[Federal Register Volume 62, Number 25 (Thursday, February 6, 1997)]
[Rules and Regulations]
[Pages 5530-5534]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-2902]


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DEPARTMENT OF VETERANS AFFAIRS
38 CFR Part 36

RIN 2900-AH63


Loan Guaranty: Flood Insurance Requirements

AGENCY: Veterans Benefits Administration, Department of Veterans 
Affairs.

ACTION: Final rule.

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SUMMARY: The Department of Veterans Affairs (VA) is amending its loan 
guaranty regulations regarding loans in areas having special flood 
hazards. This action is required by statute to implement the provisions 
of the National Flood Insurance Reform Act of 1994, Title V of Public 
Law 103-325. VA is amending its regulations to strengthen requirements 
for procuring and maintaining flood insurance on properties in areas 
having special flood hazards which secure loans guaranteed by VA, and 
to include new requirements for VA as a ``Federal agency lender.'' The 
new requirements include escrow requirements for flood insurance 
premiums, the requirement to ``force place'' flood insurance under 
certain circumstances, enhanced flood hazard notice requirements, new 
authority for VA to charge fees for determining whether a property is 
located in a special flood hazard area, and various other provisions 
necessary to implement the National Flood Insurance Reform Act of 1994.

EFFECTIVE DATE: This final rule is effective February 6, 1997.

FOR FURTHER INFORMATION CONTACT: Ms. Judith Caden, Assistant Director 
for Loan Policy (264), Loan Guaranty Service, Veterans Benefits 
Administration, Department of Veterans Affairs, Washington, DC 20420, 
(202) 273-7368.

SUPPLEMENTARY INFORMATION: Title V of the Riegle Community Development 
and Regulatory Improvement Act of 1994, which is called the National 
Flood Insurance Reform Act of 1994 (Reform Act), comprehensively 
revised existing Federal flood insurance statutes. The Reform Act was 
intended to increase compliance with flood insurance requirements and 
participation in the National Flood Insurance Program 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. The Reform Act requires the Federal 
entities for lending regulation to issue regulations fulfilling its 
statutory requirements, and Federal agency lenders to issue regulations 
consistent with and substantially identical to the regulations issued 
by the Federal entities for lending regulation. The Federal entities 
for lending regulation published a joint final rule on August 29, 1996.
    VA is amending its regulations in order to set forth the 
requirement of flood insurance coverage on properties located in 
special flood hazard areas which secure loans made or guaranteed by VA, 
and to fulfill the statutory requirement that VA issue regulations 
consistent with and substantially identical to the regulations issued 
by the Federal entities for lending regulation.
    Existing VA regulations regarding flood insurance requirements are 
based on several provisions of Title 42 U.S.C., Chapter 50, which were 
in place prior to the enactment of the Reform Act. 42 U.S.C. 4106(a) 
provides that no Federal agency shall approve any financial assistance 
(guarantee or make a loan) for acquisition or construction purposes on 
and after July 1, 1975, for use in any area that has been identified by 
the Director of the Federal Emergency Management Agency (FEMA) as an 
area having special flood hazards unless the community in which such 
area is situated is then participating in the National Flood Insurance 
Program. 42 U.S.C. 4012a(a) provides that no Federal agency shall 
approve any financial assistance for acquisition or construction 
purposes for use in any area that has been identified by the Director 
of FEMA as having special flood hazards and in which the sale of flood 
insurance is available under the National Flood Insurance Act of 1968 
unless the building or manufactured home and any personal property to 
which such financial assistance relates is covered by flood insurance.
    The Reform Act added 42 U.S.C. 4012a(b) which provides that 
regulated lending institutions and Federal agency lenders cannot make, 
increase, extend, or renew any loan secured by improved real estate or 
a manufactured home located or to be located in an area that has been 
identified by the Director of FEMA as an area having special flood 
hazards and in which flood insurance has been made available under the 
National Flood Insurance Act of 1968, unless the building or 
manufactured home and any personal property securing such loan is 
covered by flood insurance. Further, lenders selling loans to the 
Federal National Mortgage Association or the Federal Home Loan Mortgage 
Corporation must ensure that any loan secured by improved real estate 
or a manufactured home identified as being in a special flood hazard 
area at the time of origination or any time during the term of the loan 
is covered by flood insurance.
    One significant impact of the new provisions on VA is a greater 
emphasis on ensuring flood insurance coverage during the entire term of 
loans guaranteed or made by VA which require such insurance, taking 
into account any remapping of special flood hazard areas by FEMA. VA is 
amending 38 CFR 36.4222 regarding hazard insurance coverage for 
manufactured home loans guaranteed by VA, 38 CFR 36.4326 regarding 
hazard insurance coverage for other loans guaranteed by VA, and 38 CFR 
36.4600(c)(3) regarding hazard insurance coverage for loans sold by VA 
subject to guaranty, by adding language to emphasize that the flood 
insurance requirement applies any time during the term of the loan that 
the security is located in a special flood hazard area, not just when 
the loan is made. VA is adding language to 38 CFR 36.4512(b) which 
provides that it cannot make, increase, extend, or renew any loan 
secured by improved real estate or a manufactured home located or to be 
located in a special flood hazard area unless the security is covered 
by flood insurance for the term of the loan.
    Under 42 U.S.C. 4106(a), Federal agencies are prohibited from 
providing financial assistance for acquisition or construction purposes 
for use in any area that has been identified by FEMA as an area having 
special flood hazards unless the community in which such area is 
situated is then participating in the National Flood Insurance Program. 
Although this is not a new provision of the law, VA is using this 
opportunity to ensure program participants are aware of the 
prohibition. VA is incorporating the prohibition into 38 CFR 36.4222, 
36.4326, 36.4402 and 36.4512.
    In 38 CFR 36.4326 and 36.4402(a)(6), the reference to the Secretary 
of Housing and Urban Development is replaced by a reference to the 
FEMA.
    38 CFR 36.4500(b) is amended to make the provisions of 38 CFR 
36.4512 applicable to Native American veteran direct loans. Editorial 
changes are also made to 38 CFR 36.4512.
    The Reform Act requires that VA issue regulations consistent with 
and substantially identical to those issued

[[Page 5531]]

by the Federal entities for lending regulation. The regulations issued 
by the Federal entities for lending regulation restate the requirements 
of the law as applied to regulated lending institutions. VA is adding 
this language, as applied to its role as a Federal agency lender, to 
its regulations as sections 38 CFR 36.4700 through 36.4709. These 
regulations apply whenever VA makes, increases, extends or renews, and, 
in some cases, sells a loan secured by improved real estate or a 
manufactured home located in an area identified by FEMA as having 
special flood hazards. The regulations include the following 
requirements: VA will maintain the required amount of flood insurance 
for the term of the loan; VA will escrow for flood insurance premiums 
if it requires the escrow of taxes, insurance, or other charges; VA 
will use the standard flood hazard determination form prescribed by 
FEMA, retain a copy of each completed form, and may charge a fee for 
flood determinations under certain circumstances; VA will force 
placement of flood insurance under certain circumstances; VA will 
provide notice of special flood hazards and availability of Federal 
disaster relief assistance, in a specific written format, to the 
borrower and servicer of the loan, and retain a record of receipt of 
the notices by these parties; and VA will notify the Director of FEMA, 
or the Director's designee, of the identity of the servicer of the loan 
and of any change in the servicer. VA is omitting the references to 
table funding contained in the regulations issued by the Federal 
entities for lending regulation from its amendments because they are 
not applicable to its role as a Federal agency lender.
    The Secretary hereby certifies that this final rule will not have a 
significant economic impact on a substantial number of small entities 
as they are defined in the Regulatory Flexibility Act, 5 U.S.C. 601-
612. The final rule essentially restates statutory provisions and 
reflects statutory requirements. Therefore, pursuant to 5 U.S.C. 
605(b), this final rule is exempt from the initial and final regulatory 
flexibility analysis requirements of sections 603 and 604.

    The Catalog of Federal Domestic Assistance Program numbers are 
64.106, 64.114, 64.118, 64.119 and 64.126.

List of Subjects in 38 CFR Part 36

    Condominiums, Handicapped, Housing Loan programs--housing and 
community development, Manufactured homes, Veterans.

    Approved: January 24, 1997.
Jesse Brown,
Secretary of Veterans Affairs.

    For the reasons set out in the preamble, 38 CFR part 36 is amended 
as set forth below.

PART 36--LOAN GUARANTY

    1. An authority citation for part 36 is added to read as follows:

    Authority: 38 U.S.C. 501, 3701-3704, 3707, 3710-3714, 3719, 
3720, 3729, 3762, unless otherwise noted.

    2. In Sec. 36.4222, paragraph (a)(1) is revised to read as follows:


Sec. 36.4222  Hazard insurance.

    (a) * * *
    (1) Flood insurance will be required on any manufactured home, 
building or personal property securing a loan at any time during the 
term of the loan that such security is located in an area identified by 
the Federal Emergency Management Agency as having special flood hazards 
and in which flood insurance has been made available under the National 
Flood Insurance Act, as amended. The amount of flood insurance must be 
at least equal to the lesser of the outstanding principal balance of 
the loan or the maximum limit of coverage available for the particular 
type of property under the National Flood Insurance Act, as amended. 
The Secretary cannot guarantee a loan for the acquisition or 
construction of property located in an area identified by the Federal 
Emergency Management Agency as having special flood hazards unless the 
community in which such area is situated is then participating in the 
National Flood Insurance Program.

(Authority: 42 U.S.C. 4012a, 4106(a))
* * * * *
    3. Section 36.4326 is revised to read as follows:


Sec. 36.4326  Hazard insurance.

    The holder shall require insurance policies to be procured and 
maintained in an amount sufficient to protect the security against the 
risks or hazards to which it may be subjected to the extent customary 
in the locality. All moneys received under such policies covering 
payment of insured losses shall be applied to restoration of the 
security or to the loan balance. Flood insurance will be required on 
any building or personal property securing a loan at any time during 
the term of the loan that such security is located in an area 
identified by the Federal Emergency Management Agency as having special 
flood hazards and in which flood insurance has been made available 
under the National Flood Insurance Act, as amended. The amount of flood 
insurance must be at least equal to the lesser of the outstanding 
principal balance of the loan or the maximum limit of coverage 
available for the particular type of property under the National Flood 
Insurance Act, as amended. The Secretary cannot guarantee a loan for 
the acquisition or construction of property located in an area 
identified by the Federal Emergency Management Agency as having special 
flood hazards unless the community in which such area is situated is 
then participating in the National Flood Insurance Program.

(Authority: 42 U.S.C. 4012a, 4106(a))

    4. In Sec. 36.4402, paragraph (a)(6) is revised to read as follows:


Sec. 36.4402  Eligibility.

    (a) * * *
    (6) The housing unit, if it is located or becomes located in an 
area identified by the Federal Emergency Management Agency as having 
special flood hazards and in which flood insurance has been made 
available under the National Flood Insurance Act, as amended, is or 
will be covered by flood insurance. The amount of flood insurance must 
be at least equal to the lesser of the full insurable value of the 
property or the maximum limit of coverage available for the particular 
type of property under the National Flood Insurance Act, as amended. 
The Secretary cannot approve any financial assistance for the 
acquisition or construction of property located in an area identified 
by the Federal Emergency Management Agency as having special flood 
hazards unless the community in which such area is situated is then 
participating in the National Flood Insurance Program.

(Authority: 42 U.S.C. 4012a, 4106(a))
* * * * *
    5. In Sec. 36.4500, paragraph (b) is revised to read as follows:


Sec. 36.4500  Applicability.

* * * * *
    (b) Sections 36.4501, 36.4512, and 36.4527, which concern direct 
loans to Native American veterans shall be applicable to loans made by 
the Secretary pursuant to 38 U.S.C. 3761 through 3764.

(Authority: 42 U.S.C. 4012a)
* * * * *
    6. Section 36.4512 is revised to read as follows:


Sec. 36.4512  Taxes and insurance.

    (a) In addition to the monthly installment payments of principal 
and

[[Page 5532]]

interest payable under the terms of the loan agreement, the borrower 
will be required to make payments monthly to the Secretary in such 
amounts as may be determined by the Secretary from time to time to be 
necessary for the purpose of accumulating funds sufficient for the 
payment of taxes and assessments, ground rents, insurance premiums, and 
similar levies or charges on the security property. The borrower at 
loan closing shall pay in cash to the Secretary such sum as it 
estimates may be necessary as the initial deposit to the borrower's tax 
and insurance reserve account.

(Authority: 38 U.S.C. 3720)

    (b) The borrower shall procure and maintain insurance of a type or 
types and in such amounts as may be required by the Secretary to 
protect the security against fire and other hazards. The Secretary 
cannot make a loan for the acquisition or construction of property 
located in an area identified by the Federal Emergency Management 
Agency as having special flood hazards unless the community in which 
such area is situated is then participating in the National Flood 
Insurance Program. The Secretary shall not make, increase, extend, or 
renew a loan secured by a building or manufactured home that is located 
or to be located in an area identified by the Federal Emergency 
Management Agency as having special flood hazards and in which flood 
insurance has been made available under the National Flood Insurance 
Act, as amended, unless the building or manufactured home and any 
personal property securing the loan is covered by flood insurance for 
the term of the loan. The amount of flood insurance must be at least 
equal to the lesser of the outstanding principal balance of the loan or 
the maximum limit of coverage available for the particular type of 
property under the National Flood Insurance Act, as amended. The 
requirements of 38 CFR 36.4700 through 36.4709 shall apply to direct 
loans made pursuant to 38 U.S.C. 3711 and 3761 through 3764. All hazard 
and flood insurance shall be carried with a company or companies 
satisfactory to the Secretary and the policies and renewals thereof 
shall be held in the possession of the Secretary and contain a 
mortgagee loss payable clause in favor of and in a form satisfactory to 
the Secretary.

(Authority: 42 U.S.C. 4012a, 4106(a))

    7. In Sec. 36.4600, paragraph (c)(3) is revised to read as follows:


Sec. 36.4600  Sale of loans, guarantee of payment.

* * * * *
    (c) * * *
    (3) To maintain insurance in an amount sufficient to protect the 
security against risks or hazards to which it may be subjected to the 
extent customary in the locality, and to apply the proceeds of loss 
payments to the loan balance or the restoration of the security, as the 
holder may in the holder's discretion deem proper. Flood insurance will 
be required on any building or personal property securing a loan at any 
time during the term of the loan that such security is located in an 
area identified by the Federal Emergency Management Agency as having 
special flood hazards and in which flood insurance has been made 
available under the National Flood Insurance Act, as amended. The 
amount of flood insurance must be at least equal to the lesser of the 
outstanding principal balance of the loan or the maximum limit of 
coverage available for the particular type of property under the 
National Flood Insurance Act, as amended. The notice requirements of 38 
CFR 36.4709 shall apply to loans sold pursuant to this section.

(Authority: 42 U.S.C. 4012a, 4104a)
* * * * *
    8. Sections 36.4700 through 36.4709 are added to read as follows:


Sec. 36.4700  Authority, purpose, and scope.

    (a) Authority. Sections 36.4700 through 36.4709 of this part are 
issued pursuant to 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128.
    (b) Purpose. The purpose of sections 36.4700 through 36.4709 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. Sections 36.4700 through 36.4709 of this part, except 
for Secs. 36.4705 and 36.4707, apply 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 36.4705 and 36.4707 apply to loans secured by 
buildings or mobile homes, regardless of location.

(Authority: 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128)


Sec. 36.4701  Definitions.

    (a) Act means the National Flood Insurance Act of 1968, as amended 
(42 U.S.C. 4001-4129).
    (b) Secretary means the Secretary of Veterans Affairs.
    (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. The term mobile home includes a 
manufactured home as that term is used in the NFIP.
    (h) NFIP means the National Flood Insurance Program authorized 
under the Act.
    (i) 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.

(Authority: 42 U.S.C. 4012a, 4104a, 4104b, 4106 and 4128)


Sec. 36.4702  Requirement to purchase flood insurance where available.

    In general. The Secretary 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

[[Page 5533]]

equal to the lesser of the outstanding principal balance of the 
designated loan or the maximum limit of coverage available for the 
particular type of property under the Act. Flood insurance coverage 
under the Act is limited to the overall value of the property securing 
the designated loan minus the value of the land on which the property 
is located.

(Authority: 42 U.S.C. 4012a)


Sec. 36.4703  Exemptions.

    The flood insurance requirement prescribed by 38 CFR 36.4702 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.

(Authority: 42 U.S.C. 4012a(c))


Sec. 36.4704  Escrow requirement.

    If the Secretary requires the escrow of taxes, insurance premiums, 
fees, or any other charges for a loan secured by residential improved 
real estate or a mobile home that is made, increased, extended, or 
renewed on or after October 1, 1996, the Secretary shall also require 
the escrow of all premiums and fees for any flood insurance required 
under 38 CFR 36.4702. The Secretary, or a servicer acting on behalf of 
the Secretary, shall deposit the flood insurance premiums on behalf of 
the borrower in an escrow account. This escrow account will be subject 
to escrow requirements adopted pursuant to section 10 of the Real 
Estate Settlement Procedures Act of 1974 (12 U.S.C. 2609) (RESPA), 
which generally limits the amount that may be maintained in escrow 
accounts for certain types of loans and requires escrow account 
statements for those accounts, only if the loan is otherwise subject to 
RESPA. Following receipt of a notice from the Director of FEMA or other 
provider of flood insurance that premiums are due, the Secretary, or a 
servicer acting on behalf of the Secretary, shall pay the amount owed 
to the insurance provider from the escrow account by the date when such 
premiums are due.

(Authority: 42 U.S.C. 4012a(d))


Sec. 36.4705  Required use of standard flood hazard determination form.

    (a) Use of form. The Secretary 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. The Secretary 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 Secretary owns the loan.

(Authority: 42 U.S.C. 4104b)


Sec. 36.4706  Forced placement of flood insurance.

    If the Secretary, or a servicer acting on behalf of the Secretary, 
determines at any time during the term of a designated loan that the 
building or mobile home and any personal property securing the 
designated loan is not covered by flood insurance or is covered by 
flood insurance in an amount less than the amount required under 38 CFR 
36.4702, then the Secretary or a servicer acting on behalf of the 
Secretary, 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 38 CFR 36.4702, for the remaining term of 
the loan. If the borrower fails to obtain flood insurance within 45 
days after notification, then the Secretary or a servicer acting on 
behalf of the Secretary, shall purchase insurance on the borrower's 
behalf. The Secretary or a servicer acting on behalf of the Secretary, 
may charge the borrower for the cost of premiums and fees incurred in 
purchasing the insurance.

(Authority: 42 U.S.C. 4012a(e))


Sec. 36.4707  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), the Secretary, or a servicer acting on behalf of the Secretary, 
may charge a reasonable fee for determining whether the building or 
mobile home securing the loan is located or will be located in a 
special flood hazard area. A determination fee may also include, but is 
not limited to, a fee for life-of-loan monitoring.
    (b) Borrower fee. The determination fee authorized by paragraph (a) 
of this section may be charged to the borrower if the determination:
    (1) Is made in connection with a making, increasing, extending, or 
renewing of the loan that is initiated by the borrower;
    (2) Reflects the 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 by the 
Secretary or a servicer acting on behalf of the Secretary, on behalf of 
the borrower under 38 CFR 36.4706.
    (c) Purchaser or transferee fee. The determination fee authorized 
by paragraph (a) of this section may be charged to the purchaser or 
transferee of a loan in the case of the sale or transfer of the loan.

(Authority: 42 U.S.C. 4012a(h))


Sec. 36.4708  Notice of special flood hazards and availability of 
Federal disaster relief assistance.

    (a) Notice requirement. When the Secretary 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 Secretary 
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 Secretary shall provide the notice 
required by paragraph (a) of this section to the

[[Page 5534]]

borrower within a reasonable time before the completion of the 
transaction, and to the servicer as promptly as practicable after the 
Secretary provides notice to the borrower and in any event no later 
than the time the Secretary provides other similar notices to the 
servicer concerning hazard insurance and taxes. Notice to the servicer 
may be made electronically or may take the form of a copy of the notice 
to the borrower.
    (d) Record of receipt. The Secretary shall retain a record of the 
receipt of the notices by the borrower and the servicer for the period 
of time the Secretary owns the loan.
    (e) Alternate method of notice. Instead of providing the notice to 
the borrower required by paragraph (a) of this section, the Secretary 
may obtain satisfactory written assurance from a seller or lessor that, 
within a reasonable time before the completion of the sale or lease 
transaction, the seller or lessor has provided such notice to the 
purchaser or lessee. The Secretary shall retain a record of the written 
assurance from the seller or lessor for the period of time the 
Secretary owns the loan.
    (f) Use of prescribed form of notice. The Secretary will be 
considered to be in compliance with the requirement for notice to the 
borrower of this section by providing written notice to the borrower 
containing the language presented in appendix A to this part within a 
reasonable time before the completion of the transaction. The notice 
presented in appendix A to this part satisfies the borrower notice 
requirements of the Act.

(Authority: 42 U.S.C. 4104a)


Sec. 36.4709  Notice of servicer's identity.

    (a) Notice requirement. When the Secretary 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 Secretary shall notify the Director of FEMA (or the Director's 
designee) in writing of the identity of the servicer of the loan. The 
Director of FEMA has designated the insurance provider to receive the 
Secretary's notice of the servicer's identity. This notice may be 
provided electronically if electronic transmission is satisfactory to 
the Director of FEMA's designee.
    (b) Transfer of servicing rights. The Secretary shall notify the 
Director of FEMA (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. This notice may be 
provided electronically if electronic transmission is satisfactory to 
the Director of FEMA's designee. Upon any change in the servicing of a 
loan described in paragraph (a) of this section, the duty to provide 
notice under this paragraph (b) shall transfer to the transferee 
servicer.

(Authority: 42 U.S.C. 4104a)

9. Appendix A to part 36 is added to read as follows:

Appendix A to Part 36--Sample Form of Notice of Special Flood 
Hazards and Availability of Federal Disaster Relief Assistance

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

(Authority: 42 U.S.C. 4104a)

[FR Doc. 97-2902 Filed 2-5-97; 8:45 am]
BILLING CODE 8320-01-P