to review the determination of whether the property 
securing the loan is located in a special flood hazard area. If you 
would like to make such a request, please contact us for further 
information.
    ______The community in which the property securing the loan is 
located 

[[Page 53977]]
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.
     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 amount of the loan; or
    (2) The maximum amount of coverage allowed for the type of 
property under the NFIP.
     Federal disaster relief assistance (usually in the form 
of a low-interest loan) may be available for damages incurred in 
excess of your flood insurance if your community's participation in 
the NFIP is in accordance with NFIP requirements.
    ______Flood insurance coverage under the NFIP is not available 
for the property securing the loan because the community in which 
the property is located does not participate in the NFIP. In 
addition, if the non-participating community has been identified for 
at least one year as containing a special flood hazard area, 
properties located in the community will not be eligible for Federal 
disaster relief assistance in the event of a Federally-declared 
flood disaster.

    By order of the Board of Governors of the Federal Reserve 
System, October 3, 1995.
William W. Wiles,
Secretary of the Board.

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 revise part 339 of chapter III of 
title 12 of the Code of Federal Regulations 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  Forced 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

    Authority: 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 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 Secs. 339.6 and 339.8, applies to 
loans secured by buildings or mobile homes located or to be located in 
areas determined by the Director 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) Bank means an insured State nonmember bank and an insured State 
branch of a foreign bank or any subsidiary of an insured State 
nonmember bank.
    (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) Director means the Director of the Federal Emergency Management 
Agency.
    (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.
    (h) NFIP means the National Flood Insurance Program authorized 
under the Act.
    (i) Residential improved real estate means real estate upon which a 
home or other residential building is located or to be located.
    (j) 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.
    (k) 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 Director.


Sec. 339.3  Requirement to purchase flood insurance where available.

    A bank shall not make, increase, extend, or renew any designated 
loan unless the building or mobile home and any personal property 
securing the loan is covered by flood insurance for the term of the 
loan. The amount of insurance must be at least equal to the lesser of 
the outstanding principal balance of the designated loan or the maximum 
limit of coverage available for the particular type of property under 
the Act.


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 Director, 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.

    If a bank requires the escrow of taxes, insurance premiums, fees, 
or any other charges for a loan secured by residential improved real 
estate or a mobile home that is made, increased, extended, or renewed 
after [effective date of final regulation], then the bank shall also 
require the escrow of all premiums and fees for any flood insurance 
required under Sec. 339.3. The bank, or a servicer acting on behalf of 
the bank, shall deposit the flood insurance premiums on behalf of the 
borrower in an escrow account. Depending upon the type of loan, such 
escrow account may be 

[[Page 53978]]
subject to escrow requirements adopted pursuant to section 10 of the 
Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2609) 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. Upon receipt of a notice from the Director or other 
provider of flood insurance that premiums are due, the bank or its 
servicer shall pay the amount owed to the insurance provider from the 
escrow account.


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

    (a) Use of form. A bank shall use the standard flood hazard 
determination form developed by the Director (as set forth in Appendix 
A of 44 CFR part 65) 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.
    (b) Retention of form. A 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.


Sec. 339.7  Forced placement of flood insurance.

    If a bank, or a servicer acting on behalf of the bank, determines, 
at the time of origination or 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 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 Sec. 339.3, for the term of the loan. If the borrower fails to 
obtain flood insurance within 45 days after notification, then the bank 
or its servicer shall purchase insurance on the borrower's behalf. The 
bank or its servicer may charge the borrower for the cost of premiums 
and fees incurred in purchasing the insurance.


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 bank, or a servicer acting on behalf of the bank, may charge 
a reasonable fee to the borrower for determining whether a building or 
mobile home securing the loan is located or will be located in a 
special flood hazard area.
    (b) Borrower fee. The determination fee 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 Director's revision or updating of floodplain 
areas or flood-risk zones;
    (3) Reflects the Director'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 Director, 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 under 
Sec. 339.7.
    (c) Purchaser or transferee fee. The fee 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 a 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.
    (b) Contents of notice. The written notice must include the 
following information:
    (1) A warning, in a form approved by the Director, that the 
building or the mobile home is or will be located in a special flood 
hazard area;
    (2) A description of the flood insurance purchase requirements set 
forth in section 102(b) of the Flood Disaster Protection Act of 1973, 
as amended (42 U.S.C. 4012a(b));
    (3) A statement, where applicable, that flood insurance coverage is 
available under the NFIP and may also be available from private 
insurers; and
    (4) A statement whether Federal disaster relief assistance may be 
available in the event of damage to the building or mobile home caused 
by flooding in a Federally-declared disaster.
    (c) Timing of notice. The bank shall provide the notice required by 
paragraph (a) of this section to the borrower and the servicer within a 
reasonable time before the completion of the transaction.
    (d) Record of receipt. The 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.
    (e) Alternate method of notice. Instead of providing the notice to 
the borrower required by paragraph (a) of this section, a bank may 
obtain satisfactory written assurance from the seller or lessor that, 
within a reasonable time before the completion of the sale or lease 
transaction, the seller or lessor has notified the borrower that the 
building or mobile home is or will be located in a special flood hazard 
area. The bank shall retain a record of the written assurance from the 
seller or lessor for the period of time the bank owns the loan.
    (f) Use of prescribed form of notice. A bank may comply with the 
notice requirements of this section by providing written notice to a 
borrower and to the servicer containing the language presented in 
appendix A to this part not less than ten days before the completion of 
the transaction (or not later than the bank's commitment if the period 
between the commitment and the completion of the transaction is less 
than ten days).


Sec. 339.10  Notice of servicer's identity.

    (a) Notice requirement. When a 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 Director (or the Director's designee) in writing of the 
identity of the servicer of the loan.
    (b) Transfer of servicing rights. The bank shall notify the 
Director (or the Director'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. 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 securing the loan for which you have applied 
is or will be located in an area with special flood hazards.
    ______ The mobile home securing the loan for which you have 
applied is or will be located in an area with special flood hazards. 


[[Page 53979]]

    The area has been identified by the Director of the Federal 
Emergency Management Agency (FEMA) as a special flood hazard area 
using FEMA's Flood Insurance Rate Map or the Flood Hazard Boundary 
Map for the following community: 
________________________________________. This area has at least a 
one percent (1%) chance of being flooded in any given year. The risk 
grows each year. For example, during the life of a 30-year mortgage 
loan, the risk of a flood in a special flood hazard area is at least 
26%.
    Federal law allows a lender and borrower jointly to request the 
Director of FEMA to review the determination of whether the property 
securing the loan is located in a special flood hazard area. If you 
would like to make such a request, please contact us for further 
information.
    ______ The community in which the property securing the loan is 
located participates in the National Flood Insurance Program (NFIP). 
Federal law will not allow us to make you the loan that you have 
applied for if you do not purchase flood insurance. The flood 
insurance must be maintained for the life of the loan.
     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 amount of the loan; or
    (2) The maximum amount of coverage allowed for the type of 
property under the NFIP.
     Federal disaster relief assistance (usually in the form 
of a low-interest loan) may be available for damages incurred in 
excess of your flood insurance if your community's participation in 
the NFIP is in accordance with NFIP requirements.
    ______ Flood insurance coverage under the NFIP is not available 
for the property securing the loan because the community in which 
the property is located does not participate in the NFIP. In 
addition, if the non-participating community has been identified for 
at least one year as containing a special flood hazard area, 
properties located in the community will not be eligible for Federal 
disaster relief assistance in the event of a Federally-declared 
flood disaster.

    By order of the Board of Directors.

    Dated at Washington, D.C., this 26th day of September, 1995.

Federal Deposit Insurance Corporation.
Jerry L. Langley,
Executive Secretary.

Office of Thrift Supervision

12 CFR CHAPTER V

Authority and Issuance

    For the reasons set forth in the joint preamble, subchapter D of 
chapter V of title 12 of the Code of Federal Regulations is proposed to 
be amended, as set forth below:
SUBCHAPTER D--REGULATIONS APPLICABLE TO ALL SAVINGS ASSOCIATIONS PART 
563--OPERATIONS
    1. The authority citation for part 563 is revised to read as 
follows:

    Authority: 12 U.S.C. 375b, 1462, 1462a, 1463, 1464, 1467a, 1468, 
1817, 1828, 3806.


Sec. 563.48  [Removed]

    2. Section 563.48 is removed.
    3. A new part 572 is added to read as follows:

PART 572--LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS

Sec.
572.1  Authority, purpose, and scope.
572.2  Definitions.
572.3  Requirement to purchase flood insurance where available.
572.4  Exemptions.
572.5  Escrow requirement.
572.6  Required use of standard flood hazard determination form.
572.7  Forced placement of flood insurance.
572.8  Determination fees.
572.9  Notice of special flood hazards and availability of Federal 
disaster relief assistance.
572.10  Notice of servicer's identity.

Appendix A to Part 572--Sample Form of Notice of Special Flood Hazards 
and Availability of Federal Disaster Relief Assistance

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464; 42 U.S.C. 4012a, 
4104a, 4104b, 4106, and 4128.


Sec. 572.1  Authority, purpose, and scope.

    (a) Authority. This part is issued pursuant to 12 U.S.C. 1462, 
1462a, 1463, 1464 and 42 U.S.C. 4012a, 4104a, 4104b, 4106, 4128.
    (b) Purpose. The purpose of this part is to implement the 
requirements of the National Flood Insurance Act of 1968 and the Flood 
Disaster Protection Act of 1973, as amended (42 U.S.C.4001-4129).
    (c) Scope. This part, except for Secs. 572.6 and 572.8, applies to 
loans secured by buildings or mobile homes located or to be located in 
areas determined by the Director of the Federal Emergency Management 
Agency to have special flood hazards. Sections 572.6 and 572.8 apply to 
loans secured by buildings or mobile homes, regardless of location.


Sec. 572.2  Definitions.

    (a) Act means the National Flood Insurance Act of 1968, as amended 
(42 U.S.C. 4001-4129).
    (b) [Reserved]
    (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) Director of FEMA means the Director of the Federal Emergency 
Management Agency.
    (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.
    (h) NFIP means the National Flood Insurance Program authorized 
under the Act.
    (i) Residential improved real estate means real estate upon which a 
home or other residential building is located or to be located.
    (j) 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.
    (k) 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 Director of FEMA.


Sec. 572.3  Requirement to purchase flood insurance where available.

    A 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.

[[Page 53980]]



Sec. 572.4  Exemptions.

    The flood insurance requirement prescribed by Sec. 572.3 does not 
apply with respect to:
    (a) Any State-owned property covered under a policy of self-
insurance satisfactory to the Director 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. 572.5  Escrow requirement.

    If a savings association requires the escrow of taxes, insurance 
premiums, fees, or any other charges for a loan secured by residential 
improved real estate or a mobile home that is made, increased, 
extended, or renewed after [effective date of final regulation], then 
the savings association shall also require the escrow of all premiums 
and fees for any flood insurance required under Sec. 572.3. The savings 
association or a servicer acting on behalf of the savings association, 
shall deposit the flood insurance premiums on behalf of the borrower in 
an escrow account. Depending upon the type of loan, such escrow account 
may be subject to escrow requirements adopted pursuant to section 10 of 
the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2609), 
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. Upon receipt of a notice from the 
Director of FEMA or other provider of flood insurance that premiums are 
due, the savings association or its servicer shall pay the amount owed 
to the insurance provider from the escrow account.


Sec. 572.6  Required use of standard flood hazard determination form.

    (a) Use of form. A savings association shall use the standard flood 
hazard determination form developed by the Director of FEMA (as set 
forth in Appendix A of 44 CFR part 65) 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.
    (b) Retention of form. A 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 savings association 
owns the loan.


Sec. 572.7  Forced placement of flood insurance.

    If a savings association, or a servicer acting on behalf of the 
savings association, determines, at the time of origination or 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. 572.3, then the 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. 572.3, for the term of 
the loan. If the borrower fails to obtain flood insurance within 45 
days after notification, then the savings association or its servicer 
shall purchase insurance on the borrower's behalf. The savings 
association or its servicer may charge the borrower for the cost of 
premiums and fees incurred in purchasing the insurance.


Sec. 572.8  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 savings association, or a servicer acting on behalf of the 
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.
    (b) Borrower fee. The determination fee 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 Director of FEMA's revision or updating of 
floodplain areas or flood-risk zones;
    (3) Reflects the Director 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 Director 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 under 
Sec. 572.7.
    (c) Purchaser or transferee fee. The fee may be charged to the 
purchaser or transferee of a loan in the case of the sale or transfer 
of the loan.


Sec. 572.9  Notice of special flood hazards and availability of Federal 
disaster relief assistance.

    (a) Notice requirement. When a 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 
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 Director of FEMA, that the 
building or the mobile home is or will be located in a special flood 
hazard area;
    (2) A description of the flood insurance purchase requirements set 
forth in section 102(b) of the Flood Disaster Protection Act of 1973, 
as amended (42 U.S.C. 4012a(b));
    (3) A statement, where applicable, that flood insurance coverage is 
available under the NFIP and may also be available from private 
insurers; and
    (4) A statement whether Federal disaster relief assistance may be 
available in the event of damage to the building or mobile home caused 
by flooding in a Federally-declared disaster.
    (c) Timing of notice. The savings association shall provide the 
notice required by paragraph (a) of this section to the borrower and 
the servicer within a reasonable time before the completion of the 
transaction.
    (d) Record of receipt. The savings association shall retain a 
record of the receipt of the notices by the borrower and the servicer 
for the period of time the savings association owns the loan.
    (e) Alternate method of notice. Instead of providing the notice to 
the borrower required by paragraph (a) of this section, a savings 
association may obtain satisfactory written assurance from the seller 
or lessor that, within a reasonable time before the completion of the 
sale or lease transaction, the seller or lessor has notified the 
borrower that the building or mobile home is or will be located in a 
special flood hazard area. The savings association shall retain a 
record of the written assurance from the seller or lessor for the 
period of time the savings association owns the loan.
    (f) Use of prescribed form of notice. A savings association may 
comply with the notice requirements of this section by providing 
written notice to a borrower and to the servicer containing 

[[Page 53981]]
the language presented in appendix A to this part not less than ten 
days before the completion of the transaction (or not later than the 
savings association's commitment if the period between the commitment 
and the completion of the transaction is less than ten days).


Sec. 572.10  Notice of servicer's identity.

    (a) Notice requirement. When a 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, the savings association shall notify the Director of FEMA 
(or the Director of FEMA's designee) in writing of the identity of the 
servicer of the loan.
    (b) Transfer of servicing rights. The savings association shall 
notify the Director of FEMA (or the Director 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. 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 572--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 securing the loan for which you have applied 
is or will be located in an area with special flood hazards.
    ______ The mobile home securing the loan for which you have 
applied is or will be located in an area with special flood hazards.
    The area has been identified by the Director of the Federal 
Emergency Management Agency (FEMA) as a special flood hazard area 
using FEMA's Flood Insurance Rate Map or the Flood Hazard Boundary 
Map for the following community: 
________________________________________. This area has at least a 
one percent (1%) chance of being flooded in any given year. The risk 
grows each year. For example, during the life of a 30-year mortgage 
loan, the risk of a flood in a special flood hazard area is at least 
26%.
    Federal law allows a lender and borrower jointly to request the 
Director of FEMA to review the determination of whether the property 
securing the loan is located in a special flood hazard area. If you 
would like to make such a request, please contact us for further 
information.
    ______ The community in which the property securing the loan is 
located participates in the National Flood Insurance Program (NFIP). 
Federal law will not allow us to make you the loan that you have 
applied for if you do not purchase flood insurance. The flood 
insurance must be maintained for the life of the loan.
     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 amount of the loan; or
    (2) The maximum amount of coverage allowed for the type of 
property under the NFIP.
     Federal disaster relief assistance (usually in the form 
of a low-interest loan) may be available for damages incurred in 
excess of your flood insurance if your community's participation in 
the NFIP is in accordance with NFIP requirements.
    ______ Flood insurance coverage under the NFIP is not available 
for the property securing the loan because the community in which 
the property is located does not participate in the NFIP. In 
addition, if the non-participating community has been identified for 
at least one year as containing a special flood hazard area, 
properties located in the community will not be eligible for Federal 
disaster relief assistance in the event of a Federally-declared 
flood disaster.

    Dated: September 30, 1995.

    By the Office of Thrift Supervision.
Jonathan L. Fiechter,
Acting Director.

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

    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.

    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  Forced placement of flood insurance.
614.4950  Determination fees.
614.4955  Notice of special flood hazards and availability of 
Federal disaster relief assistance.
614.4960  Notice of servicer's identity.

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

Subpart S--Flood Insurance Requirements


Sec. 614.4920  Purpose and scope.

    (a) Purpose. This subpart implements the requirements of the 
National Flood Insurance Act of 1968 (1968 Act) and the Flood Disaster 
Protection Act of 1973 (1973 Act), as amended (42 U.S.C. 4001-4129).
    (b) Scope. This subpart, except for Secs. 614.4940 and 614.4950, 
applies to loans of Farm Credit System (System) institutions that are 
secured by buildings or mobile homes located or to be located in areas 
determined by the Director 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.

    (a) 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.
    (b) 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.
    (c) Designated loan means a loan secured by a building or a 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.
    (d) Director means the Director of the Federal Emergency Management 
Agency.
    (e) Mobile home means a structure, transportable in one or more 
sections, that is built on a permanent chassis and designed for use 
with or without a permanent foundation when attached to the required 
utilities. The term mobile home does not include a recreational 
vehicle. For purposes of this subpart, 

[[Page 53982]]
the term mobile home means a mobile home on a permanent foundation.
    (f) NFIP means the National Flood Insurance Program authorized 
under the 1968 Act.
    (g) Residential improved real estate means real estate upon which a 
home or other residential building is located or to be located.
    (h) 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.
    (i) 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 Director.


Sec. 614.4930  Requirement to purchase flood insurance where available.

    (a) General requirement. 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 are covered by 
flood insurance for the term of the loan. The amount of insurance must 
be at least equal to the lesser of the outstanding principal balance of 
the designated loan or the maximum limit of coverage available for the 
particular type of property under the 1968 Act.
    (b) Exemptions. 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 Director, 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 $5000 or less and a repayment term of one year or less.


Sec. 614.4935  Escrow requirement.

    If a System institution requires the escrow of taxes, insurance 
premiums, fees, or any other charges for a loan secured by residential 
improved real estate or a mobile home that is made, increased, extended 
or renewed after [effective date of final regulation], then the 
institution also shall require the escrow of all premiums and fees for 
any flood insurance required under Sec. 614.4930. The institution, or a 
servicer acting on behalf of the institution, shall deposit the flood 
insurance premiums on behalf of the borrower in an escrow account. 
Depending upon the type of loan, such escrow account may be subject to 
escrow requirements adopted pursuant to section 10 of the Real Estate 
Settlement Procedures Act of 1974 (12 U.S.C. 2609), 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. Upon receipt of a notice from the Director or other provider 
of flood insurance that premiums are due, the institution or its 
servicer shall pay the amount owed to the insurance provider from the 
escrow account.


Sec. 614.4940  Required use of Standard Flood Hazard Determination 
Form.

    (a) Use of form. System institutions shall use the Standard Flood 
Hazard Determination Form developed by the Director (as set forth in 
Appendix A of 44 CFR part 65) when determining whether a 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 1968 Act. The Standard Flood Hazard Determination 
Form may be used in a printed, computerized, or electronic manner.
    (b) Retention of form. System institutions 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 institution owns 
the loan.


Sec. 614.4945  Forced placement of flood insurance.

    If a System institution, or a servicer acting on behalf of the 
institution, determines, at the time of origination or at any time 
during the term of a designated loan, that the building or mobile home 
and any personal property securing the designated loan are not covered 
by flood insurance or are covered by flood insurance in an amount less 
than the amount required under Sec. 614.4930(a), then the 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(a), for the term 
of the loan. If the borrower fails to obtain flood insurance within 45 
days after notification, then the institution or its servicer shall 
purchase insurance on the borrower's behalf. The institution or its 
servicer may charge the borrower for the premiums and fees incurred in 
purchasing the insurance.


Sec. 614.4950  Determination fees.

    (a) General. Notwithstanding any Federal or State law other than 
the 1973 Act, any System institution, or a servicer acting on behalf of 
the institution, may charge a reasonable fee for determining whether 
the building or mobile home securing the loan is located or will be 
located in a special flood hazard area.
    (b) Borrower fee. The determination fee 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 Director's revision or updating of floodplain 
areas or flood-risk zones;
    (3) Reflects the Director'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 Director, 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 under 
Sec. 614.4945.
    (c) Purchaser or transferee fee. The fee 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 
institution shall mail or deliver a written notice containing the 
information specified in paragraph (b) of this section 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 Director, 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 1973 Act (42 U.S.C. 4012a(b));
    (3) A statement, where applicable, that flood insurance coverage is 
available under the NFIP and also may be available from private 
insurers; and
    (4) A statement whether Federal disaster relief assistance may be 

[[Page 53983]]
    available in the event of damage to the building or the mobile home 
caused by flooding in a Federally declared disaster.
    (c) Timing of notice. The institution shall provide the notice 
required by paragraph (a) of this section to the borrower and the 
servicer within a reasonable time before the completion of the 
transaction.
    (d) Record of receipt. Each institution shall retain a record of 
the receipt of the notices by the borrower and the servicer for the 
period of time the 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 institution 
may obtain satisfactory written assurance from the seller or lessor 
that, within a reasonable time before the completion of the sale or 
lease transaction, the seller or lessor has notified the borrower that 
the building or mobile home is or will be located in a special flood 
hazard area. The institution shall retain a record of the written 
assurance from the seller or lessor for the period of time the 
institution owns the loan.
    (f) Use of prescribed form of notice. An institution may comply 
with the notice requirements of this section by providing written 
notice to a borrower and to the servicer containing the language 
presented in appendix A to this subpart not less than 10 days before 
the completion of the transaction (or not later than the institution's 
commitment if the period between the commitment and the completion of 
the transaction is less than 10 days).


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 a 
mobile home located or to be located in a special flood hazard area, 
the institution shall notify the Director (or the Director's designee) 
in writing of the identity of the servicer of the loan.
    (b) Transfer of servicing rights. The institution shall notify the 
Director (or the Director'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. 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 securing the loan for which you have applied 
is or will be located in an area with special flood hazards.
    ______The mobile home securing the loan for which you have 
applied is or will be located in an area with special flood hazards.
    The area has been identified by the Director of the Federal 
Emergency Management Agency (FEMA) as a special flood hazard area 
using FEMA's Flood Insurance Rate Map or the Flood Hazard Boundary 
Map for the following community: 
________________________________________. This area has at least a 
1-percent chance of being flooded in any given year. The risk grows 
each year.
For example, during the life of a 30-year mortgage loan, the risk of 
a flood in a special flood hazard area is at least 26 percent.
    Federal law allows a lender and borrower jointly to request the 
Director of FEMA to review the determination of whether the property 
securing the loan is located in a special flood hazard area. If you 
would like to make such a request, please contact us for further 
information.
    ______The community in which the property securing the loan is 
located participates in the National Flood Insurance Program (NFIP). 
Federal law will not allow us to make you the loan that you have 
applied for if you do not purchase flood insurance. The flood 
insurance must be maintained for the life of the loan.
     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 amount of the loan; or
    (2) The maximum amount of coverage allowed for the type of 
property under the NFIP.
     Federal disaster relief assistance (usually in the form 
of a low interest loan) may be available for damages incurred in 
excess of your flood insurance if your community's participation in 
the NFIP is in accordance with NFIP requirements.
    ______Flood insurance coverage under the NFIP is not available 
for the property securing the loan because the community in which 
the property is located does not participate in the NFIP. In 
addition, if the non-participating community has been identified for 
at least 1 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.

    Dated: September 8, 1995.
Floyd Fithian,
Secretary, Farm Credit Administration Board.

National Credit Union Administration

12 CFR CHAPTER VII

Authority and Issuance

    For the reasons set forth in the joint preamble, part 760 of 
chapter VII of title 12 of the Code of Federal Regulations is proposed 
to be revised to read as follows:

PART 760--LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS

Sec.
760.1  Authority, purpose, and scope.
760.2  Definitions.
760.3  Requirement to purchase flood insurance where available.
760.4  Exemptions.
760.5  Escrow requirement.
760.6  Required use of standard flood hazard determination form.
760.7  Forced 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

    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, 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 Secs. 760.6 and 760.8, applies to 
loans secured by buildings or mobile homes located or to be located in 
areas determined by the Director 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) Credit union means a Federal or State-chartered credit union 
that is insured by the National Credit Union Share Insurance Fund.
    (c) Building means a walled and roofed structure, other than a gas 
or liquid storage tank, that is principally 

[[Page 53984]]
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) Director means the Director of the Federal Emergency Management 
Agency.
    (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.
    (h) NFIP means the National Flood Insurance Program authorized 
under the Act.
    (i) Residential improved real estate means real estate upon which a 
home or other residential building is located or to be located.
    (j) 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.
    (k) 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 Director.


Sec. 760.3  Requirement to purchase flood insurance where available.

    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.


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 Director, 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.

    If a credit union requires the escrow of taxes, insurance premiums, 
fees, or any other charges for a loan secured by residential improved 
real estate or a mobile home that is made, increased, extended, or 
renewed after [effective date of final regulation], then the credit 
union shall also require the escrow of all premiums and fees for any 
flood insurance required under Sec. 760.3. The credit union, or a 
servicer acting on behalf of the credit union, shall deposit the flood 
insurance premiums on behalf of the borrower in an escrow account. 
Depending upon the type of loan, such escrow account may be subject to 
escrow requirements adopted pursuant to section 10 of the Real Estate 
Settlement Procedures Act of 1974 (12 U.S.C. 2609), 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. Upon receipt of a notice from the Director or other provider 
of flood insurance that premiums are due, the credit union or its 
servicer shall pay the amount owed to the insurance provider from the 
escrow account.


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 Director (as set forth in Appendix 
A of 44 CFR part 65) 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.
    (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  Forced placement of flood insurance.

    If a credit union, or a servicer acting on behalf of the credit 
union, determines, at the time of origination or 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 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.


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.
    (b) Borrower fee. The determination fee 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 Director's revision or updating of floodplain 
areas or flood-risk zones;
    (3) Reflects the Director'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 Director, 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 under 
Sec. 760.7.
    (c) Purchaser or transferee fee. The fee 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 

[[Page 53985]]
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 Director, that the 
building or the mobile home is or will be located in a special flood 
hazard area;
    (2) A description of the flood insurance purchase requirements set 
forth in section 102(b) of the Flood Disaster Protection Act of 1973, 
as amended (42 U.S.C. 4012a(b));
    (3) A statement, where applicable, that flood insurance coverage is 
available under the NFIP and may also be available from private 
insurers; and
    (4) A statement whether Federal disaster relief assistance may be 
available in the event of damage to the building or mobile home caused 
by flooding in a Federally-declared disaster.
    (c) Timing of notice. The credit union shall provide the notice 
required by paragraph (a) of this section to the borrower and the 
servicer within a reasonable time before the completion of the 
transaction.
    (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 the seller or lessor 
that, within a reasonable time before the completion of the sale or 
lease transaction, the seller or lessor has notified the borrower that 
the building or mobile home is or will be located in a special flood 
hazard area. 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 may comply 
with the notice requirements of this section by providing written 
notice to a borrower and to the servicer containing the language 
presented in appendix A to this part not less than ten days before the 
completion of the transaction (or not later than the credit union's 
commitment if the period between the commitment and the completion of 
the transaction is less than ten days).


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 Director (or the Director's designee) 
in writing of the identity of the servicer of the loan.
    (b) Transfer of servicing rights. The credit union shall notify the 
Director (or the Director'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. 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 securing the loan for which you have applied 
is or will be located in an area with special flood hazards.
    ______ The mobile home securing the loan for which you have 
applied is or will be located in an area with special flood hazards.
    The area has been identified by the Director of the Federal 
Emergency Management Agency (FEMA) as a special flood hazard area 
using FEMA's Flood Insurance Rate Map or the Flood Hazard Boundary 
Map for the following community: 
________________________________________. This area has at least a 
one percent (1%) chance of being flooded in any given year. The risk 
grows each year. For example, during the life of a 30-year mortgage 
loan, the risk of a flood in a special flood hazard area is at least 
26%.
    Federal law allows a lender and borrower jointly to request the 
Director of FEMA to review the determination of whether the property 
securing the loan is located in a special flood hazard area. If you 
would like to make such a request, please contact us for further 
information.
    ______ The community in which the property securing the loan is 
located participates in the National Flood Insurance Program (NFIP). 
Federal law will not allow us to make you the loan that you have 
applied for if you do not purchase flood insurance. The flood 
insurance must be maintained for the life of the loan.
     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 amount of the loan; or
    (2) The maximum amount of coverage allowed for the type of 
property under the NFIP.
     Federal disaster relief assistance (usually in the form 
of a low-interest loan) may be available for damages incurred in 
excess of your flood insurance if your community's participation in 
the NFIP is in accordance with NFIP requirements.
    ______ Flood insurance coverage under the NFIP is not available 
for the property securing the loan because the community in which 
the property is located does not participate in the NFIP. In 
addition, if the non-participating community has been identified for 
at least one year as containing a special flood hazard area, 
properties located in the community will not be eligible for Federal 
disaster relief assistance in the event of a Federally-declared 
flood disaster.

    Dated: September 28, 1995.
Becky Baker,
Secretary of the Board, National Credit Union Administration.
[FR Doc. 95-25257 Filed 10-17-95; 8:45 am]
BILLING CODE 4810-33-P, 6210-01-P, 6714-01-P, 6720-01-P, 6705-01-P, 
7535-01-P