[Federal Register Volume 79, Number 210 (Thursday, October 30, 2014)]
[Proposed Rules]
[Pages 64518-64538]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-25722]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Parts 22, 172

[Docket ID OCC-2014-0016]
RIN 1557-AD84

FEDERAL RESERVE SYSTEM

12 CFR Part 208

[Regulation H, Docket No. R-1498]
RIN 7100-AE22

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 339

RIN 3064-AE27

FARM CREDIT ADMINISTRATION

12 CFR Part 614

RIN 3052-AC93

NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 760

RIN 3133-AE40


Loans in Areas Having Special Flood Hazards

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

ACTION: Joint notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: The Office of the Comptroller of the Currency (OCC), Board of 
Governors of the Federal Reserve System (Board), Federal Deposit 
Insurance Corporation (FDIC), the Farm Credit Administration (FCA), and 
the National Credit Union Administration (NCUA) (collectively, the 
Agencies) are proposing to amend their regulations regarding loans in 
areas having special flood hazards to implement certain provisions of 
the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA), which 
amends some of the changes to the Flood Disaster Protection Act of 1973 
mandated by the Biggert-Waters Flood Insurance Reform Act of 2012 
(Biggert-Waters). Specifically, the proposal would establish 
requirements with respect to the escrow of flood insurance payments, 
consistent with the changes set forth in HFIAA. The proposal also would 
incorporate an exemption in HFIAA for certain detached structures from 
the mandatory flood insurance purchase requirement. The Agencies plan 
to address in a separate rulemaking other provisions of Biggert-Waters 
over which the Agencies have jurisdiction that have not been affected 
by HFIAA.

DATES: Comments must be received on or before December 29, 2014.

ADDRESSES: Interested parties are encouraged to submit written comments 
jointly to all of the Agencies. Commenters are encouraged to use the 
title ``Loans in Areas Having Special Flood Hazards'' to facilitate the 
organization and distribution of comments among the Agencies. 
Interested parties are invited to submit written comments to:
    OCC: Because paper mail in the Washington, DC area and at the OCC 
is subject to delay, commenters are encouraged to submit comments 
through the Federal eRulemaking Portal or email, if possible. Please 
use the title ``Loans in Areas Having Special Flood Hazards'' to 
facilitate the organization and distribution of the comments. You may 
submit comments by any of the following methods:
     Federal eRulemaking Portal--``Regulations.gov'': Go to 
www.regulations.gov. Enter ``Docket ID OCC-2014-0016'' in the Search 
Box and click ``Search.'' Results can be filtered using the filtering 
tools on the left side of the screen. Click on ``Comment Now'' to 
submit public comments. Click on the ``Help'' tab on the 
Regulations.gov home page to get information on using Regulations.gov, 
including instructions for submitting public comments.
     Email: [email protected].
     Mail: Legislative and Regulatory Activities Division, 
Office of the Comptroller of the Currency, 400 7th Street SW., Suite 
3E-218, Mail Stop 9W-11, Washington, DC 20219.
     Hand Delivery/Courier: 400 7th Street SW., Suite 3E-218, 
Mail Stop 9W-11, Washington, DC 20219.
     Fax: (571) 465-4326.
    Instructions: You must include ``OCC'' as the agency name and 
``Docket ID OCC-2014-0016'' in your comment. In general, OCC will enter 
all comments received into the docket and publish them on the 
Regulations.gov Web site without change, including any business or 
personal information that you provide such as name and address 
information, email addresses, or phone numbers. Comments received, 
including attachments and other supporting materials, are part of the 
public record and subject to public disclosure. Do not enclose any 
information in your comment or supporting materials that you consider 
confidential or inappropriate for public disclosure.
    You may review comments and other related materials that pertain to 
this rulemaking action by any of the following methods:
     Viewing Comments Electronically: Go to 
www.regulations.gov. Enter ``Docket ID OCC-2014-0016'' in the Search 
box and click ``Search.'' Comments can be filtered by Agency using the 
filtering tools on the left side of the screen. Click on the ``Help'' 
tab on the Regulations.gov home page to get information on using 
Regulations.gov, including instructions for viewing public comments, 
viewing other supporting and related materials, and viewing the docket 
after the close of the comment period.
     Viewing Comments Personally: You may personally inspect 
and photocopy comments at the OCC, 400 7th Street SW., Washington, DC. 
For security reasons, the OCC requires that visitors make an 
appointment to inspect comments. You may do so by calling (202) 649-
6700. Upon arrival, visitors will be required to present valid 
government-issued photo identification and to submit to security 
screening in order to inspect and photocopy comments.
     Docket: You may also view or request available background 
documents and project summaries using the methods described above.

[[Page 64519]]

    Board: You may submit comments, identified by Docket No. R-1498 or 
RIN 7100-AE22, by any of the following methods:
     Agency Web site: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Email: [email protected]. Include the 
docket number in the subject line of the message.
     Fax: (202) 452-3819 or (202) 452-3102.
     Mail: Address to Robert deV. Frierson, Secretary, Board of 
Governors of the Federal Reserve System, 20th Street and Constitution 
Avenue NW., Washington, DC 20551.
All public comments will be made available on the Board's Web site at 
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons. Accordingly, comments 
will not be edited to remove any identifying or contact information. 
Public comments may also be viewed electronically or in paper in Room 
MP-500 of the Board's Martin Building (20th and C Streets NW.) between 
9:00 a.m. and 5:00 p.m. on weekdays.
    FDIC: You may submit comments by any of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Agency Web site: http://www.fdic.gov/regulations/laws/federal/.
     Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments/Legal ESS, Federal Deposit Insurance Corporation, 550 17th 
Street NW., Washington, DC 20429.
     Hand Delivered/Courier: The guard station at the rear of 
the 550 17th Street Building (located on F Street), on business days 
between 7:00 a.m. and 5:00 p.m.
     Email: [email protected].
    Comments submitted must include ``FDIC'' and ``Loans in Areas 
Having Special Flood Hazards.'' Comments received will be posted 
without change to http://www.fdic.gov/regulations/laws/federal/, 
including any personal information provided.
    FCA: We offer a variety of methods for you to submit your comments. 
For accuracy and efficiency reasons, commenters are encouraged to 
submit comments by email or through the FCA's Web site. As facsimiles 
(fax) are difficult for us to process and achieve compliance with 
section 508 of the Rehabilitation Act, we are no longer accepting 
comments submitted by fax. Regardless of the method you use, please do 
not submit your comments multiple times via different methods. You may 
submit comments by any of the following methods:
     Email: Send us an email at [email protected].
     Agency Web site: http://www.fca.gov. Select ``Law & 
Regulations,'' then ``FCA Regulations,'' then ``Public Comments,'' and 
follow the directions for ``Submitting a Comment.''
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail: Barry F. Mardock, Deputy Director, Office of 
Regulatory Policy, Farm Credit Administration, 1501 Farm Credit Drive, 
McLean, VA 22102-5090.
You may review copies of all comments we receive at our office in 
McLean, Virginia or on our Web site at http://www.fca.gov. Once you are 
in the Web site, Select ``Law & Regulations,'' then ``FCA 
Regulations,'' then ``Public Comments,'' and follow the directions for 
``Reading Submitted Public Comments.'' We will show your comments as 
submitted, including any supporting data provided, but for technical 
reasons we may omit items such as logos and special characters. 
Identifying information that you provide, such as phone numbers and 
addresses, will be publicly available. However, we will attempt to 
remove email addresses to help reduce Internet spam.
    NCUA: You may submit comments, identified by RIN 3133-AE40 by any 
of the following methods (Please send comments by one method only):
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Agency Web site: http://www.ncua.gov/Legal/Regs/Pages/PropRegs.aspx. Follow the instructions for submitting comments.
     Email: Address to [email protected]. Include [Your 
name] Comments on ``Loans in Areas Having Special Flood Hazards'' in 
the email subject line.
     Fax: (703) 518-6319. Use the subject line described above 
for email.
     Mail: Address to Gerard Poliquin, Secretary of the Board, 
National Credit Union Administration, 1775 Duke Street, Alexandria, 
Virginia 22314-3428.
     Hand Delivery/Courier: Same as mail address.
You can view all public comments on NCUA's Web site at http://www.ncua.gov/Legal/Regs/Pages/PropRegs.aspx as submitted, except for 
those we cannot post for technical reasons. NCUA will not edit or 
remove any identifying or contact information from the public comments 
submitted. You may inspect paper copies of comments in NCUA's law 
library at 1775 Duke Street, Alexandria, Virginia 22314, by appointment 
weekdays between 9:00 a.m. and 3:00 p.m. To make an appointment, call 
(703) 518-6546 or send an email to [email protected].

FOR FURTHER INFORMATION CONTACT: OCC: Rhonda L. Daniels, Compliance 
Specialist, Compliance Policy Division, (202) 649-5405; Margaret C. 
Hesse, Senior Counsel, Community and Consumer Law Division, (202) 649-
6350; or Heidi M. Thomas, Special Counsel, Legislative and Regulatory 
Activities Division, (202) 649-5490, for persons who are deaf or hard 
of hearing, TTY, (202) 649-5597, Office of the Chief Counsel.
    Board: Lanette Meister, Senior Supervisory Consumer Financial 
Services Analyst (202) 452-2705; Vivian W. Wong, Counsel (202) 452-
3667, Division of Consumer and Community Affairs; or Daniel Ericson, 
Counsel (202) 452-3359, Legal Division; for users of Telecommunications 
Device for the Deaf (TDD) only, contact (202) 263-4869.
    FDIC: Navid Choudhury, Counsel, Consumer Compliance Section, (202) 
898-6526, Legal Division; or John Jackwood, Senior Policy Analyst, 
(202) 898-3991, Division of Depositor and Consumer Protection.
    FCA: Paul K. Gibbs, Senior Accountant, Office of Regulatory Policy 
(703) 883-4203, TTY (703) 883-4056; or Mary Alice Donner, Senior 
Counsel, Office of General Counsel (703) 883-4020, TTY (703) 883-4056.
    NCUA: Frank Kressman, Associate General Counsel, Office of General 
Counsel, (703) 518-6540.

SUPPLEMENTARY INFORMATION:

I. Background

A. Introduction

    In October 2013, the Agencies jointly issued a proposal to 
implement certain provisions of the Biggert-Waters Flood Insurance 
Reform Act of 2012 \1\ (Biggert-Waters) over which the Agencies have 
jurisdiction (the October 2013 Proposed Rule).\2\ Specifically, the 
October 2013 Proposed Rule would have required regulated lending 
institutions \3\ to

[[Page 64520]]

escrow flood insurance premiums and fees on residential improved real 
estate, unless the regulated lending institution meets the statutory 
small institution exception. The October 2013 Proposed Rule also would 
have required regulated lending institutions to accept private flood 
insurance coverage, as defined in Biggert-Waters, to satisfy the 
mandatory flood insurance purchase requirement. The October 2013 
Proposed Rule also contained provisions to implement the Biggert-Waters 
changes related to force-placed flood insurance.
---------------------------------------------------------------------------

    \1\ Public Law 112-141, 126 Stat. 916 (2012).
    \2\ 78 FR 65108 (Oct. 30, 2013).
    \3\ The National Flood Insurance Reform Act of 1994 defines 
``regulated lending institution'' to mean any bank, savings and loan 
association, credit union, farm credit bank, Federal land bank 
association, production credit association, or similar institution 
subject to the supervision of a Federal entity for lending 
regulation. 42 U.S.C. 4003(a)(1).
---------------------------------------------------------------------------

    On March 21, 2014, the President signed into law the Homeowner 
Flood Insurance Affordability Act of 2014 \4\ (HFIAA), which amends 
some of the changes made by Biggert-Waters to the Flood Disaster 
Protection Act (FDPA).\5\ Among these changes are amendments relating 
to the escrow requirement. HFIAA also includes a new exclusion from the 
mandatory flood insurance purchase requirement for certain detached 
structures. The Agencies are issuing this proposal to implement the 
escrow provisions and incorporate the detached structures provision. 
The Agencies are requesting comments on these proposed amendments. In 
connection with the issuance of this proposal, the Agencies have 
coordinated and consulted with the Federal Financial Institutions 
Examination Council (FFIEC), as is required by certain provisions of 
the flood insurance statutes.\6\ Because HFIAA leaves untouched the 
provisions in Biggert-Waters related to private flood insurance and 
force-placed flood insurance, this proposal does not address those 
provisions.
---------------------------------------------------------------------------

    \4\ Public Law 113-89; 128 Stat. 1020 (2014).
    \5\ Public Law 93-234, 87 Stat. 975 (1973).
    \6\ See 42 U.S.C. 4012a(b)(1). The heads of four of the five 
Agencies (OCC, Board, FDIC, and NCUA) are members of the FFIEC.
---------------------------------------------------------------------------

    As the Agencies stated in the October 2013 Proposed Rule with 
respect to Biggert-Waters, this proposal would implement only certain 
provisions of HFIAA over which the Agencies have jurisdiction. 
Accordingly, the Agencies encourage lenders to consult Biggert-Waters 
and HFIAA for further information about revisions to the flood 
insurance statutes that will not be implemented through the Agencies' 
rulemakings.

B. Flood Insurance Statutes

    The National Flood Insurance Act of 1968 (1968 Act) \7\ and the 
FDPA govern the National Flood Insurance Program (NFIP).\8\ The 1968 
Act made Federally subsidized flood insurance available to owners of 
improved real estate or mobile homes located in special flood hazard 
areas if the community where the improved real estate or mobile home is 
located participates in the NFIP. A special flood hazard area (SFHA) is 
an area within a floodplain having a one percent or greater chance of 
flood occurrence in any given year.\9\ SFHAs are delineated on maps 
issued by FEMA for individual communities.\10\ A community establishes 
its eligibility to participate in the NFIP by adopting and enforcing 
floodplain management measures that regulate new construction and by 
making substantial improvements within its SFHAs to eliminate or 
minimize future flood damage.\11\
---------------------------------------------------------------------------

    \7\ Public Law 90-448, 82 Stat. 572 (1968).
    \8\ These statutes are codified at 42 U.S.C. 4001-4129. The 
Federal Emergency Management Agency (FEMA) administers the NFIP; its 
regulations implementing the NFIP appear at 44 CFR parts 59-77.
    \9\ 44 CFR 59.1.
    \10\ 44 CFR part 65.
    \11\ 44 CFR part 60.
---------------------------------------------------------------------------

    Until the adoption of the FDPA in 1973, the purchase of flood 
insurance was voluntary. The FDPA made the purchase of flood insurance 
mandatory in connection with loans made by regulated lending 
institutions when the loans are secured by improved real estate or 
mobile homes located in a SFHA in a participating community. The FDPA 
directed the OCC, Board, FDIC, NCUA, and the former Office of Thrift 
Supervision (OTS) \12\ to issue regulations governing the lending 
institutions that they supervised. The regulations also require lenders 
to notify borrowers that the secured property is located in a SFHA and 
whether Federal disaster assistance is available with respect to the 
property in the event of a flood.
---------------------------------------------------------------------------

    \12\ Title III of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act, Public Law 111-203, 124 Stat. 1376 (2010), (Dodd-
Frank Act), transferred the powers, duties, and functions formerly 
performed by the OTS to the FDIC, as to State savings associations, 
the OCC, as to Federal savings associations, and the Board as to 
savings and loan holding companies. The transfer took effect on July 
21, 2011, and the OTS was abolished 90 days after that date.
---------------------------------------------------------------------------

    Title V of the Riegle Community Development and Regulatory 
Improvement Act of 1994, also known as the National Flood Insurance 
Reform Act of 1994 (Reform Act), comprehensively amended the Federal 
flood insurance statutes.\13\ The Reform Act established new 
requirements for Federally regulated lending institutions, such as the 
escrow for flood insurance premiums under certain conditions and 
mandatory force-placed flood insurance coverage. The Reform Act was 
intended to increase compliance with the mandatory flood insurance 
purchase requirements and participation in the NFIP to provide 
additional income to the National Flood Insurance Fund and to decrease 
the financial burden of flooding on the Federal government, taxpayers, 
and flood victims. In addition, the Reform Act broadened the mandatory 
flood insurance purchase requirement to include lenders regulated by 
the FCA.
---------------------------------------------------------------------------

    \13\ Public Law 103-325, 108 Stat. 2255 (1994) (codified as 
amended at 42 U.S.C. 4001 et seq. (1994)).
---------------------------------------------------------------------------

    The Reform Act required the Agencies to revise their flood 
insurance regulations and required the FCA to promulgate flood 
insurance regulations for the first time. The Agencies fulfilled these 
requirements by issuing a joint final rule in August 1996.\14\
---------------------------------------------------------------------------

    \14\ 61 FR 45684 (Aug. 29, 1996).
---------------------------------------------------------------------------

C. The Biggert-Waters and HFIAA Amendments

    Among other changes,\15\ Biggert-Waters significantly amended the 
NFIP requirements over which the Agencies have jurisdiction. 
Specifically, Biggert-Waters: (i) Increased the maximum civil money 
penalty (CMP) that the Agencies may impose per violation when there is 
a pattern or practice of flood violations and eliminated the limit on 
the total amount of penalties that the Agencies may assess against a 
regulated lending

[[Page 64521]]

institution during any calendar year; \16\ (ii) required the Agencies 
to issue a rule to direct regulated lending institutions to escrow 
premiums and fees for flood insurance on residential improved real 
estate, unless the regulated lending institution meets the statutory 
small institution exception; \17\ (iii) required the Agencies to issue 
a rule to direct regulated lending institutions to accept private flood 
insurance, as defined by Biggert-Waters, and to notify borrowers of the 
availability of private flood insurance; \18\ and (iv) amended the 
force-placed insurance requirement to clarify that regulated lending 
institutions may charge a borrower for the cost of premiums and fees 
incurred for coverage beginning on the date on which the flood 
insurance coverage lapsed or did not provide sufficient coverage and to 
prescribe the procedures for terminating force-placed insurance.\19\
---------------------------------------------------------------------------

    \15\ The Agencies note, for example, that section 100222 of 
Biggert-Waters mandates a revision to the Special Information 
Booklet required under section 5 of the Real Estate Settlement 
Procedures Act of 1974 (RESPA) (12 U.S.C. 2604(b)) to include a 
notice to the borrower of the availability of flood insurance under 
the NFIP or from a private insurance company, whether or not the 
real estate is located in an area having special flood hazards. The 
requirement to revise the Special Information Booklet is the 
responsibility of the Bureau of Consumer Financial Protection (CFPB) 
under RESPA. In addition, section 100204 of the Act directs the 
Administrator of FEMA to make flood insurance available to cover 
residential properties of five or more residences. The maximum 
coverage made available to such residential properties is now equal 
to the coverage made available to commercial properties. Policies 
for such properties have been made available by FEMA as of June 1, 
2014. See ``Interagency Statement on Increased Maximum Flood 
Insurance Coverage for Other Residential Buildings,'' May 30, 2014 
(Board: CA 14-3; OCC: Bulletin 2014-26; FDIC: FIL 28-2014, FCA: 
Informational Memorandum, May 30, 2014; NCUA: http://www.ncua.gov/Legal/Documents/InteragencyIncreasedCoverageGuidance.pdf).
    \16\ Section 100208 of Biggert-Waters, amending section 
102(f)(5) of the FDPA (42 U.S.C. 4012a(f)(5)).
    \17\ Section 100209 of Biggert-Waters, amending section 102(d) 
of the FDPA (42 U.S.C. 4012a(d)). Congress further amended section 
42 U.S.C. 4012a(d) subsequent to the enactment of Biggert-Waters to 
clarify that the flood insurance escrow requirement applies only to 
loans secured by residential improved real estate. See Public Law 
112-281, 125 Stat. 2485 (Jan. 14, 2013).
    \18\ Section 100239 of Biggert-Waters, amending section 102(b) 
of the FDPA (42 U.S.C. 4012a(b)) and section 1364(a)(3)(C) of the 
1968 Act (42 U.S.C. 4104a(a)(3)(C)).
    \19\ Section 100244 of the Act, amending section 102(e) of the 
FDPA (42 U.S.C. 4012a(e)).
---------------------------------------------------------------------------

    HFIAA further amends the changes set forth in Biggert-Waters. Among 
these changes are amendments that tie the escrow requirement to the 
origination, refinance, increase, extension, or renewal of a loan on or 
after January 1, 2016 and provide additional exceptions to the escrow 
requirement.\20\ HFIAA also mandates that regulated lending 
institutions provide an option to borrowers to escrow flood insurance 
premiums and fees for loans that are outstanding as of January 1, 2016. 
In addition, HFIAA provides a new exemption to the mandatory flood 
insurance purchase requirements for a structure that is part of a 
residential property but is detached from the primary residential 
structure and does not serve as a residence.\21\
---------------------------------------------------------------------------

    \20\ Section 25 of HFIAA, amending section 102(d) of the FDPA 
(42 U.S.C. 4012a(d)).
    \21\ Section 13 of HFIAA, amending section 102(c) of the FDPA 
(42 U.S.C. 4012a(c)). The Agencies note that Section 13 of HFIAA 
also amends section 5(b) of RESPA (12 U.S.C. 2604(b)) to require 
language related to detached structures be included in the required 
Special Information Booklet. The requirement to revise the Special 
Information Booklet under RESPA falls under the jurisdiction of the 
CFPB.
---------------------------------------------------------------------------

    As previously discussed in guidance issued by the Agencies,\22\ the 
CMP provisions \23\ and the force-placed insurance requirements in 
Biggert-Waters were effective upon enactment of Biggert-Waters. 
Similarly, the provision in HFIAA excluding certain detached structures 
from the mandatory flood insurance purchase requirement became 
effective upon the enactment of HFIAA. In contrast, Biggert-Waters and 
HFIAA require the Agencies to issue regulations implementing both the 
escrow and private flood insurance provisions. The compliance date for 
these provisions will be determined on the issuance of the final rule 
implementing them, consistent with the statute. The statute provides 
that the escrow provisions will apply to loans with a triggering event 
on or after January 1, 2016. The private flood insurance provisions, as 
well as regulations incorporating the force-placed insurance 
requirement, will be included in a separate rulemaking.
---------------------------------------------------------------------------

    \22\ ``Interagency Statement on the Impact of Biggert-Waters 
Act,'' March 29, 2013 (Board: CA 13-2; OCC: Bulletin 2013-10; FDIC: 
FIL 14-2013, FCA: Informational Memorandum, March 29, 2013; NCUA: 
13-RA-03).
    \23\ Some of the Agencies have revised their regulations to 
incorporate these increased CMPs. See OCC: 77 FR 66529 (Nov. 11, 
2012) and 77 FR 76354 (Dec. 28, 2012); Board: 77 FR 68680 (Nov. 16, 
2012); FDIC: 77 FR 74573 (Dec. 17, 2012); and FCA: 78 FR 24336 
(April 25, 2013). The NCUA is in the process of updating its rule to 
reflect this CMP change.
---------------------------------------------------------------------------

II. Summary of the Proposal

    The Agencies propose to revise their respective flood insurance 
regulations to incorporate HFIAA's provisions exempting certain 
detached structures on residential property from the mandatory flood 
insurance purchase requirement and to implement the statute's 
provisions requiring the escrow of flood insurance premiums and fees. 
In connection with the October 2013 Proposed Rule, the Agencies 
received numerous comment letters addressing the regulations proposed 
to implement the escrow provisions set forth in Biggert-Waters. To the 
extent that there were comments concerning the escrow provisions as 
proposed in the October 2013 Proposed Rule that have not been otherwise 
addressed by the amendments in HFIAA, the Agencies have considered such 
comments in this proposal.
    The amendments proposed by this rulemaking are summarized below and 
more specifically described in IV. Section-by-Section Analysis of this 
SUPPLEMENTARY INFORMATION. Although the Agencies' proposals are 
substantively consistent, the format of the regulatory text varies to 
conform to each Agency's current regulation. Furthermore, the OCC and 
the FDIC note that the proposed amendments to 12 CFR part 22 would 
apply to both national banks and Federal savings associations, and the 
proposed amendments to 12 CFR part 339 would apply to both State non-
member banks and State savings associations. This is consistent with 
the October 2013 Proposed Rule, which proposed to integrate all of the 
OCC's and FDIC's respective bank and savings association flood 
insurance rules. This proposal also includes conforming amendments to 
the current OCC flood insurance rules for Federal savings associations, 
12 CFR part 172, that are necessary until the integration included in 
the October 2013 Proposed Rule is finalized. The FDIC will integrate 
its flood insurance rules for state savings associations, 12 CFR part 
391 subpart D, into part 339 prior to finalizing this proposed rule by 
means of a separate, individual agency rulemaking.
    Consistent with HFIAA, the Agencies' proposal would include a new 
exemption to the general mandatory flood insurance requirement. 
Specifically, the proposed rule would provide that flood insurance is 
not required for any structure that is part of any residential property 
but is detached from the primary residential structure of such property 
and does not serve as a residence.
    In addition, the Agencies' proposal generally would require 
regulated lending institutions, or servicers acting on their behalf, to 
escrow premiums and fees for flood insurance for any loans secured by 
residential improved real estate or a mobile home that is made, 
increased, extended, or renewed on or after January 1, 2016. The FDPA, 
as amended by Biggert-Waters, also provides that except as may be 
required under applicable State law, a regulated lending institution 
would not be required to escrow if it has total assets of less than $1 
billion and, as of the date of enactment of Biggert-Waters, July 6, 
2012, was not required by Federal or State law to escrow taxes or 
insurance for the term of the loan and did not have a policy to require 
escrow of taxes and insurance. The Agencies are proposing to implement 
this exception with some clarifications. Furthermore, consistent with 
the Agencies' October 2013 Proposed Rule, the proposed rule would 
provide transition rules for regulated lending institutions that have a 
change in status and no longer qualify for this exception.
    Moreover, the proposed rule would implement the following 
additional

[[Page 64522]]

exceptions from the escrow requirement, as amended by HFIAA: (i) Loans 
that are in a subordinate position to a senior lien secured by the same 
property for which flood insurance is being provided; (ii) loans 
secured by residential improved real estate or a mobile home that is 
part of a condominium, cooperative, or other project development, 
provided certain conditions are met; (iii) loans that are extensions of 
credit primarily for a business, commercial, or agricultural purpose; 
(iv) home equity lines of credit; (v) nonperforming loans; and (vi) 
loans with terms not longer than twelve months.
    The proposal also would implement the requirement under HFIAA that 
regulated lending institutions offer and make available to a borrower 
the option to escrow flood insurance premiums and fees for loans that 
are outstanding as of January 1, 2016. The proposal would implement 
this provision generally as provided in the statute with additional 
clarifications to provide more specific guidance to regulated lending 
institutions in administering this requirement, including a proposal to 
mail or deliver information to borrowers about the option to escrow by 
March 31, 2016 and requiring lenders to implement the escrow as soon as 
reasonably practicable after receiving a borrower's request to escrow. 
The Agencies are using their authority to implement the escrow 
provision to propose that regulated lending institutions that no longer 
qualify for the small lender exception also be required to offer and 
make available to a borrower the option to escrow flood insurance 
premiums and fees for loans outstanding after they lose the exception.
    The Agencies' proposal includes new and revised sample notice forms 
and clauses. Specifically, the proposal amends the current Sample Form 
of Notice of Special Flood Hazards and Availability of Federal Disaster 
Relief Assistance, set forth as Appendix A in the Agencies' respective 
regulations, to add language concerning the escrow requirement. The 
proposal also adds an additional sample clause, Sample Clause for 
Option to Escrow for Outstanding Loans, as Appendix B to assist 
institutions in complying with the proposal's requirement to inform 
borrowers of outstanding loans about their option to escrow flood 
insurance premiums and fees.
    The Agencies note that the amendments made by section 25 of HFIAA 
to the FDPA regarding the escrow requirement will not supersede the 
current escrow provisions during the period beginning on July 6, 2012 
and ending on December 31, 2015. Therefore, as provided under section 
25(b)(3) of HFIAA, the escrow requirements under section 102(d)(1) of 
the FDPA in effect on July 5, 2012, the day before Biggert-Waters was 
enacted, will continue to be enforced by the Agencies until December 
31, 2015.\24\
---------------------------------------------------------------------------

    \24\ Each Agency's escrow provision provides that a regulated 
lending institution must escrow all premiums and fees for required 
flood insurance if the institution requires the escrow of taxes, 
insurance premiums, fees or other charges. See 12 CFR 22.5 and 172.5 
(OCC); 12 CFR 208.25(e) (Board); 12 CFR 339.5 (FDIC); 12 CFR 
614.4935 (FCA); and 12 CFR 760.5 (NCUA).
---------------------------------------------------------------------------

III. Legal Authority

    Section 102(b) of the FDPA (42 U.S.C. 4012a(b)), as amended, 
provides that the Agencies (after consultation and coordination with 
the FFIEC) shall by regulation direct regulated lending institutions 
not to make, increase, extend, or renew any loan secured by improved 
real estate or a mobile home located or to be located in an area that 
has been identified by the Administrator of FEMA as an area having 
special flood hazards and in which flood insurance has been made 
available under the NFIP, unless the building or mobile home and any 
personal property securing such loan is covered for the term of the 
loan by flood insurance. Thus, section 102(b) of the FDPA grants the 
Agencies rulemaking authority to implement this mandatory flood 
insurance purchase requirement as it pertains to regulated lending 
institutions.
    Section 102(c) of the FDPA (42 U.S.C. 4012a(c)) sets forth specific 
exceptions to the mandatory flood insurance purchase requirement. The 
Agencies are authorized to implement these exceptions.
    Finally, section 102(d) of the FDPA (42 U.S.C. 4012a(d)), as 
amended by section 25 of HFIAA, states that the Agencies (after 
consultation and coordination with the FFIEC) must by regulation 
require all premiums and fees for flood insurance under the 1968 Act 
for residential improved real estate or a mobile home be paid to the 
regulated lending institution or servicer for any loan secured by the 
improved real estate or mobile home with the same frequency as payments 
on the loan are made for the duration of the loan. The statute requires 
that such funds be deposited in an escrow account on behalf of the 
borrower and used to pay the flood insurance provider when premiums are 
due. Section 25(b) of HFIAA applies these requirements to loans that 
are originated, refinanced, increased, extended, or renewed on or after 
January 1, 2016.
    Section 102(d) of the FDPA, as amended by HFIAA, also authorizes 
the Agencies to implement the seven exceptions to this requirement that 
are set forth in the statute. Section 25(b) of HFIAA further states 
that the Agencies (after consultation and coordination with the FFIEC) 
shall by regulation direct that each regulated lending institution 
offer and make available to a borrower of an outstanding loan the 
option to have the borrower's payment of flood insurance premiums and 
fees escrowed.

IV. Section-by-Section Analysis

_._Exemptions

    Section 13 of HFIAA, which amends section 102(c) of the FDPA (42 
U.S.C. 4012a(c)), includes a new exemption to the mandatory flood 
insurance purchase requirement. Specifically, the statute provides that 
flood insurance is not required, in the case of any residential 
property, for any structure that is a part of such property but is 
detached from the primary residential structure and does not serve as a 
residence. The Agencies' proposed rule would incorporate this exemption 
as provided in the statute into the Agencies' regulations.
    The exemption would address an area of concern for borrowers and 
lenders by excluding relatively low-value structures, for example, 
detached sheds and garages, from mandatory flood insurance coverage if 
they secure a designated loan. The Agencies understand, however, that 
some detached structures might be of relatively high value, such as a 
detached greenhouse. While the statute does not require flood insurance 
for such structures, as a matter of safety and soundness, lenders may 
nevertheless require flood insurance on these detached structures. 
Requiring flood insurance even when the statute does not mandate it may 
also be in the borrower's interest. The Agencies note that section 
13(b) of HFIAA, which the CFPB is expected to implement, amends section 
5(b) of RESPA to require a related disclosure to borrowers informing 
them that they may still wish to obtain, and mortgage lenders may still 
require borrowers to maintain, flood insurance even when it is not 
required by the FDPA.
    The Agencies solicit comment on whether this section should be 
clarified. For instance, there may be some ambiguity as to when such 
structures serve as a ``residence,'' but may not meet certain State or 
local definitions of

[[Page 64523]]

``residence,'' or when a detached structure that was not initially a 
residence becomes a residence. Furthermore, the Agencies note that the 
statute applies the exemption to ``residential property.'' The Agencies 
specifically request comment on whether or how the Agencies should 
define ``residential property.'' For example, the term ``residential'' 
may refer not only to the type of property securing the loan, but also 
to the purpose of the loan. Thus, the Agencies could clarify that the 
exemption is only available if the detached structure does not secure a 
loan that is an extension of credit for a primarily business, 
commercial, or agricultural purpose.\25\
---------------------------------------------------------------------------

    \25\ In the October 2013 Proposed Rule, the Agencies proposed a 
technical amendment in this section to change the reference to the 
head of FEMA from Director to Administrator, consistent with the 
change in Biggert-Waters. That issue will be addressed in the final 
rule that will be published by the Agencies.
---------------------------------------------------------------------------

_._ Escrow requirement

In General
    Pursuant to section 102(d) of the FDPA (42 U.S.C. 4012a(d)), as 
amended by section 25 of HFIAA,\26\ the Agencies are proposing to 
revise their regulations to require a regulated lending institution, or 
a servicer acting on behalf of a regulated lending institution, to 
escrow all premiums and fees for flood insurance required for loans 
secured by residential improved real estate or a mobile home unless the 
loan or the lending institution qualifies for one of the statutory 
exceptions.\27\ In addition, these premiums and fees must be payable 
with the same frequency as payments on the loan are made for the 
duration of the loan.
---------------------------------------------------------------------------

    \26\ As discussed above, the Agencies note that section 25(b)(3) 
of HFIAA provides that these new escrow requirements will not 
supersede the current escrow provisions during the period beginning 
on July 6, 2012 and ending on December 31, 2015. Therefore, as 
provided under section 25(b)(3) of HFIAA, the escrow requirements 
under section 102(d)(1) of the FDPA in effect on July 5, 2012 will 
continue to be enforced by the Agencies until December 31, 2015.
    \27\ As the Agencies noted in the October 2013 Proposed Rule, 
the CFPB's mortgage servicing rule promulgated escrow requirements 
set forth in section 6 of RESPA, which were enacted in the Dodd-
Frank Act. The CFPB's rule excludes flood insurance that is required 
under the FDPA from the new escrow requirements. 78 FR 10696, 10880 
(Feb. 14, 2013). That is, the CFPB rule exempts from the definition 
of force-placed insurance, insurance required by the FDPA. Ibid. The 
CFPB's rule requires a servicer to advance funds to a borrower's 
escrow account and to disburse such funds in a timely manner to pay 
the premium charge on a borrower's hazard insurance (unless the 
servicer has a reasonable basis to believe that a borrower's hazard 
insurance has been canceled or not renewed for reasons other than 
nonpayment of premium charges). Thus, even if a borrower were 
delinquent by more than 31 days, a servicer would be required under 
the CFPB's rule to advance funds to continue the borrower's hazard 
insurance policy. In promulgating this rule, the CFPB relied on its 
authority under section 19(a) of RESPA to prescribe such rules and 
to make such interpretations as may be necessary to achieve the 
consumer protection purposes of RESPA. The Agencies note that the 
Federal flood statutes do not contain a provision similar to the 
provision relied upon by the CFPB to require a servicer to advance 
funds to a borrower's escrow account.
---------------------------------------------------------------------------

    Consistent with section 25(b) of HFIAA, the proposed provision 
applies to any loan secured by residential improved real estate or a 
mobile home that is made, increased, extended, or renewed on or after 
January 1, 2016. The Agencies note that while section 25(b) of HFIAA 
applies the escrow requirement to loans ``originated, refinanced, 
increased, extended, or renewed,'' the Agencies are proposing 
regulatory language that applies the requirement to loans ``made, 
increased, extended, or renewed'' to be consistent with the way these 
triggering events are referenced elsewhere in the regulation.\28\ The 
Agencies have long understood the term ``made'' to encompass both a 
loan origination and a loan refinance.
---------------------------------------------------------------------------

    \28\ See, e.g., 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 
(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) (FCA); and 12 
CFR 760.3(a) (NCUA).
---------------------------------------------------------------------------

    Section 102(d) of the FDPA, as amended by section 25 of HFIAA, 
contains several exceptions to the general escrow requirement. These 
exceptions are in addition to a small lender exception for certain 
regulated lending institutions that have total assets of less than $1 
billion set forth in section 102(d) of the FDPA, as amended by section 
100209 of Biggert-Waters, discussed below. One of these exceptions is 
for loans secured by residential improved real estate or a mobile home 
that is used as collateral for a business purpose. In implementing this 
exception, the Agencies are proposing that regulated lending 
institutions need not escrow flood insurance premiums and fees if they 
have determined that the loan is an extension of credit primarily for a 
business, commercial, or agricultural purpose. This is identical to 
language the Agencies initially proposed in the October 2013 Proposed 
Rule, which commenters to the October 2013 Proposed Rule supported. As 
discussed in the October 2013 Proposed Rule, the Agencies are proposing 
this language to be consistent with similar exceptions in the Real 
Estate Settlement Procedures Act of 1974 (RESPA) \29\ and the Truth in 
Lending Act (TILA).\30\ Moreover, the Agencies believe the proposed 
language further clarifies that the statutory language referring to 
business loans includes commercial loans and agricultural loans, which 
are a subset of business loans.
---------------------------------------------------------------------------

    \29\ See 12 U.S.C. 2606(a).
    \30\ See 15 U.S.C. 1603(1).
---------------------------------------------------------------------------

    Section 102(d) of the FDPA, as amended by section 25 of HFIAA, also 
includes an exception for a loan in a junior or subordinate position to 
a senior lien secured by the same residential improved real estate or 
mobile home for which flood insurance is being provided at the time of 
the origination of the loan. The Agencies are proposing language in 
their regulations similar to the language in the statute for this 
exception, with some changes to improve readability and clarity. The 
Agencies note that this statutory exception and the proposed regulation 
are broader than a similar exception the Agencies proposed in the 
October 2013 Proposed Rule, which would have only provided an exception 
when the lender has determined that the borrower is currently paying 
premiums and fees into an escrow account that has been established by 
another lender.
    Furthermore, under the amended statute, loans secured by 
residential improved real estate or a mobile home that is part of a 
condominium, cooperative, or other project development are also 
excepted from the escrow requirements provided the property is covered 
by a flood insurance policy that: (i) Meets the mandatory flood 
insurance purchase requirement; (ii) is provided by the condominium 
association, cooperative, homeowners association or other applicable 
group; and (iii) the premium for which is paid by the condominium 
association, cooperative, homeowners association, or other applicable 
group as a common expense. The Agencies are proposing to implement this 
exception substantially as stated in the statute. The Agencies note 
that the October 2013 Proposed Rule proposed a similar, though 
differently worded, exception.
    It is the Agencies' understanding that this proposed exception 
would include instances when the property is covered, by, for example, 
an NFIP Residential Condominium Building Association Policy (RCBAP) 
that meets the mandatory flood insurance purchase requirement, 
including coverage for the proper amount. As the Agencies discussed in 
the October 2013 Proposed Rule, if the amount of the policy purchased 
by the condominium association, cooperative, homeowners association, or 
other applicable group is insufficient to meet the mandatory flood 
insurance purchase requirement, the borrower would be required to 
obtain a supplemental policy to cover the

[[Page 64524]]

deficiency. The Agencies would expect that the regulated lending 
institution escrow the premiums and fees for the supplemental policy 
unless the small lender exception applies. For example, if a 
condominium association purchases an RCBAP or a private flood insurance 
policy for less than the amount of insurance required by the mandatory 
purchase requirement under the FDPA, the borrower would need to obtain 
a dwelling policy for supplemental coverage. If the borrower is 
required to obtain a dwelling policy at the time the loan is made, 
increased, extended, or renewed, under the proposed rule, the regulated 
lending institution would be required to escrow the premiums and fees 
for such policy.
    Section 102(d) of the FDPA, as amended by section 25 of HFIAA, 
includes an exception from the escrow requirement for home equity lines 
of credit, which was an exception requested by many commenters to the 
October 2013 Proposed Rule. The Agencies are including this exception 
in the proposed rule.
    Another exception included in section 102(d) of the FDPA, as 
amended by section 25 of HFIAA, is for nonperforming loans. The 
Agencies are proposing to implement this exception with a clarification 
that the exception is available for a nonperforming loan that is 90 or 
more days past due. Although there does not appear to be a standard 
definition for what constitutes a ``nonperforming'' loan, it is the 
Agencies' understanding that lenders generally categorize loans that 
are 90 or more days past due as nonperforming. Consequently, the 
Agencies believe the proposed clarification is consistent with many 
lenders' current practices and will ensure that all regulated lending 
institutions use the same standard in determining when a loan is 
nonperforming for purposes of this provision. The Agencies solicit 
comment on whether the Agencies' proposed definition of 
``nonperforming'' loan is appropriate.
    Finally, under section 102(d) of the FDPA, as amended by section 25 
of HFIAA, a regulated lending institution need not escrow flood 
insurance payments and fees for a loan that has a term of not longer 
than 12 months. Several commenters to the October 2013 Proposed Rule 
requested an exception for loans with short maturities. The Agencies 
are proposing this exception as provided in the statute.
    As mentioned above, section 102(d) of the FDPA, as amended by 
Biggert-Waters, also contains a small lender exception from the escrow 
requirement for certain regulated lending institutions that have total 
assets of less than $1 billion. The Agencies' proposal for this 
statutory exception is discussed further below.
Notice
    In order to ensure that borrowers are informed about the 
requirement to escrow premiums and fees for mandatory flood insurance, 
the Agencies are proposing that regulated lending institutions provide 
borrowers with a written notice. This proposal is similar to the notice 
requirement proposed in the October 2013 Proposed Rule. As in the 
October 2013 Proposed Rule, the Agencies propose in this rulemaking to 
mandate that a regulated lending institution, or a servicer acting on 
its behalf, mail or deliver a written notice informing a borrower that 
it is required to escrow all premiums and fees for required flood 
insurance on residential improved real estate.
    To minimize the burden to regulated lending institutions of 
providing this notice and to ensure that borrowers receive the notice 
at a time when they are considering the purchase of flood insurance, 
the proposal would require that a regulated lending institution, or a 
servicer acting on its behalf, provide a notice on the escrow 
requirement with, or in, a notice the lender is already required to 
provide: The Notice of Special Flood Hazards and Availability of 
Federal Disaster Relief Assistance. The Agencies' current rules provide 
a sample form of this notice as Appendix A. Because the HFIAA 
amendments tie the escrow requirement to a triggering event (i.e., when 
a loan is made, increased, extended, or renewed), borrowers already 
will be receiving the Notice of Special Flood Hazards and Availability 
of Federal Disaster Relief Assistance, which is mandated by the 
Agencies' regulations, at the same time that the escrow of flood 
insurance premiums and fees will be required.
    As in the October 2013 Proposed Rule, the Agencies are proposing 
model language for the escrow notice, as discussed in more detail in 
the SUPPLEMENTARY INFORMATION accompanying the discussion on proposed 
changes to Appendix A. Thus, under the proposed rule, regulated lending 
institutions would be required to use language substantially similar to 
model clauses on the escrow requirement in the revised sample notice 
provided in Appendix A.
    HFIAA's application of the escrow requirement to loans upon a 
triggering event (i.e., when a loan is made, increased, extended, or 
renewed) addresses comments the Agencies received in connection with 
the October 2013 Proposed Rule that discussed the timing of the escrow 
notice for outstanding loans. The Agencies received one comment to the 
October 2013 Proposed Rule, however, suggesting that electronic 
delivery of the notice be allowed. The Agencies note that written 
disclosures always may be provided to the consumer in electronic form, 
subject to compliance with the consumer consent and other applicable 
provisions of the Electronic Signatures in Global and National Commerce 
Act (E-Sign Act) (15 U.S.C. 7001, et. seq.).
Small Lender Exception
    In addition to the exceptions to the escrow requirement discussed 
above, section 102(d) of the FDPA, as amended by section 100209 of 
Biggert-Waters, contains an exception for certain small lenders. As 
with the October 2013 Proposed Rule, the Agencies are proposing to 
implement this statutory exception to the escrow requirement 
substantially as provided in the statute with some clarifications. The 
statute states that, except as provided by State law, regulated lending 
institutions that have total assets of less than $1 billion are 
excepted from this escrow requirement if, on or before July 6, 2012, 
the institution: (i) In the case of a loan secured by residential 
improved real estate or a mobile home, was not required under Federal 
or State law to deposit taxes, insurance premiums, fees, or any other 
charges in an escrow account for the entire term of the loan; and (ii) 
did not have a policy of consistently and uniformly requiring the 
deposit of taxes, insurance premiums, fees, or any other charges in an 
escrow account for loans secured by residential improved real estate or 
a mobile home.
    Because the statute does not specify a point in time to measure the 
asset size of an institution to determine whether such institution 
qualifies for the exception, the Agencies are proposing that a 
regulated lending institution may qualify for the exception if it has 
total assets of less than $1 billion as of December 31 of either of the 
two prior calendar years. This is identical to the proposal the 
Agencies put forth in the October 2013 Proposed Rule. Consequently, 
with the statutory effective date of January 1, 2016, regulated lending 
institutions with assets of $1 billion or more as of both December 31, 
2014, and December 31, 2015, would not qualify for the exception. In 
contrast, a regulated lending institution with assets of less than $1 
billion as of either December 31, 2014 or December 31, 2015, may 
qualify for the exception, provided the other conditions for the 
exception are met.

[[Page 64525]]

    As the Agencies explained in the October 2013 Proposed Rule, this 
measurement method is similar to how the OCC, the Board, and the FDIC 
have measured asset size in relation to the definitions for small 
entities under the Community Reinvestment Act (CRA).\31\ The Agencies 
believe the asset measurement method these agencies have used with 
respect to CRA is an appropriate model in this case as it ensures an 
institution remains over the size threshold for a substantial period 
before requiring the institution to expend the resources needed to 
establish a new escrow program.
---------------------------------------------------------------------------

    \31\ See 12 CFR 25.12(u); 12 CFR 195.12(u); 12 CFR 228.12(u); 
and 12 CFR 345.12(u).
---------------------------------------------------------------------------

    Commenters to the October 2013 Proposed Rule were generally 
supportive of the Agencies' proposal on when and how to measure the 
asset size for purposes of the exception. A couple of commenters 
requested that the Agencies review other asset threshold exceptions, 
such as the CFPB escrow rules under Regulation Z for higher-priced 
mortgage loans,\32\ which set the threshold for small creditors at $2 
billion in assets (adjusted by the annual percentage change in the 
Consumer Price Index for Urban Wage Earners and Clerical Workers), and 
the CFPB's mortgage servicing rules under Regulation Z and Regulation 
X, which define a small servicer by the number of mortgages 
serviced.\33\ The Agencies note that the $1 billion asset size 
threshold for the exception from the escrow requirements is specified 
in the FDPA, as amended, and the Agencies are therefore proposing the 
$1 billion asset size threshold consistent with the statute.
---------------------------------------------------------------------------

    \32\ See 12 CFR 1026.35(b)(2)(iii)(C).
    \33\ See 12 CFR 1026.41(e)(4).
---------------------------------------------------------------------------

    Moreover, as in the October 2013 Proposed Rule, the Agencies are 
proposing transition rules for a change in status of a regulated 
lending institution that may initially qualify for the exception, but 
later grows to exceed the $1 billion asset size threshold. As discussed 
in the October 2013 Proposed Rule, the Agencies propose to give 
regulated lending institutions approximately six months to begin 
complying with the escrow requirement, which is similar to the Board's 
Regulation II change in status rules.\34\ Therefore, under the 
proposal, a regulated lending institution would be required to escrow 
flood insurance premiums and fees for any loans made, increased, 
extended, or renewed on or after July 1 of the succeeding calendar year 
after a regulated lending institution has a change in status.
---------------------------------------------------------------------------

    \34\ See 12 CFR 235.5(a)(3).
---------------------------------------------------------------------------

    For example, assume a regulated lending institution qualified for 
the exception in 2016, but had assets of $1 billion or more as of 
December 31, 2016, and December 31, 2017. In that case, under the 
proposal, such regulated lending institution would be required to begin 
escrowing for any loans made, increased, extended, or renewed on or 
after July 1, 2018.
    As noted above, the statute provides that the small lender 
exception will be available only if, on or before July 6, 2012, the 
institution: (i) In the case of a loan secured by residential improved 
real estate or a mobile home, was not required under Federal or State 
law to deposit taxes, insurance premiums, fees, or any other charges in 
an escrow account for the entire term of the loan; and (ii) did not 
have a policy of consistently and uniformly requiring the deposit of 
taxes, insurance premiums, fees, or any other charges in an escrow 
account for loans secured by residential improved real estate or a 
mobile home.
    Some commenters to the October 2013 Proposed Rule requested 
clarification on these conditions. In particular, one consumer group 
commenter asked whether having a policy of consistently and uniformly 
requiring the deposit of taxes, insurance premiums, fees, or any other 
charges in an escrow account meant that a lender must have had this 
policy for its entire portfolio of residential loans. The Agencies read 
the statutory condition to provide that if a regulated lending 
institution had a policy of consistently and uniformly requiring the 
deposit of taxes, insurance premiums, fees, or any other charges in an 
escrow account for even a portion of its portfolio of residential 
loans, such a lender would not be eligible for the exception, 
consistent with the statutory language.
    In light of this comment, the Agencies are proposing to clarify the 
statute by providing the exception is unavailable if either statutory 
condition applies to any residential loans originated by the lender on 
or before July 6, 2012. Therefore, if on or before July 6, 2012, the 
institution: (i) Was not required under Federal or State law to deposit 
taxes, insurance premiums, fees, or any other charges in an escrow 
account for the entire term of any loan secured by residential improved 
real estate or a mobile home; and (ii) did not have a policy of 
consistently and uniformly requiring the deposit of taxes, insurance 
premiums, fees, or any other charges in an escrow account for any loans 
secured by residential improved real estate or a mobile home, the 
institution may be eligible for the small lender exception provided it 
meets the size threshold.
    Another individual commenter questioned the logic of tying the 
conditions to the lender's practice as of July 6, 2012. As noted above, 
this date is specified in the statute.
Option to Escrow
    Section 25(b) of HFIAA requires regulated lending institutions to 
offer and make available to a borrower the option to escrow flood 
insurance premiums and fees for loans that are outstanding as of 
January 1, 2016. The Agencies are implementing this provision generally 
as provided in the statute with changes to the language for clarity and 
organization. In addition, the Agencies believe that for regulated 
lending institutions that have a change in status and no longer qualify 
for the small lender exception, the lender should be required to offer 
borrowers on existing loans the option to escrow because the lenders 
will now be in a position to escrow flood insurance premiums and fees 
for new borrowers.
    For example, suppose a loan is made on March 1, 2016, by a 
regulated lending institution that qualifies for the exception for 
small lenders. If the lender then no longer qualifies for the exception 
for small lenders as of January 1, 2018, under the Agencies' proposal 
the lender would be required to escrow flood insurance premiums and 
fees for loans made, increased, extended, or renewed on or after July 
1, 2018. The borrower of the loan made on March 1, 2016 would now have 
a lender that has the capability to escrow flood insurance premiums and 
fees on July 1, 2018. Consequently, the borrower for a loan made by a 
regulated lending institution with a change in status that no longer 
qualifies for the small lender exception should be provided with the 
option to escrow until the loan experiences a triggering event on or 
after July 1, 2018. Therefore, the Agencies are proposing to use their 
authority to implement the escrow requirement to mandate that regulated 
lending institutions that no longer qualify for the small lender 
exception should be required to provide the option to escrow for 
borrowers of loans outstanding on July 1 of the succeeding calendar 
year following the lender's change in status. The Agencies solicit 
comment on this approach.
    In addition, the Agencies propose additional clarifications to 
provide more specific guidance to regulated lending institutions in 
administering this requirement. First, the statute requires that 
regulated lending institutions ``offer and make available'' the option 
to escrow flood insurance premiums and

[[Page 64526]]

fees. The Agencies are proposing to implement this provision by 
requiring that for outstanding loans, a lender, or its servicer, mail 
or deliver, or provide electronically if the borrower agrees, a notice 
informing borrowers of the option to escrow by March 31, 2016. For 
lenders that no longer qualify for the small lender exception, the 
Agencies are proposing that the notice informing borrowers of the 
option to escrow be provided by September 30 of the succeeding calendar 
year following the lender's change in status. The proposed timing of 
this notice would give regulated lending institutions up to three 
months to determine which loans are outstanding as of the designated 
day and to provide the notice for those loans. The Agencies solicit 
comment on whether the proposed timelines for providing the notice are 
appropriate. To facilitate compliance, the Agencies are proposing a 
model clause for this notice in Appendix B, as discussed in more detail 
below. The Agencies solicit comment on whether this model clause would 
be an effective way for regulated lending institutions to offer and 
make available to borrowers the option to escrow flood insurance 
premiums and fees.
    The proposal would not require that the notice be provided in 
conjunction with any other disclosure or that it be segregated from 
other information provided to the borrower. As a result, under the 
proposed rule, regulated lending institutions may choose whether to 
provide the notice as a separate notice or add it to any other 
disclosures the lender provides the borrower on or before the proposed 
deadline, such as a periodic statement.
    Second, the Agencies are proposing to require a lender or its 
servicer to begin escrowing premiums and fees for flood insurance as 
soon as reasonably practicable after the lender or servicer receives 
the borrower's request to escrow. The requirement is similar to 
requirements in Regulation E \35\ and Regulation Z \36\ regarding how 
soon a financial institution or credit card issuer must implement the 
revocation of an opt-in for overdraft services or an over-the-limit 
feature of a credit card, respectively. The Agencies request comment on 
whether any further guidance on this proposed requirement is needed.
---------------------------------------------------------------------------

    \35\ See 12 CFR 1005.17(f).
    \36\ See 12 CFR 1026.56(i).
---------------------------------------------------------------------------

_._ Required use of standard flood hazard determination form

    In connection with the amendment of section 102(c) of the FDPA by 
section 13 of HFIAA to exempt from the mandatory flood insurance 
purchase requirement any structure that is a part of a residential 
property but is detached from the primary residential structure of such 
property and does not serve as a residence, the Agencies are proposing 
an amendment to their regulations on the use of the standard flood 
hazard determination form. Specifically, the proposed amendment would 
clarify that a regulated lending institution need not perform a flood 
hazard determination for any properties or structures that are exempt 
from the mandatory flood insurance purchase requirement. Because flood 
insurance is not required on such properties and structures, 
determination of whether such properties or structures are located in 
an SFHA is unnecessary, which will, in turn, prevent borrowers being 
charged unnecessary flood hazard determination fees.

Appendices A & B

    As discussed in the SUPPLEMENTARY INFORMATION accompanying the 
revisions to _._ Escrow requirement above, the Agencies are proposing 
that regulated lending institutions mail or deliver a written notice 
informing borrowers about the requirement to escrow premiums and fees 
for required flood insurance. To facilitate compliance with the 
proposed notice requirement, the Agencies are proposing model language 
that may be included, if applicable, in the Notice of Special Flood 
Hazards and Availability of Federal Disaster Relief Assistance as set 
forth in the sample form of notice contained in Appendix A.
    Also, as discussed above, the Agencies are proposing that lenders 
must provide a notice of the option to escrow to borrowers of loans 
outstanding as of January 1, 2016, or July 1 of the succeeding calendar 
year after a lender no longer qualifies for the small lender exception 
as applicable. The Agencies are proposing an additional sample clause, 
Sample Clause for Option to Escrow for Outstanding Loans, as Appendix B 
to facilitate regulated lending institutions in complying with this 
proposed requirement.

V. Regulatory Analysis

Regulatory Flexibility Act

    OCC: In general, the Regulatory Flexibility Act (RFA) requires 
that, in connection with a notice of proposed rulemaking, an agency 
prepare and make available for public comment an initial regulatory 
flexibility analysis that describes the impact of a proposed rule on 
small entities.\37\ Under section 605(b) of the RFA, this analysis is 
not required if an agency certifies that the rule would not have a 
significant economic impact on a substantial number of small entities 
and publishes its certification and a short explanatory statement in 
the Federal Register along with its rule. We have concluded that the 
proposed rule does not have a significant economic impact on a 
substantial number of small entities supervised by the OCC.
---------------------------------------------------------------------------

    \37\ See 5 U.S.C. 601 et seq.
---------------------------------------------------------------------------

    The OCC currently supervises approximately 1,200 small national 
banks, Federal savings associations, trust companies, and Federal 
branches and agencies.\38\ If implemented, the draft NPRM would impact 
approximately 1,149 of these small institutions.\39\ Thus, the proposed 
rule impacts a substantial number of small banks. The OCC classifies 
the economic impact of total costs on a bank as significant if the 
total costs in a single year are greater than 5 percent of total 
salaries and benefits or greater than 2.5 percent of total non-interest 
expense. The OCC estimates that the average cost per small bank is 
approximately $6 thousand in 2015. Using this cost estimate, we believe 
the proposed rule will have a significant economic impact on two small 
banks, which is not a substantial number. Therefore, we believe the 
proposed rule will not have a significant economic impact on a 
substantial number of small entities.
---------------------------------------------------------------------------

    \38\ We base our estimate of the number of active small entities 
on the SBA's size thresholds for commercial banks and savings 
institutions, and trust companies, which are $550 million and $38.5 
million, respectively. Consistent with the General Principles of 
Affiliation 13 CFR 121.103(a), we count the assets of affiliated 
financial institutions when determining if we should classify a bank 
we supervise as a small entity. We use December 31, 2013, to 
determine size because a ``financial institution's assets are 
determined by averaging the assets reported on its four quarterly 
financial statements for the preceding year.'' See footnote 8 of the 
U.S. Small Business Administration's Table of Size Standards.
    \39\ To determine the number of banks that may be affected if 
the NPRM is implemented, we determined the number of banks that 
self-identified by reporting mortgage servicing assets or other 
activity associated with 1-4 family residential mortgage loans on 
the Q1 2014 Call Report or were identified by OCC examiners as a 
Home Mortgage Disclosure Act (HMDA) filer.
---------------------------------------------------------------------------

    Therefore, pursuant to section 605(b) of the RFA, the OCC hereby 
certifies that this proposal would not have a significant economic 
impact on a substantial number of small entities. Accordingly, an 
initial regulatory flexibility analysis is not required.
    Board: The RFA requires an agency to publish an initial regulatory 
flexibility analysis with a proposed rule or certify that the proposed 
rule will not have a

[[Page 64527]]

significant economic impact on a substantial number of small entities. 
The Board is publishing an initial regulatory flexibility analysis and 
requests public comment on all aspects of its analysis. The Board will 
conduct a final regulatory flexibility analysis after considering the 
comments received during the public comment period.
    1. Statement of the need for, and objectives of, the proposed rule. 
The Board is proposing revisions to Regulation H to implement certain 
provisions of HFIAA over which the Agencies, including the Board, have 
jurisdiction. Consistent with HFIAA, the proposal would exempt any 
structure that is a part of residential property but is detached from 
the primary residential structure of such property and does not serve 
as a residence from the mandatory flood insurance purchase requirement.
    The proposal would also implement the provisions in the FDPA, as 
amended by the Biggert-Waters Act and HFIAA, requiring a regulated 
lending institution (or its servicer) to escrow the premiums and fees 
for required flood insurance for any loan secured by residential 
improved real estate or a mobile home that is made, increased, 
extended, or renewed on or after January 1, 2016, unless the lender or 
the loan qualifies for exceptions set forth in the statute, including 
an exception for certain small lenders with assets less than $1 
billion.
    Furthermore, the proposal would implement the requirement in HFIAA 
that regulated lending institutions offer and make available to a 
borrower the option to escrow flood insurance premiums and fees for 
loans that are outstanding as of January 1, 2016. The proposal would 
also extend the requirement to offer and make available an option to 
escrow to a borrower when a regulated lending institution no longer 
qualifies for the exception for small lenders.
    2. Small entities affected by the proposed rule. All State member 
banks that are subject to Regulation H would be subject to the proposed 
rule. As of October 21, 2014, there were 858 State member banks. Under 
regulations issued by the Small Business Administration (SBA), banks 
and other depository institutions with total assets of $550 million or 
less are considered small. Of the 858 State member banks subject to 
Regulation H, approximately 652 State member banks would be considered 
small entities by the SBA.
    3. Recordkeeping, reporting, and compliance requirements. The 
proposed rule would provide an exemption from a requirement for certain 
detached structures, but would also impose new compliance requirements 
with the proposed escrow provisions. With respect to the proposed rules 
exempting certain detached structures from the mandatory flood 
insurance purchase requirement, the Board believes the rules will not 
have a significant impact on small entities. First, not all designated 
loans are secured by detached structures that are eligible for the 
exemption. The proposed rule would have no impact with respect to such 
loans. Second, for designated loans that are secured by detached 
structures eligible for the exemption, lenders, including small 
lenders, may choose to continue requiring flood insurance on such 
structures as they currently do even though the FDPA does not mandate 
it, as discussed above in the SUPPLEMENTARY INFORMATION. As a result, 
the proposed rule would not have any impact in such instances. If a 
lender does choose to exempt detached structures that secure a 
designated loan from the mandatory flood insurance purchase 
requirement, the Board expects that the impact would be minimal because 
these types of structures typically constitute a small portion of the 
collateral securing designated loans.
    Furthermore, as discussed in detail above in the SUPPLEMENTARY 
INFORMATION, regulated lending institutions with total assets less than 
$1 billion would generally be excepted from the proposed rules 
implementing the escrow provisions of HFIAA. Therefore, the escrow 
provisions of the proposed rule generally would not affect small 
entities.
    4. Other Federal rules. The Board has not identified any likely 
duplication, overlap and/or potential conflict between the proposed 
rule and any Federal rule.
    5. Significant alternatives to the proposed revisions. The Board 
solicits comment on any significant alternatives that would reduce the 
regulatory burden associated with this proposed rule on small entities.
    FDIC: The RFA generally requires that, in connection with a notice 
of proposed rulemaking, an agency prepare and make available for public 
comment an initial regulatory flexibility analysis that describes the 
impact of a proposed rule on small entities. A regulatory flexibility 
analysis is not required, however, if the agency certifies that the 
rule will not have a significant economic impact on a substantial 
number of small entities (defined in regulations promulgated by the SBA 
to include banking organizations with total assets of less than or 
equal to $550 million) and publishes its certification and a short, 
explanatory statement in the Federal Register together with the rule. 
As of August 27, 2014, there were approximately 3,482 small FDIC-
supervised banks which include 3,192 State nonmember banks and 241 
State-chartered savings banks, and 49 savings associations.
    It is the opinion of the FDIC that the proposed rule will not have 
a significant economic impact on a substantial number of the small 
entities, which the FDIC supervises. The FDPA, as amended by the 
Biggert Waters Act, provides that generally a depository institution 
with assets of less than $1 billion is not required to comply with the 
escrow requirement. As a result, due to this statutory exclusion, by 
law the escrow requirement cannot have a significant economic impact on 
a substantial number of small entities. For this reason, the FDIC 
certifies that this proposed rule will not have a significant economic 
impact on a substantial number of small entities that it supervises.
    FCA:
    Pursuant to section 605(b) of the RFA, the FCA hereby certifies 
that the proposed rule will not have a significant economic impact on a 
substantial number of small entities. Each of the banks in the Farm 
Credit System, considered together with its affiliated associations, 
has assets and annual income in excess of the amounts that would 
qualify them as small entities. Therefore, Farm Credit System 
institutions are not ``small entities'' as defined in the RFA.
    NCUA:
    The RFA requires NCUA to prepare an analysis to describe any 
significant economic impact a regulation may have on a substantial 
number of small entities.\40\ For purposes of this analysis, NCUA 
considers small credit unions to be those having under $50 million in 
assets.\41\ As of December 31, 2013, there are 4,295 small, federally 
insured credit unions, and only about 1,970 of these credit unions 
originate real estate loans. The proposed rule would require a credit 
union or servicer to escrow the premiums and fees for required flood 
insurance for any loans secured by residential improved real estate or 
a mobile home that is made, increased, extended, or renewed on or after 
January 1, 2016. The proposed rule would implement additional 
exceptions from the escrow requirement, as amended by HFIAA.
---------------------------------------------------------------------------

    \40\ 5 U.S.C. 603(a).
    \41\ Interpretive Ruling and Policy Statement 03-2, 68 FR 31949 
(May 29, 2003), as amended by Interpretative Ruling and Policy 
Statement 13-1, 78 FR 4032 (Jan. 18, 2013).

---------------------------------------------------------------------------

[[Page 64528]]

    Under this proposed rule, credit unions with total assets less than 
$1 billion would generally be excepted from the escrow provisions. 
Therefore, the escrow provisions of the proposed rule would not affect 
small credit unions. NCUA finds that this proposed rule would affect 
relatively few federally insured, small credit unions and the 
associated cost is minimal. Accordingly, NCUA certifies that this rule 
will not have a significant economic impact on small entities.

Unfunded Mandates Reform Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) (2 
U.S.C. 1501 et seq.) requires certain agencies, including the OCC, to 
prepare a budgetary impact statement before promulgating a rule that 
includes a Federal mandate that may result in the expenditure by State, 
local, and tribal governments, in the aggregate, or by the private 
sector of $100 million or more in any one year. If a budgetary impact 
statement is required, section 205 of UMRA also requires an agency to 
identify and consider a reasonable number of regulatory alternatives 
before promulgating a rule.
    The OCC has estimated that the total cost associated with this 
NPRM, if implemented, would be approximately $33 million per year. 
However, pursuant to section 201 of the UMRA, a regulation does not 
impose a mandate to the extent it incorporates requirements 
``specifically set forth in the law.'' Therefore, we exclude from our 
UMRA estimate costs specifically related to requirements set forth in 
Biggert-Waters and HFIAA, such as direct costs associated with 
establishing escrow accounts. Furthermore, under Title II of the UMRA, 
indirect costs, foregone revenues and opportunity costs are not 
included when determining if a mandate meets or exceeds UMRA's cost 
threshold. Therefore, based on these exclusions, our UMRA cost estimate 
for the NPRM, if implemented, is approximately $24 million.\42\
---------------------------------------------------------------------------

    \42\ We note that our UMRA cost estimate for the October 2013 
Proposed Rule was $0. We have reevaluated our impact of the escrow 
provision, as amended, in light of the public comments received in 
response to that proposal that described the anticipated costs 
associated with the escrow requirement.
---------------------------------------------------------------------------

    Accordingly, because the OCC has determined that this proposed rule 
would not result in expenditures by State, local, and tribal 
governments, or by the private sector, of $100 million or more, we have 
not prepared a budgetary impact statement or specifically addressed the 
regulatory alternatives considered.

Paperwork Reduction Act of 1995

    The OCC, Board, FDIC, and NCUA (the PRA Agencies) \43\ have 
determined that this proposed rule involves a collection of information 
pursuant to the provisions of the Paperwork Reduction Act of 1995 (the 
PRA) (44 U.S.C. 3501 et seq.).
---------------------------------------------------------------------------

    \43\ The FCA has determined that the proposed rule does not 
involve a collection of information pursuant to the PRA for System 
institutions because System institutions are Federally chartered 
instrumentalities of the United States and instrumentalities of the 
United States are specifically excepted from the definition of 
``collection of information'' contained in 44 U.S.C. 3502(3).
---------------------------------------------------------------------------

    In accordance with the PRA (44 U.S.C. 3506; 5 CFR 1320 Appendix 
A.1), the Board reviewed the proposed rule under the authority 
delegated to the Board by the Office of Management and Budget (OMB). 
The collection of information that is subject to the PRA by this 
proposed rule is found in 12 CFR 22.5, 208.25(e), 339.5, and 760.5. In 
addition, as permitted by the PRA, the Board also proposes to extend 
for three years its respective information collection.
    The PRA Agencies may not conduct or sponsor, and an organization is 
not required to respond to, this information collection unless the 
information collection displays a currently valid OMB control number. 
The Board's OMB control number is 7100-0280. The FDIC, the NCUA, and 
the OCC will seek new OMB control numbers.
    Biggert-Waters required escrow for all new and outstanding loans in 
a SFHA, unless certain exceptions applied. HFIAA added several new 
exceptions, and most notably, ties the escrow requirement to a tripwire 
event (the origination, refinance, increase, extension, or renewal of a 
loan on or after January 1, 2016). While a regulated lending 
institution is not required to escrow until a tripwire event occurs, 
such institution is still required to offer and make available the 
option to escrow for all outstanding designated loans. This requirement 
is identical to the prior PRA burden in the October 2013 Proposed Rule, 
which required an escrow notice for all outstanding designated loans. 
However, there may be fewer notices because of the additional 
exceptions under HFIAA. The PRA Agencies believe the paperwork burden 
estimates remain unchanged from the prior PRA burden estimated in the 
October 2013 Proposed Rule.\44\
---------------------------------------------------------------------------

    \44\ OCC's and NCUA's burden estimates have been slightly 
adjusted from the October 2013 Proposed Rule.
---------------------------------------------------------------------------

    This information collection is required to evidence compliance with 
the requirements of the Federal flood insurance statutes with respect 
to lenders and servicers. Because the PRA Agencies do not collect any 
information, no issue of confidentiality arises. The respondents are 
for-profit and non-profit financial institutions, including small 
businesses.
    Entities subject to the PRA Agencies' existing flood insurance 
rules will have to review and revise disclosures that are currently 
provided to ensure that such disclosures accurately reflect the 
disclosure requirements in this proposed rule. Entities subject to the 
rule may also need to develop new disclosures to meet the proposed 
rule's timing requirements.
    The total estimated burden represents averages for all respondents 
regulated by the PRA Agencies. The PRA Agencies expect that the amount 
of time required to implement each of the proposed changes for a given 
institution may vary based on the size and complexity of the 
respondent.
    The PRA Agencies estimate that respondents would take, on average, 
40 hours to update their systems in order to comply with the disclosure 
requirements and the one-time escrow notice under the proposed rule. In 
an effort to minimize the compliance cost and burden, particularly for 
small entities that do not meet the requirement for the statutory 
exception, the proposed rule contains model disclosures in Appendices A 
and B that may be used to satisfy the requirements.

Burden Estimates

    OCC:
    Number of Respondents: 1,550.
    Burden for Existing Recordkeeping Requirements: 196,907 hours.
    Burden for Existing Disclosure Requirements: 244,208 hours.
    Burden for Proposed Rule: 62,000 hours.
    Total Burden for Collection: 503,115 hours.
    Board:
    Number of Respondents: 843.
    Burden for Existing Recordkeeping Requirements: 14,191 hours.
    Burden for Existing Disclosure Requirements: 17,632 hours.
    Burden for Proposed Rule: 33,720 hours.
    Total Burden for Collection: 65,543 hours.
    FDIC:
    Number of Respondents: 4,421.
    Burden for Existing Recordkeeping Requirements: 61,894 hours.
    Burden for Existing Disclosure Requirements: 76,999 hours.
    Burden for Proposed Rule: 176,840 hours.

[[Page 64529]]

    Total Burden for Collection: 315,733 hours.
    NCUA:
    Number of Respondents: 4,192.
    Burden for Existing Recordkeeping Requirements: 57,236.52 hours.
    Burden for Existing Disclosure Requirements: 70,981.02 hours.
    Burden for Proposed Rule: 167,680 hours.
    Total Burden for Collection: 295,897.54 hours.

These collections are available to the public at www.reginfo.gov.
    Comments are invited on: (1) Whether the proposed collection of 
information is necessary for the proper performance of the PRA 
Agencies' functions; including whether the information has practical 
utility; (2) the accuracy of the PRA Agencies' estimate of the burden 
of the proposed information collection, including the cost of 
compliance; (3) ways to enhance the quality, utility, and clarity of 
the information to be collected; and (4) ways to minimize the burden of 
information collection on respondents, including through the use of 
automated collection techniques or other forms of information 
technology.
    Comments on the collection of information should be sent to:
    OCC: Because paper mail in the Washington, DC area and at the OCC 
is subject to delay, commenters are encouraged to submit comments by 
email if possible. Comments may be sent to: Legislative and Regulatory 
Activities Division, Office of the Comptroller of the Currency, 
Attention: 1557-ESCROW, 400 7th Street SW., Suite 3E-218, Mail Stop 9W-
11, Washington, DC 20219. In addition, comments may be sent by fax to 
(571) 465-4326 or by electronic mail to [email protected]. 
You may personally inspect and photocopy comments at the OCC, 400 7th 
Street SW., Washington, DC 20219. For security reasons, the OCC 
requires that visitors make an appointment to inspect comments. You may 
do so by calling (202) 649-6700. Upon arrival, visitors will be 
required to present valid government-issued photo identification and to 
submit to security screening in order to inspect and photocopy 
comments.
    All comments received, including attachments and other supporting 
materials, are part of the public record and subject to public 
disclosure. Do not enclose any information in your comment or 
supporting materials that you consider confidential or inappropriate 
for public disclosure.
    Board: Cynthia Ayouch, Federal Reserve Clearance Officer, Office of 
the Chief Data Officer, Mail Stop 95, Board of Governors of the Federal 
Reserve System, Washington, DC 20551, with copies of such comments sent 
to the Office of Management and Budget, Paperwork Reduction Project 
(7100-0280), Washington, DC 20503.
    FDIC: You may submit comments, which should refer to ``Interagency 
Flood Insurance, 3064-ESCROW'' by any of the following methods:
     Agency Web site: http://www.fdic.gov/regulations/laws/federal/. Follow the instructions for submitting comments on the FDIC 
Web site.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Email: [email protected]. Include ``Interagency Flood 
Insurance, 3064-ESCROW'' in the subject line of the message.
     Mail: Gary A. Kuiper, Counsel, Attn: Comments, Room NYA-
5046, Federal Deposit Insurance Corporation, 550 17th Street NW., 
Washington, DC 20429.
     Hand Delivery: Comments may be hand delivered to the guard 
station at the rear of the 550 17th Street Building (located on F 
Street) on business days between 7 a.m. and 5 p.m.

Public Inspection: All comments received will be posted without change 
to http://www.fdic.gov/regulations/laws/federal/ including any personal 
information provided.
    NCUA: Tracy Crews, National Credit Union Administration, 1775 Duke 
Street, Alexandria, Virginia 22314-3428, Fax No. 703-837-2861, Email: 
[email protected].
    Additionally, commenters may send a copy of their comments to the 
OMB desk officer for the PRA Agencies by mail to the Office of 
Information and Regulatory Affairs, U.S. Office of Management and 
Budget, New Executive Office Building, Room 10235, 725 17th Street NW., 
Washington, DC 20503; by fax to (202) 395-6974; or by email to 
[email protected].

List of Subjects

12 CFR Part 22

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

12 CFR Part 172

    Flood insurance, Reporting and recordkeeping requirements, Savings 
associations.

12 CFR Part 208

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

12 CFR Part 339

    Flood insurance, Reporting and recordkeeping requirements, Savings 
associations.

12 CFR Part 614

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

12 CFR Part 760

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

Office of the Comptroller of the Currency

12 CFR CHAPTER I

Authority and Issuance

    For the reasons set forth in the joint preamble and under the 
authority of 12 U.S.C. 93a, chapter I of title 12 of the Code of 
Federal Regulations is proposed to be amended as follows:

PART 22--LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS

0
1. The authority citation for part 22 is revised to read as follows:

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

0
2. Revise Sec.  22.4 to read as follows:


Sec.  22.4  Exemptions.

    The flood insurance requirement prescribed by Sec.  22.3, with 
respect to national banks, and Sec.  172.3, with respect to Federal 
savings associations, does not apply with respect to:
    (a) Any State-owned property covered under a policy of self-
insurance satisfactory to the Administrator of FEMA, who publishes and 
periodically revises the list of States falling within this exemption;
    (b) Property securing any loan with an original principal balance 
of $5,000 or less and a repayment term of one year or less; or
    (c) Any structure that is a part of any residential property but is 
detached from the primary residential structure of such property and 
does not serve as a residence.
0
3. Revise Sec.  22.5 to read as follows:


Sec.  22.5  Escrow requirement.

    (a) In general--(1) Applicability. Except as provided in paragraph 
(a)(2) or (c) of this section, a national bank or Federal savings 
association, or a servicer acting on its behalf, shall require the

[[Page 64530]]

escrow of all premiums and fees for any flood insurance required under 
Sec.  22.3, with respect to national banks, or Sec.  172.3, with 
respect to Federal savings associations, for any loan secured by 
residential improved real estate or a mobile home that is made, 
increased, extended, or renewed on or after January 1, 2016, payable 
with the same frequency as payments on the loan are made for the 
duration of the loan.
    (2) Exceptions. Paragraph (a)(1) of this section does not apply if:
    (i) The loan is an extension of credit primarily for business, 
commercial, or agricultural purposes;
    (ii) The loan is in a subordinate position to a senior lien secured 
by the same residential improved real estate or mobile home for which 
the borrower has obtained flood insurance coverage that meets the 
requirements of Sec.  22.3, with respect to national banks, or Sec.  
172.3, with respect to Federal savings associations;
    (iii) Flood insurance coverage for the residential improved real 
estate or mobile home is provided by a policy that:
    (A) Meets the requirements of Sec.  22.3, with respect to national 
banks or Sec.  172.3, with respect to Federal savings associations;
    (B) Is provided by a condominium association, cooperative, 
homeowners association, or other applicable group; and
    (C) The premium for which is paid by the condominium association, 
cooperative, homeowners association, or other applicable group as a 
common expense;
    (iv) The loan is a home equity line of credit;
    (v) The loan is a nonperforming loan that is 90 or more days past 
due; or
    (vi) The loan has a term of not longer than 12 months.
    (3) Escrow account. The national bank or Federal savings 
association, or a servicer acting on its behalf, shall deposit the 
flood insurance premiums and fees on behalf of the borrower in an 
escrow account. This escrow account will be subject to escrow 
requirements adopted pursuant to section 10 of the Real Estate 
Settlement Procedures Act of 1974 (12 U.S.C. 2609) (RESPA), which 
generally limits the amount that may be maintained in escrow accounts 
for certain types of loans and requires escrow account statements for 
those accounts, only if the loan is otherwise subject to RESPA. 
Following receipt of a notice from the Administrator of FEMA or other 
provider of flood insurance that premiums are due, the national bank or 
Federal savings association, or a servicer acting on its behalf, shall 
pay the amount owed to the insurance provider from the escrow account 
by the date when such premiums are due.
    (b) Notice. For any loan for which a national bank or Federal 
savings association is required to escrow under paragraph (a)(1) or of 
this section, the national bank or Federal savings association, or a 
servicer acting on its behalf, shall mail or deliver a written notice 
with the notice provided under Sec.  22.9, with respect to national 
banks, or Sec.  172.9, with respect to Federal savings associations, 
informing the borrower that the national bank or Federal savings 
association is required to escrow all premiums and fees for required 
flood insurance, using language that is substantially similar to model 
clauses on the escrow requirement in appendix A.
    (c) Small lender exception--(1) Qualification. Except as may be 
required under applicable State law, paragraphs (a), (b), and (d) of 
this section do not apply to a national bank or Federal savings 
association:
    (i) That has total assets of less than $1 billion as of December 31 
of either of the two prior calendar years; and
    (ii) On or before July 6, 2012:
    (A) Was not required under Federal or State law to deposit taxes, 
insurance premiums, fees, or any other charges in an escrow account for 
the entire term of any loan secured by residential improved real estate 
or a mobile home; and
    (B) Did not have a policy of consistently and uniformly requiring 
the deposit of taxes, insurance premiums, fees, or any other charges in 
an escrow account for any loans secured by residential improved real 
estate or a mobile home.
    (2) Change in status. If a national bank or Federal savings 
association previously qualified for the exception in paragraph (c)(1) 
of this section, but no longer qualifies for the exception because it 
had assets of $1 billion or more for two consecutive calendar year 
ends, the national bank or Federal savings association must escrow 
premiums and fees for flood insurance pursuant to paragraph (a) of this 
section for any designated loan made, increased, extended, or renewed 
on or after July 1 of the succeeding calendar year.
    (d) Option to escrow--(1) In general. Except as provided in 
paragraph (a)(2) or (c) of this section, a national bank or Federal 
savings association, or a servicer acting on its behalf, shall offer 
and make available to the borrower the option to escrow all premiums 
and fees for any flood insurance required under Sec.  22.3 of this 
section, with respect to national banks, or Sec.  172.3 with respect to 
Federal savings associations, for any loan secured by residential 
improved real estate or a mobile home that is outstanding on January 1, 
2016, or July 1 of the calendar year succeeding the calendar year the 
national bank or Federal savings association has a change in status 
pursuant to paragraph (c)(2) of this section until the national bank or 
Federal savings association is required to escrow pursuant to paragraph 
(a) of this section.
    (2) Notice. For any loan subject to paragraph (d)(1) of this 
section, the national bank or Federal savings association, or a 
servicer acting on its behalf, shall mail or deliver to the borrower no 
later than March 31, 2016, or September 30 of the calendar year 
succeeding the calendar year the national bank or Federal savings 
association has a change in status pursuant to paragraph (c)(2) of this 
section, a notice in writing, or if the borrower agrees, 
electronically, informing the borrower of the option to escrow all 
premiums and fees for any required flood insurance and the method(s) by 
which the borrower may request the escrow, using language similar to 
the model clauses in appendix B.
    (3) Timing. The national bank or Federal savings association or 
servicer must begin escrowing premiums and fees for flood insurance as 
soon as reasonably practicable after the national bank or Federal 
savings association or servicer receives the borrower's request to 
escrow.
0
4. Revise Sec.  22.6 to read as follows:


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

    (a) Use of form. Except for properties or structures that are 
exempt under Sec.  22.4, a national bank or Federal savings association 
shall use the standard flood hazard determination form developed by the 
Administrator of FEMA when determining whether the building or mobile 
home offered as collateral security for a loan is or will be located in 
a special flood hazard area in which flood insurance is available under 
the Act. The standard flood hazard determination form may be used in a 
printed, computerized, or electronic manner. A national bank or Federal 
savings association may obtain the standard flood hazard determination 
form from FEMA's Web site at www.fema.gov.
    (b) Retention of form. A national bank or Federal savings 
association shall retain a copy of the completed standard flood hazard 
determination form, in

[[Page 64531]]

either hard copy or electronic form, for the period of time the 
national bank or Federal savings association owns the loan.
0
5. Revise Appendix A to Part 22 to read as follows:

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

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

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

Availability of Private Flood Insurance Coverage

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

[Escrow Requirement for Residential Loans

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

0
6. Add Appendix B to part 22 to read as follows:

Appendix B to Part 22--Sample Clause for Option To Escrow for 
Outstanding Loans

Escrow Option Clause

    You have the option to escrow all premiums and fees for flood 
insurance that covers any residential building or mobile home 
securing a loan that is located in an area with special flood 
hazards. If you choose this option, your payments will be deposited 
in an escrow account to be paid to the flood insurance provider. The 
escrow amount for flood insurance will be added to your existing 
periodic mortgage payment. The payments you make into the escrow 
account will accumulate over time and the funds will be used to pay 
your flood insurance policy upon receipt of a notice from the flood 
insurance provider that the flood insurance premium is due. To 
choose this option, follow the instructions below. If you have any 
questions about the option, contact [Insert Name of Lender or 
Servicer] at [Insert Contact Information].

[Instructions for Selecting to Escrow]

PART 172--LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS

0
7. The authority citation for part 172 continues to read as follows:

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

0
8. Revise Sec.  172.4 to read as follows:


Sec.  172.4  Exemptions.

    Exemptions to the flood insurance requirement prescribed by Sec.  
172.3 are set forth at 12 CFR 22.3.
0
9. Revise Sec.  172.5 to read as follows:


Sec.  172.5  Escrow requirement.

    Requirements for the escrow of all premiums and fees for any flood 
insurance required under Sec.  172.3 are set forth at 12 CFR 22.5.
0
10. Revise Sec.  172.6 to read as follows:


Sec.  172.6  Required use of standard flood hazard determination form.

    Requirements for the use the standard flood hazard determination 
form are set forth at 12 CFR 22.6.


Sec.  172.9  [Amended]

0
11. Section Sec.  172.9 is amended by removing ``this part'' each time 
it appears in paragraph (f) and adding in its place ``12 CFR part 22''.
0
12. Revise appendix A to part 172 to read as follows:

Appendix A to Part 172--Sample Form of Notice of Special Flood Hazards 
and Availability of Federal Disaster Relief Assistance

    The Sample Form of Notice of Special Flood hazards and 
Availability of Federal Disaster Relief Assistance is set forth in 
Appendix A to 12 CFR part 22.

Federal Reserve System

12 CFR CHAPTER II

Authority and Issuance

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

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

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

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

0
14. Amend Sec.  208.25 by revising paragraphs (d), (e), and (f), 
revising appendix A to Sec.  208.25, and adding appendix B to Sec.  
208.25 to read as follows:

[[Page 64532]]

Sec.  208.25  Loans in areas having special flood hazards.

* * * * *
    (d) Exemptions. The flood insurance requirement prescribed by 
paragraph (c) of this section does not apply with respect to:
    (1) Any State-owned property covered under a policy of self-
insurance satisfactory to the Administrator of FEMA, who publishes and 
periodically revises the list of States falling within this exemption;
    (2) Property securing any loan with an original principal balance 
of $5,000 or less and a repayment term of one year or less; or
    (3) Any structure that is a part of any residential property but is 
detached from the primary residential structure of such property and 
does not serve as a residence.
    (e) Escrow requirement--(1) In general--(i) Applicability. Except 
as provided in paragraph (e)(1)(ii) or (e)(3) of this section, a member 
bank, or a servicer acting on its behalf, shall require the escrow of 
all premiums and fees for any flood insurance required under paragraph 
(c) of this section for any loan secured by residential improved real 
estate or a mobile home that is made, increased, extended, or renewed 
on or after January 1, 2016, payable with the same frequency as 
payments on the loan are made for the duration of the loan.
    (ii) Exceptions. Paragraph (e)(1)(i) of this section does not apply 
if:
    (A) The loan is an extension of credit primarily for business, 
commercial, or agricultural purposes;
    (B) The loan is in a subordinate position to a senior lien secured 
by the same residential improved real estate or mobile home for which 
the borrower has obtained flood insurance coverage that meets the 
requirements of paragraph (c) of this section;
    (C) Flood insurance coverage for the residential improved real 
estate or mobile home is provided by a policy that:
    (1) Meets the requirements of paragraph (c) of this section;
    (2) Is provided by a condominium association, cooperative, 
homeowners association, or other applicable group; and
    (3) The premium for which is paid by the condominium association, 
cooperative, homeowners association, or other applicable group as a 
common expense;
    (D) The loan is a home equity line of credit;
    (E) The loan is a nonperforming loan that is 90 or more days past 
due; or
    (F) The loan has a term of not longer than 12 months.
    (iii) Escrow account. The member bank, or a servicer acting on its 
behalf, shall deposit the flood insurance premiums and fees on behalf 
of the borrower in an escrow account. This escrow account will be 
subject to escrow requirements adopted pursuant to section 10 of the 
Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2609) (RESPA), 
which generally limits the amount that may be maintained in escrow 
accounts for certain types of loans and requires escrow account 
statements for those accounts, only if the loan is otherwise subject to 
RESPA. Following receipt of a notice from the Administrator of FEMA or 
other provider of flood insurance that premiums are due, the member 
bank, or a servicer acting on its behalf, shall pay the amount owed to 
the insurance provider from the escrow account by the date when such 
premiums are due.
    (2) Notice. For any loan for which a member bank is required to 
escrow under paragraph (e)(1) or (e)(3)(ii) of this section, the member 
bank, or a servicer acting on its behalf, shall mail or deliver a 
written notice with the notice provided under paragraph (i) of this 
section informing the borrower that the member bank is required to 
escrow all premiums and fees for required flood insurance, using 
language that is substantially similar to model clauses on the escrow 
requirement in appendix A.
    (3) Small lender exception--(i) Qualification. Except as may be 
required under applicable State law, paragraphs (e)(1), (2), and (4) of 
this section do not apply to a member bank:
    (A) That has total assets of less than $1 billion as of December 31 
of either of the two prior calendar years; and
    (B) On or before July 6, 2012:
    (1) Was not required under Federal or State law to deposit taxes, 
insurance premiums, fees, or any other charges in an escrow account for 
the entire term of any loan secured by residential improved real estate 
or a mobile home; and
    (2) Did not have a policy of consistently and uniformly requiring 
the deposit of taxes, insurance premiums, fees, or any other charges in 
an escrow account for any loans secured by residential improved real 
estate or a mobile home.
    (ii) Change in status. If a member bank previously qualified for 
the exception in paragraph (e)(3)(i) of this section, but no longer 
qualifies for the exception because it had assets of $1 billion or more 
for two consecutive calendar year ends, the member bank must escrow 
premiums and fees for flood insurance pursuant to paragraph (e)(1) of 
this section for any designated loan made, increased, extended, or 
renewed on or after July 1 of the succeeding calendar year.
    (4) Option to escrow--(i) In general. Except as provided in 
paragraph (e)(1)(ii) or (e)(3) of this section, a member bank, or a 
servicer acting on its behalf, shall offer and make available to the 
borrower the option to escrow all premiums and fees for any flood 
insurance required under paragraph (c) of this section for any loan 
secured by residential improved real estate or a mobile home that is 
outstanding on January 1, 2016, or July 1 of the calendar year 
succeeding the calendar year the member bank has a change in status 
pursuant to paragraph (e)(3)(ii) of this section until the member bank 
is required to escrow pursuant to paragraph (e)(1) of this section.
    (ii) Notice. For any loan subject to paragraph (e)(4)(i) of this 
section, the member bank, or a servicer acting on its behalf, shall 
mail or deliver to the borrower no later than March 31, 2016, or 
September 30 of the calendar year succeeding the calendar year the 
member bank has a change in status pursuant to paragraph (e)(3)(ii) of 
this section, a notice in writing, or if the borrower agrees, 
electronically, informing the borrower of the option to escrow all 
premiums and fees for any required flood insurance and the method(s) by 
which the borrower may request the escrow, using language similar to 
the model clauses in appendix B.
    (iii) Timing. The member bank or servicer must begin escrowing 
premiums and fees for flood insurance as soon as reasonably practicable 
after the member bank or servicer receives the borrower's request to 
escrow.
    (f) Required use of standard flood hazard determination form--(1) 
Use of form. Except for properties or structures that are exempt under 
paragraph (d) of this section, a state member bank shall use the 
standard flood hazard determination form developed by the Administrator 
of FEMA when determining whether the building or mobile home offered as 
collateral security for a loan is or will be located in a special flood 
hazard area in which flood insurance is available under the Act. The 
standard flood hazard determination form may be used in a printed, 
computerized, or electronic manner. A state member bank may obtain the 
standard flood hazard determination form from FEMA's Web site at 
www.fema.gov.

[[Page 64533]]

    (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 state member bank 
owns the loan.
* * * * *

Appendix A to Sec.  208.25--Sample Form of Notice of Special Flood 
Hazards and Availability of Federal Disaster Relief Assistance

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

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

Availability of Private Flood Insurance Coverage

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

[Escrow Requirement for Residential Loans

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

Appendix B to Sec.  208.25--Sample Clause for Option To Escrow for 
Outstanding Loans

Escrow Option Clause

    You have the option to escrow all premiums and fees for flood 
insurance that covers any residential building or mobile home 
securing a loan that is located in an area with special flood 
hazards. If you choose this option, your payments will be deposited 
in an escrow account to be paid to the flood insurance provider. The 
escrow amount for flood insurance will be added to your existing 
periodic mortgage payment. The payments you make into the escrow 
account will accumulate over time and the funds will be used to pay 
your flood insurance policy upon receipt of a notice from the flood 
insurance provider that the flood insurance premium is due. To 
choose this option, follow the instructions below. If you have any 
questions about the option, contact [Insert Name of Lender or 
Servicer] at [Insert Contact Information].

[Instructions for Selecting to Escrow]

Federal Deposit Insurance Corporation

12 CFR CHAPTER III

Authority and Issuance

    For the reasons set forth in the joint preamble, the Board of 
Directors of the FDIC proposes to amend part 339 of chapter III of 
title 12 of the Code of Federal Regulations as follows:

PART 339--LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS

0
15. The authority citation for part 339 is revised to read as follows:

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

0
16. In Sec.  339.4, add paragraph (c) to read as follows:


Sec.  339.4  Exemptions.

* * * * *
    (c) Any structure that is a part of any residential property but is 
detached from the primary residential structure of such property and 
does not serve as a residence.
0
17. Revise Sec.  339.5 to read as follows:


Sec.  339.5  Escrow requirement.

    (a) In general--(1) Applicability. Except as provided in paragraph 
(a)(2) or (c) of this section, an FDIC-supervised institution, or a 
servicer acting on its behalf, shall require the escrow of all premiums 
and fees for any flood insurance required under Sec.  339.3(a) for any 
loan secured by residential improved real estate or a mobile home that 
is made, increased, extended, or renewed on or after January 1, 2016, 
payable with the same frequency as payments on the loan are made for 
the duration of the loan.
    (2) Exceptions. Paragraph (a)(1) of this section does not apply if:
    (i) The loan is an extension of credit primarily for business, 
commercial, or agricultural purposes;
    (ii) The loan is in a subordinate position to a senior lien secured 
by the same residential improved real estate or mobile home for which 
the borrower has obtained flood insurance coverage that meets the 
requirements of Sec.  339.3(a);
    (iii) Flood insurance coverage for the residential improved real 
estate or mobile home is provided by a policy that:
    (A) Meets the requirements of Sec.  339.3(a);
    (B) Is provided by a condominium association, cooperative, 
homeowners association, or other applicable group; and
    (C) The premium for which is paid by the condominium association,

[[Page 64534]]

cooperative, homeowners association, or other applicable group as a 
common expense;
    (iv) The loan is a home equity line of credit;
    (v) The loan is a nonperforming loan that is 90 or more days past 
due; or
    (vi) The loan has a term of not longer than 12 months.
    (3) Escrow account. The FDIC-supervised institution, or a servicer 
acting on its behalf, shall deposit the flood insurance premiums and 
fees on behalf of the borrower in an escrow account. This escrow 
account will be subject to escrow requirements adopted pursuant to 
section 10 of the Real Estate Settlement Procedures Act of 1974 (12 
U.S.C. 2609) (RESPA), which generally limits the amount that may be 
maintained in escrow accounts for certain types of loans and requires 
escrow account statements for those accounts, only if the loan is 
otherwise subject to RESPA. Following receipt of a notice from the 
Administrator of FEMA or other provider of flood insurance that 
premiums are due, the FDIC-supervised institution, or a servicer acting 
on its behalf, shall pay the amount owed to the insurance provider from 
the escrow account by the date when such premiums are due.
    (b) Notice. For any loan for which an FDIC-supervised institution 
is required to escrow under paragraph (a) of this section or paragraph 
(c)(2) of this section, the FDIC-supervised institution, or a servicer 
acting on its behalf, shall mail or deliver a written notice with the 
notice provided under Sec.  339.9 informing the borrower that the FDIC-
supervised institution is required to escrow all premiums and fees for 
required flood insurance, using language that is substantially similar 
to model clauses on the escrow requirement in appendix A.
    (c) Small lender exception--(1) Qualification. Except as may be 
required under applicable State law, paragraphs (a), (b), and (d) of 
this section do not apply to an FDIC-supervised institution:
    (i) That has total assets of less than $1 billion as of December 31 
of either of the two prior calendar years; and
    (ii) On or before July 6, 2012:
    (A) Was not required under Federal or State law to deposit taxes, 
insurance premiums, fees, or any other charges in an escrow account for 
the entire term of any loan secured by residential improved real estate 
or a mobile home; and
    (B) Did not have a policy of consistently and uniformly requiring 
the deposit of taxes, insurance premiums, fees, or any other charges in 
an escrow account for any loans secured by residential improved real 
estate or a mobile home.
    (2) Change in status. If an FDIC-supervised institution previously 
qualified for the exception in paragraph (c)(1) of this section, but no 
longer qualifies for the exception because it had assets of $1 billion 
or more for two consecutive calendar year ends, the FDIC-supervised 
institution must escrow premiums and fees for flood insurance pursuant 
to paragraph (a) for any designated loan made, increased, extended, or 
renewed on or after July 1 of the succeeding calendar year.
    (d) Option to escrow--(1) In general. Except as provided in 
paragraphs (a)(2) or (c) of this section, an FDIC-supervised 
institution, or a servicer acting on its behalf, shall offer and make 
available to the borrower the option to escrow all premiums and fees 
for any flood insurance required under Sec.  339.3 for any loan secured 
by residential improved real estate or a mobile home that is 
outstanding on January 1, 2016, or July 1 of the calendar year 
succeeding the calendar year the FDIC-supervised institution has a 
change in status pursuant to paragraph (c)(2) of this section until the 
FDIC-supervised institution is required to escrow pursuant to paragraph 
(a) of this section.
    (2) Notice. For any loan subject to paragraph (d) of this section, 
the FDIC-supervised institution, or a servicer acting on its behalf, 
shall mail or deliver to the borrower no later than March 31, 2016, or 
September 30 of the calendar year succeeding the calendar year the 
FDIC-supervised institution has a change in status pursuant to 
paragraph (c)(2) of this section, a notice in writing, or if the 
borrower agrees, electronically, informing the borrower of the option 
to escrow all premiums and fees for any required flood insurance and 
the method(s) by which the borrower may request the escrow, using 
language similar to the model clauses in appendix B.
    (3) Timing. The FDIC-supervised institution or servicer must begin 
escrowing premiums and fees for flood insurance as soon as reasonably 
practicable after the FDIC-supervised institution or servicer receives 
the borrower's request to escrow.
0
18. Revise Sec.  339.6 to read as follows:


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

    (a) Use of form. Except for properties or structures that are 
exempt under Sec.  339.4, an FDIC-supervised institution shall use the 
standard flood hazard determination form developed by the Administrator 
of FEMA when determining whether the building or mobile home offered as 
collateral security for a loan is or will be located in a special flood 
hazard area in which flood insurance is available under the Act. The 
standard flood hazard determination form may be used in a printed, 
computerized, or electronic manner. An FDIC-supervised institution may 
obtain the standard flood hazard determination form from FEMA's Web 
site at www.fema.gov.
    (b) Retention of form. An FDIC-supervised institution shall retain 
a copy of the completed standard flood hazard determination form, in 
either hard copy or electronic form, for the period of time the FDIC-
supervised institution owns the loan.
0
19. Revise appendix A to part 339 to read as follows:

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

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

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

[[Page 64535]]

    Flood insurance coverage under the NFIP is limited to the 
building or mobile home and any personal property that secures your 
loan and not the land itself.
     Federal disaster relief assistance (usually in the form 
of a low-interest loan) may be available for damages incurred in 
excess of your flood insurance if your community's participation in 
the NFIP is in accordance with NFIP requirements.

Availability of Private Flood Insurance Coverage

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

[Escrow Requirement for Residential Loans

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

0
20. Add appendix B to part 339 to read as follows:

Appendix B to Part 339--Sample Clause for Option To Escrow for 
Outstanding Loans

Escrow Option Clause

    You have the option to escrow all premiums and fees for flood 
insurance that covers any residential building or mobile home 
securing a loan that is located in an area with special flood 
hazards. If you choose this option, your payments will be deposited 
in an escrow account to be paid to the flood insurance provider. The 
escrow amount for flood insurance will be added to your existing 
periodic mortgage payment. The payments you make into the escrow 
account will accumulate over time and the funds will be used to pay 
your flood insurance policy upon receipt of a notice from the flood 
insurance provider that the flood insurance premium is due. To 
choose this option, follow the instructions below. If you have any 
questions about the option, contact [Insert Name of Lender or 
Servicer] at [Insert Contact Information].

[Instructions for Selecting to Escrow]

Farm Credit Administration

12 CFR CHAPTER VI

Authority and Issuance

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

PART 614--LOAN POLICIES AND OPERATIONS

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

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

0
22. Amend Sec.  614.4930 by adding paragraph (c)(3) to read as follows:


Sec.  614.4930  Requirement to purchase flood insurance where 
available.

* * * * *
    (c) * * *
    (3) Any structure that is a part of any residential property but is 
detached from the primary residential structure of such property and 
does not serve as a residence.
0
23. Revise Sec.  614.4935 to read as follows:


Sec.  614.4935  Escrow requirement.

    (a) In general--(1) Applicability. Except as provided in paragraph 
(a)(2) or (c) of this section, a System institution, or a servicer 
acting on its behalf, shall require the escrow of all premiums and fees 
for any flood insurance required under Sec.  614.4930 for any loan 
secured by residential improved real estate or a mobile home that is 
made, increased, extended, or renewed on or after January 1, 2016, 
payable with the same frequency as payments on the loan are made for 
the duration of the loan.
    (2) Exceptions. Paragraph (a)(1) of this section does not apply if:
    (i) The loan is an extension of credit primarily for business, 
commercial, or agricultural purposes;
    (ii) The loan is in a subordinate position to a senior lien secured 
by the same residential improved real estate or mobile home for which 
the borrower has obtained flood insurance coverage that meets the 
requirements of Sec.  614.4930;
    (iii) Flood insurance coverage for the residential improved real 
estate or mobile home is provided by a policy that:
    (A) Meets the requirements of Sec.  614.4930;
    (B) Is provided by a condominium association, cooperative, 
homeowners association, or other applicable group; and
    (C) The premium for which is paid by the condominium association, 
cooperative, homeowners association, or other applicable group as a 
common expense;
    (iv) The loan is a home equity line of credit;
    (v) The loan is a nonperforming loan that is 90 or more days past 
due; or
    (vi) The loan has a term of not longer than 12 months.
    (3) Escrow account. The System institution, or a servicer acting on 
its behalf, shall deposit the flood insurance premiums and fees on 
behalf of the borrower in an escrow account. This escrow account will 
be subject to escrow requirements adopted pursuant to section 10 of the 
Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2609) (RESPA), 
which generally limits the amount that may be maintained in escrow 
accounts for certain types of loans and requires escrow account 
statements for those accounts, only if the loan is otherwise subject to 
RESPA. Following receipt of a notice from the Administrator of FEMA or 
other provider of flood insurance that premiums are due, the System 
institution, or a servicer acting on its behalf, shall pay the amount 
owed to the insurance provider from the escrow account by the date when 
such premiums are due.
    (b) Notice. For any loan for which a System institution is required 
to escrow under paragraph (a) of this section or paragraph (c)(2) of 
this section, the System institution, or a servicer acting on its 
behalf, shall mail or deliver a written notice with the notice provided 
under Appendix A informing the borrower that the System institution is 
required to escrow all premiums and

[[Page 64536]]

fees for required flood insurance, using language that is substantially 
similar to model clauses on the escrow requirement in appendix A.
    (c) Small lender exception--(1) Qualification. Except as may be 
required under applicable State law, paragraphs (a), (b), and (d) of 
this section do not apply to a System institution:
    (i) That has total assets of less than $1 billion as of December 31 
of either of the two prior calendar years; and
    (ii) On or before July 6, 2012:
    (A) Was not required under Federal or State law to deposit taxes, 
insurance premiums, fees, or any other charges in an escrow account for 
the entire term of any loan secured by residential improved real estate 
or a mobile home; and
    (B) Did not have a policy of consistently and uniformly requiring 
the deposit of taxes, insurance premiums, fees, or any other charges in 
an escrow account for any loans secured by residential improved real 
estate or a mobile home.
    (2) Change in status. If a System institution previously qualified 
for the exception in paragraph (c)(1) of this section, but no longer 
qualifies for the exception because it had assets of $1 billion or more 
for two consecutive calendar year ends, the System institution must 
escrow premiums and fees for flood insurance pursuant to paragraph (a) 
for any designated loan made, increased, extended, or renewed on or 
after July 1 of the succeeding calendar year.
    (d) Option to escrow--(1) In general. Except as provided in 
paragraph (a)(2) or (c) of this section, a System institution, or a 
servicer acting on its behalf, shall offer and make available to the 
borrower the option to escrow all premiums and fees for any flood 
insurance required under Sec.  614.4930 for any loan secured by 
residential improved real estate or a mobile home that is outstanding 
on January 1, 2016, or July 1 of the calendar year succeeding the 
calendar year the System institution has a change in status pursuant to 
paragraph (c)(2) of this section until the System institution is 
required to escrow pursuant to paragraph (a) of this section.
    (2) Notice. For any loan subject to paragraph (d) of this section, 
the System institution, or a servicer acting on its behalf, shall mail 
or deliver to the borrower no later than March 31, 2016, or September 
30 of the calendar year succeeding the calendar year the System 
institution has a change in status pursuant to paragraph (c)(2) of this 
section, a notice in writing, or if the borrower agrees, 
electronically, informing the borrower of the option to escrow all 
premiums and fees for any required flood insurance and the method(s) by 
which the borrower may request the escrow, using language similar to 
the model clauses in Appendix B.
    (3) Timing. The System institution or servicer must begin escrowing 
premiums and fees for flood insurance as soon as reasonably practicable 
after the System institution or servicer receives the borrower's 
request to escrow.
0
24. Revise Sec.  614.4940 to read as follows:


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

    (a) Use of form. Except for properties or structures that are 
exempt under Sec.  614.4930(c), a System institution shall use the 
standard flood hazard determination form developed by the Administrator 
of FEMA when determining whether the building or mobile home offered as 
collateral security for a loan is or will be located in a special flood 
hazard area in which flood insurance is available under the Act. The 
standard flood hazard determination form may be used in a printed, 
computerized, or electronic manner. A System institution may obtain the 
standard flood hazard determination form from FEMA's Web site at 
www.fema.gov.
    (b) Retention of form. A System institution shall retain a copy of 
the completed standard flood hazard determination form, in either hard 
copy or electronic form, for the period of time the System institution 
owns the loan.

0
25. Revise Appendix A to part 614 to read as follows:

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

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

Availability of Private Flood Insurance Coverage

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

[Escrow Requirement for Residential Loans

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

[[Page 64537]]

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.

0
26. Add Appendix B to part 614 to read as follows:

Appendix B to Part 614--Sample Clause for Option To Escrow for 
Outstanding Loans

Escrow Option Clause

    You have the option to escrow all premiums and fees for flood 
insurance that covers any residential building or mobile home 
securing a loan that is located in an area with special flood 
hazards. If you choose this option, your payments will be deposited 
in an escrow account to be paid to the flood insurance provider. The 
escrow amount for flood insurance will be added to your existing 
periodic mortgage payment. The payments you make into the escrow 
account will accumulate over time and the funds will be used to pay 
your flood insurance policy upon receipt of a notice from the flood 
insurance provider that the flood insurance premium is due. To 
choose this option, follow the instructions below. If you have any 
questions about the option, contact [Insert Name of Lender or 
Servicer] at [Insert Contact Information].

[Instructions for Selecting to Escrow]

National Credit Union Administration

12 CFR CHAPTER VII

Authority and Issuance

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

PART 760--LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS

0
27. The authority citation for part 760 continues to read as follows:

    Authority:  12 U.S.C. 1757, 1789; 42 U.S.C. 4012a, 4104a, 4104b, 
4106, and 4128.
0
28. In Sec.  760.4, add paragraph (c) to read as follows:


Sec.  760.4  Exemptions.

* * * * *
    (c) Any structure that is a part of any residential property but is 
detached from the primary residential structure of such property and 
does not serve as a residence.
0
29. Revise Sec.  760.5 to read as follows:


Sec.  760.5  Escrow requirement.

    (a) In general--(1) Applicability. Except as provided in paragraph 
(a)(2) or (c) of this section, a credit union, or a servicer acting on 
its behalf, shall require the escrow of all premiums and fees for any 
flood insurance required under Sec.  760.3(a) for any loan secured by 
residential improved real estate or a mobile home that is made, 
increased, extended, or renewed on or after January 1, 2016, payable 
with the same frequency as payments on the loan are made for the 
duration of the loan.
    (2) Exceptions. Paragraph (a)(1) of this section does not apply if:
    (i) The loan is an extension of credit primarily for business, 
commercial, or agricultural purposes;
    (ii) The loan is in a subordinate position to a senior lien secured 
by the same residential improved real estate or mobile home for which 
the borrower has obtained flood insurance coverage that meets the 
requirements of Sec.  760.3(a);
    (iii) Flood insurance coverage for the residential improved real 
estate or mobile home is provided by a policy that:
    (A) Meets the requirements of Sec.  760.3(a);
    (B) Is provided by a condominium association, cooperative, 
homeowners association, or other applicable group; and
    (C) The premium for which is paid by the condominium association, 
cooperative, homeowners association, or other applicable group as a 
common expense;
    (iv) The loan is a home equity line of credit;
    (v) The loan is a nonperforming loan that is 90 or more days past 
due; or
    (vi) The loan has a term of not longer than 12 months.
    (3) Escrow account. The credit union, or a servicer acting on its 
behalf, shall deposit the flood insurance premiums and fees on behalf 
of the borrower in an escrow account. This escrow account will be 
subject to escrow requirements adopted pursuant to section 10 of the 
Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2609) (RESPA), 
which generally limits the amount that may be maintained in escrow 
accounts for certain types of loans and requires escrow account 
statements for those accounts, only if the loan is otherwise subject to 
RESPA. Following receipt of a notice from the Administrator of FEMA or 
other provider of flood insurance that premiums are due, the credit 
union, or a servicer acting on its behalf, shall pay the amount owed to 
the insurance provider from the escrow account by the date when such 
premiums are due.
    (b) Notice. For any loan for which a credit union is required to 
escrow under paragraph (a) of this section or paragraph (c)(2) of this 
section, the credit union, or a servicer acting on its behalf, shall 
mail or deliver a written notice with the notice provided under Sec.  
760.9 informing the borrower that the credit union is required to 
escrow all premiums and fees for required flood insurance, using 
language that is substantially similar to model clauses on the escrow 
requirement in appendix A.
    (c) Small lender exception--(1) Qualification. Except as may be 
required under applicable State law, paragraphs (a), (b), and (d) of 
this section do not apply to a credit union:
    (i) That has total assets of less than $1 billion as of December 31 
of either of the two prior calendar years; and
    (ii) On or before July 6, 2012:
    (A) Was not required under Federal or State law to deposit taxes, 
insurance premiums, fees, or any other charges in an escrow account for 
the entire term of any loan secured by residential improved real estate 
or a mobile home; and
    (B) Did not have a policy of consistently and uniformly requiring 
the deposit of taxes, insurance premiums, fees, or any other charges in 
an escrow account for any loans secured by residential improved real 
estate or a mobile home.
    (2) Change in status. If a credit union previously qualified for 
the exception in paragraph (c)(1) of this section, but no longer 
qualifies for the exception because it had assets of $1 billion or more 
for two consecutive calendar year ends, the credit union must escrow 
premiums and fees for flood insurance pursuant to paragraph (a) for any 
designated loan made, increased, extended, or renewed on or after July 
1 of the succeeding calendar year.
    (d) Option to escrow--(1) In general. Except as provided in 
paragraph (a)(2) or (c) of this section, a credit union, or a servicer 
acting on its behalf, shall offer and make available to the borrower 
the option to escrow all premiums and fees for any flood insurance 
required under Sec.  760.3 for any loan secured by residential improved 
real estate or a mobile home that is outstanding on January 1, 2016, or 
July 1 of the calendar year succeeding the calendar year the credit 
union has a change in status pursuant to paragraph (c)(2) of this 
section until the credit union is required to escrow pursuant to 
paragraph (a) of this section.
    (2) Notice. For any loan subject to paragraph (d) of this section, 
the credit union, or a servicer acting on its behalf, shall mail or 
deliver to the borrower no later than March 31, 2016, or September 30 
of the calendar year succeeding the calendar year the credit union has 
a change in status pursuant to paragraph (c)(2) of this section, a 
notice in writing, or if the borrower agrees, electronically,

[[Page 64538]]

informing the borrower of the option to escrow all premiums and fees 
for any required flood insurance and the method(s) by which the 
borrower may request the escrow, using language similar to the model 
clauses in appendix B.
    (3) Timing. The credit union or servicer must begin escrowing 
premiums and fees for flood insurance as soon as reasonably practicable 
after the credit union or servicer receives the borrower's request to 
escrow.
0
30. Revise Sec.  760.6 to read as follows:


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

    (a) Use of form. Except for properties or structures that are 
exempt under Sec.  760.4, a credit union shall use the standard flood 
hazard determination form developed by the Administrator of FEMA when 
determining whether the building or mobile home offered as collateral 
security for a loan is or will be located in a special flood hazard 
area in which flood insurance is available under the Act. The standard 
flood hazard determination form may be used in a printed, computerized, 
or electronic manner. A credit union may obtain the standard flood 
hazard determination form from FEMA's Web site at www.fema.gov.
    (b) Retention of form. A credit union shall retain a copy of the 
completed standard flood hazard determination form, in either hard copy 
or electronic form, for the period of time the credit union owns the 
loan.
0
31. Revise Appendix A to part 760 to read as follows:

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

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

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

Availability of Private Flood Insurance Coverage

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

[Escrow Requirement for Residential Loans

    Federal law requires a lender or its servicer to escrow all 
premiums and fees for flood insurance that covers any residential 
building or mobile home securing a loan that is located in an area 
with special flood hazards. These premiums and fees must be paid to 
the lender or its servicer with the same frequency as your loan 
payments for the duration of your loan and will be deposited in an 
escrow account on your behalf to be paid to the flood insurance 
provider. Upon receipt of a notice from the flood insurance provider 
that the premiums are due, the premiums shall be paid from the 
escrow account to the insurance provider. ]
    _-- Flood insurance coverage under the NFIP is not available for 
the property securing the loan because the community in which the 
property is located does not participate in the NFIP. In addition, 
if the non-participating community has been identified for at least 
one year as containing a special flood hazard area, properties 
located in the community will not be eligible for Federal disaster 
relief assistance in the event of a Federally declared flood 
disaster.
0
32. Add Appendix B to part 760 to read as follows:

Appendix B to Part 760--Sample Clause for Option To Escrow for 
Outstanding Loans

Escrow Option Clause

    You have the option to escrow all premiums and fees for flood 
insurance that covers any residential building or mobile home 
securing a loan that is located in an area with special flood 
hazards. If you choose this option, your payments will be deposited 
in an escrow account to be paid to the flood insurance provider. The 
escrow amount for flood insurance will be added to your existing 
periodic mortgage payment. The payments you make into the escrow 
account will accumulate over time and the funds will be used to pay 
your flood insurance policy upon receipt of a notice from the flood 
insurance provider that the flood insurance premium is due. To 
choose this option, follow the instructions below. If you have any 
questions about the option, contact [Insert Name of Lender or 
Servicer] at [Insert Contact Information].

[Instructions for Selecting to Escrow]


    Dated: October 20, 2014.
Thomas J. Curry,
Comptroller of the Currency.

    By order of the Board of Governors of the Federal Reserve 
System, October 23, 2014.
Robert deV. Frierson,
Secretary of the Board.

    Dated at Washington, DC, this 21st day of October, 2014.

    By order of the Board of Directors of the Federal Deposit 
Insurance Corporation.
Robert E. Feldman,
Executive Secretary.

    Dated at Alexandria, VA, this 23rd day of October, 2014.

    By order of the Board of the Farm Credit Administration.
Dale L. Aultman,
Secretary.

    Dated at McLean, VA, this 22nd day of October, 2014.

    By order of the Board of the National Credit Union 
Administration.
Gerard Poliquin,
Secretary of the Board.
[FR Doc. 2014-25722 Filed 10-29-14; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 7535-01-P; 6714-01-P; 6705-01-P