[Federal Register Volume 80, Number 139 (Tuesday, July 21, 2015)]
[Rules and Regulations]
[Pages 43216-43263]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-15956]



[[Page 43215]]

Vol. 80

Tuesday,

No. 139

July 21, 2015

Part III





Department of the Treasury





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Office of the Comptroller of the Currency





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12 CFR Parts 22 and 172





Federal Reserve System





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12 CFR Part 208





Federal Deposit Insurance Corporation





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12 CFR Part 339





Farm Credit Administration





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12 CFR Part 614





National Credit Union Administration





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12 CFR Part 760





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Loans in Areas Having Special Flood Hazards; Final Rule

  Federal Register / Vol. 80 , No. 139 / Tuesday, July 21, 2015 / Rules 
and Regulations  

[[Page 43216]]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Parts 22 and 172

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

FEDERAL RESERVE SYSTEM

12 CFR Part 208

[Regulation H, Docket No. R-1498]
RIN 7100 AE-22

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: Final rule.

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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 amending 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 final rule requires the escrow of 
flood insurance payments on residential improved real estate securing a 
loan, consistent with the changes set forth in HFIAA. The final rule 
also incorporates an exemption in HFIAA for certain detached structures 
from the mandatory flood insurance purchase requirement. Furthermore, 
the final rule implements the provisions of Biggert-Waters related to 
the force placement of flood insurance. Finally, the final rule 
integrates the OCC's flood insurance regulations for national banks and 
Federal savings associations. The Agencies plan to address the private 
flood insurance provisions in Biggert-Waters in a separate rulemaking.

DATES: The effective date of amendatory instructions 1, 6, 7, 8, 10, 
15, 16, 21 and 22 is October 1, 2015. The effective date of amendatory 
instructions 2, 3, 4, 5, 9, 11, 12, 13, 14, 17, 18, 19, 20, 23, 24, 25, 
and 26 is January 1, 2016.

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 escrow flood insurance premiums and fees on 
residential improved real estate securing a loan, unless the regulated 
lending institution met 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. Furthermore, the October 2013 Proposed Rule contained 
provisions to implement the Biggert-Waters changes related to force-
placed flood insurance.
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    \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).
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    In March 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\ The Agencies jointly issued a proposal in October 2014 (the 
October 2014 Proposed Rule) to implement the provisions in HFIAA over 
which they have jurisdiction.\6\ The October 2014 Proposed Rule would 
have required regulated lending institutions to escrow flood insurance 
premiums and fees on residential improved real estate securing a loan, 
consistent with HFIAA's amendments to Biggert-Waters, and excluded 
certain detached structures from the mandatory flood insurance purchase 
requirement.
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    \4\ Public Law 113-89, 128 Stat. 1020 (2014).
    \5\ Public Law 93-234, 87 Stat. 975 (1973).
    \6\ 79 FR 64518 (Oct. 30, 2014).
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    The Agencies are issuing this final rule to implement the escrow 
provisions and the detached structures provision detailed in the 
October 2014 Proposed Rule. In addition, this final rule incorporates 
the force-placed flood insurance provisions that the Agencies proposed 
in the October 2013 Proposed Rule, which were unaffected by HFIAA. The 
Agencies plan to address the private insurance provisions of the 
October 2013 Proposed Rule in a separate rulemaking. In connection with 
the issuance of this final rule, the Agencies have coordinated and 
consulted with the Federal Financial Institutions Examination Council 
(FFIEC), as required by certain

[[Page 43217]]

provisions of the flood insurance statutes.\7\ Furthermore, 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.
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    \7\ See 42 U.S.C. 4012a(b)(1). Four of the five Agencies (OCC, 
Board, FDIC, and NCUA) are members of the FFIEC.
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B. Flood Insurance Statutes

    The National Flood Insurance Act of 1968 (1968 Act) \8\ and the 
FDPA, as amended, govern the National Flood Insurance Program 
(NFIP).\9\ 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.\10\ 
SFHAs are delineated on maps issued by the Federal Emergency Management 
Agency (FEMA) for individual communities.\11\ 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.\12\
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    \8\ Public Law 90-448, 82 Stat. 572 (1968).
    \9\ These statutes are codified at 42 U.S.C. 4001-4129. The 
Federal Emergency Management Agency administers the NFIP; its 
regulations implementing the NFIP appear at 44 CFR parts 59-77.
    \10\ 44 CFR 59.1.
    \11\ 44 CFR part 65.
    \12\ 44 CFR part 60.
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    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) \13\ to issue regulations governing the lending 
institutions that they supervised. These 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.
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    \13\ 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 for State savings associations, the 
OCC for Federal savings associations, and the Board for savings and 
loan holding companies. The transfer took effect on July 21, 2011, 
and the OTS was abolished 90 days after that date.
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    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.\14\ 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 placement of 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.
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    \14\ Public Law 103-325, 108 Stat. 2255 (1994) (codified as 
amended at 42 U.S.C. 4001 et seq. (1994)).
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    The Reform Act required the OCC, Board, FDIC, NCUA, and the former 
OTS 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.\15\
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    \15\ 61 FR 45684 (Aug. 29, 1996).
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C. The Biggert-Waters and HFIAA Amendments

    Among other changes,\16\ 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 institution during any calendar year; \17\ (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; \18\ (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; \19\ 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 borrower's flood insurance coverage lapsed or did 
not provide sufficient coverage and to prescribe the procedures for 
terminating force-placed insurance.\20\
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    \16\ 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. See 80 FR 17414 (Apr. 1, 2015). In addition, section 
100204 of Biggert-Waters 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. FEMA made policies for such properties 
available 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).
    \17\ Section 100208 of Biggert-Waters, amending section 
102(f)(5) of the FDPA (42 U.S.C. 4012a(f)(5)).
    \18\ 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).
    \19\ 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)).
    \20\ Section 100244 of the Act, amending section 102(e) of the 
FDPA (42 U.S.C. 4012a(e)).
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    HFIAA further amended the changes set forth in Biggert-Waters. 
Among these changes were amendments that tied the escrow requirement to 
the origination, refinance, increase, extension, or renewal of a loan 
on or after January 1, 2016, and provided additional exceptions to the 
escrow requirement.\21\ HFIAA also mandated that the Agencies by 
regulation direct regulated lending institutions that are not excepted 
from the escrow requirements to provide an option to borrowers to 
escrow flood insurance premiums and fees for

[[Page 43218]]

outstanding loans.\22\ In addition, HFIAA provided a new exemption to 
the mandatory flood insurance purchase requirement 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.\23\
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    \21\ Section 25 of HFIAA, amending section 102(d) of the FDPA 
(42 U.S.C. 4012a(d)).
    \22\ ``Outstanding loan'' is defined in section 
25(b)(1)(B)(i)(II) of HFIAA.
    \23\ 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.
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    As previously discussed in guidance issued by the Agencies,\24\ the 
CMP provisions \25\ 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.
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    \24\ ``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).
    \25\ 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.
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II. The Agencies' Proposed Revisions

A. Summary of the October 2013 Proposed Rule

    In the October 2013 Proposed Rule, the Agencies proposed to revise 
their respective flood insurance regulations to implement the Biggert-
Waters amendments addressing the escrow of flood insurance payments, 
private flood insurance, and force-placed insurance. The October 2013 
Proposed Rule would have required a regulated lending institution, or 
servicer acting on its behalf, to escrow premiums and fees for flood 
insurance for any loan secured by residential improved real estate or a 
mobile home that was made or outstanding on or after July 6, 2014, 
unless the institution qualified for the statutory exception for small 
institutions.\26\
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    \26\ However, with HFIAA's enactment in March 2014, the Agencies 
issued the October 2014 Proposed Rule to modify the proposed escrow 
provisions in the October 2013 Proposed Rule, consistent with 
HFIAA's changes to the Biggert-Waters escrow provisions.
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    The October 2013 Proposed Rule also would have amended the 
provisions concerning the force placement of flood insurance to clarify 
that a lender or its servicer has the authority to charge a borrower 
for the cost of flood insurance coverage commencing on the date on 
which the borrower's coverage lapsed or became insufficient. 
Furthermore, the October 2013 Proposed Rule would have stipulated the 
circumstances under which a lender or its servicer must terminate 
force-placed flood insurance coverage and refund payments to a borrower 
and the documentary evidence a lender must accept to confirm that a 
borrower has obtained an appropriate amount of flood insurance 
coverage.
    The October 2013 Proposed Rule included new and revised sample 
notice forms and clauses that included language concerning the 
availability of private flood insurance coverage, consistent with 
Biggert-Waters, and that provided sample language for regulated lending 
institutions to use to comply with the proposal's escrow notice 
requirement. The OCC and the FDIC proposed in the October 2013 Proposed 
Rule to integrate their flood insurance regulations for national banks 
and Federal savings associations and for State non-member banks and 
State savings associations, respectively.
    Finally, consistent with Biggert-Waters, the October 2013 Proposed 
Rule would have required a regulated lending institutions to accept 
private flood insurance that meets the statutory definition to satisfy 
the mandatory purchase requirement and specifically requested comment 
on various issues related to this requirement.\27\
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    \27\ As mentioned above, the Agencies will address issues 
related to private flood insurance in a separate rulemaking.
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B. Summary of the October 2014 Proposed Rule

    Under the October 2014 Proposed Rule, the Agencies proposed to 
exempt certain detached structures on residential property from the 
mandatory flood insurance purchase requirement and to amend the 
requirement to escrow flood insurance premiums and fees, consistent 
with the Biggert-Waters escrow provisions as amended by HFIAA. 
Specifically, the October 2014 Proposed Rule would have provided that 
flood insurance would not be 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, 
consistent with HFIAA.
    In addition, the October 2014 Proposed Rule generally would have 
required regulated lending institutions, or servicers acting on their 
behalf, to escrow premiums and fees for 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. The 
Agencies also proposed in the October 2014 Proposed Rule several 
exceptions to the escrow requirement as set forth in Biggert-Waters and 
HFIAA, including an exception for certain regulated lending 
institutions with total assets of less than $1 billion, and exceptions 
for business, commercial, and agricultural purpose loans, certain 
subordinate lien loans, certain condominium and similar loans, home 
equity lines of credit, nonperforming loans, and short-term loans.
    The October 2014 Proposed Rule also would have required regulated 
lending institutions not subject to an escrow exception to offer 
borrowers the option to escrow loans outstanding as of January 1, 2016. 
Regulated lending institutions that no longer qualified for the small 
lender exception of less than $1 billion in assets also would have had 
to comply with the general escrow requirement and the option to escrow 
requirement.

C. Overview of Public Comments

    The Agencies received 81 written comments on the October 2013 
Proposed Rule and 52 written comments on the October 2014 Proposed 
Rule. Between the two proposed rules, the Agencies received comments 
from a wide range of commenters, such as: Financial institutions 
(including banks, credit unions, and farm credit institutions); various 
trade associations (including bankers' trade associations, credit union 
trade associations, a farm credit trade association, home building and 
realtor trade associations, and a flood hazard determination trade 
association); the insurance industry (including insurance companies, 
trade associations, and brokers); individuals; public interest/consumer 
advocates; state insurance regulators; and a municipal government. In 
addition to receiving written comments, the Agencies conferred with 
several stakeholders in the flood insurance community, including state 
insurance regulators, the National Association of Insurance 
Commissioners (NAIC) staff, and FEMA staff.\28\
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    \28\ The Agencies have placed summaries of these meetings in the 
public comment file.

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[[Page 43219]]

    The Agencies received numerous comments supporting the exemption 
for certain detached structures from the mandatory flood insurance 
purchase requirement. Many of these commenters requested clarifications 
of the terms used in the exemption, including the meanings of the terms 
``residential property,'' ``detached structure,'' and ``serve as a 
residence.'' The Agencies also sought comment on whether the exemption 
should be restricted to consumer purpose loans. Many commenters opposed 
the Agencies incorporating such a limitation. Some commenters also 
wanted the Agencies to expand the exemption to include non-residential 
property. Commenters also were uniformly opposed to the Agencies 
stating that regulated lending institutions need not perform a flood 
hazard determination for any properties or structures that are exempt 
from the mandatory flood insurance purchase requirement because a flood 
hazard determination is often needed to determine what types of 
structures exist on the property.
    Many commenters also offered suggestions on the Agencies' proposed 
escrow provisions. Several commenters recommended that the Agencies 
apply the general escrow requirement to applications received on or 
after January 1, 2016. Some commenters suggested clarifications of the 
language of the escrow notice. Commenters were supportive of the 
exceptions to the escrow requirement, and some commenters asked for 
additional exceptions. Most commenters on the proposed escrow 
provisions requested clarifications on the various exceptions to the 
escrow requirement. There were also comments questioning whether 
regulated lending institutions are expected to monitor the status of 
excepted loans to ensure they continue to meet the exception from the 
escrow requirement, especially with respect to excepted subordinate 
lien loans and nonperforming loans. Furthermore, the Agencies received 
several comments on the proposed rule to implement the option to escrow 
requirement. Commenters were supportive of the Agencies' interpretation 
that the option to escrow requirement does not apply to loans and 
issuers that are excepted from the general escrow requirement. The 
Agencies also received comments supporting the proposal that a 
regulated lending institution must establish an escrow ``as soon as 
reasonably practicable'' after a consumer requests the option to 
escrow, although other commenters requested further clarification.
    In addition, the Agencies received many comment letters that 
addressed force placement issues. Commenters generally supported the 
proposed provisions on force placement. However, commenters sought 
clarification on various force placement issues, such as, sufficiency 
of proof of coverage when a borrower obtains flood insurance after the 
lender or its servicer has force placed the insurance; the definition 
of the term ``lapsed;'' whether force-placed insurance only should be 
terminated when the borrower provides proof of NFIP-compliant flood 
insurance coverage; whether a refund for any period of overlapping 
coverage should be made to the borrower by the lender within 30 days of 
the borrower obtaining coverage; when a lender should cancel force-
placed flood insurance; what constitutes proof of coverage for purposes 
of determining whether a borrower has obtained alternative flood 
insurance coverage; and how to resolve force placement issues when a 
borrower is in default.
    Finally, the Agencies received numerous comment letters on the 
private flood insurance provisions the Agencies proposed in the October 
2013 Proposed Rule. As the Agencies have explained above, the Agencies 
plan to address these issues in a separate rulemaking.

III. Summary of the Final Rule

    The amendments finalized by this rulemaking are summarized below 
and more specifically described in V. Section-by-Section Analysis of 
this preamble. Although the Agencies' final regulations are 
substantively consistent, the format of the regulatory text varies to 
conform to each Agency's current regulation.
    The final rule sets forth the new exemption in the FDPA, as amended 
by section 13 of HFIAA, to the mandatory flood insurance purchase 
requirement for any structure that is a part of a residential property, 
but is detached from the primary residential structure and does not 
serve as a residence. Consistent with commenters' suggestions, the 
final rule includes clarifications of the terms ``a structure that is 
part of a residential property,'' ``detached,'' and ``serve as a 
residence.''
    In accordance with the FDPA, as amended by Biggert-Waters and 
HFIAA, the final rule also requires regulated lending institutions, or 
servicers acting on their behalf, to escrow premiums and fees for 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. 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 of uniformly and consistently escrowing taxes and insurance. 
The Agencies are implementing this exception in the final rule with 
some clarifications. Furthermore, the Agencies are adopting transition 
rules for regulated lending institutions that have a change in status 
and no longer qualify for this small-lender exception.
    Moreover, the final rule implements the following additional 
exceptions from the escrow requirement, as amended by HFIAA for: (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 12 months. The Agencies are clarifying 
in the final rule that, when a regulated lending institution determines 
that an exception no longer applies, the institution must require the 
escrow of flood insurance premiums and fees.
    The Agencies note that the escrow provisions in the Agencies' rules 
in effect on July 5, 2012, the day before Biggert-Waters was enacted, 
remain in effect, and will be enforced by the Agencies, through 
December 31, 2015, the day before the effective date of the escrow 
provisions.\29\
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    \29\ Each Agency's current 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 CR 339.5 (FDIC); 12 
CFR 614.4935 (FCA); and 12 CFR 760.5 (NCUA).
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    The final rule also implements the requirement under HFIAA that 
regulated lending institutions not excepted from the escrow requirement 
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 final rule is generally consistent with the 
language the Agencies proposed in

[[Page 43220]]

the October 2014 Proposed Rule. However, the Agencies are providing 
additional time, until June 30, 2016, for regulated lending 
institutions to mail or deliver information to borrowers about the 
option to escrow, based on some commenters' suggestions. The Agencies' 
final rule also adopts the proposal to require regulated lending 
institutions that no longer qualify for the small lender exception to 
offer and make available to a borrower the option to escrow flood 
insurance premiums and fees.
    The Agencies' final rule includes new and revised sample notice 
forms and clauses. Specifically, the final rule 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 Agencies are adopting minor amendments to the language 
the Agencies proposed in the October 2014 Proposed Rule regarding the 
escrow requirement in light of recommendations from commenters. 
Moreover, the Agencies concur with commenters' suggestions to include 
language in Appendix A similar to the language HFIAA section 13(b) 
requires to be included in the Special Information Booklet in 
connection with the exemption from the mandatory flood insurance 
purchase requirement for certain detached structures. Appendix A, as 
amended by the Agencies in this final rule, also contains language 
proposed in the October 2013 Proposed Rule to include the disclosures 
required by section 102(b)(6) of the FDPA, as added by section 100239 
of Biggert-Waters, regarding the availability of private flood 
insurance coverage and other technical changes.
    The final rule also includes an additional sample clause, Sample 
Clause for Option to Escrow for Outstanding Loans, as Appendix B, to 
assist institutions in complying with the requirement to inform 
borrowers of outstanding loans about their option to escrow flood 
insurance premiums and fees. The Agencies are making minor language and 
formatting changes to Appendix B as proposed in the October 2014 
Proposed Rule to be consistent with a commenter's recommendations and 
to improve readability.
    Furthermore, consistent with Biggert-Waters, the Agencies' final 
rule amends the force placement of flood insurance provisions to 
clarify that a lender or its servicer has the authority to charge a 
borrower for the cost of flood insurance coverage commencing on the 
date on which the borrower's coverage lapsed or became insufficient. 
The final rule also stipulates the circumstances under which a lender 
or its servicer must terminate force-placed flood insurance coverage 
and refund payments to a borrower. It also sets forth the documentary 
evidence a lender must accept to confirm that a borrower has obtained 
an appropriate amount of flood insurance coverage.
    The Agencies also adopt needed technical corrections proposed in 
the 2013 Proposed Rule. For example, the Agencies' final rule corrects 
all references to the head of FEMA from ``Director'' to 
``Administrator.'' \30\ In addition, the OCC is finalizing the 
integration of its flood insurance regulations for national banks and 
Federal savings associations. The FDIC has integrated its flood 
insurance regulations for State non-member banks and State savings 
associations in a separate rulemaking.\31\
---------------------------------------------------------------------------

    \30\ 6 U.S.C. 313.
    \31\ 79 FR 75742 (Dec. 19, 2014).
---------------------------------------------------------------------------

    The escrow and option to escrow provisions in this final rule, as 
well as the revisions to Appendix A and new Appendix B, will become 
effective on January 1, 2016, consistent with HFIAA. Although the 
amendments to Appendix A include changes unrelated to the escrow 
provisions, the Agencies are delaying the effective date of all changes 
to the Appendix in the interest of reducing compliance burden on 
regulated lending institutions. All other provisions implemented in 
this final rule will become effective on October 1, 2015.

IV. 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 and also requires the Agencies to 
implement this mandatory flood insurance purchase requirement for 
regulated lending institutions by regulation.
    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.
    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 directs 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.

V. Section-by-Section Analysis

__.__ Authority, Purpose, and Scope

    As discussed in the October 2013 Proposed Rule, the title of the 
head of FEMA has changed from ``Director'' to ``Administrator'' since 
the Agencies last revised their flood insurance regulations. The 
Agencies proposed a technical amendment consistent with that change. No 
comments were received on the proposed technical amendment to designate 
correctly the head of FEMA. The Agencies therefore adopt the change in 
title of the head of FEMA from ``Director'' to ``Administrator'' in the 
scope section as proposed, and in subsequent sections of their 
regulations.
    As part of the OCC's consolidation of its flood insurance rule, the 
OCC also proposed the insertion of the term ``Federal savings 
association'' where necessary throughout its flood insurance rule. No 
comments were received on this proposed change. The OCC

[[Page 43221]]

therefore adopts the change as proposed.

__.__ Definitions

    As noted above in __.__Authority, purpose, and scope, the Agencies 
proposed technical amendments to change the references to the head of 
FEMA from ``Director'' to ``Administrator'' in the definitions. The 
Agencies are adopting these changes as proposed.
OCC-Only Definitions
    The OCC proposed amendments to the definition section for purposes 
of integrating its national bank and Federal savings association flood 
insurance rules. First, the proposed rule provided that the term 
``Federal savings association'' means a Federal savings association as 
defined in 12 U.S.C. 1813(b)(2) and any service corporations thereof. 
This definition is identical to the definition of ``Federal savings 
association'' in 12 CFR part 172, except that part 172 specifically 
referenced ``subsidiaries.'' Current 12 CFR part 22 does not 
specifically include a reference to bank operating subsidiaries because 
such subsidiaries are subject to the rules applicable to the operations 
of their parent bank pursuant to 12 CFR 5.34. Because Federal savings 
association operating subsidiaries also are subject to the same rules 
applicable to the parent savings association, as provided by 12 CFR 
5.38(e)(3), the inclusion of ``subsidiary'' in this definition is 
unnecessary and its removal will not affect the applicability of 12 CFR 
part 22 to Federal savings association operating subsidiaries.
    Second, the OCC proposed to remove the definition of ``bank,'' 
which the rule currently defines as meaning a national bank, and 
replaced ``bank'' with ``national bank'' throughout the final rule. The 
OCC did not receive any comments on these technical changes. However, 
the final rule adds a definition of ``national bank'' to include 
Federal branches and agencies of a foreign bank. Federal branches and 
agencies are currently subject to the same flood insurance requirements 
as national banks.\32\ The addition of this definition clarifies the 
scope of the rule and promotes consistency throughout the OCC's rules 
and regulations.
---------------------------------------------------------------------------

    \32\ See, e.g., Comptroller's Handbook, Federal Branches and 
Agencies Supervision, September 2014, p. 22 (``Federal branches and 
agencies must ensure appropriate flood insurance coverage when 
making, increasing, extending, or renewing a loan secured by 
improved real estate or a mobile home located in a special flood 
hazard area in a community participating in the National Flood 
Insurance Program.'').
---------------------------------------------------------------------------

__.__ Requirement To Purchase Flood Insurance Where Available

    The current regulation provides that a regulated lending 
institution shall not make, increase, extend, or renew any designated 
loan \33\ unless the building or mobile home and any personal property 
securing the loan is covered by flood insurance for the term of the 
loan. This provision further provides that flood insurance coverage is 
limited to the overall value of the property securing the designated 
loan minus the value of the land on which the property is located. The 
October 2013 Proposed Rule would have revised the language relating to 
the coverage limit to reflect more accurately what is actually covered 
under Federal flood insurance statutes. Specifically, the Agencies 
proposed that the language be amended to state that flood insurance 
coverage is limited to the building or mobile home and any personal 
property securing the loan and not the land itself. Some commenters 
indicated the proposed amendment may add confusion because there may be 
concern that the amendment indicates a change from past practice. One 
commenter suggested defining the value of the building as either the 
replacement cost of the structure or the appraised value minus the land 
value as determined from the appraisal or the insurable value as 
obtained from the insurance agent writing the policy.
---------------------------------------------------------------------------

    \33\ ``Designated loan means a loan secured by a building or 
mobile home that is located or to be located in a special flood 
hazard area in which flood insurance is available under the 
[National Flood Insurance] Act.'' 12 CFR 22.2(e) (OCC); 12 CFR 
208.25(b)(4) (Board); 12 CFR 339.2(d) (FDIC); 12 CFR 614.4925(c) 
(FCA); and 12 CFR 760.2(e) (NCUA) under current regulations.
---------------------------------------------------------------------------

    In response to these comments, the Agencies emphasize that the 
proposed change does not set forth a new requirement, but merely 
clarifies the long-standing legal interpretation that Federal flood 
insurance coverage does not apply to land. In proposing this change, 
the Agencies simply intended to reduce confusion by clarifying the 
meaning of the term to reflect what is actually covered. In response to 
the comment that suggests the use of replacement cost or the appraised 
value of the property minus the land, it is the Agencies' opinion that 
using other insurance terms to clarify the coverage limit would not 
reflect what is covered under Federal flood insurance legislation as 
accurately as the proposed language. For these reasons, the Agencies 
adopt the language as proposed.

__.__ Exemptions

    Section 13 of HFIAA, which amends section 102(c) of the FDPA (42 
U.S.C. 4012a(c)), adds a new exemption to the mandatory flood insurance 
purchase requirement. Specifically, HFIAA provides that flood insurance 
is not required, in the case of any residential property, on 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 
October 2014 Proposed Rule would have incorporated this exemption as 
provided in HFIAA into the Agencies' regulations. The Agencies 
solicited comment on whether the final rule should clarify certain 
terms in the provision, such as ``residence'' and ``residential 
property.'' For instance, the Agencies suggested that there may be some 
ambiguity as to when a structure may serve as a residence even if it 
may not conform to certain State or local requirements for residential 
property or when a detached structure should be deemed a residence. 
Specifically, the Agencies solicited comment on whether the term 
``residential property'' should not only refer to the type of property 
securing the loan, but also to the loan's purpose. Thus, the Agencies 
suggested in the October 2014 Proposed Rule that the detached structure 
exemption could be available only if the residence serving as 
collateral does not secure a loan made primarily for a business, 
commercial, or agricultural purpose.
    Numerous commenters provided general support for the proposed 
rule's implementation of the exemption for detached structures. 
Commenters strongly supported providing lenders with the discretion to 
exempt low-value non-residential structures from the mandatory purchase 
obligation. Many commenters requested that the Agencies clarify the 
meaning of various terms to assist lenders in applying the exemption 
and to ensure consistent application of the exemption.
    Several commenters asserted that the detached structure exemption 
should be available regardless of whether the loan is made for a 
business, agricultural, or commercial purpose, contrary to the 
Agencies' suggestion. These commenters maintained that lenders should 
be able to exclude non-residential detached structures regardless of 
the loan's purpose, as long as the loan is secured by residential 
property. Numerous commenters, including trade associations, financial 
institutions, and individuals, suggested that the final rule should 
broaden the exemption to include business, agricultural, and commercial 
loans and

[[Page 43222]]

not apply solely to consumer loans. Commenters noted that loan proceeds 
may be used for different purposes than that of the property that 
secures those proceeds and that section 13 of HFIAA does not limit the 
exemption only to consumer loans. Several commenters noted that a 
borrower who uses a residence to secure a business, commercial, or 
agricultural purpose loan faces the same affordability challenges when 
required to insure a low-value detached structure as a borrower who 
uses the same collateral to secure a consumer loan. One commenter noted 
that low-value structures are a common issue for both consumer and 
commercial borrowers and therefore should be treated consistently.
    The Agencies acknowledge that, with respect to flood insurance, the 
purpose of a loan may be immaterial to the borrower when the borrower 
uses his or her residence to secure the loan. Therefore, the Agencies 
agree with commenters that the detached structure exemption should be 
available in connection with consumer loans as well as those made for 
business, commercial, or agricultural purposes if the loan is secured 
by a residence.
    The Agencies considered the various comments concerning the 
definition of ``residential property.'' Several commenters, including 
trade associations and financial institutions, suggested that 
``residential property'' should be defined consistently with 
``residential improved real estate'' \34\ as defined in the FDPA. 
Another commenter suggested ``residential property'' should be 
interpreted as a parcel of collateral property containing a 1-4 family 
building actually used as a residence. Several commenters suggested the 
Agencies adopt a definition of ``residential property'' that focuses on 
the structure's residential use--regardless of its nature or size--
consistent with similar definitions in the FDPA. These commenters 
believed the term should be broadly defined to encompass any 
residential structure, including single-family dwellings, 1-4 family 
dwellings, multi-family dwellings, and mixed-use buildings as long as 
the primary purpose of the building is for a residential purpose. A 
trade association suggested the Agencies look to the Department of 
Housing and Urban Development (HUD) lead-based paint regulations for a 
definition of ``residential property.'' One commenter inquired whether 
the detached structures exemption excludes all detached structures on a 
property with a primary residence or only those the lender deems to be 
part of the residential property. Lastly, two commenters believe the 
final rule should leave the term undefined, similar to the treatment of 
the term in other Federal statutes.\35\
---------------------------------------------------------------------------

    \34\ The FDPA defines ``residential improved real estate'' as 
``improved real estate for which the improvement is a residential 
building.'' 42 U.S.C. 4012a(d)(4).
    \35\ See, e.g., Real Estate Settlement Procedures Act, 12 U.S.C. 
2602(1)(A); Truth in Lending Act, 15 U.S.C. 1602(w)-(x).
---------------------------------------------------------------------------

    As previously explained, the Agencies have determined that the 
meaning of the term ``residential property'' should not focus on a 
loan's purpose. In addition, the Agencies have determined that using 
the FDPA definition of ``residential improved real estate'' would 
render the exemption too expansive for its intended purpose because it 
could result in exempting all commercial or agricultural structures on 
a property merely because a residence is also located on the property. 
The Agencies believe detached structures used for commercial, 
agricultural, or other business purposes should be protected adequately 
by flood insurance as collateral given their value to the borrower and 
lender, and should not be covered by the detached structures exemption.
    The Agencies, however, did find the HUD definition of ``residential 
property'' to be helpful.\36\ The HUD lead-based paint regulation seeks 
to limit its scope only to properties and structures used solely for 
residential purposes, and to exclude land used for agricultural, 
commercial, industrial, or other non-residential purposes. The Agencies 
have determined that ``residential property'' in the detached structure 
exemption should be similar to the HUD regulation's definition in that 
it should apply only to structures for which there is a residential use 
and not to structures for which there is a commercial, agricultural, or 
other business use.
---------------------------------------------------------------------------

    \36\ ``Residential property means a dwelling unit, common areas, 
building exterior surfaces, and any surrounding land, including 
outbuildings, fences and play equipment affixed to the land, 
belonging to an owner and available for use by residents, but not 
including land used for agricultural, commercial, industrial or 
other non-residential purposes, and not including paint on the 
pavement of parking lots, garages, or roadways.'' 24 CFR 35.110.
---------------------------------------------------------------------------

    Additionally, the Agencies were guided by Regulation Z, which 
implements the Truth in Lending Act (TILA), and its well-established 
interpretations for further clarification on residential purpose 
because TILA generally covers consumer extensions of credit.\37\ In 
particular, Regulation Z applies to credit ``primarily for personal, 
family, or household purposes.'' \38\ Consistent with Regulation Z, for 
purposes of the detached structures exemption, the final rule clarifies 
that the phrase ``a structure that is part of a residential property'' 
refers to a structure used primarily for personal, family, or household 
purposes, and not used primarily for agricultural, commercial, 
industrial, or other business purposes. The Agencies are aware that 
certain structures may be used for both residential and business 
purposes and therefore have decided to limit the exemption only to 
structures with a primarily residential purpose. Furthermore, the final 
rule makes clear that the exemption applies only to structures that the 
lender deems part of the residential property.
---------------------------------------------------------------------------

    \37\ See 15 U.S.C. 1602(i).
    \38\ See 12 CFR 1026.1(c)(1).
---------------------------------------------------------------------------

    Although the Agencies decline to adopt the FDPA's definition of 
``residential improved real estate'' for ``residential property,'' the 
Agencies agree with commenters that ``residential property'' should be 
interpreted as broadly as ``residential improved real estate'' as set 
forth in the Interagency Questions and Answers Regarding Flood 
Insurance (Q&As). Commenters in particular referenced Q&A 51, which 
indicates that ``residential improved real estate'' does not 
distinguish whether a building is single- or multi-family, or owner- or 
renter-occupied, and includes single-family dwellings, two- to four-
family dwellings, multi-family dwellings containing five or more 
residential units, and mixed-use buildings, so long as the building is 
used primarily for residential purposes.\39\
---------------------------------------------------------------------------

    \39\ See 74 FR 35914, 35943 (July 21, 2009).
---------------------------------------------------------------------------

    Several commenters also suggested that the Agencies provide further 
clarification of the term ``detached'' and how to interpret the 
statutory phrase ``detached from the primary residential structure.'' 
One trade association commenter believed ``detached'' should be defined 
more precisely than the Agencies did in the October 2014 Proposed Rule 
and that a structure joined to a residence by a covered walkway or 
breezeway should be treated as a separate, stand-alone residential 
structure. Two commenters believed ``detached'' should be defined as 
``standing alone; not joined by any structural connection to any 
structure to which flood insurance is required.'' Other commenters 
provided varying definitions of the term as well. The Agencies agree 
that a clear definition of

[[Page 43223]]

``detached'' would ensure consistent application by lenders in 
determining which structures qualify for the exemption. Therefore, for 
purposes of the detached structure exemption, the Agencies have drafted 
the final rule to clarify that a structure is ``detached'' from the 
primary residential structure if it is not joined by any structural 
connection to the residential structure. That is, a structure is 
``detached'' if it stands alone. This clarification is consistent with 
the coverage provision of the NFIP's Standard Flood Insurance Policy 
(SFIP) for additions and extensions to a dwelling unit.
    To be exempt from the mandatory flood insurance purchase 
requirement, the detached structure also may not ``serve as a 
residence.'' The Agencies received numerous comments on the necessity 
for additional clarification on this aspect of the exemption. Some 
commenters suggested it would be helpful to describe the features or 
facilities that, if present, could indicate that a structure serves as 
a residence, but ultimately to defer to a lender's good faith 
determination. Several commenters suggested the Agencies provide a 
bright line test to facilitate determinations, such as total square 
footage or assessed value. Some commenters suggested a bright line test 
of whether a structure is designed for use as a residence, not how the 
structure is being used either at the time of the triggering event or 
subsequently. One large trade association suggested that ``serve as a 
residence'' be defined to include sleeping, bathroom, and kitchen 
facilities, while a large bank commenter asserted that a structure 
lacking one or more of these facilities should be deemed non-
residential. Another trade association commenter suggested referring to 
the definition of ``residence'' set forth in the Internal Revenue 
Service (IRS) regulations,\40\ while some commenters referenced other 
Federal regulations for similar definitions. Lastly, one commenter 
suggested a structure must be occupied to be considered a residence and 
that a structure intended only for periodic use or that serves as a 
home office should not be deemed a residence.
---------------------------------------------------------------------------

    \40\ IRS regulations provide that ``[w]hether property is a 
residence shall be determined based on all the facts and 
circumstances, including the good faith of the taxpayer. A residence 
generally includes a house, condominium, mobile home, boat, or house 
trailer, that contains sleeping space and toilet and cooking 
facilities. A residence does not include personal property, such as 
furniture or a television, that, in accordance with the applicable 
local law, is not a fixture.'' See 26 CFR 1.163-10T(p)(3)(ii).
---------------------------------------------------------------------------

    Based on these comments, the Agencies believe it would be 
beneficial to clarify the meaning of ``serve as a residence.'' However, 
given the numerous types of detached structures that could serve as a 
residence, the Agencies find that a single bright line test, for 
example, square footage or appraised value, to determine whether a 
structure serves as a residence, is not appropriate. Instead, the 
Agencies have concluded that a more practical approach to applying this 
exemption is to rely on the good faith determination of a lender on 
whether a detached structure serves as a residence. The Agencies 
believe the lender is in the best position to consider all the facts 
and circumstances involving a detached structure securing a loan, and 
this approach is similar to how the IRS evaluates whether property 
constitutes a ``residence.'' \41\ In making this determination, as 
suggested by several commenters, the lender should focus on a 
structure's intended use. By focusing on the intended use of the 
structure, a lender could determine objectively whether a structure 
could serve as a residence and therefore not qualify for the exemption.
---------------------------------------------------------------------------

    \41\ See footnote 40.
---------------------------------------------------------------------------

    The Agencies note that the IRS definition of ``residence'' provides 
that a residence generally contains sleeping, bathroom, and kitchen 
facilities.\42\ The Agencies agree that a structure that serves as a 
residence would generally have such facilities. Therefore, a lender 
could examine the structure for the presence of these facilities to 
make a determination of whether it serves as a residence. However, the 
Agencies decline to accept certain commenters' suggestions that a 
structure must contain sleeping, bathroom, and kitchen facilities, and 
that the lack of at least one of these facilities would render the 
structure non-residential. Detached structures can vary greatly in 
terms of size, value, purpose, and facilities. Furthermore, not all 
three facilities are necessary in order for a structure to serve as an 
individual's residence. For example, a structure can have sleeping and 
kitchen facilities, while the resident makes use of a separate 
structure as a bathroom facility. Similarly, a structure can have 
sleeping and bathroom facilities but lack kitchen facilities. Because a 
structure without one or more of these facilities may be intended for 
use as a residence, the final rule provides that a structure could 
serve as a residence if it generally includes sleeping, bathroom, or 
kitchen facilities.
---------------------------------------------------------------------------

    \42\ See footnote 40.
---------------------------------------------------------------------------

    Moreover, some commenters suggested that the standard for whether a 
structure serves as a residence should be its actual use as a 
residence. The Agencies disagree with employing ``actual use'' as the 
sole indicator of a structure serving as a residence. Such a standard 
would exclude homes under construction, vacant rental units, vacant 
garage apartments, and numerous other structures from being deemed to 
serve as a residence. Although the Agencies decline to accept ``actual 
use'' as an appropriate indicator of residency by itself, a lender 
should take reasonable steps to determine if a structure is actually 
occupied by a resident. Therefore, the Agencies clarify that whether a 
detached structure in a residential property serves as a residence 
shall be based upon the regulated lending institution's good faith 
determination that the structure is intended for use or actually used 
as a residence.
    Additionally, with respect to the ``serve as a residence'' 
provision, several commenters, including financial institutions, trade 
associations, and an individual, requested that the Agencies confirm 
that there is no duty to monitor residential collateral subsequent to 
the lender's making, increasing, renewing, or extending a loan to 
determine whether an exempt detached structure has been repurposed to 
serve as a residence. The Agencies agree that there is no duty to 
monitor the status of a detached structure following the lender's 
initial determination due to the minimal post-closing communications 
with borrowers or lack of systematic inspections of the property. In 
response to these commenters, the Agencies clarify that a lender must 
re-examine the status of a detached structure upon a qualifying 
triggering event under the FDPA--making, increasing, renewing, or 
extending a loan. However, consistent with existing obligations under 
the FDPA, if a lender subsequently determines that a property has 
become subject to the mandatory flood insurance purchase requirement 
and, as a result, the collateral is underinsured, the lender has a duty 
to inform the borrower of the obligation to increase insurance 
coverage.\43\ If the borrower fails to increase the flood insurance to 
the appropriate amount, the lender must force place flood insurance, as 
required by the FDPA.
---------------------------------------------------------------------------

    \43\ 42 U.S.C. 4012a(e).
---------------------------------------------------------------------------

    Moreover, as the Agencies noted in the October 2014 Proposed Rule, 
although the exemption would address borrowers' and lenders' concerns 
by excluding relatively low-value detached structures from the 
mandatory flood insurance purchase requirement if they secure a 
designated loan, there may be

[[Page 43224]]

some detached structures that are of relatively high value, such as a 
detached greenhouse. The Agencies further noted that, although the 
statute does not require flood insurance for such structures, as a 
matter of safety and soundness, lenders may nevertheless require 
coverage on these detached structures, and that such coverage also may 
be in the borrower's best interest. Furthermore, the Agencies also 
noted in the October 2014 Proposed Rule that section 13(b) of HFIAA, 
which the Consumer Financial Protection Bureau (CFPB) has implemented, 
amends section 5(b) of the Real Estate Settlement Procedures Act of 
1974 (RESPA) to require a related disclosure in the Special Information 
Booklet provided to borrowers informing them that they may still wish 
to obtain, and mortgage lenders may still require borrowers to 
maintain, flood insurance even if not required by the FDPA.\44\
---------------------------------------------------------------------------

    \44\ See 80 FR 17414 (Apr. 1, 2015).
---------------------------------------------------------------------------

    Several commenters supported the ability of lenders to require 
flood insurance for safety and soundness purposes or if it is in the 
best interest of the borrower, even if not required by statute. The 
Agencies reaffirm that a lender may require flood insurance on a 
detached structure, even though the statute does not require it, to 
protect the lender's and borrower's collateral securing the loan.\45\
---------------------------------------------------------------------------

    \45\ See section 13(b) of HFIAA.
---------------------------------------------------------------------------

    In addition, a trade association suggested the Agencies consider 
adding language in the Notice of Special Flood Hazards and Availability 
of Federal Disaster Relief Assistance (Notice of Special Flood Hazards) 
on the ability of a lender to waive flood insurance requirements for 
detached structures because some borrowers might not receive the 
Special Information Booklet.\46\ The Agencies believe that the 
commenter's suggestion has merit and have determined that it also would 
be appropriate to amend the notice to include the related disclosure 
required by section 13(b) of HFIAA. This additional disclosure is 
intended to ensure that borrowers receive full disclosure on this 
aspect of flood insurance coverage, as discussed below in the 
SUPPLEMENTARY INFORMATION related to Appendices A & B.
---------------------------------------------------------------------------

    \46\ The Special Information Booklet is provided only to 
borrowers who submit a written application for a Federally related 
mortgage loan. See 12 CFR 1024.6(a).
---------------------------------------------------------------------------

    Finally, the Agencies are adopting a change to their regulations in 
this section to amend the reference to the head of FEMA from 
``Director'' to ``Administrator'' as discussed above in the 
SUPPLEMENTARY INFORMATION related to __.__ Authority, purpose, and 
scope.

__.__ Escrow requirement

In General
    The Agencies proposed to revise their regulations in the October 
2014 Proposed Rule in accordance with section 102(d) of the FDPA (42 
U.S.C. 4012a(d)), as amended by section 25 of HFIAA,\47\ 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. In addition, under the 
October 2014 Proposed Rule, these premiums and fees would be payable 
with the same frequency as payments on the loan are made for the 
duration of the loan. Several commenters, including a municipal 
government commenter, supported the escrow requirement, although some 
financial institution commenters opposed the requirement. As escrows 
are required by the statute, the Agencies are adopting a final rule 
that will implement the escrow requirement in section 102(d) of the 
FDPA, as amended.
---------------------------------------------------------------------------

    \47\ 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 remain in effect and be enforced by the Agencies until 
December 31, 2015. Each Agency's current 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).
---------------------------------------------------------------------------

    Consistent with section 25(b) of HFIAA, the Agencies proposed that 
the escrow requirement would apply 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. Although section 
25(b) of HFIAA applies the escrow requirement to loans ``originated, 
refinanced, increased, extended, or renewed,'' the Agencies proposed 
regulatory language in the October 2014 Proposed Rule 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.\48\ Several commenters agreed with the 
Agencies' proposal, and the Agencies adopt this non-substantive wording 
change in the final rule.
---------------------------------------------------------------------------

    \48\ 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).
---------------------------------------------------------------------------

    One financial institution commenter suggested that the Agencies' 
regulations be amended to reference ``designated'' loans because that 
is a defined term for loans that are subject to the mandatory flood 
insurance purchase requirement. The commenter also recommended that the 
regulation be amended to state that the escrow payments be payable with 
the same frequency as payments on the loan are ``required to be'' made 
for the duration of the loan because such wording would be technically 
accurate. The Agencies agree with these suggested changes, and the 
final rule adopts the changes recommended by the commenter.
    Several financial institution and trade association commenters 
suggested that the Agencies apply the escrow requirement to loan 
applications received on or after January 1, 2016. These commenters 
stated that loan applications could be received prior to January 1, 
2016, but may not close before January 1, 2016. Thus, these commenters 
suggested, these loans may initially be designated as non-escrow loans, 
but if they close on or after January 1, 2016, lenders will have to re-
categorize these loans as loans requiring the escrow of flood insurance 
premiums and fees. The Agencies note that the statute specifically and 
clearly applies the escrow requirement to loans that experience a 
triggering event on or after January 1, 2016. Furthermore, the Agencies 
believe that lenders have the capability to anticipate whether loan 
applications submitted prior to January 1, 2016 may close on or after 
January 1, 2016 and thus should structure those transactions 
accordingly. Therefore, the Agencies decline to make the change 
suggested by these commenters.
    Another financial institution commenter requested that the Agencies 
clarify that a flood map change on or after January 1, 2016 that causes 
a building, which had not previously been located in an SFHA, to be 
located in an SFHA would not impose a duty on a lender to begin 
escrowing flood insurance premiums and fees for a loan that is secured 
by such building. Section 102(d) of the FDPA, as amended, applies to 
loans that experience a triggering event on or after January 1, 2016. 
Because a map change is not a triggering event, lenders would not be 
required to escrow flood insurance premiums and fees based solely on 
that change.

[[Page 43225]]

    Finally, some credit union association commenters recommended that 
the escrow status be detailed on an insurance declarations page and 
that changes in escrow status should be reported to insurance companies 
who should, in turn, notify all lienholders and homeowners of changes 
in escrow. The Agencies note that the FDPA, as amended, does not 
address how insurance companies compose their declarations pages or 
when and how they must notify lienholders and homeowners regarding 
escrow status. Accordingly, the Agencies decline to make that requested 
change.
Loan-Related Exceptions
    Section 102(d) of the FDPA, as amended by section 25 of HFIAA, 
contains several exceptions to the general escrow requirement. These 
exceptions include: (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 secured by residential improved real estate or a mobile home 
that is used as collateral for a business purpose; (iv) home equity 
lines of credit; (v) nonperforming loans; and (vi) loans with terms not 
longer than 12 months. These exceptions are in addition to the small 
lender exception applicable to 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. Numerous commenters supported these exceptions.
    Although the Agencies proposed the exceptions largely as provided 
in HFIAA, the Agencies did propose some clarifications in the October 
2014 Proposed Rule. With respect to the exception for loans secured by 
residential improved real estate or a mobile home that is used as 
collateral for a business purpose, the Agencies proposed that the 
exception apply to a loan that is an extension of credit primarily for 
a business, commercial, or agricultural purpose.
    Commenters supported the Agencies' clarification regarding the 
business purpose loan exception. Some commenters, however, recommended 
that the Agencies provide further guidance on the exception. Some 
commenters suggested that the Agencies specifically adopt or refer to 
the interpretations in Regulation Z, which implements TILA, on the 
meaning of ``primarily for a business, commercial, or agricultural 
purpose.'' \49\
---------------------------------------------------------------------------

    \49\ One credit union association commenter inquired whether a 
loan for residential investment properties would be considered a 
loan that is ``primarily for business, agricultural or commercial 
purposes.'' The Agencies note that Regulation Z contains commentary 
that addresses this question. See comments 3 and 4 under 12 CFR 
1026.3(a).
---------------------------------------------------------------------------

    The Agencies are adopting the exception on business, commercial, or 
agricultural purpose loans as proposed. As the Agencies explained in 
the October 2014 Proposed Rule, 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 and noted in the October 2014 Proposed 
Rule, the Agencies specifically proposed this language to be consistent 
with similar exemptions in RESPA \50\ and TILA.\51\ There is a long 
history of established guidance on the meaning of ``primarily for a 
business, commercial, or agricultural purpose,'' including the 
interpretations set forth in Regulation Z and associated commentary. 
Consequently, the Agencies do not believe further interpretations or an 
explicit referral to Regulation Z is necessary; however, the Agencies 
intend that those interpretations be used as guidance in connection 
with this provision.
---------------------------------------------------------------------------

    \50\ See 12 U.S.C. 2606(a).
    \51\ 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 proposed language in the 
October 2014 Proposed Rule similar to the language in HFIAA for this 
exception, with some changes to improve readability and clarity. 
Commenters supported the Agencies' proposed clarifications. Some 
commenters, however, suggested that the exception be available for 
subordinate lienholders regardless of whether there is already coverage 
in place because determining such coverage can be difficult. The 
Agencies note that HFIAA explicitly provides that the exception is only 
available for subordinate loans secured by property for which flood 
insurance is already in place. Furthermore, the Agencies note that, as 
discussed in the Q&As at Q&A 36, regulated lending institutions are 
already expected to inquire as to the amount of flood insurance 
coverage that is in place when they make, increase, extend, or renew a 
subordinate lien loan.\52\ Accordingly, the Agencies are adopting the 
exception as proposed.
---------------------------------------------------------------------------

    \52\ See 74 FR 35914, 35940-41 (July 21, 2009).
---------------------------------------------------------------------------

    Several commenters also requested that the Agencies clarify whether 
a lender has a duty to monitor its lien position over the life of the 
loan to determine whether the loan qualifies for the subordinate lien 
exception. As discussed further below, the Agencies do not believe 
there is an ongoing duty to evaluate the applicability of the 
subordinate lien exception, or any of the other exceptions. However, 
similar to the force placement provisions relating to the mandatory 
flood insurance purchase requirement, the Agencies believe that when a 
lender makes a determination that the subordinate lien exception no 
longer applies, for example, when it receives notice that the senior 
lien has been paid off or when it conducts the required inquiry at a 
triggering event, then the lender must begin escrowing flood insurance 
premiums and fees. Therefore, lenders should ensure that the loan 
documents executed in connection with a subordinate loan permit the 
lender to require an escrow in connection with the loan in the event 
the loan takes a first lien position and becomes subject to the escrow 
requirement.
    Section 102(d) of the FDPA, as amended by section 25 of HFIAA, also 
excepts from the escrow requirement loans secured by residential 
improved real estate or a mobile home that is part of a condominium, 
cooperative, or other project development when 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 proposed in the October 2014 Proposed Rule 
to implement this exception substantially as stated in the statute.
    As the Agencies discussed in both the October 2013 Proposed Rule 
and the October 2014 Proposed Rule, if the amount of the policy 
purchased by the condominium association, cooperative, homeowners 
association, or other applicable group does not satisfy the mandatory 
flood insurance purchase requirement, then the borrower would be 
required to obtain a supplemental policy to cover the deficiency. In 
those instances, the Agencies expect the regulated lending institution 
to escrow

[[Page 43226]]

the premiums and fees for the supplemental policy unless the small 
lender exception applies. For example, if a condominium association 
purchases an NFIP Residential Condominium Building Association Policy 
(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 must obtain a dwelling policy for supplemental 
coverage.
    Commenters were generally supportive of the exception as included 
in the October 2014 Proposed Rule. One community association commenter 
suggested that the Agencies require insurance companies to disclose the 
beneficial owner of a policy. However, the FDPA does not compel 
insurance companies to disclose the beneficial owner of a policy. The 
Agencies are adopting the condominium association, cooperative, and 
homeowners association exception as proposed in the October 2014 
Proposed Rule.
    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 (HELOCs), which was an exception requested by many commenters 
on the October 2013 Proposed Rule. The Agencies proposed this 
exception, consistent with HFIAA, in the October 2014 Proposed Rule. 
One consumer group commenter suggested that the Agencies exclude fully 
drawn HELOCs from the exception on the theory that such loans are 
really closed-end loans disguised as HELOCs to qualify for the 
exception and evade other mortgage requirements. The Agencies note that 
the FDPA, as amended by section 25 of HFIAA, does not include any 
exclusion to the exception. Moreover, the issue of whether credit 
qualifies as open-end credit is addressed by Regulation Z.\53\ 
Therefore, the Agencies are adopting the exception as proposed.
---------------------------------------------------------------------------

    \53\ See 12 CFR 1026.2(a)(20) and associated commentary.
---------------------------------------------------------------------------

    Section 102(d) of the FDPA, as amended by section 25 of HFIAA, also 
includes an exception from the escrow requirement for nonperforming 
loans. The Agencies proposed to implement this exception with a 
clarification that the exception be available for a nonperforming loan 
that is 90 or more days past due and solicited comment on the 
clarification. Several commenters supported the Agencies' 
clarification. Other commenters, however, requested that the Agencies 
look to the CFPB's foreclosure and servicing rules or the FCA's rules 
on categorizing assets for accounting and reporting purposes in 12 CFR 
621.6. In addition, many commenters suggested that once a designated 
loan is 90 or more days past due, it should not lose the exception if 
the borrower makes additional payments.
    Based on these comments, the Agencies believe further clarification 
is required regarding this exception. Although it appears that 90 or 
more days past due is an appropriate measure of when a loan is 
nonperforming and is consistent with many lenders' current practices, 
there is confusion on when a nonperforming loan may become a performing 
loan that is no longer entitled to the exception. The Agencies 
generally agree that a borrower making some additional payments would 
not render a nonperforming loan a performing loan; however, the 
Agencies believe some guidance is necessary to help lenders determine 
when a loan is no longer nonperforming. Therefore, the Agencies are 
adopting language that is adapted from the FCA's regulations on 
categorizing assets \54\ to provide that a nonperforming loan is a loan 
that is 90 or more days past due and remains nonperforming until it is 
permanently modified or until the entire amount past due, including 
principal, accrued interest, and penalty interest incurred as the 
result of past due status, is collected or otherwise discharged in 
full.
---------------------------------------------------------------------------

    \54\ See 12 CFR 621.6(c).
---------------------------------------------------------------------------

    The final exception provided by section 25 of HFIAA is for a loan 
that has a term of not longer than 12 months, which the Agencies 
proposed as provided by the statute. Several financial institution 
commenters suggested that the term of the exception be extended to 15 
months or 24 months to include all construction loans. The Agencies 
note the statute provides an exception only for loans with a term of 12 
months or less, and therefore, the exception is adopted as proposed. 
However, if a loan of 12 months or less is extended or renewed for an 
additional term of 12 months or less, the Agencies' regulations would 
permit the exception to apply to the extended or renewed loan because 
an extension or renewal is a triggering event. Therefore, at the time 
of the triggering event, the regulated lending institution may apply 
the exception if the term of the newly extended or renewed loan is for 
a term of 12 months or less.
    Moreover, the Agencies are adding new language to address questions 
the Agencies received about the duration of an exception to the escrow 
requirement. These questions were raised particularly with respect to 
exceptions based on a loan status that could change, such as the 
subordinate lien and nonperforming loan exceptions. Given the ambiguity 
in the FDPA, as amended, regarding how the exceptions would apply, the 
final rule clarifies that if a regulated lending institution, or its 
servicer, determines at any time during the term of a designated loan 
secured by residential improved real estate or a mobile home that is 
made, increased, extended, or renewed on or after January 1, 2016, that 
an exception does not apply, then the lender or its servicer shall 
require the escrow of all flood insurance premiums and fees as soon as 
reasonably practicable. In addition, consistent with section 102(d)(3) 
of the FDPA, which states that escrow accounts established by section 
102(d) of the FDPA shall be subject to section 10 of RESPA, the rule 
provides that a regulated lending institution must provide any 
disclosure required by section 10 of RESPA if such loan is otherwise 
subject to RESPA. The Agencies modeled this language on the force 
placement provisions for the mandatory flood insurance purchase 
requirement. As with the force placement provisions, the Agencies do 
not believe this imposes a duty to monitor the exception. However, if 
the regulated lending institution becomes aware that the status of the 
loan has changed, then the Agencies expect that the lender should take 
action, similar to the Agencies' expectations in the force placement 
context.
    The Agencies also received several requests for additional 
exceptions from the escrow requirements. Some commenters suggested that 
the Agencies add an exception for closed-end home equity loans in a 
senior lien position of $100,000 or less or with a loan-to-value ratio 
of 60 percent or less. Another commenter suggested adding an exception 
for any loan with a loan-to-value ratio of 80 percent or less. An 
additional commenter suggested that the Agencies provide an exception 
for force-placed loans. Some farm credit commenters also requested that 
the Agencies provide an exception for loans with nontraditional payment 
structures such as semi-annual or annual payment schedules. The 
Agencies note that none of these exceptions are provided for in the 
FDPA, as amended, and therefore decline to add them.
    In addition, a financial institution commenter requested that the 
Agencies create an exception for reverse mortgages. This commenter 
stated that it is not possible to align the frequency of escrow 
payments with loan payments because a borrower makes no payments on a 
reverse mortgage. The Agencies agree that given the terms of a reverse

[[Page 43227]]

mortgage, such loans are already excluded based on the plain language 
of the escrow requirement, which requires lenders to collect flood 
insurance premiums and fees with the same frequency as payments on the 
loan are made. As a borrower makes no payments on a reverse mortgage, 
the lender is not required to escrow flood insurance premiums and fees 
for such loans.
Notice
    The Agencies proposed 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. 
As noted in the October 2014 Proposed Rule, this proposal was similar 
to the notice requirement proposed in the October 2013 Proposed Rule. 
The purpose of the proposed notice was to ensure that borrowers are 
informed about the requirement to escrow premiums and fees for 
mandatory flood insurance.
    As the Agencies explained in the October 2014 Proposed Rule, 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. The Agencies proposed 
this approach in order 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 Agencies' current rules provide a sample form of 
this notice as Appendix A. Because HFIAA amendments tie the escrow 
requirement to a triggering event (i.e., when a loan is made, 
increased, extended, or renewed), borrowers already will receive the 
Notice of Special Flood Hazards, as required by the Agencies' 
regulations, at the same time that the escrow of flood insurance 
premiums and fees will be required. To facilitate compliance, the 
Agencies proposed model language for the escrow notice to be included 
in or with the Notice of Special Flood Hazards, as applicable.
    One commenter supported the proposed requirement to include the 
notice with the Notice of Special Flood Hazards. The final rule 
continues to include the escrow notice with the Notice of Special Flood 
Hazards.
    The Agencies are making one modification to the escrow notice 
requirement in the October 2014 Proposed Rule. As discussed above with 
respect to the duration of the exception, the Agencies are clarifying 
that a regulated lending institution or its servicer must require the 
escrow of all flood insurance premiums and fees if the lender, or a 
servicer acting on the lender's behalf, determines at any time during 
the term of a loan that an exception to the escrow requirement for the 
loan no longer applies. To alert borrowers to the potential need to 
escrow in those circumstances, the Agencies also are requiring lenders 
to provide the escrow notice in connection with any excepted loan that 
could lose its exception during the term of the loan. Consequently, 
borrowers of loans that may eventually become subject to the escrow 
requirement will be informed of that possibility.
    The Agencies also received some comments related to the content of 
the notice. These comments will be addressed below in the SUPPLEMENTARY 
INFORMATION accompanying the discussion on Appendices A & B.
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. The 
FDPA, as amended, states that, except as provided by State law, 
regulated lending institutions that have total assets of less than $1 
billion are excepted from the 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. The Agencies proposed to implement this 
exception to the escrow requirement substantially as provided in the 
statute with some clarifications.
    One of these clarifications addressed the measurement of the asset 
size to qualify for the exception, which the Agencies proposed in both 
the October 2013 Proposed Rule and the October 2014 Proposed Rule. 
Because Biggert-Waters 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 proposed 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. Consequently, 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 2016. In contrast, a 
regulated lending institution with assets of less than $1 billion as of 
either December 31, 2014, or December 31, 2015, would qualify for the 
exception in 2016, provided the other conditions for the exception are 
met. As the Agencies explained in both the October 2013 Proposed Rule 
and the October 2014 Proposed Rule, the Agencies proposed this method, 
which is similar to how the OCC, the Board, and the FDIC have measured 
asset size in relation to the definitions for small entities under 
their Community Reinvestment Act (CRA) regulations,\55\ to ensure an 
institution remains above the size threshold for a substantial period 
before requiring the institution to expend the resources necessary to 
establish a new escrow program.
---------------------------------------------------------------------------

    \55\ See 12 CFR 25.12(u) and 195.12(u) (OCC); 12 CFR 228.12(u) 
(Board); and 12 CFR 345.12(u) (FDIC).
---------------------------------------------------------------------------

    Similar to comments received on the October 2013 Proposed Rule, 
some financial institution commenters to the October 2014 Proposed Rule 
suggested that the Agencies set the threshold at $2 billion in assets 
to be consistent with the CFPB escrow rules under Regulation Z for 
higher-priced mortgage loans.\56\ A credit union association commenter 
suggested that the Agencies adjust the threshold annually for 
inflation. As the Agencies noted in the October 2014 Proposed Rule, 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 adopting the $1 billion asset-size threshold without an 
annual adjustment, consistent with the FDPA, as amended.
---------------------------------------------------------------------------

    \56\ See 12 CFR 1026.35(b)(2)(iii)(C).
---------------------------------------------------------------------------

    Some commenters also asked whether the assets to be measured 
applied per institution or whether the assets of all institutions under 
common ownership must be aggregated. The Agencies' regulations state 
that the measurement reflects the assets of only the regulated lending 
institution. As a result, regulated lending institutions need not 
consolidate the assets of other institutions under common ownership 
with the regulated lending institution for the measurement of asset 
size.
    The Agencies also proposed transition rules for a change in status 
of a regulated lending institution that may

[[Page 43228]]

initially qualify for the exception, but later grows to exceed the $1 
billion asset-size threshold. Specifically, the Agencies proposed to 
give regulated lending institutions approximately six months to begin 
complying with the escrow requirement, which the Agencies explained in 
both the October 2013 Proposed Rule and October 2014 Proposed Rule is 
similar to the Board's Regulation II change in status rules.\57\ 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. 
Therefore, under the proposed rule, if 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, such regulated 
lending institution would be required to begin escrowing for any loans 
made, increased, extended, or renewed on or after July 1, 2018. The 
final rule similarly would require regulated lending institutions that 
have had a change in status to begin escrowing for any loans made, 
increased, extended, or renewed on or after July 1 of the first 
calendar year of changed status. The Agencies have clarified the 
language in the final rule with no intended change in meaning.
---------------------------------------------------------------------------

    \57\ See 12 CFR 235.5(a)(3).
---------------------------------------------------------------------------

    Several financial institution trade association commenters 
suggested that lenders be given 12 months to comply with the escrow 
requirements after a change in status. The Agencies believe that this 
would be too long a period for lenders to comply in light of the 
Agencies' regulations measuring the lender's assets over a period of 
two years. Thus, a lender who has had assets of $1 billion or more one 
year and is on track during the second year to have assets of $1 
billion or more should begin to prepare escrowing in the following 
year. In the Agencies' view, requiring such lenders to escrow flood 
insurance premiums and fees for loans made, increased, extended, or 
renewed on or after July 1 after the lender has had a change in status 
should be sufficient time for the lenders to comply.
    The Agencies also received questions from commenters on whether an 
institution that experienced a change in status, which no longer 
qualifies it for the small lender exception, could regain the small 
lender exception if the institution's asset size decreased to less than 
$1 billion in a calendar year. Based on the Agencies' regulation, a 
regulated lending institution could technically reclaim small lender 
status in these circumstances. However, given the burden that a 
regulated lending institution would undertake to establish an escrow 
program, the Agencies question whether an institution would find it 
appropriate to abandon a program in which it has invested resources to 
develop and risk causing confusion to borrowers who have grown 
accustomed to escrowing flood insurance premiums and fees, especially 
if the institution could lose the small lender exception again in the 
future.
    The FDPA, as amended, states that the small lender exception is 
available only 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 the loan, in the case of a 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 loans 
secured by residential improved real estate or a mobile home.
    The Agencies proposed clarifications to these conditions in the 
October 2014 Proposed Rule based on comments received on the October 
2013 Proposed Rule. Specifically, the Agencies proposed that 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. The Agencies are 
adopting this language in the final rule.
    A farm credit commenter suggested that the conditions should only 
apply to an institution's consumer loan portfolio. The Agencies note 
that the statute applies the conditions to any loan secured by 
residential improved real estate or a mobile home. Therefore, based on 
the plain language of the FDPA, as amended, and the Agencies' 
regulations, the institution should include all loans secured by 
residential improved real estate or a mobile home, regardless of 
whether the loan is for a consumer purpose. Some commenters, including 
several farm credit commenters, suggested that instead of adopting the 
conditions set forth in the FDPA, the Agencies develop a bright line 
test, for example less than 100 mortgages per year or 200 loans per 
year or 5 percent of the institution's portfolio, to determine whether 
or not an institution has a policy of consistently and uniformly 
requiring the deposit of taxes, insurance premiums, fees, or any other 
charges in an escrow account. The Agencies do not believe these limits 
would be consistent with the FDPA and decline to adopt such standards.
    The Agencies also received several questions about the conditions, 
which the Agencies believe can be resolved by looking to the plain 
language of the FDPA, as adopted and implemented by the Agencies' 
regulations. A financial institution trade group commenter asked 
whether a lender who began a policy of consistently and uniformly 
requiring the deposit of taxes, insurance premiums, fees, or any other 
charges in an escrow account after July 6, 2012 could still qualify for 
the small lender exception. Based on the FDPA and the Agencies' 
regulations, which reference a lender's policy on or before July 6, 
2012, an institution could qualify for the exception if the policy of 
requiring escrow began after July 6, 2012, provided the lender meets 
the size threshold. Commenters also requested clarification on whether 
the small lender exception is available if the lender maintains escrows 
only on a borrower's request or if the policy of consistently and 
uniformly requiring escrow accounts comes at the behest of a third 
party. Regarding the former situation, the Agencies note that the FDPA 
and the Agencies' regulations state that the condition is based on a 
lender having a policy of requiring the escrow accounts. Therefore, if 
the lender is only maintaining escrows based on borrowers' requests, 
the Agencies do not believe this to be a policy of uniformly or 
consistently requiring escrow. With respect to the situation involving 
a third party, the Agencies believe that under the FDPA and the 
Agencies' regulations, it is irrelevant why the lender is requiring the 
escrow so long as there is a policy of uniformly or consistently 
requiring borrowers to escrow.
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 secured by residential improved 
real estate or a mobile home that are outstanding as of

[[Page 43229]]

January 1, 2016. The Agencies proposed this provision in the October 
2014 Proposed Rule generally as provided in the statute with changes to 
the language for clarity and organization. Consistent with section 
25(b) of HFIAA, the proposal also clarified that providing an option to 
escrow would not apply to loans or lenders that are excepted from the 
general escrow requirement.
    Commenters were generally supportive of the Agencies' proposal on 
the option to escrow. Some credit union and credit union trade group 
commenters, however, opposed requiring lenders to offer an option to 
escrow for loans outstanding on January 1, 2016. The Agencies note that 
offering an option to escrow is required by section 25(b) of HFIAA. As 
a result, the Agencies are adopting a requirement to offer an option to 
escrow, consistent with HFIAA.
    Several commenters supported the Agencies' proposal stating that 
the option to escrow does not apply to loans or lenders that are 
excepted from the general escrow requirement. Many commenters requested 
the Agencies to clarify that the status of the loan as of the 
``outstanding'' date should determine whether the lender must send the 
notice of the option to escrow. For example, if a loan outstanding as 
of January 1, 2016 is a subordinate lien loan excepted from the escrow 
requirement, then a lender that is not subject to the small lender 
exception need not provide the notice of the option to escrow even if 
the lien status for such loan could subsequently change. The Agencies 
agree that this is consistent with section 25(b) of HFIAA, which 
requires a regulated lending institution to offer and make available an 
option to escrow for loans outstanding as of January 1, 2016, and 
therefore, the status of the loan as of January 1, 2016 should 
determine whether the requirement to offer and make available an option 
to escrow applies.
    The Agencies also received several comments on providing additional 
exceptions for the option to escrow requirement. Several commenters 
suggested that there should be an exception to offering an option to 
escrow for borrowers that already are escrowing. The Agencies agree 
section 25(b) of HFIAA provides an exception for certain loans that are 
already escrowing.\58\ Furthermore, the Agencies do not find any reason 
for a borrower who is already escrowing to receive a notice of the 
option to escrow. Consequently, the Agencies are adding language to 
their regulations to clarify that the option to escrow does not apply 
to an outstanding loan with a related escrow of flood insurance 
premiums and fees, or to a loan that is already subject to the escrow 
requirement. Therefore, if a loan is outstanding on January 1, 2016, 
for example, and subsequently experiences a triggering event on 
February 1, 2016 so that the lender must begin escrowing flood 
insurance premiums and fees for such loan, the lender need not provide 
the option to escrow notice to the borrower.
---------------------------------------------------------------------------

    \58\ Section 25(b)(1)(B) of HFIAA states that the term 
``outstanding loan'' to which the option to escrow requirement 
applies includes a loan that is not subject to the requirement to 
escrow premiums and fees for flood insurance under section 102(d)(1) 
of the FDPA in effect on July 5, 2012. Therefore, if a loan is 
already escrowing pursuant to section 102(d)(1) of the FDPA in 
effect on July 5, 2012, it is not an outstanding loan that must be 
offered an option to escrow.
---------------------------------------------------------------------------

    Commenters also requested that the Agencies exclude loans for which 
borrowers have previously waived escrow or for which lenders previously 
offered an option to escrow from having to offer the option to escrow 
again. The Agencies decline to include such exceptions. Although a 
borrower may have previously decided to waive escrow or been offered an 
option to escrow, it is possible that the borrower's circumstances have 
changed, and if offered another chance to escrow, the borrower may do 
so. Moreover, including such exceptions would be inconsistent with 
section 25(b) of HFIAA.
    Furthermore, the Agencies proposed in the October 2014 Proposed 
Rule to use their authority to implement the escrow requirement to 
mandate that regulated lending institutions that no longer qualify for 
the small lender exception 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. 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' regulations, 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 lender would have 
the capability to escrow flood insurance premiums and fees on July 1, 
2018, and could provide that service to the borrower of the March 1, 
2016 loan. Consequently, under the Agencies' October 2014 Proposed 
Rule, the regulated lending institution would be required to offer the 
borrower of that loan the option to escrow.
    A few credit union and farm credit commenters opposed the Agencies' 
proposal while a consumer group commenter supported the proposal. 
Several financial institution and financial institution trade 
association commenters did not oppose applying the option to escrow 
requirement to institutions that lose the small lender exception, but 
stated that additional time may be needed for such institutions to 
comply. The Agencies continue to believe that a regulated lending 
institution that no longer qualifies for the small lender exception 
should be required to provide an option to escrow. Because a regulated 
lending institution that experiences a change in status will be 
required to establish an escrow program, borrowers on existing loans 
should benefit from the institution's program and be offered the option 
to escrow. Therefore, the Agencies are adopting the proposed 
regulations to require regulated lending institutions that lose the 
small lender exception to offer the option to escrow to existing 
borrowers with outstanding loans secured by residential improved real 
estate or a mobile home as of its compliance date.
    In the October 2014 Proposed Rule, the Agencies also proposed 
additional clarifications to provide more specific guidance to 
regulated lending institutions in administering this requirement. 
First, the Agencies proposed to implement the requirement that 
regulated lending institutions ``offer and make available'' the option 
to escrow flood insurance premiums and fees 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 proposed 
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.
    Several financial institution and trade group commenters stated 
that requiring notice for outstanding loans by March 31, 2016 provided 
sufficient time for regulated lending institutions to comply. There 
were, however, some commenters that suggested the notice be required by 
January 1, 2017, because certain institutions must manually identify 
outstanding loans for which the notice on the option to escrow must be 
provided. The Agencies believe that providing institutions with one 
year to

[[Page 43230]]

comply is too long, but that additional time may be warranted. 
Consequently, the Agencies are amending their proposed rule to require 
that the option to escrow notice should be provided by June 30, 2016.
    Some commenters also requested additional time for providing the 
option to escrow notice for lenders that lose the small lender 
exception. The Agencies proposed that the notice be provided by 
September 30 of the succeeding calendar year following the lender's 
change in status. Thus, such an institution would have nine months from 
the time it loses the exception to send the option to escrow notice. 
The Agencies believe that nine months provides an adequate amount of 
time for such institutions to identify borrowers of outstanding loans 
and mail or deliver the notice and are therefore adopting the September 
30 compliance date. The Agencies, however, have revised the language of 
the final rule to clarify that a lender that has had a change in status 
must provide the notice of the option to escrow by September 30 of the 
first calendar year in which it has had a change in status.
    Second, the Agencies proposed 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. As the Agencies explained in the October 
2014 Proposed Rule, this language was derived from similar requirements 
in Regulation E \59\ and Regulation Z \60\ 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.
---------------------------------------------------------------------------

    \59\ See 12 CFR 1005.17(f).
    \60\ See 12 CFR 1026.56(i).
---------------------------------------------------------------------------

    Several commenters supported the Agencies' proposal, noting that 
regulated lending institutions have had experience with the ``as soon 
as reasonably practicable'' standard under Regulation E and Regulation 
Z and that no greater specificity in the language is necessary. Some 
commenters requested further guidance on when lenders must begin 
escrowing after a borrower's request. Given that the Agencies believe a 
standard timeline may be difficult to establish for different 
institutions, and in light of the experience that regulated lending 
institutions already have with the ``as soon as reasonably 
practicable'' concept under Regulation E and Regulation Z, the Agencies 
are adopting the provision as proposed.
    Third, to facilitate compliance, the Agencies proposed a model 
clause for the notice on the option to escrow in Appendix B. The 
Agencies' model clause for the option to escrow notice and the comments 
the Agencies received in connection with this proposal, will be 
discussed in more detail below in the SUPPLEMENTARY INFORMATION to 
Appendices A & B.

__.__ Required Use of Standard Flood Hazard Determination Form

    In connection with the detached structures exemption in section 
102(c) of the FDPA, made by section 13 of HFIAA, discussed above, the 
Agencies proposed in the October 2014 Proposed Rule to amend the 
Agencies' regulations to 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. The Agencies reasoned that because flood insurance is not 
required on such properties and structures, determining whether such 
structures are located in an SFHA is unnecessary, and that removing 
this requirement for such properties and structures would eliminate 
unnecessary fees charged to borrowers.
    Several commenters criticized this proposed amendment. They 
suggested the Agencies clarify that, although a lender need not perform 
a flood hazard determination for any properties exempt from the 
mandatory flood insurance purchase requirement, a lender still may need 
to obtain a flood hazard determination and charge a fee for the 
determination even if the property or structure qualifies for the 
exemption. Two commenters noted that lenders generally are not aware of 
detached structures until the flood hazard determination lists the 
number of buildings located on a property or until an appraisal or 
survey, occurring after the lender has ordered a determination, 
identifies the detached structures.
    The Agencies agree with these commenters that conducting a flood 
hazard determination may be necessary to ascertain the number of 
buildings located on the property. In addition, the lender otherwise 
may not be aware that there is a detached structure until after a flood 
hazard determination is ordered. Therefore, conducting a flood hazard 
determination remains necessary to ensure compliance with the flood 
insurance requirements. Accordingly, the final rule does not include 
the proposed exception to the flood hazard determination requirement 
for properties and structures exempt from the mandatory flood insurance 
purchase requirement.
    Finally, the October 2013 Proposed Rule proposed technical 
amendments in this section to change the reference to the head of FEMA 
from ``Director'' to ``Administrator'' and to update how a lending 
institution may obtain the standard flood hazard insurance form by 
directing the institution to FEMA's Web site. No comments were received 
on this aspect of the proposal. The Agencies therefore adopt the change 
in title of the head of FEMA from ``Director'' to ``Administrator'' and 
the addition of the Web site reference as proposed.

__.__ Force Placement of Flood Insurance

    Pursuant to section 102(e) of the FDPA, as amended by section 
100244 of Biggert-Waters, the Agencies proposed to amend their rules 
for the force placement of flood insurance.\61\ The October 2013 
Proposed Rule sought to implement section 100244 of Biggert-Waters by 
setting forth when a regulated lending institution or its servicer may 
begin to charge the borrower for force-placed insurance, the 
circumstances under which a regulated lending institution or its 
servicer must terminate force-placed insurance and refund payments, and 
what documentary evidence is sufficient to demonstrate that a borrower 
has flood insurance coverage.
---------------------------------------------------------------------------

    \61\ The Agencies note that section 1463(a) of the Dodd-Frank 
Act sets forth requirements relating to the force placement of 
hazard insurance. The CFPB has excluded flood insurance required 
under the FDPA from the force placement requirements in its rule 
implementing this provision. 12 CFR 1024.37(a).
---------------------------------------------------------------------------

Notice and Purchase of Coverage
    Under current regulations, if a regulated lending institution, or a 
servicer acting on its behalf, determines at any time during the term 
of a designated loan that the building or mobile home and any personal 
property securing the designated loan is not covered by flood insurance 
or is covered by flood insurance in an amount less than the amount 
required under the FDPA, then the regulated lending institution or its 
servicer must notify the borrower that the borrower should obtain flood 
insurance, at the borrower's expense, in an amount at least equal to 
the amount required under the mandatory purchase requirement, for the 
remaining term of the designated loan. If the borrower fails to obtain 
adequate flood insurance within 45 days after notification, then the 
regulated lending institution or its servicer must purchase flood 
insurance on behalf of

[[Page 43231]]

the borrower. The regulated lending institution or servicer may charge 
the borrower for the cost of the premiums and fees incurred in 
purchasing the insurance. Pursuant to section 102(e) of the FDPA, as 
amended by section 100244 of Biggert-Waters, the Agencies proposed to 
amend their regulations to provide that the regulated lending 
institution or its servicer may charge the borrower for the cost of 
premiums and fees incurred for coverage beginning on the date on which 
the borrower's flood insurance coverage lapsed or did not provide a 
sufficient coverage amount. The Agencies' understanding is that the 
date on which the flood insurance coverage lapses is the expiration 
date provided by the policy. The October 2013 Proposed Rule solicited 
comment on whether the Agencies' interpretation of the term ``lapsed'' 
is consistent with the insurance industry's use of the term and whether 
further clarification is necessary on when a lender or servicer may 
begin to charge for force-placed flood insurance.
    A number of commenters, including trade associations and lenders, 
generally supported the proposed amendment allowing regulated lending 
institutions to charge borrowers for the cost of premiums and fees 
incurred for coverage beginning on the date of lapse or insufficient 
coverage. These commenters noted that this amendment would make it 
clear that force-placed insurance resulting from expired or lapsed 
policies should be dated to the date of expiration to ensure continuous 
flood coverage. Some trade association commenters supported the 
Agencies' approach as consistent with Congressional intent and long-
standing industry practice adopted to ensure continuous coverage as 
required by the FDPA.
    A number of commenters agreed with the Agencies' interpretation 
that the date of lapse is the expiration date provided in the 
borrower's flood insurance policy and asserted this definition is 
consistent with industry usage. Other commenters, however, disagreed 
with the Agencies' interpretation, with one trade association 
suggesting the regulations should clearly state that a lapse is any 
period in which flood insurance coverage is not continuously maintained 
that protects the interest of the named insured. Another commenter 
objected by noting that the term is an insurance term of art and means 
more than the date coverage expires. This commenter further stated that 
the term ``lapse'' can mean more than just the expiration date of 
coverage depending on an insurer's business practices. Lastly, an 
insurance association commenter suggested defining a ``lapse'' to occur 
when a policy has been not renewed for some reason or has been 
cancelled for non-payment, and therefore it would be more appropriate 
to use ``non-renewed or cancelled'' rather than ``expiration date'' as 
provided in the October 2013 Proposed Rule.
    The Agencies understand that flood insurance policies under the 
NFIP will often provide policyholders with a ``grace period'' of 
typically 30 days following the expiration date to pay the renewal 
premiums and fees to restore the policy and ensure continuous coverage. 
However, the Agencies also understand that any flood insurance coverage 
provided by the NFIP policy during the grace period would cover only 
the lender's interest. The borrower's interest would be covered during 
the grace period only if the borrower pays the renewal premium within 
the grace period.\62\ Because there may be a lack of continuous flood 
coverage protecting the borrower's interest during this ``grace 
period,'' the Agencies consider the policy to have lapsed as of the 
expiration date provided by the policy. The Agencies also consider 
policies that are cancelled for any reason as having lapsed as of the 
date of cancellation because the borrower's interests are no longer 
covered by the policy. Therefore, the Agencies have amended their 
interpretation from the original proposal to provide that the date on 
which the flood insurance coverage lapsed is the expiration date 
provided by the policy or the date the flood insurance policy is 
cancelled.
---------------------------------------------------------------------------

    \62\ National Flood Insurance Program, Flood Insurance Manual at 
REN 2-3 (Apr. 1, 2015).
---------------------------------------------------------------------------

    The Agencies also received several comments requesting general 
clarification on the 45-day notice requirement. Some commenters sought 
clarification on whether a regulated lending institution, or a servicer 
acting on its behalf, can send the 45-day notice of force placement to 
the borrower prior to the actual expiration of the current policy so 
that the institution is prepared to renew on the date it expires or 
whether the institution must wait until policy expiration to send the 
notice. The Agencies note that, to ensure that adequate flood insurance 
coverage is maintained throughout the term of the loan and to comply 
with the Federal flood statutes, a regulated lending institution or its 
servicer must notify a borrower whenever flood insurance on the 
collateral has expired or is less than the amount required for the 
property. The regulated lending institution or its servicer must send 
this notice upon making a determination that the flood insurance 
coverage is inadequate or has expired, such as upon receipt of the 
notice of cancellation or expiration from the insurance provider or as 
a result of an internal flood policy monitoring system. Notice is also 
required when a regulated lending institution learns that a property 
requires flood insurance coverage because it is in an SFHA as a result 
of a flood map change. The FDPA specifically provides that the lender 
or servicer for a loan must send a notice upon its determination that 
the collateral property securing the loan is either not covered by 
flood insurance or is covered by such insurance in an amount less than 
the amount required.\63\ In accordance with this statutory requirement, 
the final rule clarifies that the required 45-day notice must be sent 
following the date of lapse or insufficient coverage of the borrower's 
policy.
---------------------------------------------------------------------------

    \63\ See 42 U.S.C. 4012a(e).
---------------------------------------------------------------------------

    The Agencies also received suggestions on alternative force 
placement notification processes. A few commenters recommended the 
Agencies add a second 15-day reminder,\64\ as required for force-placed 
hazard insurance under the CFPB's rule, to simplify compliance for loan 
servicers subject to RESPA's Regulation X. Some commenters, including 
trade association commenters, recommended the Agencies issue guidance 
that would authorize a lender to follow a notification process similar 
to FEMA's Mortgage Portfolio Protection Program (MPPP).\65\ The 
Agencies are aware of these alternative notification processes and 
appreciate the benefits of additional notices. The Agencies note that a 
regulated lending institution or its servicer, at its discretion, may 
send one or more additional notices prior to the expiration date as a 
courtesy to assist the borrower. However, in order to comply with this 
section, the regulated lending institution or its servicer still would 
be required to send the mandated 45-day notice following the lapse of 
the borrower's policy.
---------------------------------------------------------------------------

    \64\ Under Regulation X, the CFPB requires a servicer to send 
two written notices before a servicer can assess a force placement 
charge on a borrower: (1) A notice at least 45 days before 
assessment of a charge, and (2) a notice at least 30 days after the 
initial notice and at least 15 days before assessment of a force 
placement charge. 12 CFR 1024.37(c)-(d).
    \65\ MPPP requires three notification letters to be sent to the 
borrower: (1) 45 Days prior to expiration or upon determination, (2) 
30 days following the first notification letter, and (3) after the 
end of 45 day notification period along with the flood insurance 
policy declarations page. 44 CFR 62.23.

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

[[Page 43232]]

    With respect to the notification regarding the renewal of a force-
placed flood insurance policy, some industry commenters requested 
additional guidance. One commenter stated that the Agencies should do 
more to reduce the need for force-placed flood insurance, and suggested 
that the Agencies coordinate with the CFPB to mitigate gaps in the 
regulations pertaining to flood insurance policies. The Agencies may 
provide guidance in the future regarding notification in connection 
with the renewal of a force-placed flood insurance policy.
    Additionally, several commenters sought clarification on the date 
on which a regulated lending institution or its servicer may force-
place flood insurance. Some commenters inquired as to whether the 
appropriate date is when the lender or servicer discovers the 
insufficient coverage or after the expiration of the 45-day notice 
period. Other commenters also asserted a 45-day waiting period creates 
liability for the institution and is contrary to the intent of the 
Federal flood statutes to ensure continuous insurance coverage. The 
Agencies agree with the commenters who suggested that the regulation 
provide that lenders or servicers may purchase force-placed insurance 
immediately after the borrower's original policy lapses. Biggert-Waters 
clarifies that a regulated lending institution or its servicer has the 
statutory authority to charge the borrower for the cost of premiums and 
fees incurred for coverage beginning on the date on which flood 
insurance coverage lapsed or did not provide a sufficient coverage 
amount. Therefore, Biggert-Waters permits a lender or servicer to force 
place insurance immediately after the borrower's policy has lapsed or 
did not provide sufficient coverage. The Agencies' interpretation seeks 
to ensure that the protections provided by flood coverage for both the 
borrower and lender will be continuous. Based on the Federal flood 
statutes, the final rule clarifies that a regulated lending 
institution, or a servicer acting on its behalf, may force place flood 
insurance that would provide coverage anytime during the 45-day notice 
period and would not have to wait 45 days after providing notice to 
force place.
    Some commenters, however, objected to the October 2013 Proposed 
Rule by asserting that the proposed rule allowing for fees and charges 
of a force-placed policy beginning on the date the borrower's policy 
lapsed would be in conflict with Federal law that currently requires a 
30-day waiting period on all NFIP policies, except for policies written 
in connection with new loans, and other, limited circumstances.\66\ The 
Agencies understand that most force-placed policies are private flood 
insurance policies rather than policies written under the MPPP 
administered by FEMA. It is also the Agencies understanding that 
private force-placed flood insurance policies generally do not have a 
30-day waiting period and would allow a regulated lending institution, 
or a servicer acting on its behalf, to force place flood insurance 
effective immediately.
---------------------------------------------------------------------------

    \66\ Section 1306(c) of the NFIA, 42 U.S.C. 4013(c), as amended 
by the Act. See FEMA WYO Bulletin W-13017, issued March 29, 2013 and 
effective October 1, 2013.
---------------------------------------------------------------------------

    In addition to requesting clarification on when a regulated lending 
institution or servicer can force place flood insurance, numerous 
commenters also sought clarification on the date on which a regulated 
lending institution or its servicer may charge for force-placed 
insurance. One commenter asked whether a regulated lending institution 
can force place flood insurance at the expiration of the current 
policy, but not charge the customer until the end of the 45-day notice 
period. The Agencies note that Biggert-Waters and the final regulations 
provide that a regulated lending institution or its servicer may charge 
the borrower for the cost of premiums and fees incurred for coverage 
beginning on the date on which flood insurance coverage lapsed or did 
not provide sufficient coverage. As discussed above, the Agencies 
interpret this provision to mean that a regulated lending institution 
or its servicer can force place flood insurance beginning on the day 
the borrower's policy lapsed or did not provide sufficient coverage, 
and also, as of that day, the institution can charge the borrower for 
the force-placed insurance.\67\ However, if the borrower obtains a 
flood insurance policy that overlaps with the force-placed policy, the 
lender or servicer must refund any premiums paid by the borrower for 
this overlap period. For example, if a borrower has not renewed a flood 
insurance policy that expires on June 30, a lender or servicer must 
provide the 45-day notice to the borrower and may force place a flood 
insurance policy as early as July 1. The lender or servicer could bill 
the borrower upon force placing the policy or could wait to bill the 
borrower at a later date, for example, when the 45-day notice period 
expires. If the borrower did not obtain a flood insurance policy and 
the lender or servicer had not force placed insurance by August 14 (the 
end of 45-day period), the lender or servicer would be required by 
regulation to force place flood insurance on August 15. On the other 
hand, if the lender force placed flood insurance as of July 1 and, if 
on July 15, the borrower renewed his or her flood insurance policy 
(effective from July 1) to satisfy the mandatory purchase requirement 
and provided sufficient evidence to the lender or servicer, then the 
lender or servicer would be required to refund any premiums paid by the 
borrower for the force-placed insurance coverage between July 1 and 
July 15. As a practical matter, lenders or servicers may decide to wait 
until after the 45-day notice period has expired to collect premiums 
for coverage dating back to the date the force-placed policy was 
purchased to avoid the administrative burden of having to refund the 
borrower's premium for any period of overlapping coverage.
---------------------------------------------------------------------------

    \67\ Under Regulation X, the CFPB requires a servicer to wait 45 
days before a servicer can assess a force placement charge on a 
borrower. 12 CFR 1024.37(c)-(d).
---------------------------------------------------------------------------

    Finally, the Agencies received several comments regarding 
retroactive billing. One commenter suggested a regulated lending 
institution or its servicer should not be permitted to charge the 
borrower for lapsed coverage if the institution or servicer fails to 
identify a lapse within 60 days. Another commenter asserted it is 
unreasonable to allow an institution to delay sending notices in order 
to charge retroactively a borrower for a lengthy period of force-placed 
flood insurance coverage. Additionally, several commenters requested 
the Agencies to define clearly the date back to which a lender may 
charge force-placed flood insurance premiums and suggested this date to 
be when a lender discovers that flood insurance coverage ``did not 
provide a sufficient coverage amount.'' The plain language of the 
statute provides that the lender or servicer may charge for premiums 
and fees incurred for coverage beginning on the date on which flood 
insurance coverage lapsed or did not provide a sufficient coverage 
amount. Further, when the lending institution determines there is a 
coverage lapse or insufficient coverage, the FDPA requires the 
institution to send a notice to the borrower. The Agencies also observe 
that, for purposes of safety and soundness, regulated lending 
institutions should ensure continuous coverage of flood insurance for 
the building or mobile home and any personal property securing a 
designated loan.
    Additionally, the Agencies interpret Biggert-Waters to permit a 
regulated lending institution to force place a flood insurance policy 
purchased on behalf of a borrower that is effective the day after

[[Page 43233]]

expiration of a borrower's original insurance policy to ensure 
continuous coverage. Such a practice will ensure that institutions 
complete the force placement of flood insurance in a timely manner upon 
lapse of the policy and that there is continuous insurance coverage to 
protect both the borrower and the institution. If an institution, 
despite its monitoring efforts, discovers a policy with insufficient 
coverage, for example due to a re-mapping, the institution may charge 
back to the date of insufficient coverage provided the institution has 
purchased a policy that covers the property for flood loss and that 
policy was effective as of the date of insufficient coverage. However, 
if purchasing a new policy is necessary to force place insurance upon 
discovery of insufficient coverage, an institution may not charge back 
to the date of lapse or insufficient coverage because the policy did 
not provide coverage for the borrower prior to purchase.
Termination of Force-Placed Insurance
    As provided in section 102(e)(3) of the FDPA, which was added by 
section 100244 of Biggert-Waters, the Agencies proposed that within 30 
days of receipt by a regulated lending institution, or a servicer 
acting on its behalf, of a confirmation of a borrower's existing flood 
insurance coverage, a regulated lending institution is required to: (i) 
Notify the insurer to terminate any force-placed insurance purchased by 
the regulated lending institution or its servicer and (ii) refund to 
the borrower all premiums paid by the borrower for any insurance 
purchased by the regulated lending institution or its servicer under 
this section for any period during which the borrower's flood insurance 
coverage and the insurance coverage purchased by the regulated lending 
institution or its servicer were each in effect (overlap period), and 
any related fees charged to the borrower.
    The Agencies realize that, although regulated lending institutions 
and servicers can request that a force-placed insurance policy be 
terminated, it is the insurer that actually cancels the policy. The 
October 2013 Proposed Rule, therefore, clarified that the statutory 
language in section 102(e)(3) of the FDPA, as amended by section 100244 
of Biggert-Waters, requires the institution only to notify the insurer 
to terminate the force-placed policy. The institution also must fully 
refund to the borrower the premiums and fees for the overlap period 
within the 30-day period required by the statute.
    Although some commenters generally supported the proposed 
termination and refund requirements, a few commenters objected. One 
commenter suggested that the Agencies withdraw this requirement for 
existing loans and allow a substantial period for compliance 
prospectively. Another commenter asserted this requirement would mean a 
lender is ``stuck with'' a portion of the premium for the force-placed 
insurance that was purchased only because the borrower did not satisfy 
an obligation of the mortgage agreement to purchase flood insurance. 
The Agencies understand lenders' concerns regarding the termination and 
refund provisions. However, Biggert-Waters specifically requires the 
refund of force-placed insurance premiums for any overlap period and 
does not provide an exception to the requirement for outstanding loans.
    Other commenters sought further clarifications on the proposed 
requirements. One commenter, for example, presented a scenario in which 
an existing policy expires on September 1 and then on September 16, the 
lender force places coverage retroactive to the date of lapse 
(September 1) after having previously sent a force placement notice. On 
September 17, the borrower provides proof of policy purchased that day 
but which is subject to a 30-day waiting period prior to becoming 
effective. This commenter inquired whether the lender must terminate a 
force-placed policy and refund premiums and fees at the expiration of 
the 30-day waiting period or upon receipt by the lender of confirmation 
of borrower obtained flood insurance coverage. The Agencies note that 
Biggert-Waters requires a lender or servicer to terminate any force-
placed insurance purchased by the regulated lending institution or its 
servicer and to refund to the borrower all premiums or fees paid by the 
borrower for any overlap period. Because the borrower's policy is 
subject to a 30-day waiting period, it would not be ``in effect'' until 
the waiting period has expired. The lender's force-placed policy 
provides the only flood insurance coverage on the property during that 
waiting period. Provided the force-placed insurance policy is 
terminated upon the expiration of the waiting period, the lender would 
not need to refund premiums and fees for the force-placed coverage 
because there would not be an overlap period.
    Another commenter suggested the Agencies clarify that the lender's 
refund obligation is subject to the insurer's refund of the premium. 
The Agencies note that Biggert-Waters does not impose such a condition 
precedent upon the lender's refund.
    A commenter urged the Agencies to adopt a limit on how far back a 
regulated lending institution may be required to refund overlapping 
flood insurance to encourage borrowers to be diligent in reviewing 
notices and prompt in notifying the lender or servicer. The Agencies 
understand the difficulties in refunding premiums for force-placed 
insurance for extensive overlap periods due to the borrower not 
notifying the lender promptly. Nonetheless, the Agencies note that 
Biggert-Waters makes clear that a lender is required to refund any 
premiums and fees a borrower has paid for which the borrower provides 
sufficient documentation of overlapping coverage. Accordingly, Biggert-
Waters does not provide a limitation on the time period for which a 
borrower can submit documentation of overlapping coverage. However, the 
Agencies believe that a borrower receiving force placement notices and 
faced with the burden of associated fees and premiums would be 
motivated to provide prompt notification to the lender of the 
borrower's own policy rather than be required to pay the additional 
fees and premiums during any period of overlapping coverage. Based on a 
review of the comments, the Agencies are adopting the termination and 
refund provision as proposed.
    In addition, the Agencies note that section 102(e)(3) of the FDPA, 
as amended, and the Agencies' final regulations, do not specify a party 
from which a regulated lending institution must receive confirmation of 
a borrower's existing flood insurance coverage. Therefore, regulated 
lending institutions may receive the confirmation from either the 
borrower or a third party, such as an insurance agent or insurer with 
whom the institution has direct contact.
Sufficiency of Demonstration
    Pursuant to section 102(e)(4) of the FDPA, as amended by section 
100244 of Biggert-Waters, the October 2013 Proposed Rule provided that, 
for purposes of confirming a borrower's existing flood insurance 
coverage, a regulated lending institution or its servicer must accept 
from the borrower an insurance policy declarations page that includes 
the existing flood insurance policy number and the identity of, and 
contact information for, the insurance company or its agent. A few 
commenters expressed general support for the proposed regulations as 
important protections that will simplify the verification process 
between lenders and flood insurance providers and result in greater 
transparency.

[[Page 43234]]

Numerous commenters requested further clarifications while others 
expressed concerns with implementation of the proposed rules.
    Among the clarifications requested, several trade associations 
asked what constitutes a ``sufficient demonstration'' for purposes of 
confirming a borrower's existing flood insurance coverage. Another 
commenter suggested the Agencies clarify that sufficient evidence of 
insurance coverage must include items specified in FEMA Bulletin W-
13013.\68\ This commenter also suggested inclusion of the policy term 
effective dates, the current flood coverage amount, limitations and 
exclusions, the mortgagee's identity, and, if the coverage is provided 
by a private flood policy, some documentation that the policy satisfies 
either the Biggert-Waters definition of private flood insurance or the 
mandatory purchase requirement. A large lender commenter requested that 
the Agencies clarify that, in addition to the minimum required 
information, the declarations page must contain the correct amount, 
dates, and other information to fulfill the mandatory purchase 
requirements. This commenter also recommended that a copy of the policy 
be provided to the lender or servicer and that the lender or servicer 
have 45 days to check for compliance with any required private flood 
insurance criteria as conditions for terminating the force-placed 
insurance based on a borrower's private policy.
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    \68\ FEMA Bulletin W-13013, issued March 19, 2013, reiterates 
that the NFIP rules and regulations do not allow the use of 
temporary declarations pages as evidence of insurance. The Bulletin 
refers to the General Rules section of the Flood Insurance Manual 
which provides rules regarding acceptable forms of evidence of 
insurance:
    A copy of the Flood Insurance Application and premium payment, 
or a copy of the declarations page, is sufficient evidence of proof 
of purchase for new policies. The NFIP does not recognize binders. 
However, for informational purposes only, the NFIP recognizes 
certificates or evidences of flood insurance, and similar forms, 
provided for renewal policies if the following information is 
included: The policy form/type, term, and number; insured's name and 
mailing address; property location; current and rated flood risk 
zone; grandfathering status; mortgagee name and address; coverage 
limits; deductibles; and annual premium.
---------------------------------------------------------------------------

    As provided by the October 2013 Proposed Rule, sufficient 
documentation consists of an insurance policy declarations page that 
includes the existing flood insurance policy number and the identity of 
and contact information for the insurance company or its agent. This 
information is all that is required under Biggert-Waters for an 
insurance policy declarations page to be considered sufficient evidence 
of a borrower's flood insurance coverage, and the Agencies decline to 
require additional information.
    Another area of concern identified by commenters is that the 
requirement to accept the declarations page as sufficient demonstration 
may cause lenders to accept a private flood insurance policy based on 
the declarations page, only to later determine that the policy is 
unacceptable. As the Agencies discussed in the October 2013 Proposed 
Rule, a lender is responsible for making all necessary inquiries into 
the adequacy of the borrower's insurance policy to ensure that the 
policy complies with the mandatory purchase requirement. If the lender 
determines the coverage amount or any terms and conditions fail to meet 
applicable requirements, the lender should notify the borrower and 
request that the borrower obtain an adequate flood insurance policy.
    Several commenters expressed concerns about the premature 
cancellation of a force-placed policy resulting in its replacement by 
another force-placed policy when the regulated lending institution 
determines that adequate insurance was not in place by the borrower. 
These commenters suggested that the Agencies clarify that a regulated 
lending institution or servicer is not required to cancel the force-
placed policy until it has completed any necessary inquiries and 
receives valid evidence of compliant flood insurance coverage.
    The Agencies understand the commenters' concerns with regard to 
premature cancellation of a force-placed policy and the administrative 
burden of terminating such a policy and refunding any paid premiums to 
the borrower. Consistent with Biggert-Waters, the final rule provides 
regulated lending institutions and servicers with 30 days from the 
receipt of the borrower's confirmation of existing flood insurance to 
conduct all necessary inquiries regarding whether the borrower's flood 
insurance policy satisfies the minimum mandatory purchase 
requirement.\69\ The Agencies note that any further inquiry regarding 
the borrower's policy along with the termination and refund of premiums 
for the overlap period must be completed within the 30-day period 
following receipt of confirmation of a borrower's existing flood 
insurance coverage.
---------------------------------------------------------------------------

    \69\ See 42 U.S.C. 4012(a)(e)(3).
---------------------------------------------------------------------------

    Finally, several commenters asserted that regulated lending 
institutions and servicers should have the discretion to accept other 
documents that may also demonstrate a borrower has adequate flood 
insurance coverage. The Agencies clarify that although a declarations 
page is the one option that a lender must accept, there are 
circumstances in which a lender can, subject to safe and sound banking 
practices, accept alternative evidence of insurance documents 
acceptable to the lender in order to cancel force-placed insurance. The 
Agencies note that the final rule establishes the only information that 
a lender or servicer may require as sufficient demonstration of flood 
insurance coverage; however, if other information is submitted, then 
the institution may accept it. The Agencies, therefore, adopt the 
provision as proposed in the October 2013 Proposed Rule.
Other Comments
    In addition to the solicited comments, the Agencies received 
comments addressing force-placed insurance in general that are not 
specific to the October 2013 Proposed Rule. A few consumer associations 
urged the Agencies to adopt additional provisions to reduce the 
incidence of force-placed insurance and prevent kickbacks and other 
practices that unreasonably inflate the cost of force-placed insurance 
and encourage excessive use. These commenters encouraged the Agencies 
to require that force-placed insurance be reasonably priced, prohibit 
the purchase from an insurer affiliated with the servicer, and place 
limits on how much voluntary flood coverage the lender or servicer may 
require or force place. The Agencies observe that Biggert-Waters does 
not address these issues. However, the Agencies remind regulated 
institutions that their force placement practices should be consistent 
with all applicable laws, regulations, and safe and sound banking 
practices.
    These consumer associations also requested that the Agencies 
require regulated lending institutions or servicers to advance 
insurance premiums rather than letting a borrower's policy lapse for 
nonpayment. These commenters urged that institutions and servicers must 
exhaust all options to keep homeowners' existing flood insurance 
policies in place before force placing insurance. The Agencies note, 
however, that the Federal flood statutes do not contain provisions 
similar to those relied upon by the CFPB in its mortgage servicing 
rule, which require a servicer to advance funds to a borrower's escrow 
account for the purpose of paying for 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

[[Page 43235]]

reasons other than nonpayment).\70\ Although the final rule does not 
require a regulated lending institution to advance premiums, the 
Agencies note that nothing prohibits an institution from doing so to 
benefit the consumer.
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    \70\ 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. See 
78 FR 10696, 10714 (Feb. 14, 2013) and 12 CFR 1024.17(k)(5). 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.
---------------------------------------------------------------------------

    A commenter requested that the Agencies clarify the applicability 
of the force placement provisions to re-mapping scenarios. The Agencies 
reiterate that if at any time during the life of the loan, a regulated 
lending institution or its servicer determines flood insurance is 
absent or insufficient, including following a map change, the regulated 
lending institution or its servicer must initiate force placement 
procedures by notifying the borrower of the mandatory purchase 
requirement and providing the borrower an opportunity to obtain the 
necessary amount of coverage. If the borrower fails to purchase the 
required amount of insurance within 45 days after the lender provides 
notice, the institution or servicer must force place flood insurance on 
the borrower's behalf.
    Finally, the Agencies received comments from a number of different 
organizations discussing the escrowing of force-placed insurance 
premiums and fees. The Agencies addressed these comments above in the 
SUPPLEMENTARY INFORMATION related to __.__
Escrow Requirement

__.__ Determination Fees

    As discussed in the SUPPLEMENTARY INFORMATION related to __.__ 
Authority, purpose, and scope, the Agencies are adopting the change in 
title of the head of FEMA from ``Director'' to ``Administrator'' as 
proposed.

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

    Section 100239 of Biggert-Waters added a new section 102(b)(6) to 
the FDPA (42 U.S.C. 4012a(b)(6)), which requires regulated lending 
institutions to disclose to a borrower that: (i) Flood insurance is 
available from private insurance companies that issue SFIPs on behalf 
of the NFIP or directly from the NFIP; (ii) flood insurance that 
provides the same level of coverage as an SFIP under the NFIP may be 
available from a private insurance company that issues policies on 
behalf of the company; and (iii) the borrower is encouraged to 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 to direct inquiries regarding the availability, cost, and 
comparisons of flood insurance coverage to an insurance agent.
    Furthermore, section 100239(b) of Biggert-Waters amended section 
1364(a)(3)(C) of the 1968 Act (42 U.S.C. 4104a(a)(3)(C)) to require 
that the disclosures in section 102(b)(6) of the FDPA be provided in 
the Notice of Special Flood Hazards. Therefore, the final rule provides 
that the disclosures set forth in section 102(b)(6) of the FDPA be 
included in the Notice of Special Flood Hazards. The Agencies also 
proposed model language for the disclosure in the sample form of notice 
contained in Appendix A, as discussed further below.
    In order to reduce the compliance burden of amending the Notice of 
Special Flood Hazards, the Agencies are implementing these changes to 
the regulation effective January 1, 2016. This effective date coincides 
with the January 1, 2016 effective date set forth in HFIAA that is 
applicable to the escrow provisions, which also affect Appendix A.

__.__ Notice of Servicer's Identity

    As discussed in the SUPPLEMENTARY INFORMATION related to __.__ 
Authority, purpose, and scope, the Agencies are adopting the change in 
title of the head of FEMA from ``Director'' to ``Administrator'' as 
proposed.

Appendices A & B

Appendix A
    As discussed in the SUPPLEMENTARY INFORMATION accompanying the 
revisions to _._.__ Escrow requirement above, the Agencies proposed in 
the October 2014 Proposed Rule that regulated lending institutions must 
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 proposed model language that could be included, if applicable, 
in the Notice of Special Flood Hazards as set forth in the sample form 
of notice contained in Appendix A.
    Commenters were supportive of the Agencies proposing model language 
and that the notice be included in or with the Notice of Special Flood 
Hazards. However, the Agencies received comments with recommendations 
for improving the model language, which the Agencies are including in 
this final rule. In particular, these suggestions are meant to clarify 
that borrowers ``may'' be required to escrow flood insurance premiums 
and fees to take into account instances when the notice might be 
provided to a borrower of a loan excepted from the escrow requirement.
    One municipal government commenter suggested that the Agencies also 
include an explanation of the term ``escrow.'' The Agencies are 
concerned that such an explanation could complicate the notice, because 
the concept of escrow is not unique to flood insurance. Additionally, 
escrow is already explained in the RESPA Special Information Booklet 
that is provided to consumers applying for Federally related 
mortgages.\71\ As a result, the Agencies decline to require additional 
language to explain the term ``escrow'' in the Notice of Special Flood 
Hazards.
---------------------------------------------------------------------------

    \71\ 12 U.S.C. 2604(b)(9).
---------------------------------------------------------------------------

    Furthermore, in the SUPPLEMENTARY INFORMATION accompanying the 
revisions to __.__ Exemptions above, the Agencies discussed a comment 
suggesting that the language required by section 13(b) of HFIAA to be 
contained in the RESPA Special Information Booklet also be included in 
the Notice of Special Flood Hazards. The commenter noted that some 
borrowers might not receive the RESPA Special Information Booklet. The 
Agencies believe that this is a concise disclosure that would be 
helpful to provide in the Notice of Special Flood Hazards without 
detracting from all the other disclosures required in the notice. 
Therefore, the Agencies are amending the Notice of Special Flood 
Hazards to include the language that is required to be included in the 
RESPA Special Information Booklet by section 13(b) of HFIAA.
    Moreover, as noted above, the October 2013 Proposed Rule amended 
the sample form of notice contained in Appendix A to include the 
disclosures required by section 102(b)(6) of the FDPA, as added by 
section 100239 of

[[Page 43236]]

Biggert-Waters, regarding the availability of private flood insurance 
coverage. The proposed additions to the sample form closely tracked the 
statutory language. The Agencies also proposed in the October 2013 
Proposed Rule to revise the language relating to the coverage limit to 
more accurately reflect what is actually covered under the Federal 
flood statutes. Specifically, the October 2013 Proposed Rule amended 
the language to state that flood insurance coverage is available only 
on the building or mobile home and any personal property that secures 
the loan and not the land itself. In addition, the October 2013 
Proposed Rule provided other technical amendments to the sample form of 
notice contained in Appendix A to change the references to the head of 
FEMA from ``Director'' to ``Administrator.'' The Agencies are adopting 
these changes set forth in the October 2013 Proposed Rule with one 
minor word change from ``ask'' to ``contact'' in the sample form 
language on the availability of private flood insurance coverage.
    Finally, the changes to Appendix A are effective on January 1, 
2016. Consistent with HFIAA, the provision requiring the escrow notice 
to be included on or with the Notice of Special Flood Hazards does not 
take effect until January 1, 2016. Therefore, the Agencies are making 
all the changes related to Appendix A effective at once, on January 1, 
2016, in order to reduce the compliance burden on regulated lending 
institutions associated with amending the Notice of Special Flood 
Hazards.
Appendix B
    As discussed above in the SUPPLEMENTARY INFORMATION accompanying 
the revisions to __.__ Escrow requirement, the final rule requires 
lenders to 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. In the October 2014 Proposed Rule, the 
Agencies proposed an additional sample clause, Sample Clause for Option 
to Escrow for Outstanding Loans, as Appendix B to facilitate compliance 
with this proposed requirement.
    In the October 2014 Proposed Rule, the Agencies proposed that the 
notice would not need to be provided in conjunction with any other 
disclosure or need to be segregated from other information provided to 
the borrower. A consumer group commenter suggested that the notice be 
conspicuous and segregated from any other correspondence. Although the 
Agencies believe that the notice should be readily apparent to the 
borrower to increase the likelihood of a borrower reading it, the 
Agencies decline to impose any specific requirement that the notice be 
conspicuous or segregated from other information. The Agencies believe 
that, as all of the information contained in the notice may be 
important to the borrower, no one particular part of the notice should 
be singled out. Under the final rule, regulated lending institutions 
may choose whether to provide the notice as a separate notice or add it 
to another disclosure the lender provides the borrower on or before the 
proposed deadline, such as a periodic statement.
    A financial institution commenter inquired whether a lender may add 
additional language to the sample clause set forth in Appendix B. The 
Agencies note that the sample clause provides suggested language and 
that this would not preclude a regulated lending institution from 
inserting additional language that it believes would help a borrower 
better understand his or her options regarding the escrow of flood 
insurance premiums and fees. The commenter also recommended minor 
language and format changes to the sample clause, which the Agencies 
are adopting, among other changes to the language to improve 
readability.
    Consistent with HFIAA, the escrow provisions requiring the option 
to escrow notice will not be effective until January 1, 2016. 
Consequently, Appendix B will not be effective until that date.
Appendix C
    The Agencies are not adopting the notice proposed as Appendix C in 
the October 2013 Proposed Rule because the notice is no longer 
applicable, based on the changes to the escrow requirements enacted in 
HFIAA.

VI. Regulatory Analysis

Regulatory Flexibility Act

    OCC: Pursuant to the Regulatory Flexibility Act (RFA), an agency 
must prepare a regulatory flexibility analysis for all proposed and 
final rules that describes the impact of the rule on small 
entities.\72\ Under section 605(b) of the RFA, this analysis is not 
required if the head of the agency certifies that the rule will 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. The OCC has 
concluded that the final rule does not have a significant economic 
impact on a substantial number of small entities supervised by the OCC.
---------------------------------------------------------------------------

    \72\ See 5 U.S.C. 601 et seq.
---------------------------------------------------------------------------

    The OCC currently supervises approximately 1,106 small entities--
339 Federal savings associations, 748 national banks, and 19 trust 
companies (collectively, small banks).\73\ To determine the number of 
banks that may be affected by the rule, we determined the number of 
banks that self-identified by reporting mortgage servicing assets or 
other activity associated with one-to-four family residential mortgage 
loans in the Q4 2014 Call Report or were identified by OCC examiners as 
a Home Mortgage Disclosure Act (HMDA) filer or bank that originates 
mortgage loans. We identified 1,162 such banks of which there are 
approximately 796 small banks that the rule could impact.\74\ Thus, we 
assume the rule impacts a substantial number of small banks.
---------------------------------------------------------------------------

    \73\ We base our estimate of the number of small entities on the 
Small Business Association's (SBA) 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 as a small entity. We use December 31, 2014, 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 
SBA's Table of Size Standards.
    \74\ For purposes of determining if the rule could impact a 
substantial number of small entities, we assume that all small banks 
have a policy in place to require the escrow of taxes and insurance.
---------------------------------------------------------------------------

    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 final rule will not have a significant 
economic impact on any small banks.
    Therefore, pursuant to section 605(b) of the RFA, the OCC hereby 
certifies that this final rule will not have a significant economic 
impact on a substantial number of small entities. Accordingly, a 
regulatory flexibility analysis is not required.
    Board: The RFA requires an agency to perform an assessment of the 
impact a rule is expected to have on small entities. Based on its 
analysis, and for the reasons stated below, the Board believes that 
this final rule will not have a significant economic impact on a 
substantial number of small entities.
    1. Statement of the need for, and objectives of, the final rule. 
The Board

[[Page 43237]]

is adopting revisions to Regulation H to implement certain provisions 
of Biggert-Waters and HFIAA over which the Agencies, including the 
Board, have jurisdiction. Consistent with HFIAA, the final rule exempts 
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 final rule also implements 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 final rule implements 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 final rule also 
extends 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.
    Finally, the final rule adopts revisions to the force placement 
provisions consistent with Biggert-Waters to clarify that a regulated 
lending institution or its servicer may charge a borrower for the cost 
of flood insurance coverage commencing on the date on which the 
borrower's coverage lapsed or became insufficient. The final rule also 
provides that within 30 days of receipt of a confirmation of a 
borrower's existing flood insurance coverage, a regulated lending 
institution is required to terminate any force-placed insurance 
purchased by the regulated lending institution, and refund to the 
borrower all premiums paid by the borrower for lender-place coverage 
for any period during which the borrower's flood insurance coverage and 
the lender-placed coverage overlapped.
    2. Summary of issues raised by comments in response to the initial 
regulatory flexibility analysis. The Board did not receive any comments 
on the initial regulatory flexibility analysis.
    3. Small entities affected by the final rule. All State member 
banks that are subject to Regulation H would be subject to the proposed 
rule. As of March 31, 2015, there were 850 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 entities. Of the 850 State member banks 
subject to Regulation H, approximately 632 State member banks would be 
considered small entities by the SBA.
    4. Recordkeeping, reporting, and compliance requirements. The final 
rule would provide an exemption from a requirement for certain detached 
structures, but would also impose new compliance requirements with the 
final escrow provisions. With respect to the final rule 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 final 
rule will 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 final 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 smaller 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 final 
escrow provisions generally would not affect small entities.
    The Biggert-Waters force placement provisions went into effect upon 
enactment of Biggert-Waters on July 6, 2012. As a result, the final 
rules implementing the Biggert-Waters force placement provisions should 
not have any impact on small entities who already were required to 
comply with the provisions as of July 6, 2012. Even prior to Biggert-
Waters' passage, regulated lending institutions, including those that 
are considered small entities, should have had mechanisms in place to 
refund premiums and fees to borrowers for any period of overlap between 
a force-placed policy and a borrower's policy. Consequently, the force 
placement provisions, which set forth procedures for terminating force-
placed insurance and refunding premiums and fees to the borrower, 
nevertheless, should have minimal impact on regulated lending 
institutions.
    5. Significant alternatives to the final revisions. The Board has 
not identified any significant alternatives that would reduce the 
regulatory burden associated with this final rule on small entities.
    FDIC: The FDIC is finalizing revisions to FDIC part 339 to account 
for certain changes to the FDPA, as amended by Biggert-Waters and 
HFIAA, that require lenders to escrow flood insurance premiums and fees 
to promote continuous flood insurance coverage for property securing 
designated loans, and to also terminate force-placed insurance and 
refund premiums and fees paid by a borrower for any period of 
overlapping insurance coverage.
    The RFA requires an agency to prepare an analysis that describes 
the potential impact of a proposed rule on small entities and include 
it in a notice of proposed rulemaking, making it available for public 
comment. 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 June 4, 2015, there were approximately 3,390 small FDIC-
supervised banks, which include 3,103 State nonmember banks and 240 
State-chartered savings banks, and 47 savings associations. The FDPA, 
as amended by Biggert-Waters, 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, the escrow requirement cannot have a significant economic 
impact on a substantial number of small entities.
    Additionally, Biggert-Waters includes reimbursement provisions 
related to force placement of flood insurance. The provisions set out 
the circumstances under which a regulated lending institution must 
terminate force-placed insurance and refund to the borrower all 
premiums and fees paid by the borrower for lender-placed coverage for 
any period during which the borrower's

[[Page 43238]]

flood insurance coverage and the lender-placed coverage overlapped. 
Biggert-Waters' force placement provisions already went into effect 
upon passage of the Act on July 6, 2012. As a result, the final rule 
incorporating the Biggert-Waters force placement provisions should not 
have any impact on small entities that were required to comply with the 
provisions as of July 6, 2012. For these reasons, the FDIC certifies 
that this final 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 final 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.\75\ For purposes of this analysis, NCUA 
considers small credit unions to be those having under $50 million in 
assets.\76\ As of December 31, 2014, there are 4,129 small, federally 
insured credit unions, and only about 1,850 of these credit unions have 
real estate loans. This final rule implements certain changes to the 
FDPA, as amended by Biggert-Waters and HFIAA.
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    \75\ 5 U.S.C. 603(a).
    \76\ 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).
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    The final rule requires 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 final 
rule also implements additional exceptions from the escrow 
requirements, as amended by HFIAA. One of these exceptions allows for 
credit unions with total assets less than $1 billion to be generally 
excluded from the escrow requirements. Due to this statutory exception, 
the escrow provisions of the final rule will not significantly affect a 
substantial number of small credit unions.
    In addition, the final rule adopts revisions to the force placement 
provisions to clarify that a credit union or its servicer may charge a 
borrower for the cost of flood insurance coverage from the date the 
borrower's coverage lapsed or became insufficient. The final rule also 
provides for the termination of force-placed insurance and the refund 
of premiums and fees paid by a borrower for any period of overlapping 
insurance coverage. The force placement provisions in the final rule 
were effective on July 6, 2012, and credit unions have been enforcing 
force placement provisions since that time. In addition, credit unions 
currently have the tools to refund premiums and fees whenever a 
borrower's policy overlaps a force-placed policy, as required in the 
final rule. Therefore, the final rule's force placement provisions will 
not have any significant impact on small credit unions that were 
required to comply with the provisions as of July 6, 2012.
    For these reasons, NCUA finds that this final rule affects 
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 a substantial number of 
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 the rule.
    Overall, we estimate the total costs associated with this final 
rule will range from approximately $25.1 million to approximately $30.8 
million in 2015 and from approximately $13 million to approximately $16 
million in 2016. 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 final rule ranges from approximately $24.4 
million to approximately $26.3 million.
    Accordingly, because the OCC has determined that this final 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) \77\ have 
determined that this final 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.).
---------------------------------------------------------------------------

    \77\ The FCA has determined that the final 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 final 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 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 extends 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 OCC, and the 
NCUA will seek new OMB control numbers.
    The OCC, FDIC, and NCUA submitted the information collection 
requirements to OMB in connection with the proposal. OMB filed a 
comment pursuant to 5 CFR 1320.11(c) instructing the agencies to 
examine public comment in response to the proposal and describe in the 
supporting statement of its next collection (the final rule) any public 
comments received regarding the collection as well as why (or why it 
did not) incorporate the commenter's recommendation and include the 
draft final rule in its next submission. There were no comments 
received regarding the collection. The

[[Page 43239]]

agencies have resubmitted the collection to OMB in connection with the 
final rule.
    Biggert-Waters required escrow for all new and outstanding loans in 
an SFHA, unless certain exceptions applied. HFIAA added several new 
exceptions, and most notably, ties the escrow requirement to a 
triggering 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 triggering 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.\78\
---------------------------------------------------------------------------

    \78\ 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 final rule. Entities subject to the 
rule may also need to develop new disclosures to meet the 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 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 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 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: 21,700 hours.
    Burden for Existing Disclosure Requirements: 23,250 hours.
    Burden Added by Final Rule: 62,000 hours.
    Total Burden for Collection for Final Rule: 106,950 hours.
    Board:
    Number of Respondents: 850.
    Burden for Existing Recordkeeping Requirements: 14,308 hours.
    Burden for Existing Disclosure Requirements: 17,780 hours.
    Burden Added by Final Rule: 34,000 hours.
    Total Burden for Collection for Final Rule: 66,088 hours.
    FDIC:
    Number of Respondents: 4,103.
    Burden for Existing Recordkeeping Requirements: 57,442 hours.
    Burden for Existing Disclosure Requirements: 71,474 hours.
    Burden Added by Final Rule: 164,120 hours.
    Total Burden for Collection for Final Rule: 293,036 hours.
    NCUA:
    Number of Respondents: 4,033.
    Burden for Existing Recordkeeping Requirements: 47,892 hours.
    Burden for Existing Disclosure Requirements: 59,824 hours.
    Burden Added by Final Rule: 161,320 hours.
    Total Burden for Collection for Final Rule: 269,036 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 
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 include any information in your comment or 
supporting materials that you consider confidential or inappropriate 
for public disclosure.
    Board: Mark Tokarski, Acting Federal Reserve Clearance Officer, 
Office of the Chief Data Officer, Mail Stop K1-148, 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, or John Popeo, Counsel, 
Attn: Comments, Federal Deposit Insurance Corporation, 550 17th Street 
NW., MB-3007, 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/

[[Page 43240]]

federal/ including any personal information provided.
    NCUA: Jessica Khouri, 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 amended as follows:

0
1. Effective October 1, 2015, part 22 is revised to read as follows:

PART 22--LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS

Sec.
22.1 Purpose and scope.
22.2 Definitions.
22.3 Requirement to purchase flood insurance where available.
22.4 Exemptions.
22.5 Escrow requirement.
22.6 Required use of standard flood hazard determination form.
22.7 Force placement of flood insurance.
22.8 Determination fees.
22.9 Notice of special flood hazards and availability of Federal 
disaster relief assistance.
22.10 Notice of servicer's identity.
APPENDIX A TO PART 22--SAMPLE FORM OF NOTICE OF SPECIAL FLOOD 
HAZARDS AND AVAILABILITY OF FEDERAL DISASTER RELIEF ASSISTANCE

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


Sec.  22.1  Purpose and scope.

    (a) Purpose. The purpose of this part is to implement the 
requirements of the National Flood Insurance Act of 1968 and the Flood 
Disaster Protection Act of 1973, as amended (42 U.S.C. 4001-4129).
    (b) Scope. This part, except for Sec. Sec.  22.6 and 22.8, applies 
to loans secured by buildings or mobile homes located or to be located 
in areas determined by the Administrator of the Federal Emergency 
Management Agency to have special flood hazards. Sections 22.6 and 22.8 
apply to loans secured by buildings or mobile homes, regardless of 
location.


Sec.  22.2  Definitions.

    For purposes of this part:
    (a) Act means the National Flood Insurance Act of 1968, as amended 
(42 U.S.C. 4001-4129).
    (b) Administrator of FEMA means the Administrator of the Federal 
Emergency Management Agency.
    (c) Building means a walled and roofed structure, other than a gas 
or liquid storage tank, that is principally above ground and affixed to 
a permanent site, and a walled and roofed structure while in the course 
of construction, alteration, or repair.
    (d) Community means a State or a political subdivision of a State 
that has zoning and building code jurisdiction over a particular area 
having special flood hazards.
    (e) Designated loan means a loan secured by a building or mobile 
home that is located or to be located in a special flood hazard area in 
which flood insurance is available under the Act.
    (f) Federal savings association means, for purposes of this part, a 
Federal savings association as that term is defined in 12 U.S.C. 
1813(b)(2) and any service corporations thereof.
    (g) Mobile home means a structure, transportable in one or more 
sections, that is built on a permanent chassis and designed for use 
with or without a permanent foundation when attached to the required 
utilities. The term mobile home does not include a recreational 
vehicle. For purposes of this part, the term mobile home means a mobile 
home on a permanent foundation. The term mobile home includes a 
manufactured home as that term is used in the NFIP.
    (h) National bank means a national bank or a Federal branch or 
agency of a foreign bank.
    (i) NFIP means the National Flood Insurance Program authorized 
under the Act.
    (j) Residential improved real estate means real estate upon which a 
home or other residential building is located or to be located.
    (k) Servicer means the person responsible for:
    (l) Receiving any scheduled, periodic payments from a borrower 
under the terms of a loan, including amounts for taxes, insurance 
premiums, and other charges with respect to the property securing the 
loan; and
    (2) Making payments of principal and interest and any other 
payments from the amounts received from the borrower as may be required 
under the terms of the loan.
    (l) Special flood hazard area means the land in the flood plain 
within a community having at least a one percent chance of flooding in 
any given year, as designated by the Administrator of FEMA.
    (m) Table funding means a settlement at which a loan is funded by a 
contemporaneous advance of loan funds and an assignment of the loan to 
the person advancing the funds.


Sec.  22.3  Requirement to purchase flood insurance where available.

    (a) In general. A national bank or Federal savings association 
shall not make, increase, extend, or renew any designated loan unless 
the building or mobile home and any personal property securing the loan 
is covered by flood insurance for the term of the loan. The amount of 
insurance must be at least equal to the lesser of the outstanding 
principal balance of the designated loan or the maximum limit of 
coverage available for the particular type of property under the Act. 
Flood insurance coverage under the Act is limited to the building or 
mobile home and any personal property that secures a loan and not the 
land itself.
    (b) Table funded loans. A national bank or Federal savings 
association that acquires a loan from a mortgage broker or other entity 
through table funding

[[Page 43241]]

shall be considered to be making a loan for the purposes of this part.


Sec.  22.4  Exemptions.

    The flood insurance requirement prescribed by Sec.  22.3 does not 
apply with respect to:
    (a) Any State-owned property covered under a policy of self-
insurance satisfactory to the 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. For purposes of this paragraph (c):
    (1) ``A structure that is a part of a residential property'' is a 
structure used primarily for personal, family, or household purposes, 
and not used primarily for agricultural, commercial, industrial, or 
other business purposes;
    (2) A structure is ``detached'' from the primary residential 
structure if it is not joined by any structural connection to that 
structure; and
    (3) ``Serve as a residence'' shall be based upon the good faith 
determination of the national bank or Federal savings association that 
the structure is intended for use or actually used as a residence, 
which generally includes sleeping, bathroom, or kitchen facilities.


Sec.  22.5  Escrow requirement.

    If a national bank or Federal savings association requires the 
escrow of taxes, insurance premiums, fees, or any other charges for a 
loan secured by residential improved real estate or a mobile home that 
is made, increased, extended, or renewed on or after October 1, 1996, 
the national bank or Federal savings association shall also require the 
escrow of all premiums and fees for any flood insurance required under 
Sec.  22.3. The national bank or Federal savings association, or a 
servicer acting on its behalf, shall deposit the flood insurance 
premiums on behalf of the borrower in an escrow account. This escrow 
account will be subject to escrow requirements adopted pursuant to 
section 10 of the Real Estate Settlement Procedures Act of 1974 (12 
U.S.C. 2609) (RESPA), which generally limits the amount that may be 
maintained in escrow accounts for certain types of loans and requires 
escrow account statements for those accounts, only if the loan is 
otherwise subject to RESPA. Following receipt of a notice from the 
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.


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

    (a) Use of form. 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 either hard copy or electronic form, for the 
period of time the bank or savings association owns the loan.


Sec.  22.7  Force placement of flood insurance.

    (a) Notice and purchase of coverage. If a national bank or Federal 
savings association, or a servicer acting on behalf of the bank or 
savings association, determines at any time during the term of a 
designated loan, that the building or mobile home and any personal 
property securing the designated loan is not covered by flood insurance 
or is covered by flood insurance in an amount less than the amount 
required under Sec.  22.3, then the national bank or Federal savings 
association, or a servicer acting on its behalf, shall notify the 
borrower that the borrower should obtain flood insurance, at the 
borrower's expense, in an amount at least equal to the amount required 
under Sec.  22.3, for the remaining term of the loan. If the borrower 
fails to obtain flood insurance within 45 days after notification, then 
the national bank or Federal savings association, or its servicer, 
shall purchase insurance on the borrower's behalf. The national bank or 
Federal savings association, or its servicer, may charge the borrower 
for the cost of premiums and fees incurred in purchasing the insurance, 
including premiums or fees incurred for coverage beginning on the date 
on which flood insurance coverage lapsed or did not provide a 
sufficient coverage amount.
    (b) Termination of force-placed insurance--(1) Termination and 
refund. Within 30 days of receipt by a national bank or Federal savings 
association, or by a servicer acting on its behalf, of a confirmation 
of a borrower's existing flood insurance coverage, the national bank or 
Federal savings association, or its servicer, shall:
    (i) Notify the insurance provider to terminate any insurance 
purchased by the national bank or Federal savings association, or its 
servicer, under paragraph (a) of this section; and
    (ii) Refund to the borrower all premiums paid by the borrower for 
any insurance purchased by the national bank or Federal savings 
association, or by its servicer, under paragraph (a) of this section 
during any period during which the borrower's flood insurance coverage 
and the insurance coverage purchased by the national bank or Federal 
savings association, or its servicer, were each in effect, and any 
related fees charged to the borrower with respect to the insurance 
purchased by the national bank or Federal savings association, or its 
servicer, during such period.
    (2) Sufficiency of demonstration. For purposes of confirming a 
borrower's existing flood insurance coverage under paragraph (b) of 
this section, a national bank or Federal savings association, or a 
servicer acting on its behalf, shall accept from the borrower an 
insurance policy declarations page that includes the existing flood 
insurance policy number and the identity of, and contact information 
for, the insurance company or agent.


Sec.  22.8  Determination fees.

    (a) General. Notwithstanding any Federal or State law other than 
the Flood Disaster Protection Act of 1973, as amended (42 U.S.C. 4001-
4129), any national bank or Federal savings association, or a servicer 
acting on behalf of the national bank or Federal savings association, 
may charge a reasonable fee for determining whether the building or 
mobile home securing the loan is located or will be located in a 
special flood hazard area. A determination fee may also include, but is 
not limited to, a fee for life-of-loan monitoring.
    (b) Borrower fee. The determination fee authorized by paragraph (a) 
of this section may be charged to the borrower if the determination:
    (1) Is made in connection with a making, increasing, extending, or 
renewing of the loan that is initiated by the borrower;

[[Page 43242]]

    (2) Reflects the Administrator of FEMA's revision or updating of 
flood plain areas or flood-risk zones;
    (3) Reflects the Administrator of FEMA's publication of a notice or 
compendium that:
    (i) Affects the area in which the building or mobile home securing 
the loan is located; or
    (ii) By determination of the Administrator of FEMA, may reasonably 
require a determination whether the building or mobile home securing 
the loan is located in a special flood hazard area; or
    (4) Results in the purchase of flood insurance coverage by the 
lender, or its servicer, on behalf of the borrower under Sec.  22.7.
    (c) Purchaser or transferee fee. The determination fee authorized 
by paragraph (a) of this section may be charged to the purchaser or 
transferee of a loan in the case of the sale or transfer of the loan.


Sec.  22.9  Notice of special flood hazards and availability of Federal 
disaster relief assistance.

    (a) Notice requirement. When a national bank or Federal savings 
association makes, increases, extends, or renews a loan secured by a 
building or a mobile home located or to be located in a special flood 
hazard area, the bank or savings association shall mail or deliver a 
written notice to the borrower and to the servicer in all cases whether 
or not flood insurance is available under the Act for the collateral 
securing the loan.
    (b) Contents of notice. The written notice must include the 
following information:
    (1) A warning, in a form approved by the Administrator of FEMA, 
that the building or the mobile home is or will be located in a special 
flood hazard area;
    (2) A description of the flood insurance purchase requirements set 
forth in section 102(b) of the Flood Disaster Protection Act of 1973, 
as amended (42 U.S.C. 4012a(b));
    (3) A statement, where applicable, that flood insurance coverage is 
available under the NFIP and may also be available from private 
insurers; and
    (4) A statement whether Federal disaster relief assistance may be 
available in the event of damage to the building or mobile home caused 
by flooding in a Federally declared disaster.
    (c) Timing of notice. The national bank or Federal savings 
association shall provide the notice required by paragraph (a) of this 
section to the borrower within a reasonable time before the completion 
of the transaction, and to the servicer as promptly as practicable 
after the bank or savings association provides notice to the borrower 
and in any event no later than the time the bank or savings association 
provides other similar notices to the servicer concerning hazard 
insurance and taxes. Notice to the servicer may be made electronically 
or may take the form of a copy of the notice to the borrower.
    (d) Record of receipt. The national bank or Federal savings 
association shall retain a record of the receipt of the notices by the 
borrower and the servicer for the period of time it owns the loan.
    (e) Alternate method of notice. Instead of providing the notice to 
the borrower required by paragraph (a) of this section, a national bank 
or Federal savings association may obtain satisfactory written 
assurance from a seller or lessor that, within a reasonable time before 
the completion of the sale or lease transaction, the seller or lessor 
has provided such notice to the purchaser or lessee. The national bank 
or Federal savings association shall retain a record of the written 
assurance from the seller or lessor for the period of time it owns the 
loan.
    (f) Use of sample form of notice. A national bank or Federal 
savings association will be considered to be in compliance with the 
requirement for notice to the borrower of this section by providing 
written notice to the borrower containing the language presented in 
appendix A to this part within a reasonable time before the completion 
of the transaction. The notice presented in appendix A to this part 
satisfies the borrower notice requirements of the Act.


Sec.  22.10  Notice of servicer's identity.

    (a) Notice requirement. When a national bank or Federal savings 
association makes, increases, extends, renews, sells, or transfers a 
loan secured by a building or mobile home located or to be located in a 
special flood hazard area, it shall notify the Administrator of FEMA 
(or the Administrator's designee) in writing of the identity of the 
servicer of the loan. The Administrator of FEMA has designated the 
insurance provider to receive the national bank's or Federal savings 
association's notice of the servicer's identity. This notice may be 
provided electronically if electronic transmission is satisfactory to 
the Administrator of FEMA's designee.
    (b) Transfer of servicing rights. The national bank or Federal 
savings association shall notify the Administrator of FEMA (or the 
Administrator's designee) of any change in the servicer of a loan 
described in paragraph (a) of this section within 60 days after the 
effective date of the change. This notice may be provided 
electronically if electronic transmission is satisfactory to the 
Administrator of FEMA's designee. Upon any change in the servicing of a 
loan described in paragraph (a) of this section, the duty to provide 
notice under this paragraph (b) shall transfer to the transferee 
servicer.

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

[[Page 43243]]

available for damages incurred in excess of your flood insurance if 
your community's participation in the NFIP is in accordance with 
NFIP requirements.
    __ Flood insurance coverage under the NFIP is not available for 
the property securing the loan because the community in which the 
property is located does not participate in the NFIP. In addition, 
if the non-participating community has been identified for at least 
one year as containing a special flood hazard area, properties 
located in the community will not be eligible for Federal disaster 
relief assistance in the event of a Federally-declared flood 
disaster.


0
2. Effective January 1, 2016, Sec.  22.5 is revised to read as follows:


Sec.  22.5  Escrow requirement.

    (a) In general--(1) Applicability. Except as provided in paragraphs 
(a)(2) or (c) of this section, a national bank or a Federal savings 
association, or a servicer acting on its behalf, shall require the 
escrow of all premiums and fees for any flood insurance required under 
Sec.  22.3(a) for any designated 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 designated loan are required to be 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(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.  22.3(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, which is a loan that is 90 or 
more days past due and remains nonperforming until it is permanently 
modified or until the entire amount past due, including principal, 
accrued interest, and penalty interest incurred as the result of past 
due status, is collected or otherwise discharged in full; or
    (vi) The loan has a term of no longer than 12 months.
    (3) Duration of exception. If a national bank or Federal savings 
association, or a servicer acting its behalf, determines at any time 
during the term of a designated loan secured by residential improved 
real estate or a mobile home that is made, increased, extended, or 
renewed on or after January 1, 2016, that an exception under paragraph 
(a)(2) of this section does not apply, then the bank or savings 
association, or the servicer acting on its behalf, shall require the 
escrow of all premiums and fees for any flood insurance required under 
Sec.  22.3(a) as soon as reasonably practicable and, if applicable, 
shall provide any disclosure required under section 10 of the Real 
Estate Settlement Procedures Act of 1974 (12 U.S.C. 2609) (RESPA).
    (4) 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 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 paragraphs (a)(1) or 
(c)(2) of this section or may be required to escrow under paragraphs 
(a)(3) of this section during the term of the loan, 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 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 to this part.
    (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 first calendar year of changed status.
    (d) Option to escrow--(1) In general. 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 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 first calendar year in 
which the national bank or Federal savings association has had a change 
in status pursuant to paragraph (c)(2) of this section, unless:
    (i) The loan or the national bank or Federal savings association 
qualifies for an exception from the escrow requirement under paragraphs 
(a)(2) or (c) of this section, respectively;
    (ii) The borrower is already escrowing all premiums and fees for 
flood insurance for the loan; or
    (iii) The national bank or Federal savings association is required 
to escrow flood insurance premiums and fees pursuant to paragraph (a) 
of this section.
    (2) Notice. For any loan subject to paragraph (d) 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 June 
30, 2016, or September 30 of the first calendar year in which the 
national bank or Federal savings association has had a change in

[[Page 43244]]

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 clause in appendix B.
    (3) Timing. The national bank or Federal savings association or the 
servicer acting on its behalf, must begin escrowing premiums and fees 
for flood insurance as soon as reasonably practicable after the bank or 
savings association, or servicer, receives the borrower's request to 
escrow.

0
3. Effective January 1, 2016, Sec.  22.9(b) is revised to read as 
follows:


Sec.  22.9  Notice of special flood hazards and availability of Federal 
disaster relief assistance.

* * * * *
    (b) Contents of notice. The written notice must include the 
following information:
    (1) A warning, in a form approved by the Administrator of FEMA, 
that the building or the mobile home is or will be located in a special 
flood hazard area;
    (2) A description of the flood insurance purchase requirements set 
forth in section 102(b) of the Flood Disaster Protection Act of 1973, 
as amended (42 U.S.C. 4012a(b));
    (3) A statement, where applicable, that flood insurance coverage is 
available from private insurance companies that issue standard flood 
insurance policies on behalf of the NFIP or directly from the NFIP;
    (4) A statement that flood insurance that provides the same level 
of coverage as a standard flood insurance policy under the NFIP also 
may be available from a private insurance company that issues policies 
on behalf of the company;
    (5) A statement that the borrower is encouraged to 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 that the borrower should direct inquiries regarding the 
availability, cost, and comparisons of flood insurance coverage to an 
insurance agent; and
    (6) A statement whether Federal disaster relief assistance may be 
available in the event of damage to the building or mobile home caused 
by flooding in a Federally declared disaster.
* * * * *

0
4. Effective January 1, 2016, Appendix A to Part 22 is revised 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.
     Although you may not be required to maintain flood 
insurance on all structures, you may still wish to do so, and your 
mortgage lender may still require you to do so to protect the 
collateral securing the mortgage. If you choose not to maintain 
flood insurance on a structure and it floods, you are responsible 
for all flood losses relating to that structure.

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 contact an insurance agent as to 
the availability, cost, and comparisons of flood insurance coverage.

[Escrow Requirement for Residential Loans

    Federal law may require 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. If your lender notifies you that an 
escrow account is required for your loan, then you must pay your 
flood insurance premiums and fees to the lender or its servicer with 
the same frequency as you make loan payments for the duration of 
your loan. These premiums and fees will be deposited in the escrow 
account, which will be used to pay the flood 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
5. Effective January 1, 2016, Appendix B to Part 22 is added 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 the 
payment on your flood insurance policy that covers any residential 
building or mobile home that is located in an area with special 
flood hazards and that secures your loan. 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 
the regular mortgage payment that you make to your lender or its 
servicer.
     The payments you make into the escrow account will 
accumulate over time and the funds will be used to pay your flood 
insurance policy when your lender or servicer receives a notice from 
your flood insurance provider that the flood insurance premium is 
due.

[[Page 43245]]

    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].
    [Insert Instructions for Selecting to Escrow]

PART 172--[REMOVED]

0
6. Effective October 1, 2015, part 172 is removed.

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 amended as 
set forth below:

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

0
7. 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
8. Effective October 1, 2015, Sec.  208.25 is revised to read as 
follows:


Sec.  208.25  Loans in areas having special flood hazards.

    (a) Purpose and scope--(1) Purpose. The purpose of this section is 
to implement the requirements of the National Flood Insurance Act of 
1968 and the Flood Disaster Protection Act of 1973, as amended (42 
U.S.C. 4001-4129).
    (2) Scope. This section, except for paragraphs (f) and (h) of this 
section, applies to loans secured by buildings or mobile homes located 
or to be located in areas determined by the Administrator of the 
Federal Emergency Management Agency to have special flood hazards. 
Paragraphs (f) and (h) of this section apply to loans secured by 
buildings or mobile homes, regardless of location.
    (b) Definitions. For purposes of this section:
    (1) Act means the National Flood Insurance Act of 1968, as amended 
(42 U.S.C. 4001-4129).
    (2) Administrator of FEMA means the Administrator of the Federal 
Emergency Management Agency.
    (3) Building means a walled and roofed structure, other than a gas 
or liquid storage tank, that is principally above ground and affixed to 
a permanent site, and a walled and roofed structure while in the course 
of construction, alteration, or repair.
    (4) Community means a State or a political subdivision of a State 
that has zoning and building code jurisdiction over a particular area 
having special flood hazards.
    (5) Designated loan means a loan secured by a building or mobile 
home that is located or to be located in a special flood hazard area in 
which flood insurance is available under the Act.
    (6) Mobile home means a structure, transportable in one or more 
sections, that is built on a permanent chassis and designed for use 
with or without a permanent foundation when attached to the required 
utilities. The term mobile home does not include a recreational 
vehicle. For purposes of this section, the term mobile home means a 
mobile home on a permanent foundation. The term mobile home includes a 
manufactured home as that term is used in the NFIP.
    (7) NFIP means the National Flood Insurance Program authorized 
under the Act.
    (8) Residential improved real estate means real estate upon which a 
home or other residential building is located or to be located.
    (9) Servicer means the person responsible for:
    (i) Receiving any scheduled, periodic payments from a borrower 
under the terms of a loan, including amounts for taxes, insurance 
premiums, and other charges with respect to the property securing the 
loan; and
    (ii) Making payments of principal and interest and any other 
payments from the amounts received from the borrower as may be required 
under the terms of the loan.
    (10) Special flood hazard area means the land in the flood plain 
within a community having at least a one percent chance of flooding in 
any given year, as designated by the Administrator of FEMA.
    (11) Table funding means a settlement at which a loan is funded by 
a contemporaneous advance of loan funds and an assignment of the loan 
to the person advancing the funds.
    (c) Requirement to purchase flood insurance where available--(1) In 
general. A member bank shall not make, increase, extend, or renew any 
designated loan unless the building or mobile home and any personal 
property securing the loan is covered by flood insurance for the term 
of the loan. The amount of insurance must be at least equal to the 
lesser of the outstanding principal balance of the designated loan or 
the maximum limit of coverage available for the particular type of 
property under the Act. Flood insurance coverage under the Act is 
limited to the building or mobile home and any personal property that 
secures a loan and not the land itself.
    (2) Table funded loans. A member bank that acquires a loan from a 
mortgage broker or other entity through table funding shall be 
considered to be making a loan for the purposes of this section.
    (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. For purposes of this paragraph (d)(3):
    (i) ``A structure that is a part of a residential property'' is a 
structure used primarily for personal, family, or household purposes, 
and not used primarily for agricultural, commercial, industrial, or 
other business purposes;
    (ii) A structure is ``detached'' from the primary residential 
structure if it is not joined by any structural connection to that 
structure; and
    (iii) ``Serve as a residence'' shall be based upon the good faith 
determination of the member bank that the structure is intended for use 
or actually used as a residence, which generally includes sleeping, 
bathroom, or kitchen facilities.
    (e) Escrow requirement. If a member bank requires the escrow of 
taxes, insurance premiums, fees, or any other charges for a loan 
secured by residential improved real estate or a mobile home that is 
made, increased, extended, or renewed after October 1, 1996, the member 
bank shall also require the escrow of all premiums and fees for any 
flood insurance required under paragraph (c) of this section. The 
member bank, or a servicer acting on its behalf, shall deposit the 
flood insurance premiums on behalf of the borrower in an escrow 
account. This escrow account will be subject to escrow requirements 
adopted pursuant to section 10 of the Real Estate Settlement Procedures 
Act of 1974 (12 U.S.C. 2609) (RESPA), which generally limits the amount 
that may be maintained in escrow accounts for certain types of loans 
and requires escrow account statements for those

[[Page 43246]]

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.
    (f) Required use of standard flood hazard determination form--(1) 
Use of form. A state member bank shall use the standard flood hazard 
determination form developed by the 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.
    (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.
    (g) Force placement of flood insurance--(1) Notice and purchase of 
coverage. If a member bank, or a servicer acting on behalf of the bank, 
determines at any time during the term of a designated loan, that the 
building or mobile home and any personal property securing the 
designated loan is not covered by flood insurance or is covered by 
flood insurance in an amount less than the amount required under 
paragraph (c) of this section, then the member bank or its servicer 
shall notify the borrower that the borrower should obtain flood 
insurance, at the borrower's expense, in an amount at least equal to 
the amount required under paragraph (c) of this section, for the 
remaining term of the loan. If the borrower fails to obtain flood 
insurance within 45 days after notification, then the member bank or 
its servicer shall purchase insurance on the borrower's behalf. The 
member bank or its servicer may charge the borrower for the cost of 
premiums and fees incurred in purchasing the insurance, including 
premiums or fees incurred for coverage beginning on the date on which 
flood insurance coverage lapsed or did not provide a sufficient 
coverage amount.
    (2) Termination of force-placed insurance--(i) Termination and 
refund. Within 30 days of receipt by a member bank, or a servicer 
acting on its behalf, of a confirmation of a borrower's existing flood 
insurance coverage, the member bank or its servicer shall:
    (A) Notify the insurance provider to terminate any insurance 
purchased by the member bank or its servicer under paragraph (g)(1) of 
this section; and
    (B) Refund to the borrower all premiums paid by the borrower for 
any insurance purchased by the member bank or its servicer under 
paragraph (g)(1) of this section during any period during which the 
borrower's flood insurance coverage and the insurance coverage 
purchased by the member bank or its servicer were each in effect, and 
any related fees charged to the borrower with respect to the insurance 
purchased by the member bank or its servicer during such period.
    (ii) Sufficiency of demonstration. For purposes of confirming a 
borrower's existing flood insurance coverage under paragraph (g)(2) of 
this section, a member bank or its servicer shall accept from the 
borrower an insurance policy declarations page that includes the 
existing flood insurance policy number and the identity of, and contact 
information for, the insurance company or agent.
    (h) Determination fees.--(1) General. Notwithstanding any Federal 
or State law other than the Flood Disaster Protection Act of 1973, as 
amended (42 U.S.C. 4001-4129), any member bank, or a servicer acting on 
behalf of the bank, may charge a reasonable fee for determining whether 
the building or mobile home securing the loan is located or will be 
located in a special flood hazard area. A determination fee may also 
include, but is not limited to, a fee for life-of-loan monitoring.
    (2) Borrower fee. The determination fee authorized by paragraph 
(h)(1) of this section may be charged to the borrower if the 
determination:
    (i) Is made in connection with a making, increasing, extending, or 
renewing of the loan that is initiated by the borrower;
    (ii) Reflects the Administrator of FEMA's revision or updating of 
flood plain areas or flood-risk zones;
    (iii) Reflects the Administrator of FEMA's publication of a notice 
or compendium that:
    (A) Affects the area in which the building or mobile home securing 
the loan is located; or
    (B) By determination of the Administrator of FEMA, may reasonably 
require a determination whether the building or mobile home securing 
the loan is located in a special flood hazard area; or
    (iv) Results in the purchase of flood insurance coverage by the 
lender or its servicer on behalf of the borrower under paragraph (g) of 
this section.
    (3) Purchaser or transferee fee. The determination fee authorized 
by paragraph (h)(1) of this section may be charged to the purchaser or 
transferee of a loan in the case of the sale or transfer of the loan.
    (i) Notice of special flood hazards and availability of Federal 
disaster relief assistance. When a member bank makes, increases, 
extends, or renews a loan secured by a building or a mobile home 
located or to be located in a special flood hazard area, the bank shall 
mail or deliver a written notice to the borrower and to the servicer in 
all cases whether or not flood insurance is available under the Act for 
the collateral securing the loan.
    (1) Contents of notice. The written notice must include the 
following information:
    (i) A warning, in a form approved by the Administrator of FEMA, 
that the building or the mobile home is or will be located in a special 
flood hazard area;
    (ii) A description of the flood insurance purchase requirements set 
forth in section 102(b) of the Flood Disaster Protection Act of 1973, 
as amended (42 U.S.C. 4012a(b));
    (iii) A statement, where applicable, that flood insurance coverage 
is available under the NFIP and may also be available from private 
insurers; and
    (iv) A statement whether Federal disaster relief assistance may be 
available in the event of damage to the building or mobile home caused 
by flooding in a Federally declared disaster.
    (2) Timing of notice. The member bank shall provide the notice 
required by paragraph (i)(1) of this section to the borrower within a 
reasonable time before the completion of the transaction, and to the 
servicer as promptly as practicable after the bank provides notice to 
the borrower and in any event no later than the time the bank provides 
other similar notices to the servicer concerning hazard insurance and 
taxes. Notice to the servicer may be made electronically or may take 
the form of a copy of the notice to the borrower.
    (3) Record of receipt. The member bank shall retain a record of the 
receipt of the notices by the borrower and the servicer for the period 
of time the bank owns the loan.
    (4) Alternate method of notice. Instead of providing the notice to 
the borrower required by paragraph (i)(1) of this section, a member 
bank may obtain satisfactory written assurance from a seller or lessor 
that, within a reasonable time before the completion of the sale or 
lease transaction, the seller or lessor has

[[Page 43247]]

provided such notice to the purchaser or lessee. The member bank shall 
retain a record of the written assurance from the seller or lessor for 
the period of time the bank owns the loan.
    (5) Use of sample form of notice. A member bank will be considered 
to be in compliance with the requirement for notice to the borrower of 
this paragraph (i) of this section by providing written notice to the 
borrower containing the language presented in appendix A of this 
section within a reasonable time before the completion of the 
transaction. The notice presented in appendix A of this section 
satisfies the borrower notice requirements of the Act.
    (j) Notice of servicer's identity--(1) Notice requirement. When a 
member bank makes, increases, extends, renews, sells, or transfers a 
loan secured by a building or mobile home located or to be located in a 
special flood hazard area, the bank shall notify the Administrator of 
FEMA (or the Administrator's designee) in writing of the identity of 
the servicer of the loan. The Administrator of FEMA has designated the 
insurance provider to receive the member bank's notice of the 
servicer's identity. This notice may be provided electronically if 
electronic transmission is satisfactory to the Administrator of FEMA's 
designee.
    (2) Transfer of servicing rights. The member bank shall notify the 
Administrator of FEMA (or the Administrator's designee) of any change 
in the servicer of a loan described in paragraph (j)(1) of this section 
within 60 days after the effective date of the change. This notice may 
be provided electronically if electronic transmission is satisfactory 
to the Administrator of FEMA's designee. Upon any change in the 
servicing of a loan described in paragraph (j)(1) of this section, the 
duty to provide notice under this paragraph (j)(2) of this section 
shall transfer to the transferee servicer.

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


0
9. Effective January 1, 2016, Sec.  208.25 is amended by:
0
a. Revising paragraph (e).
0
b. Revising paragraph (i)(1).
0
c. Revising Appendix A to Sec.  208.25.
0
d. Adding Appendix B to Sec.  208.25.


Sec.  208.25  Loans in areas having special flood hazards.

* * * * *
    (e) Escrow requirement--(1) In general--(i) Applicability. Except 
as provided in paragraphs (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 designated 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 designated loan are required 
to be 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, which is a loan that is 90 or 
more days past due and remains nonperforming until it is permanently 
modified or until the entire amount past due, including principal, 
accrued interest, and penalty interest incurred as the result of past 
due status, is collected or otherwise discharged in full; or
    (F) The loan has a term of not longer than 12 months.
    (iii) Duration of exception. If a member bank, or a servicer acting 
on behalf of the bank, determines at any time during the term of a 
designated loan secured by residential improved real estate or a mobile 
home that is made, increased, extended, or renewed on or after January 
1, 2016, that an exception under paragraph (e)(1)(ii) of this section 
does not apply, then the bank or its servicer shall require the escrow 
of all premiums and fees for any flood insurance required under 
paragraph (c) of this section as soon as reasonably practicable and, if 
applicable, shall provide any disclosure required under section 10 of 
the Real

[[Page 43248]]

Estate Settlement Procedures Act of 1974 (12 U.S.C. 2609) (RESPA).
    (iv) 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 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 paragraphs (e)(1) or (e)(3)(ii) of this section or may be 
required to escrow under paragraph (e)(1)(iii) of this section during 
the term of the loan, 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 to this section.
    (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 first calendar year of changed 
status.
    (4) Option to escrow. (i) In general. 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 first calendar year in which the 
member bank has had a change in status pursuant to paragraph (e)(3)(ii) 
of this section, unless:
    (A) The loan or the member bank qualifies for an exception from the 
escrow requirement under paragraphs (e)(1)(ii) or (e)(3) of this 
section, respectively;
    (B) The borrower is already escrowing all premiums and fees for 
flood insurance for the loan; or
    (C) The member bank is required to escrow flood insurance premiums 
and fees 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 June 30, 2016, or 
September 30 of the first calendar year in which the member bank has 
had 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 clause in appendix B to this section.
    (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.
* * * * *
    (i) * * *
    (1) Contents of notice. The written notice must include the 
following information:
    (i) A warning, in a form approved by the Administrator of FEMA, 
that the building or the mobile home is or will be located in a special 
flood hazard area;
    (ii) A description of the flood insurance purchase requirements set 
forth in section 102(b) of the Flood Disaster Protection Act of 1973, 
as amended (42 U.S.C. 4012a(b));
    (iii) A statement, where applicable, that flood insurance coverage 
is available from private insurance companies that issue standard flood 
insurance policies on behalf of the NFIP or directly from the NFIP;
    (iv) A statement that flood insurance that provides the same level 
of coverage as a standard flood insurance policy under the NFIP also 
may be available from a private insurance company that issues policies 
on behalf of the company;
    (v) A statement that the borrower is encouraged to 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 that the borrower should direct inquiries regarding the 
availability, cost, and comparisons of flood insurance coverage to an 
insurance agent; and
    (vi) A statement whether Federal disaster relief assistance may be 
available in the event of damage to the building or mobile home caused 
by flooding in a Federally declared disaster.
* * * * *

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

[[Page 43249]]

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.
     Although you may not be required to maintain flood 
insurance on all structures, you may still wish to do so, and your 
mortgage lender may still require you to do so to protect the 
collateral securing the mortgage. If you choose not to maintain 
flood insurance on a structure and it floods, you are responsible 
for all flood losses relating to that structure.

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 contact an insurance agent as to 
the availability, cost, and comparisons of flood insurance coverage.

[Escrow Requirement for Residential Loans

    Federal law may require 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. If your lender notifies you that an 
escrow account is required for your loan, then you must pay your 
flood insurance premiums and fees to the lender or its servicer with 
the same frequency as you make loan payments for the duration of 
your loan. These premiums and fees will be deposited in the escrow 
account, which will be used to pay the flood 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 the 
payment on your flood insurance policy that covers any residential 
building or mobile home that is located in an area with special 
flood hazards and that secures your loan. 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 
the regular mortgage payment that you make to your lender or its 
servicer.
     The payments you make into the escrow account will 
accumulate over time and the funds will be used to pay your flood 
insurance policy when your lender or servicer receives a notice from 
your 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].
    [Insert 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 amends part 339 of chapter III of title 12 of the 
Code of Federal Regulations as follows:

0
10. Effective October 1, 2015, part 339 is revised to read as follows:

PART 339--LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS

Sec.
339.1 Authority, purpose, and scope.
339.2 Definitions.
339.3 Requirement to purchase flood insurance where available.
339.4 Exemptions.
339.5 Escrow requirement.
339.6 Required use of standard flood hazard determination form.
339.7 Force placement of flood insurance.
339.8 Determination fees.
339.9 Notice of special flood hazards and availability of Federal 
disaster relief assistance.
339.10 Notice of servicer's identity.
Appendix A to Part 339--Sample Form of Notice of Special Flood 
Hazards and Availability of Federal Disaster Relief Assistance


Sec.  339.1  Authority, purpose, and scope.

    (a) Authority. This part is issued pursuant to 12 U.S.C. 1462a, 
1463, 1464, 1819 (Tenth), 5412(b)(2)(C) and 42 U.S.C. 4012a, 4104a, 
4104b, 4106, and 4128.
    (b) Purpose. The purpose of this part is to implement the 
requirements of the National Flood Insurance Act of 1968 and the Flood 
Disaster Protection Act of 1973, as amended (42 U.S.C. 4001-4129).
    (c) Scope. This part, except for Sec. Sec.  339.6 and 339.8, 
applies to loans secured by buildings or mobile homes located or to be 
located in areas determined by the Administrator of the Federal 
Emergency Management Agency to have special flood hazards. Sections 
339.6 and 339.8 apply to loans secured by buildings or mobile homes, 
regardless of location.


Sec.  339.2  Definitions.

    As used in this part:
    Act means the National Flood Insurance Act of 1968, as amended (42 
U.S.C. 4001-4129).
    Administrator of FEMA means the Administrator of the Federal 
Emergency Management Agency.
    Building means a walled and roofed structure, other than a gas or 
liquid storage tank, that is principally above ground and affixed to a 
permanent site, and a walled and roofed structure while in the course 
of construction, alteration, or repair.
    Community means a State or a political subdivision of a State that 
has zoning and building code jurisdiction over a particular area having 
special flood hazards.
    Designated loan means a loan secured by a building or mobile home 
that is located or to be located in a special flood hazard area in 
which flood insurance is available under the Act.
    FDIC-supervised institution means any insured depository 
institution for which the Federal Deposit Insurance Corporation is the 
appropriate Federal banking agency pursuant to section 3(g) of the 
Federal Deposit Insurance Act, 12 U.S.C. 1813(g).
    Mobile home means a structure, transportable in one or more 
sections, that is built on a permanent chassis and designed for use 
with or without a permanent foundation when attached to the required 
utilities. The term mobile home does not include a recreational 
vehicle. For purposes of this part, the term mobile home means a mobile 
home on a permanent foundation. The term mobile home includes a 
manufactured home as that term is used in the NFIP.

[[Page 43250]]

    NFIP means the National Flood Insurance Program authorized under 
the Act.
    Residential improved real estate means real estate upon which a 
home or other residential building is located or to be located.
    Servicer means the person responsible for:
    (1) Receiving any scheduled, periodic payments from a borrower 
under the terms of a loan, including amounts for taxes, insurance 
premiums, and other charges with respect to the property securing the 
loan; and
    (2) Making payments of principal and interest and any other 
payments from the amounts received from the borrower as may be required 
under the terms of the loan.
    Special flood hazard area means the land in the flood plain within 
a community having at least a one percent chance of flooding in any 
given year, as designated by the Administrator of FEMA.
    Table funding means a settlement at which a loan is funded by a 
contemporaneous advance of loan funds and an assignment of the loan to 
the person advancing the funds.


Sec.  339.3  Requirement to purchase flood insurance where available.

    (a) In general. An FDIC-supervised institution shall not make, 
increase, extend, or renew any designated loan unless the building or 
mobile home and any personal property securing the loan is covered by 
flood insurance for the term of the loan. The amount of insurance must 
be at least equal to the lesser of the outstanding principal balance of 
the designated loan or the maximum limit of coverage available for the 
particular type of property under the Act. Flood insurance coverage 
under the Act is limited to the building or mobile home and any 
personal property that secures a loan and not the land itself.
    (b) Table funded loans. An FDIC-supervised institution that 
acquires a loan from a mortgage broker or other entity through table 
funding shall be considered to be making a loan for the purpose of this 
part.


Sec.  339.4  Exemptions.

    The flood insurance requirement prescribed by Sec.  339.3 does not 
apply with respect to:
    (a) Any state-owned property covered under a policy of self-
insurance satisfactory to the 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. For purposes of this paragraph (c):
    (1) ``A structure that is a part of a residential property'' is a 
structure used primarily for personal, family, or household purposes, 
and not used primarily for agricultural, commercial, industrial, or 
other business purposes;
    (2) A structure is ``detached'' from the primary residential 
structure if it is not joined by any structural connection to that 
structure; and
    (3) ``Serve as a residence'' shall be based upon the good faith 
determination of the FDIC-supervised institution that the structure is 
intended for use or actually used as a residence, which generally 
includes sleeping, bathroom, or kitchen facilities.


Sec.  339.5  Escrow requirement.

    If an FDIC-supervised institution requires the escrow of taxes, 
insurance premiums, fees, or any other charges for a loan secured by 
residential improved real estate or a mobile home that is made, 
increased, extended, or renewed on or after October 1, 1996, the FDIC-
supervised institution shall also require the escrow of all premiums 
and fees for any flood insurance required under Sec.  339.3. The FDIC-
supervised institution, or a servicer acting on behalf of the FDIC-
supervised institution, shall deposit the flood insurance premiums on 
behalf of the borrower in an escrow account. This escrow account will 
be subject to escrow requirements adopted pursuant to section 10 of the 
Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2609) (RESPA), 
which generally limits the amount that may be maintained in escrow 
accounts for certain types of loans and requires escrow account 
statements for those accounts, only if the loan is otherwise subject to 
RESPA. Following receipt of a notice from the Administrator of FEMA or 
other provider of flood insurance that premiums are due, the FDIC-
supervised institution, or a servicer acting on behalf of the FDIC-
supervised institution, shall pay the amount owed to the insurance 
provider from the escrow account by the date when such premiums are 
due.


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

    (a) Use of form. 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.


Sec.  339.7  Force placement of flood insurance.

    (a) Notice and purchase of coverage. If an FDIC-supervised 
institution, or a servicer acting on its behalf, determines at any time 
during the term of a designated loan, that the building or mobile home 
and any personal property securing the designated loan is not covered 
by flood insurance or is covered by flood insurance in an amount less 
than the amount required under Sec.  339.3, then the FDIC-supervised 
institution or its servicer shall notify the borrower that the borrower 
should obtain flood insurance, at the borrower's expense, in an amount 
at least equal to the amount required under Sec.  339.3, for the 
remaining term of the loan. If the borrower fails to obtain flood 
insurance within 45 days after notification, then the FDIC-supervised 
institution or its servicer shall purchase insurance on the borrower's 
behalf. The FDIC-supervised institution or its servicer may charge the 
borrower for the cost of premiums and fees incurred in purchasing the 
insurance, including premiums or fees incurred for coverage beginning 
on the date on which flood insurance coverage lapsed or did not provide 
a sufficient coverage amount.
    (b) Termination of force-placed insurance--(1) Termination and 
refund. Within 30 days of receipt by an FDIC-supervised institution, or 
a servicer acting on its behalf, of a confirmation of a borrower's 
existing flood insurance coverage, the FDIC-supervised institution or 
its servicer shall:
    (i) Notify the insurance provider to terminate any insurance 
purchased by the FDIC-supervised institution or its servicer under 
paragraph (a) of this section; and
    (ii) Refund to the borrower all premiums paid by the borrower for 
any insurance purchased by the FDIC-supervised institution or its 
servicer

[[Page 43251]]

under paragraph (a) of this section during any period during which the 
borrower's flood insurance coverage and the insurance coverage 
purchased by the FDIC-supervised institution or its servicer were each 
in effect, and any related fees charged to the borrower with respect to 
the insurance purchased by the FDIC-supervised institution or its 
servicer during such period.
    (2) Sufficiency of demonstration. For purposes of confirming a 
borrower's existing flood insurance coverage under paragraph (b) of 
this section, an FDIC-supervised institution or its servicer shall 
accept from the borrower an insurance policy declarations page that 
includes the existing flood insurance policy number and the identity 
of, and contact information for, the insurance company or agent.


Sec.  339.8  Determination fees.

    (a) General. Notwithstanding any Federal or State law other than 
the Flood Disaster Protection Act of 1973, as amended (42 U.S.C. 4001-
4129), any FDIC-supervised institution, or a servicer acting on its 
behalf, may charge a reasonable fee for determining whether the 
building or mobile home securing the loan is located or will be located 
in a special flood hazard area. A determination fee may also include, 
but is not limited to, a fee for life-of-loan monitoring.
    (b) Borrower fee. The determination fee authorized by paragraph (a) 
of this section may be charged to the borrower if the determination:
    (1) Is made in connection with a making, increasing, extending, or 
renewing of the loan that is initiated by the borrower;
    (2) Reflects the Administrator of FEMA's revision or updating of 
floodplain areas or flood-risk zones;
    (3) Reflects the Administrator of FEMA's publication of a notice or 
compendium that:
    (i) Affects the area in which the building or mobile home securing 
the loan is located; or
    (ii) By determination of the Administrator of FEMA, may reasonably 
require a determination whether the building or mobile home securing 
the loan is located in a special flood hazard area; or
    (4) Results in the purchase of flood insurance coverage by the 
lender or its servicer on behalf of the borrower under Sec.  339.7.
    (c) Purchaser or transferee fee. The determination fee authorized 
by paragraph (a) of this section may be charged to the purchaser or 
transferee of a loan in the case of the sale or transfer of the loan.


Sec.  339.9  Notice of special flood hazards and availability of 
Federal disaster relief assistance.

    (a) Notice requirement. When an FDIC-supervised institution makes, 
increases, extends, or renews a loan secured by a building or a mobile 
home located or to be located in a special flood hazard area, the FDIC-
supervised institution shall mail or deliver a written notice to the 
borrower and to the servicer in all cases whether or not flood 
insurance is available under the Act for the collateral securing the 
loan.
    (b) Contents of notice. The written notice must include the 
following information:
    (1) A warning, in a form approved by the Administrator of FEMA, 
that the building or the mobile home is or will be located in a special 
flood hazard area;
    (2) A description of the flood insurance purchase requirements set 
forth in section 102(b) of the Flood Disaster Protection Act of 1973, 
as amended (42 U.S.C. 4012a(b));
    (3) A statement, where applicable, that flood insurance coverage is 
available under the NFIP and may also be available from private 
insurers; and
    (4) A statement whether Federal disaster relief assistance may be 
available in the event of damage to the building or mobile home caused 
by flooding in a Federally-declared disaster.
    (c) Timing of notice. The FDIC-supervised institution shall provide 
the notice required by paragraph (a) of this section to the borrower 
within a reasonable time before the completion of the transaction, and 
to the servicer as promptly as practicable after the FDIC-supervised 
institution provides notice to the borrower and in any event no later 
than the time the FDIC-supervised institution provides other similar 
notices to the servicer concerning hazard insurance and taxes. Notice 
to the servicer may be made electronically or may take the form of a 
copy of the notice to the borrower.
    (d) Record of receipt. The FDIC-supervised institution shall retain 
a record of the receipt of the notices by the borrower and the servicer 
for the period of time the FDIC-supervised institution owns the loan.
    (e) Alternate method of notice. Instead of providing the notice to 
the borrower required by paragraph (a) of this section, an FDIC-
supervised institution may obtain satisfactory written assurance from a 
seller or lessor that, within a reasonable time before the completion 
of the sale or lease transaction, the seller or lessor has provided 
such notice to the purchaser or lessee. The FDIC-supervised institution 
shall retain a record of the written assurance from the seller or 
lessor for the period of time the FDIC-supervised institution owns the 
loan.
    (f) Use of sample form of notice. An FDIC-supervised institution 
will be considered to be in compliance with the requirement for notice 
to the borrower of this section by providing written notice to the 
borrower containing the language presented in appendix A to this part 
within a reasonable time before the completion of the transaction. The 
notice presented in appendix A to this part satisfies the borrower 
notice requirements of the Act.


Sec.  339.10  Notice of servicer's identity.

    (a) Notice requirement. When an FDIC-supervised institution makes, 
increases, extends, renews, sells, or transfers a loan secured by a 
building or mobile home located or to be located in a special flood 
hazard area, the FDIC-supervised institution shall notify the 
Administrator of FEMA (or the Administrator of FEMA's designee) in 
writing of the identity of the servicer of the loan. The Administrator 
of FEMA has designated the insurance provider to receive the FDIC-
supervised institution's notice of the servicer's identity. This notice 
may be provided electronically if electronic transmission is 
satisfactory to the Administrator of FEMA's designee.
    (b) Transfer of servicing rights. The FDIC-supervised institution 
shall notify the Administrator of FEMA (or the Administrator of FEMA's 
designee) of any change in the servicer of a loan described in 
paragraph (a) of this section within 60 days after the effective date 
of the change. This notice may be provided electronically if electronic 
transmission is satisfactory to the Administrator or his or her 
designee. Upon any change in the servicing of a loan described in 
paragraph (a) of this section, the duty to provide notice under this 
paragraph (b) shall transfer to the transferee servicer.

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 Director of the Federal 
Emergency Management Agency (FEMA) as a special flood hazard area 
using FEMA's Flood

[[Page 43252]]

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


0
11. Effective January 1, 2016, Sec.  339.5 is revised to read as 
follows:


Sec.  339.5  Escrow requirement.

    (a) In general--(1) Applicability. Except as provided in paragraphs 
(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 
designated 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 designated 
loan are required to be 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, 
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, which is a loan that is 90 or 
more days past due and remains nonperforming until it is permanently 
modified or until the entire amount past due, including principal, 
accrued interest, and penalty interest incurred as the result of past 
due status, is collected or otherwise discharged in full; or
    (vi) The loan has a term of not longer than 12 months.
    (3) Duration of exception. If an FDIC-supervised institution, or a 
servicer acting on its behalf, determines at any time during the term 
of a designated loan secured by residential improved real estate or a 
mobile home that is made, increased, extended, or renewed on or after 
January 1, 2016, that an exception under paragraph (a)(2) of this 
section does not apply, then the FDIC-supervised institution or its 
servicer shall require the escrow of all premiums and fees for any 
flood insurance required under Sec.  339.3(a) as soon as reasonably 
practicable and, if applicable, shall provide any disclosure required 
under section 10 of the Real Estate Settlement Procedures Act of 1974 
(12 U.S.C. 2609) (RESPA).
    (4) 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 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) or paragraph (c)(2) of this 
section or may be required to escrow under paragraph (a)(3) of this 
section during the term of the loan, 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

[[Page 43253]]

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 first calendar year of changed status.
    (d) Option to escrow--(1) In general. 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 first calendar year in 
which the FDIC-supervised institution has had a change in status 
pursuant to paragraph (c)(2) of this section, unless:
    (i) The loan or the FDIC-supervised institution qualifies for an 
exception from the escrow requirement under paragraphs (a)(2) or (c) of 
this section, respectively;
    (ii) The borrower is already escrowing all premiums and fees for 
flood insurance for the loan; or
    (iii) The FDIC-supervised institution is required to escrow flood 
insurance premiums and fees 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 June 30, 2016, or 
September 30 of the first calendar year in which the FDIC-supervised 
institution has had 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 clause in appendix B to this part.
    (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
12. Effective January 1, 2016, Sec.  339.9(b) is revised to read as 
follows:


Sec.  339.9  Notice of special flood hazards and availability of 
Federal disaster relief assistance.

* * * * *
    (b) Contents of notice. The written notice must include the 
following information:
    (1) A warning, in a form approved by the Administrator of FEMA, 
that the building or the mobile home is or will be located in a special 
flood hazard area;
    (2) A description of the flood insurance purchase requirements set 
forth in section 102(b) of the Flood Disaster Protection Act of 1973, 
as amended (42 U.S.C. 4012a(b));
    (3) A statement, where applicable, that flood insurance coverage is 
available from private insurance companies that issue standard flood 
insurance policies on behalf of the NFIP or directly from the NFIP;
    (4) A statement that flood insurance that provides the same level 
of coverage as a standard flood insurance policy under the NFIP may 
also be available from a private insurance company that issues policies 
on behalf of the company.
    (5) A statement that the borrower is encouraged to 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 that the borrower should direct inquiries regarding the 
availability, cost, and comparisons of flood insurance coverage to an 
insurance agent; and
    (6) A statement whether Federal disaster relief assistance may be 
available in the event of damage to the building or mobile home caused 
by flooding in a Federally declared disaster.

0
13. Effective January 1, 2016, Appendix A to Part 339 is revised to 
read as follows:

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

    We are giving you this notice to inform you that:
    The building 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.
     Although you may not be required to maintain flood 
insurance on all structures, you may still wish to do so, and your 
mortgage lender may still require you to do so to protect the 
collateral securing the mortgage. If you choose not to maintain 
flood insurance on a structure and it floods, you are responsible 
for all flood losses relating to that structure.

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 contact an insurance agent as to 
the availability, cost, and comparisons of flood insurance coverage.

[Escrow Requirement for Residential Loans

    Federal law may require 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. If your lender notifies you that an 
escrow account is required for your loan, then you must pay your 
flood insurance premiums and fees to the lender or its servicer with 
the same frequency as you make loan payments for the duration of 
your loan. These premiums and fees will be deposited in the escrow 
account, which will be used to pay the flood insurance provider.]
    __Flood insurance coverage under the NFIP is not available for 
the property securing the loan because the community in

[[Page 43254]]

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
14. Effective January 1, 2016, Appendix B to Part 339 is added 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 the 
payment on your flood insurance policy that covers any residential 
building or mobile home that is located in an area with special 
flood hazards and that secures your loan. 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 
the regular mortgage payment that you make to your lender or its 
servicer.
     The payments you make into the escrow account will 
accumulate over time and the funds will be used to pay your flood 
insurance policy when your lender or servicer receives a notice from 
your 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].
    [Insert 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 revised as follows:

PART 614--LOAN POLICIES AND OPERATIONS

0
15. 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
16. Effective October 1, 2015, subpart S is revised to read as follows:
Subpart S--Flood Insurance Requirements
Sec.
614.4920 Purpose, and scope.
614.4925 Definitions.
614.4930 Requirement to purchase flood insurance where available.
614.4932 Exemptions.
614.4935 Escrow requirement.
614.4940 Required use of standard flood hazard determination form.
614.4945 Force placement of flood insurance.
614.4950 Determination fees.
614.4955 Notice of special flood hazards and availability of Federal 
disaster relief assistance.
614.4960 Notice of servicer's identity.
Appendix A to Subpart S of Part 614--Sample Form of Notice of 
Special Flood Hazards and Availability of Federal Disaster Relief 
Assistance

Subpart S--Flood Insurance Requirements


Sec.  614.4920  Purpose and scope.

    (a) Purpose. This subpart implements the National Flood Insurance 
Act of 1968 and the Flood Disaster Protection Act of 1973, as amended 
(42 U.S.C. 4001-4129).
    (b) Scope. This subpart, except for Sec. Sec.  614.4940 and 
614.4950, applies to loans secured by buildings or mobile homes located 
or to be located in areas determined by the Administrator of the 
Federal Emergency Management Agency to have special flood hazards. 
Sections 614.4940 and 614.4950 apply to loans secured by buildings or 
mobile homes, regardless of location.


Sec.  614.4925  Definitions.

    For purposes of this subpart:
    1968 Act means the National Flood Insurance Act of 1968 and the 
Flood Disaster Protection Act of 1973, as amended (42 U.S.C. 4001-
4129).
    Administrator of FEMA means the Administrator of the Federal 
Emergency Management Agency.
    Building means a walled and roofed structure, other than a gas or 
liquid storage tank, that is principally above ground and affixed to a 
permanent site, and a walled and roofed structure while in the course 
of construction, alteration, or repair.
    Community means a State or a political subdivision of a State that 
has zoning and building code jurisdiction over a particular area having 
special flood hazards.
    Designated loan means a loan secured by a building or mobile home 
that is located or to be located in a special flood hazard area in 
which flood insurance is available under the 1968 Act.
    Mobile home means a structure, transportable in one or more 
sections, that is built on a permanent chassis and designed for use 
with or without a permanent foundation when attached to the required 
utilities. The term mobile home does not include a recreational 
vehicle. For purposes of this subpart, the term mobile home means a 
mobile home on a permanent foundation. The term mobile home includes a 
manufactured home as that term is used in the NFIP.
    NFIP means the National Flood Insurance Program authorized under 
the 1968 Act.
    Residential improved real estate means real estate upon which a 
home or other residential building is located or to be located.
    Servicer means the person responsible for:
    (1) Receiving any scheduled, periodic payments from a borrower 
under the terms of a loan, including amounts for taxes, insurance 
premiums, and other charges with respect to the property securing the 
loan; and
    (2) Making payments of principal and interest and any other 
payments from the amounts received from the borrower as may be required 
under the terms of the loan.
    Special flood hazard area means the land in the flood plain within 
a community having at least a one percent chance of flooding in any 
given year, as designated by the Administrator of FEMA.
    Table funding means a settlement at which a loan is funded by a 
contemporaneous advance of loan funds and an assignment of the loan to 
the person advancing the funds.


Sec.  614.4930  Requirement to purchase flood insurance where 
available.

    (a) In general. A System institution shall not make, increase, 
extend, or renew any designated loan unless the building or mobile home 
and any personal property securing the loan is covered by flood 
insurance for the term of the loan. The amount of insurance must be at 
least equal to the lesser of the outstanding principal balance of the 
designated loan or the maximum limit of coverage available for the 
particular type of property under the 1968 Act. Flood insurance 
coverage under the 1968 Act is limited to the building or mobile home 
and any personal property that secures a loan and not the land itself.
    (b) Table funded loans. A System institution that acquires a loan 
from a mortgage broker or other entity through

[[Page 43255]]

table funding shall be considered to be making a loan for the purposes 
of this subpart.


Sec.  614.4932  Exemptions.

    The flood insurance requirement prescribed by Sec.  614.4930 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. For purposes of this paragraph (c):
    (1) ``A structure that is a part of a residential property'' is a 
structure used primarily for personal, family, or household purposes, 
and not used primarily for agricultural, commercial, industrial, or 
other business purposes;
    (2) A structure is ``detached'' from the primary residential 
structure if it is not joined by any structural connection to that 
structure; and
    (3) ``Serve as a residence'' shall be based upon the good faith 
determination of the System institution that the structure is intended 
for use or actually used as a residence, which generally includes 
sleeping, bathroom, or kitchen facilities.


Sec.  614.4935  Escrow requirement.

    If a System institution requires the escrow of taxes, insurance 
premiums, fees, or any other charges for a loan secured by residential 
improved real estate or a mobile home that is made, increased, extended 
or renewed on or after October 4, 1996, the institution shall also 
require the escrow of all premiums and fees for any flood insurance 
required under Sec.  614.4930. The institution, or a servicer acting on 
behalf of the institution, shall deposit the flood insurance premiums 
on behalf of the borrower in an escrow account. 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 
institution, or a servicer acting on behalf of the institution, shall 
pay the amount owed to the insurance provider from the escrow account 
by the date when such premiums are due.


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

    (a) Use of form. 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 1968 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.


Sec.  614.4945  Force placement of flood insurance.

    (a) Notice and purchase of coverage. If a System institution, or a 
servicer acting on behalf of the System institution, determines at any 
time during the term of a designated loan, that the building or mobile 
home and any personal property securing the designated loan is not 
covered by flood insurance or is covered by flood insurance in an 
amount less than the amount required under Sec.  614.4930, then the 
System institution, or a servicer acting on its behalf, shall notify 
the borrower that the borrower should obtain flood insurance, at the 
borrower's expense, in an amount at least equal to the amount required 
under Sec.  614.4930, for the remaining term of the loan. If the 
borrower fails to obtain flood insurance within 45 days after 
notification, then the System institution, or its servicer, shall 
purchase insurance on the borrower's behalf. The System institution, or 
its servicer, may charge the borrower for the cost of premiums and fees 
incurred in purchasing the insurance, including premiums or fees 
incurred for coverage beginning on the date on which flood insurance 
coverage lapsed or did not provide a sufficient coverage amount.
    (b) Termination of force-placed insurance--(1) Termination and 
refund. Within 30 days of receipt by a System institution, or by a 
servicer acting on its behalf, of a confirmation of a borrower's 
existing flood insurance coverage, the System institution, or its 
servicer, shall:
    (i) Notify the insurance provider to terminate any insurance 
purchased by the System institution, or its servicer, under paragraph 
(a) of this section; and
    (ii) Refund to the borrower all premiums paid by the borrower for 
any insurance purchased by the System institution, or by its servicer, 
under paragraph (a) of this section during any period during which the 
borrower's flood insurance coverage and the insurance coverage 
purchased by the System institution, or its servicer, were each in 
effect, and any related fees charged to the borrower with respect to 
the insurance purchased by the System institution, or its servicer, 
during such period.
    (2) Sufficiency of demonstration. For purposes of confirming a 
borrower's existing flood insurance coverage under paragraph (b) of 
this section, a System institution, or a servicer acting on its behalf, 
shall accept from the borrower an insurance policy declarations page 
that includes the existing flood insurance policy number and the 
identity of, and contact information for, the insurance company or 
agent.


Sec.  614.4950  Determination fees.

    (a) General. Notwithstanding any Federal or State law other than 
the Flood Disaster Protection Act of 1973, as amended (42 U.S.C. 4001-
4129), any System institution, or a servicer acting on behalf of the 
System institution, may charge a reasonable fee for determining whether 
the building or mobile home securing the loan is located or will be 
located in a special flood hazard area. A determination fee may also 
include, but is not limited to, a fee for life-of-loan monitoring.
    (b) Borrower fee. The determination fee authorized by paragraph (a) 
of this section may be charged to the borrower if the determination:
    (1) Is made in connection with a making, increasing, extending, or 
renewing of the loan that is initiated by the borrower;
    (2) Reflects the Administrator of FEMA's revision or updating of 
flood plain areas or flood-risk zones;
    (3) Reflects the Administrator of FEMA's publication of a notice or 
compendium that:
    (i) Affects the area in which the building or mobile home securing 
the loan is located; or
    (ii) By determination of the Administrator of FEMA, may reasonably 
require a determination whether the building or mobile home securing 
the

[[Page 43256]]

loan is located in a special flood hazard area; or
    (4) Results in the purchase of flood insurance coverage by the 
lender, or its servicer, on behalf of the borrower under Sec.  
614.4945.
    (c) Purchaser or transferee fee. The determination fee authorized 
by paragraph (a) of this section may be charged to the purchaser or 
transferee of a loan in the case of the sale or transfer of the loan.


Sec.  614.4955  Notice of special flood hazards and availability of 
Federal disaster relief assistance.

    (a) Notice requirement. When a System institution makes, increases, 
extends, or renews a loan secured by a building or a mobile home 
located or to be located in a special flood hazard area, the System 
institution shall mail or deliver a written notice to the borrower and 
to the servicer in all cases whether or not flood insurance is 
available under the 1968 Act for the collateral securing the loan.
    (b) Contents of notice. The written notice must include the 
following information:
    (1) A warning, in a form approved by the Administrator of FEMA, 
that the building or the mobile home is or will be located in a special 
flood hazard area;
    (2) A description of the flood insurance purchase requirements set 
forth in section 102(b) of the Flood Disaster Protection Act of 1973, 
as amended (42 U.S.C. 4012a(b));
    (3) A statement, where applicable, that flood insurance coverage is 
available under the NFIP and may also be available from private 
insurers; and
    (4) A statement whether Federal disaster relief assistance may be 
available in the event of damage to the building or mobile home caused 
by flooding in a Federally declared disaster.
    (c) Timing of notice. The System institution shall provide the 
notice required by paragraph (a) of this section to the borrower within 
a reasonable time before the completion of the transaction, and to the 
servicer as promptly as practicable after the System institution 
provides notice to the borrower and in any event no later than the time 
the System institution provides other similar notices to the servicer 
concerning hazard insurance and taxes. Notice to the servicer may be 
made electronically or may take the form of a copy of the notice to the 
borrower.
    (d) Record of receipt. The System institution shall retain a record 
of the receipt of the notices by the borrower and the servicer for the 
period of time it owns the loan.
    (e) Alternate method of notice. Instead of providing the notice to 
the borrower required by paragraph (a) of this section, a System 
institution may obtain satisfactory written assurance from a seller or 
lessor that, within a reasonable time before the completion of the sale 
or lease transaction, the seller or lessor has provided such notice to 
the purchaser or lessee. The System institution shall retain a record 
of the written assurance from the seller or lessor for the period of 
time it owns the loan.
    (f) Use of sample form of notice. A System institution will be 
considered to be in compliance with the requirement for notice to the 
borrower of this section by providing written notice to the borrower 
containing the language presented in appendix A to this subpart within 
a reasonable time before the completion of the transaction. The notice 
presented in appendix A to this subpart satisfies the borrower notice 
requirements of the 1968 Act.


Sec.  614.4960  Notice of servicer's identity.

    (a) Notice requirement. When a System institution makes, increases, 
extends, renews, sells, or transfers a loan secured by a building or 
mobile home located or to be located in a special flood hazard area, it 
shall notify the Administrator of FEMA (or the Administrator's 
designee) in writing of the identity of the servicer of the loan. The 
Administrator of FEMA has designated the insurance provider to receive 
the System institution's notice of the servicer's identity. This notice 
may be provided electronically if electronic transmission is 
satisfactory to the Administrator of FEMA's designee.
    (b) Transfer of servicing rights. The System institution shall 
notify the Administrator of FEMA (or the Administrator's designee) of 
any change in the servicer of a loan described in paragraph (a) of this 
section within 60 days after the effective date of the change. This 
notice may be provided electronically if electronic transmission is 
satisfactory to the Administrator of FEMA's designee. Upon any change 
in the servicing of a loan described in paragraph (a) of this section, 
the duty to provide notice under this paragraph (b) shall transfer to 
the transferee servicer.

Appendix A to Subpart S of Part 614--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 Director of the Federal 
Emergency Management Agency (FEMA) as a special flood hazard area 
using FEMA's Flood Insurance Rate Map or the Flood Hazard Boundary 
Map for the following community: ___. This area has at least a one 
percent (1%) chance of a flood equal to or exceeding the base flood 
elevation (a 100-year flood) in any given year. During the life of a 
30-year mortgage loan, the risk of a 100-year flood in a special 
flood hazard area is 26 percent (26%).
    Federal law allows a lender and borrower jointly to request the 
Director of FEMA to review the determination of whether the property 
securing the loan is located in a special flood hazard area. If you 
would like to make such a request, please contact us for further 
information.
    __ The community in which the property securing the loan is 
located participates in the National Flood Insurance Program (NFIP). 
Federal law will not allow us to make you the loan that you have 
applied for if you do not purchase flood insurance. The flood 
insurance must be maintained for the life of the loan. If you fail 
to purchase or renew flood insurance on the property, Federal law 
authorizes and requires us to purchase the flood insurance for you 
at your expense.
     Flood insurance coverage under the NFIP may be 
purchased through an insurance agent who will obtain the policy 
either directly through the NFIP or through an insurance company 
that participates in the NFIP. Flood insurance also may be available 
from private insurers that do not participate in the NFIP.
     At a minimum, flood insurance purchased must cover the 
lesser of:
    (1) The outstanding principal balance of the loan; or
    (2) the maximum amount of coverage allowed for the type of 
property under the NFIP.
    Flood insurance coverage under the NFIP is limited to the 
overall value of the property securing the loan minus the value of 
the land on which the property is located.
     Federal disaster relief assistance (usually in the form 
of a low-interest loan) may be available for damages incurred in 
excess of your flood insurance if your community's participation in 
the NFIP is in accordance with NFIP requirements.
    __ Flood insurance coverage under the NFIP is not available for 
the property securing the loan because the community in which the 
property is located does not participate in the NFIP. In addition, 
if the non-participating community has been identified for at least 
one year as containing a special flood hazard area, properties 
located in the community will not be eligible for Federal disaster 
relief assistance in the event of a Federally-declared flood 
disaster.


0
17. Effective January 1, 2016, Sec.  614.4935 is revised to read as 
follows:

[[Page 43257]]

Sec.  614.4935  Escrow requirement.

    (a) In general--(1) Applicability. Except as provided in paragraph 
(a)(2) or paragraph (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 
designated 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 designated 
loan are required to be 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, which is a loan that is 90 or 
more days past due and remains nonperforming until it is permanently 
modified or until the entire amount past due, including principal, 
accrued interest, and penalty interest incurred as the result of past 
due status, is collected or otherwise discharged in full; or
    (vi) The loan has a term of no longer than 12 months.
    (3) Duration of exception. If a System institution, or a servicer 
acting its behalf, determines at any time during the term of a 
designated loan secured by residential improved real estate or a mobile 
home that is made, increased, extended, or renewed on or after January 
1, 2016, that an exception under paragraph (a)(2) of this section does 
not apply, then the System institution, or the servicer acting on its 
behalf, shall require the escrow of all premiums and fees for any flood 
insurance required under Sec.  614.4930 as soon as reasonably 
practicable and, if applicable, shall provide any disclosure required 
under section 10 of the Real Estate Settlement Procedures Act of 1974 
(12 U.S.C. 2609) (RESPA).
    (4) 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 
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)(1) or paragraph (c)(2) of this section or 
may be required to escrow under paragraph (a)(3) of this section during 
the term of the loan, the System institution, or a servicer acting on 
its behalf, shall mail or deliver a written notice with the notice 
provided under Sec.  614.4955 informing the borrower that the System 
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 to this subpart.
    (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) 
of this section for any designated loan made, increased, extended, or 
renewed on or after July 1 of the first calendar year of changed 
status.
    (d) Option to escrow--(1) In general. 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 first calendar year in which the 
System institution has had a change in status pursuant to paragraph 
(c)(2) of this section, unless:
    (i) The loan or the System institution qualifies for an exception 
from the escrow requirement under paragraph (a)(2) or (c) of this 
section, respectively;
    (ii) The borrower is already escrowing all premiums and fees for 
flood insurance for the loan; or
    (iii) The System institution is required to escrow flood insurance 
premiums and fees 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 June 30, 2016, or September 30 
of the first calendar year in which the System institution has had 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 clause in appendix B to 
this subpart.
    (3) Timing. The System institution, or the servicer acting on its 
behalf, 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
18. Effective January 1, 2016, Sec.  614.4955(b) is revised to read as 
follows:

[[Page 43258]]

Sec.  614.4955  Notice of special flood hazards and availability of 
Federal disaster relief assistance.

* * * * *
    (b) Contents of notice. The written notice must include the 
following information:
    (1) A warning, in a form approved by the Administrator of FEMA, 
that the building or the mobile home is or will be located in a special 
flood hazard area;
    (2) A description of the flood insurance purchase requirements set 
forth in section 102(b) of the Flood Disaster Protection Act of 1973, 
as amended (42 U.S.C. 4012a(b));
    (3) A statement, where applicable, that flood insurance coverage is 
available from private insurance companies that issue standard flood 
insurance policies on behalf of the NFIP or directly from the NFIP;
    (4) A statement that flood insurance that provides the same level 
of coverage as a standard flood insurance policy under the NFIP also 
may be available from a private insurance company that issues policies 
on behalf of the company;
    (5) A statement that the borrower is encouraged to 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 that the borrower should direct inquiries regarding the 
availability, cost, and comparisons of flood insurance coverage to an 
insurance agent; and
    (6) A statement whether Federal disaster relief assistance may be 
available in the event of damage to the building or mobile home caused 
by flooding in a Federally declared disaster.
* * * * *

0
19. Effective January 1, 2016, Appendix A to Subpart S is revised to 
read as follows:

Appendix A to Subpart S of Part 614--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.
     Although you may not be required to maintain flood 
insurance on all structures, you may still wish to do so, and your 
mortgage lender may still require you to do so to protect the 
collateral securing the mortgage. If you choose not to maintain 
flood insurance on a structure and it floods, you are responsible 
for all flood losses relating to that structure.

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 contact an insurance agent as to 
the availability, cost, and comparisons of flood insurance coverage.

[Escrow Requirement for Residential Loans

    Federal law may require 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. If your lender notifies you that an 
escrow account is required for your loan, then you must pay your 
flood insurance premiums and fees to the lender or its servicer with 
the same frequency as you make loan payments for the duration of 
your loan. These premiums and fees will be deposited in the escrow 
account, which will be used to pay the flood 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. Effective January 1, 2016, Appendix B to Subpart S is added to read 
as follows:

Appendix B to Subpart S of 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 the 
payment on your flood insurance policy that covers any residential 
building or mobile home that is located in an area with special 
flood hazards and that secures your loan. 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 
the regular mortgage payment that you make to your lender or its 
servicer.
     The payments you make into the escrow account will 
accumulate over time and the funds will be used to pay your flood 
insurance policy when your lender or servicer receives a notice from 
your 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].
    [Insert 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 
amends 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
21. The authority citation for part 760 continues to read as follows:


[[Page 43259]]


    Authority: 12 U.S.C. 1757, 1789; 42 U.S.C. 4012a, 4104a, 4104b, 
4106, and 4128.


0
22. Effective October 1, 2015, part 760 is revised to read as follows:

PART 760--LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS

Sec.
760.1 Authority, purpose, and scope.
760.2 Definitions.
760.3 Requirement to purchase flood insurance where available.
760.4 Exemptions.
760.5 Escrow requirement.
760.6 Required use of standard flood hazard determination form.
760.7 Force placement of flood insurance.
760.8 Determination fees.
760.9 Notice of special flood hazards and availability of Federal 
disaster relief assistance.
760.10 Notice of servicer's identity.
Appendix A to Part 760--Sample Form of Notice of Special Flood 
Hazards and Availability of Federal Disaster Relief Assistance


Sec.  760.1  Authority, purpose, and scope.

    (a) Authority. This part is issued pursuant to 12 U.S.C. 1757, 1789 
and 42 U.S.C. 4012a, 4104a, 4104b, 4106, 4128.
    (b) Purpose. The purpose of this part is to implement the 
requirements of the National Flood Insurance Act of 1968 and the Flood 
Disaster Protection Act of 1973, as amended (42 U.S.C. 4001-4129).
    (c) Scope. This part, except for Sec. Sec.  760.6 and 760.8, 
applies to loans secured by buildings or mobile homes located or to be 
located in areas determined by the Administrator of the Federal 
Emergency Management Agency to have special flood hazards. Sections 
760.6 and 760.8 apply to loans secured by buildings or mobile homes, 
regardless of location.


Sec.  760.2  Definitions.

    As used in this part:
    Act means the National Flood Insurance Act of 1968, as amended (42 
U.S.C. 4001-4129).
    Administrator of FEMA means the Administrator of the Federal 
Emergency Management Agency.
    Building means a walled and roofed structure, other than a gas or 
liquid storage tank, that is principally above ground and affixed to a 
permanent site, and a walled and roofed structure while in the course 
of construction, alteration, or repair.
    Community means a State or a political subdivision of a State that 
has zoning and building code jurisdiction over a particular area having 
special flood hazards.
    Credit union means a Federal or State-chartered credit union that 
is insured by the National Credit Union Share Insurance Fund.
    Designated loan means a loan secured by a building or mobile home 
that is located or to be located in a special flood hazard area in 
which flood insurance is available under the Act.
    Mobile home means a structure, transportable in one or more 
sections, that is built on a permanent chassis and designed for use 
with or without a permanent foundation when attached to the required 
utilities. The term mobile home does not include a recreational 
vehicle. For purposes of this part, the term mobile home means a mobile 
home on a permanent foundation. The term mobile home includes a 
manufactured home as that term is used in the NFIP.
    NFIP means the National Flood Insurance Program authorized under 
the Act.
    Residential improved real estate means real estate upon which a 
home or other residential building is located or to be located.
    Servicer means the person responsible for:
    (1) Receiving any scheduled, periodic payments from a borrower 
under the terms of a loan, including amounts for taxes, insurance 
premiums, and other charges with respect to the property securing the 
loan; and
    (2) Making payments of principal and interest and any other 
payments from the amounts received from the borrower as may be required 
under the terms of the loan.
    Special flood hazard area means the land in the flood plain within 
a community having at least a one percent chance of flooding in any 
given year, as designated by the Administrator of FEMA.
    Table funding means a settlement at which a loan is funded by a 
contemporaneous advance of loan funds and an assignment of the loan to 
the person advancing the funds.


Sec.  760.3  Requirement to purchase flood insurance where available.

    (a) In general. A credit union shall not make, increase, extend, or 
renew any designated loan unless the building or mobile home and any 
personal property securing the loan is covered by flood insurance for 
the term of the loan. The amount of insurance must be at least equal to 
the lesser of the outstanding principal balance of the designated loan 
or the maximum limit of coverage available for the particular type of 
property under the Act. Flood insurance coverage under the Act is 
limited to the building or mobile home and any personal property that 
secures a loan and not the land itself.
    (b) Table funded loan. A credit union that acquires a loan from a 
mortgage broker or other entity through table funding shall be 
considered to be making a loan for the purposes of this part.


Sec.  760.4  Exemptions.

    The flood insurance requirement prescribed by Sec.  760.3 does not 
apply with respect to:
    (a) Any State-owned property covered under a policy of self-
insurance satisfactory to the 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. For purposes of this paragraph (c):
    (1) ``A structure that is a part of a residential property'' is a 
structure used primarily for personal, family, or household purposes, 
and not used primarily for agricultural, commercial, industrial, or 
other business purposes;
    (2) A structure is ``detached'' from the primary residential 
structure if it is not joined by any structural connection to that 
structure; and
    (3) ``Serve as a residence'' shall be based upon the good faith 
determination of the credit union that the structure is intended for 
use or actually used as a residence, which generally includes sleeping, 
bathroom, or kitchen facilities.


Sec.  760.5  Escrow requirement.

    If a credit union requires the escrow of taxes, insurance premiums, 
fees, or any other charges for a loan secured by residential improved 
real estate or a mobile home that is made, increased, extended, or 
renewed on or after November 1, 1996, the credit union shall also 
require the escrow of all premiums and fees for any flood insurance 
required under Sec.  760.3. The credit union, or a servicer acting on 
behalf of the credit union, shall deposit the flood insurance premiums 
on behalf of the borrower in an escrow account. 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

[[Page 43260]]

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 behalf of the credit union, shall 
pay the amount owed to the insurance provider from the escrow account 
by the date when such premiums are due.


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

    (a) Use of form. A credit union shall use the standard flood hazard 
determination form developed by the 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.


Sec.  760.7  Force placement of flood insurance.

    (a) Notice and purchase of coverage. If a credit union, or a 
servicer acting on behalf of the credit union, determines at any time 
during the term of a designated loan, that the building or mobile home 
and any personal property securing the designated loan is not covered 
by flood insurance or is covered by flood insurance in an amount less 
than the amount required under Sec.  760.3, then the credit union or 
its servicer shall notify the borrower that the borrower should obtain 
flood insurance, at the borrower's expense, in an amount at least equal 
to the amount required under Sec.  760.3, for the remaining term of the 
loan. If the borrower fails to obtain flood insurance within 45 days 
after notification, then the credit union or its servicer shall 
purchase insurance on the borrower's behalf. The credit union or its 
servicer may charge the borrower for the cost of premiums and fees 
incurred in purchasing the insurance, including premiums or fees 
incurred for coverage beginning on the date on which flood insurance 
coverage lapsed or did not provide a sufficient coverage amount.
    (b) Termination of force-placed insurance--(1) Termination and 
refund. Within 30 days of receipt by a credit union, or a servicer 
acting on behalf of the credit union, of a confirmation of a borrower's 
existing flood insurance coverage, the credit union or its servicer 
shall:
    (i) Notify the insurance provider to terminate any insurance 
purchased by the credit union or its servicer under paragraph (a) of 
this section; and
    (ii) Refund to the borrower all premiums paid by the borrower for 
any insurance purchased by the credit union or its servicer under 
paragraph (a) of this section during any period during which the 
borrower's flood insurance coverage and the insurance coverage 
purchased by the credit union or its servicer were each in effect, and 
any related fees charged to the borrower with respect to the insurance 
purchased by the credit union or its servicer during such period.
    (2) Sufficiency of demonstration. For purposes of confirming a 
borrower's existing flood insurance coverage under paragraph (b) of 
this section, a credit union or its servicer shall accept from the 
borrower an insurance policy declarations page that includes the 
existing flood insurance policy number and the identity of, and contact 
information for, the insurance company or agent.


Sec.  760.8  Determination fees.

    (a) General. Notwithstanding any Federal or State law other than 
the Flood Disaster Protection Act of 1973, as amended (42 U.S.C. 4001-
4129), any credit union, or a servicer acting on behalf of the credit 
union, may charge a reasonable fee for determining whether the building 
or mobile home securing the loan is located or will be located in a 
special flood hazard area. A determination fee may also include, but is 
not limited to, a fee for life-of-loan monitoring.
    (b) Borrower fee. The determination fee authorized by paragraph (a) 
of this section may be charged to the borrower if the determination:
    (1) Is made in connection with a making, increasing, extending, or 
renewing of the loan that is initiated by the borrower;
    (2) Reflects the Administrator of FEMA's revision or updating of 
floodplain areas or flood-risk zones;
    (3) Reflects the Administrator of FEMA's publication of a notice or 
compendium that:
    (i) Affects the area in which the building or mobile home securing 
the loan is located; or
    (ii) By determination of the Administrator of FEMA, may reasonably 
require a determination whether the building or mobile home securing 
the loan is located in a special flood hazard area; or
    (4) Results in the purchase of flood insurance coverage by the 
credit union or its servicer on behalf of the borrower under Sec.  
760.7.
    (c) Purchaser or transferee fee. The determination fee authorized 
by paragraph (a) of this section may be charged to the purchaser or 
transferee of a loan in the case of the sale or transfer of the loan.


Sec.  760.9  Notice of special flood hazards and availability of 
Federal disaster relief assistance.

    (a) Notice requirement. When a credit union makes, increases, 
extends, or renews a loan secured by a building or a mobile home 
located or to be located in a special flood hazard area, the credit 
union shall mail or deliver a written notice to the borrower and to the 
servicer in all cases whether or not flood insurance is available under 
the Act for the collateral securing the loan.
    (b) Contents of notice. The written notice must include the 
following information:
    (1) A warning, in a form approved by the Administrator of FEMA, 
that the building or the mobile home is or will be located in a special 
flood hazard area;
    (2) A description of the flood insurance purchase requirements set 
forth in section 102(b) of the Flood Disaster Protection Act of 1973, 
as amended (42 U.S.C. 4012a(b));
    (3) A statement, where applicable, that flood insurance coverage is 
available under the NFIP and may also be available from private 
insurers; and
    (4) A statement whether Federal disaster relief assistance may be 
available in the event of damage to the building or mobile home caused 
by flooding in a Federally-declared disaster.
    (c) Timing of notice. The credit union shall provide the notice 
required by paragraph (a) of this section to the borrower within a 
reasonable time before the completion of the transaction, and to the 
servicer as promptly as practicable after the credit union provides 
notice to the borrower and in any event no later than the time the 
credit union provides other similar notices to the servicer concerning 
hazard insurance and taxes. Notice to the servicer may be made 
electronically or may take the form of a copy of the notice to the 
borrower.
    (d) Record of receipt. The credit union shall retain a record of 
the receipt of the notices by the borrower and the servicer for the 
period of time the credit union owns the loan.
    (e) Alternate method of notice. Instead of providing the notice to 
the borrower

[[Page 43261]]

required by paragraph (a) of this section, a credit union may obtain 
satisfactory written assurance from a seller or lessor that, within a 
reasonable time before the completion of the sale or lease transaction, 
the seller or lessor has provided such notice to the purchaser or 
lessee. The credit union shall retain a record of the written assurance 
from the seller or lessor for the period of time the credit union owns 
the loan.
    (f) Use of sample form of notice. A credit union will be considered 
to be in compliance with the requirement for notice to the borrower of 
this section by providing written notice to the borrower containing the 
language presented in appendix A to this part within a reasonable time 
before the completion of the transaction. The notice presented in 
appendix A to this part satisfies the borrower notice requirements of 
the Act.


Sec.  760.10  Notice of servicer's identity.

    (a) Notice requirement. When a credit union makes, increases, 
extends, renews, sells, or transfers a loan secured by a building or 
mobile home located or to be located in a special flood hazard area, 
the credit union shall notify the Administrator of FEMA (or the 
Administrator of FEMA's designee) in writing of the identity of the 
servicer of the loan. The Administrator of FEMA has designated the 
insurance provider to receive the credit union's notice of the 
servicer's identity. This notice may be provided electronically if 
electronic transmission is satisfactory to the Administrator of FEMA's 
designee.
    (b) Transfer of servicing rights. The credit union shall notify the 
Administrator of FEMA (or the Administrator of FEMA's designee) of any 
change in the servicer of a loan described in paragraph (a) of this 
section within 60 days after the effective date of the change. This 
notice may be provided electronically if electronic transmission is 
satisfactory to the Administrator or his or her designee. Upon any 
change in the servicing of a loan described in paragraph (a) of this 
section, the duty to provide notice under this paragraph (b) shall 
transfer to the transferee servicer.

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

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


0
23. Effective January 1, 2016, Sec.  760.5 is revised to read as 
follows:


Sec.  760.5  Escrow requirement.

    (a) In general--(1) Applicability. Except as provided in paragraphs 
(a)(2) or (c) of this section, a credit union, or a servicer acting on 
behalf of the credit union, shall require the escrow of all premiums 
and fees for any flood insurance required under Sec.  760.3(a) for any 
designated 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 designated 
loan are required to be 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, which is a loan that is 90 or 
more days past due and remains nonperforming until it is permanently 
modified or until the entire amount past due, including principal, 
accrued interest, and penalty interest incurred as the result of past 
due status, is collected or otherwise discharged in full; or
    (vi) The loan has a term of not longer than 12 months.
    (3) Duration of exception. If a credit union, or a servicer acting 
on behalf of the credit union, determines at any time during the term 
of a designated loan secured by residential improved real estate or a 
mobile home that is made, increased, extended, or renewed on or after 
January 1, 2016, that an exception under paragraph (a)(2) of this 
section does not apply, then the credit union or its servicer shall 
require the escrow of all premiums and fees for any flood insurance 
required under Sec.  760.3(a) as soon as reasonably practicable and, if 
applicable, shall provide any disclosure required under section 10 of 
the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2609) 
(RESPA).
    (4) Escrow account. The credit union, or a servicer acting on 
behalf of the credit union, shall deposit the flood

[[Page 43262]]

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 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 behalf of the credit union, 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) or paragraph (c)(2) of this section or may 
be required to escrow under paragraph (a)(3) of this section during the 
term of the loan, the credit union, or a servicer acting on behalf of 
the credit union, 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) of this 
section for any designated loan made, increased, extended, or renewed 
on or after July 1 of the first calendar year of changed status.
    (d) Option to escrow--(1) In general. A credit union, or a servicer 
acting on behalf of the credit union, 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 first calendar year in which the 
credit union has had a change in status pursuant to paragraph (c)(2) of 
this section, unless:
    (i) The credit union or the loan qualifies for an exception from 
the escrow requirement under paragraphs (a)(2) or (c) of this section, 
respectively;
    (ii) The borrower is already escrowing all premiums and fees for 
flood insurance for the loan; or
    (iii) The credit union is required to escrow flood insurance 
premiums and fees 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 behalf of the credit union, 
shall mail or deliver to the borrower no later than June 30, 2016, or 
September 30 of the first calendar year in which the credit union has 
had 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 clause in 
appendix B to this part.
    (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
24. Effective January 1, 2016, Sec.  760.9(b) is revised to read as 
follows:


Sec.  760.9  Notice of special flood hazards and availability of 
Federal disaster relief assistance.

* * * * *
    (b) Contents of notice. The written notice must include the 
following information:
    (1) A warning, in a form approved by the Administrator of FEMA, 
that the building or the mobile home is or will be located in a special 
flood hazard area;
    (2) A description of the flood insurance purchase requirements set 
forth in section 102(b) of the Flood Disaster Protection Act of 1973, 
as amended (42 U.S.C. 4012a(b));
    (3) A statement, where applicable, that flood insurance coverage is 
available from private insurance companies that issue standard flood 
insurance policies on behalf of the NFIP or directly from the NFIP;
    (4) A statement that flood insurance that provides the same level 
of coverage as a standard flood insurance policy under the NFIP may 
also be available from a private insurance company that issues policies 
on behalf of the company;
    (5) A statement that the borrower is encouraged to 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 that the borrower should direct inquiries regarding the 
availability, cost, and comparisons of flood insurance coverage to an 
insurance agent; and
    (6) A statement whether Federal disaster relief assistance may be 
available in the event of damage to the building or mobile home caused 
by flooding in a Federally declared disaster.
* * * * *

0
25. Effective January 1, 2016, Appendix A to Part 760 is revised to 
read as follows:

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

    We are giving you this notice to inform you that:
    The building 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

[[Page 43263]]

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.
     Although you may not be required to maintain flood 
insurance on all structures, you may still wish to do so, and your 
mortgage lender may still require you to do so to protect the 
collateral securing the mortgage. If you choose not to maintain 
flood insurance on a structure and it floods, you are responsible 
for all flood losses relating to that structure.

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 contact an insurance agent as to 
the availability, cost, and comparisons of flood insurance coverage.

[Escrow Requirement for Residential Loans

    Federal law may require 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. If your lender notifies you that an 
escrow account is required for your loan, then you must pay your 
flood insurance premiums and fees to the lender or its servicer with 
the same frequency as you make loan payments for the duration of 
your loan. These premiums and fees will be deposited in the escrow 
account, which will be used to pay the flood 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
26. Effective January 1, 2016, Appendix B to Part 760 is added 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 the 
payment on your flood insurance policy that covers any residential 
building or mobile home that is located in an area with special 
flood hazards and that secures your loan. 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 
the regular mortgage payment that you make to your lender or its 
servicer.
     The payments you make into the escrow account will 
accumulate over time and the funds will be used to pay your flood 
insurance policy when your lender or servicer receives a notice from 
your 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].
    [Insert Instructions for Selecting to Escrow]

    Dated: June 16, 2015.
Thomas J. Curry,
Comptroller of the Currency.

    By order of the Board of Governors of the Federal Reserve 
System, June 18, 2015.
Robert deV. Frierson,
Secretary of the Board.
    By order of the Board of Directors of the Federal Deposit 
Insurance Corporation.
Robert E. Feldman,
Executive Secretary.


    Dated at Washington, DC, this 16th day of June, 2015.

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

    Dated at McLean, VA, this 16th day of June, 2015.

    By order of the Board of the National Credit Union 
Administration.
Gerard Poliquin,
Secretary of the Board.

    Dated at Alexandria, VA, this 18th day of June, 2015.

[FR Doc. 2015-15956 Filed 7-20-15; 8:45 am]
 BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P; 6705-01-P; 7535-01-U