[Federal Register Volume 81, Number 215 (Monday, November 7, 2016)]
[Proposed Rules]
[Pages 78063-78080]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-26411]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 22

[Docket ID OCC-2016-0005]
RIN 1557-AD67

FEDERAL RESERVE SYSTEM

12 CFR Part 208

[Docket No. R-1549]
RIN 7100-AE60

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 339

RIN 3064-AE50

FARM CREDIT ADMINISTRATION

12 CFR Part 614

RIN 3052-AD11

NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 760

RIN 3133-AE64


Loans in Areas Having Special Flood Hazards--Private Flood 
Insurance

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

ACTION: Joint notice of proposed rulemaking.

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SUMMARY: The Office of the Comptroller of the Currency (OCC), the Board 
of Governors of the Federal Reserve System (Board), the Federal Deposit 
Insurance Corporation (FDIC), the Farm Credit Administration (FCA), and 
the National Credit Union Administration (NCUA) are issuing a new 
proposal to amend their regulations regarding loans in areas having 
special flood hazards to implement the private flood insurance 
provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 
(Biggert-Waters Act). Specifically, the proposed rule would require 
regulated lending institutions to accept policies that meet the 
statutory definition of private flood insurance in the Biggert-Waters 
Act and permit regulated lending institutions to accept flood insurance 
provided by private insurers that does not meet the statutory 
definition of ``private flood insurance'' on a discretionary basis, 
subject to certain restrictions.

DATES: Comments must be received on or before January 6, 2017.

ADDRESSES: OCC: Because paper mail in the Washington, DC area and at 
the OCC is subject to delay, commenters are encouraged to submit 
comments through the Federal eRulemaking Portal or email, if possible. 
Please use the title ``Loans in Areas Having Special Flood Hazards--
Private Flood Insurance'' to facilitate the organization and 
distribution of the comments. You may submit comments by any of the 
following methods:
     Federal eRulemaking Portal--``Regulations.gov'': Go to 
www.regulations.gov. Enter ``Docket ID OCC-2016-0005'' in the Search 
Box and click ``Search.'' Click on ``Comment Now'' to submit public 
comments.
     Click on the ``Help'' tab on the Regulations.gov home page 
to get information on using Regulations.gov, including instructions for 
submitting public comments.
     Email: [email protected].
     Mail: Legislative and Regulatory Activities Division, 
Office of the Comptroller of the Currency, 400 7th Street SW., Suite 
3E-218, Mail Stop 9W-11, Washington, DC 20219.
     Hand Delivery/Courier: 400 7th Street SW., Suite 3E-218, 
Mail Stop 9W-11, Washington, DC 20219.
     Fax: (571) 465-4326.
    Instructions: You must include ``OCC'' as the agency name and 
``Docket ID OCC-2016-0005'' in your comment. In general, the OCC will 
enter all comments received into the docket and publish them on the 
Regulations.gov Web site without change, including any business or 
personal information that you provide such as name and address 
information, email addresses, or phone numbers. Comments received, 
including attachments and other supporting materials, are part of the 
public record and subject to public disclosure. Do not include any 
information in your comment or supporting materials that you consider 
confidential or inappropriate for public disclosure.
    You may review comments and other related materials that pertain to 
this rulemaking action by any of the following methods:
     Viewing Comments Electronically: Go to 
www.regulations.gov. Enter ``Docket ID OCC-2016-0005'' in the Search 
box and click ``Search.'' Click on ``Open Docket Folder'' on the right 
side of the screen and then ``Comments.'' Comments can be filtered by 
clicking on ``View All'' and then using the filtering tools on the left 
side of the screen.
     Click on the ``Help'' tab on the Regulations.gov home page 
to get information on using Regulations.gov. Supporting materials may 
be viewed by clicking on ``Open Docket Folder'' and then clicking on 
``Supporting Documents.'' The docket may be viewed after the close of 
the comment period in the same manner as during the comment period.
     Viewing Comments Personally: 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 or, for persons who are deaf or hard of hearing, TTY, (202) 649-
5597. 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.
    Board: You may submit comments, identified by Docket No. R-1549 or 
RIN 7100 AE 60, by any of the following methods:
     Agency Web site: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Email: [email protected]. Include the 
docket number in the subject line of the message.
     Fax: (202) 452-3819 or (202) 452-3102.
     Mail: Address to Robert deV. Frierson, Secretary, Board of 
Governors of the Federal Reserve System, 20th Street and Constitution 
Avenue NW., Washington, DC 20551.

[[Page 78064]]

    All public comments will be made available on the Board's Web site 
at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons. Accordingly, comments 
will not be edited to remove any identifying or contact information. 
Public comments may also be viewed electronically or in paper in Room 
MP-500 of the Board's Martin Building (20th and C Streets NW.) between 
9:00 a.m. and 5:00 p.m. on weekdays.
    FDIC: You may submit comments by any of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Agency Web site: http://www.fdic.gov/regulations/laws/federal/propose.html.
     Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments/Legal ESS, Federal Deposit Insurance Corporation, 550 17th 
Street NW., Washington, DC 20429.
     Hand Delivered/Courier: The guard station at the rear of 
the 550 17th Street Building (located on F Street), on business days 
between 7:00 a.m. and 5:00 p.m.
     Email: [email protected].
    Comments submitted must include ``FDIC'' and ``Loans in Areas 
Having Special Flood Hazards--Private Flood Insurance.'' Comments 
received will be posted without change to http://www.fdic.gov/regulations/laws/federal/propose.html, including any personal 
information provided.
    FCA: We offer a variety of methods for you to submit your comments. 
For accuracy and efficiency reasons, commenters are encouraged to 
submit comments by email or through the FCA's Web site. As facsimiles 
(fax) are difficult for us to process and achieve compliance with 
section 508 of the Rehabilitation Act, we are no longer accepting 
comments submitted by fax. Regardless of the method you use, please do 
not submit your comments multiple times via different methods. You may 
submit comments by any of the following methods:
     Email: Send us an email at [email protected].
     Agency Web site: http://www.fca.gov. Select ``Law & 
Regulations,'' then ``FCA Regulations,'' then ``Public Comments,'' and 
follow the directions for ``Submitting a Comment.''
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail: Barry F. Mardock, Deputy Director, Office of 
Regulatory Policy, Farm Credit Administration, 1501 Farm Credit Drive, 
McLean, VA 22102-5090.
    You may review copies of all comments we receive at our office in 
McLean, Virginia or on our Web site at http://www.fca.gov. Once you are 
in the Web site, select ``Law & Regulations,'' then ``FCA 
Regulations,'' then ``Public Comments,'' and follow the directions for 
``Reading Submitted Public Comments.'' We will show your comments as 
submitted, including any supporting data provided, but for technical 
reasons we may omit items such as logos and special characters. 
Identifying information that you provide, such as phone numbers and 
addresses, will be publicly available. However, we will attempt to 
remove email addresses to help reduce Internet spam.
    NCUA: You may submit comments, identified by RIN 3133-AE64 by any 
of the following methods (Please send comments by one method only):
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Agency Web site: http://www.ncua.gov. Follow the 
instructions for submitting comments.
     Email: Address to [email protected]. Include [Your 
name] Comments on ``Loans in Areas Having Special Flood Hazards--
Private Flood Insurance'' in the email subject line.
     Fax: (703) 518-6319. Use the subject line described above 
for email.
     Mail: Address to Gerard S. Poliquin, Secretary of the 
Board, National Credit Union Administration, 1775 Duke Street, 
Alexandria, VA 22314-3428.
     Hand Delivery/Courier: Same as mail address.
     All public comments are available on the agency's Web site 
at http://www.ncua.gov/Legal/Regs/Pages/PropRegs.aspx as submitted, 
except when not possible for technical reasons. Public comments will 
not be edited to remove any identifying or contact information. Paper 
copies of comments may be inspected in NCUA's law library at 1775 Duke 
Street, Alexandria, VA 22314, by appointment weekdays between 9:00 a.m. 
and 3:00 p.m. To make an appointment, call (703) 518-6546 or send an 
email to [email protected].

FOR FURTHER INFORMATION CONTACT: 
    OCC: Rhonda L. Daniels, Compliance Specialist, Compliance Policy 
Division, (202) 649-5405; Margaret C. Hesse, Senior Counsel, Community 
and Consumer Law Division, (202) 649-6350; or Heidi M. Thomas, Special 
Counsel, or Melissa Lisenbee, Attorney, Legislative and Regulatory 
Activities Division, (202) 649-5490, or, for persons who are deaf or 
hard of hearing, TTY, (202) 649-5597.
    Board: Lanette Meister, Senior Supervisory Consumer Financial 
Services Analyst (202) 452-2705; Vivian W. Wong, Senior 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 Unit, Legal 
Division, (202) 898-6526; or John Jackwood, Senior Policy Analyst, 
Division of Depositor and Consumer Protection, (202) 898-3991.
    FCA: Paul K. Gibbs, Associate Director, 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: Sarah Chung, Staff Attorney, Office of General Counsel, (703) 
518-6540, or Judy Graham, Program Officer, Office of Examination and 
Insurance, (703) 518-6392.

SUPPLEMENTARY INFORMATION:

I. Background

A. Flood Insurance Statutes

    The National Flood Insurance Act of 1968 (1968 Act) \1\ and the 
Flood Disaster Protection Act of 1973 (FDPA),\2\ as amended, 
(collectively referenced herein as the Federal flood insurance 
statutes) govern the National Flood Insurance Program (NFIP).\3\ These 
laws make Federally subsidized flood insurance available to owners of 
improved real estate or mobile homes located in participating 
communities and require the purchase of flood insurance in connection 
with a loan made by a regulated lending institution \4\ when the loan 
is secured by improved real estate or a mobile home located in special 
flood hazard areas (SFHA) in which flood insurance is available under 
the NFIP.\5\ The OCC,

[[Page 78065]]

Board, FDIC, FCA, and NCUA (collectively, the Agencies) each have 
issued regulations implementing these statutory requirements for the 
lending institutions they supervise.\6\ The Biggert-Waters Act \7\ 
amended the NFIP requirements that the Agencies have authority to 
implement and enforce. Among other things, the Biggert-Waters Act: (1) 
Required the Agencies to issue a rule regarding the escrow of premiums 
and fees for flood insurance; \8\ (2) clarified the requirement to 
force place insurance; \9\ and (3) required the Agencies to issue a 
rule to direct regulated lending institutions to accept ``private flood 
insurance,'' as defined by the Biggert-Waters Act, and to notify 
borrowers of the availability of private flood insurance.\10\
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    \1\ Public Law 90-448, 82 Stat. 572 (1968).
    \2\ Public Law 93-234, 87 Stat. 975 (1973).
    \3\ These statutes are codified at 42 U.S.C. 4001-4129. The 
Federal Emergency Management Agency (FEMA) administers the NFIP; its 
regulations implementing the NFIP appear at 44 CFR parts 59-77.
    \4\ The FDPA 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).
    \5\ An SFHA is an area within a flood plain having a one percent 
or greater chance of flood occurrence in any given year. 44 CFR 
59.1. SFHAs are delineated on maps issued by the FEMA for individual 
communities. 44 CFR part 65. A community establishes its eligibility 
to participate in the NFIP by adopting and enforcing flood plain 
management measures that regulate new construction and by making 
substantial improvements within its SFHAs to eliminate or minimize 
future flood damage. 44 CFR part 60.
    \6\ See 12 CFR part 22 (OCC), part 208 (Board), part 339 (FDIC), 
part 614 (FCA), and part 760 (NCUA).
    \7\ Public Law 112-141, 126 Stat. 916 (2012).
    \8\ Section 100209 of the Biggert-Waters Act, amending section 
102(d) of the FDPA (42 U.S.C. 4012a(d)).
    \9\ Section 100244 of the Act, amending section 102(e) of the 
FDPA (42 U.S.C. 4012a(e)).
    \10\ Section 100239 of the Biggert-Waters Act, 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)).
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B. Regulatory History

    In October 2013, the Agencies jointly issued proposed rules to 
implement the escrow, force placement, and private flood insurance 
provisions of the Biggert-Waters Act (the October 2013 Proposed 
Rule).\11\ In March 2014, the Homeowner Flood Insurance Affordability 
Act (HFIAA) \12\ was enacted, which, among other things, amended the 
Biggert-Waters Act requirements regarding the escrow of flood insurance 
premiums and fees and created a new exemption from the mandatory flood 
insurance purchase requirements for certain detached structures. 
Accordingly, the Agencies jointly issued a new proposed rule in October 
2014 to implement the new escrow and detached structure provisions.\13\ 
In July 2015, the Agencies jointly issued final rules to implement the 
escrow and detached structure provisions of HFIAA and the force-placed 
flood insurance provisions of the Biggert-Waters Act.\14\ Based on 
comments received in response to the October 2013 Proposed Rule, and 
the statutory effective date for the escrow provisions, the Agencies 
decided to finalize the escrow and force-placed insurance provisions 
and to revise and re-propose the private flood insurance provisions.
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    \11\ 78 FR 65108 (Oct. 30, 2013).
    \12\ Public Law 113-89, 128 Stat. 1020 (2014).
    \13\ 79 FR 64518 (Oct. 30, 2014).
    \14\ 80 FR 43216 (July 21, 2015).
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    The October 2013 Proposed Rule would have required a regulated 
lending institution to accept all coverage meeting the statutory 
definition of ``private flood insurance'' in the Biggert-Waters Act. 
The Agencies requested comment on various issues related to this 
requirement. In particular, the Agencies sought comment on the 
inclusion of a safe harbor that would allow lenders to rely on the 
expertise of State insurance regulators to determine whether a policy 
meets the definition of private flood insurance and must be accepted by 
a lender. Additionally, the Agencies asked whether the rule should 
include a provision expressly permitting regulated lending institutions 
to accept, at their discretion, flood insurance provided by private 
insurers that does not meet the Biggert-Waters Act's definition of 
private flood insurance (discretionary acceptance). The Agencies also 
solicited comment on what criteria the Agencies might require for such 
a policy.
    The Agencies received 81 written comments on the October 2013 
Proposed Rule, including 51 comments addressing some aspect of private 
flood insurance. These commenters addressed specific issues, such as: 
The regulatory definition of ``private flood insurance,'' the use of a 
regulatory safe harbor to facilitate compliance by regulated lending 
institutions, whether private flood insurance that does not conform to 
the statutory definition of the term should be accepted by regulated 
lending institutions, whether alternative criteria for such non-
conforming private flood insurance should be developed by the Agencies, 
and whether regulated lending institutions should be permitted to 
accept certain non-traditional, non-conforming flood insurance 
coverage, such as Amish Aid plans.
    This proposal addresses the private flood insurance provisions of 
the Biggert-Waters Act.\15\ The preamble discusses comments received in 
response to the October 2013 Proposed Rule, as appropriate, in the 
section-by section analysis, below.
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    \15\ In connection with the issuance of this proposal, the 
Agencies have coordinated and consulted with the Federal Financial 
Institutions Examination Council (FFIEC), as required by certain 
provisions of the flood insurance statutes. 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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II. Section-by-Section Analysis

A. Definitions

    Mutual aid society. As discussed below, the Agencies are proposing 
a provision that would permit regulated lending institutions to accept, 
at their discretion and under certain circumstances, a flood insurance 
policy issued by a private insurer that does not meet the definition of 
``private flood insurance'' in the Biggert-Waters Act. This provision 
includes specific standards for the acceptance of flood policies issued 
by mutual aid societies. In connection with this provision, the 
Agencies are proposing to add a definition of ``mutual aid society'' to 
their rules. Under the proposed definition, to qualify as a mutual aid 
society, an organization would need to meet three criteria: (1) The 
members must share a common religious, charitable, educational, or 
fraternal bond; (2) the organization must cover losses caused by damage 
to members' property including damage caused by flooding, pursuant to 
an agreement, in accordance with this common bond; and (3) the 
organization must have a demonstrated history of fulfilling the terms 
of agreements to cover losses to members' property caused by flooding. 
This proposed definition would ensure that only established 
organizations that consist of members with similar delineated goals or 
purposes, that have agreed to cover damage caused by flooding, and that 
have adequately covered flood losses in the past could be considered a 
``mutual aid society.''
    The Agencies request specific comment on whether the terms of this 
proposed definition adequately cover the types of organizations that 
should be considered ``mutual aid societies'' for purposes of the 
discretionary acceptance provision in this proposed rule. Specifically, 
the Agencies request comment on whether the proposed criteria are too 
broad or too narrow, and, if so, whether the final rule should include 
alternative, or additional, criteria.
    Private flood insurance. The proposed rule would amend the 
Definitions section to include the definition of ``private flood 
insurance'' specified in section 100239 of the Biggert-Waters Act, 
which added a new section 102(b)(7) to the FDPA. The proposed rule 
would define ``private flood insurance'' consistent with the statutory 
definition, with some clarifying edits, to mean an insurance policy 
that:
    1. Is issued by an insurance company that is licensed, admitted, or 
otherwise approved to engage in the business of insurance by the 
insurance regulator of

[[Page 78066]]

the State or jurisdiction in which the property to be insured is 
located; or, in the case of a policy of difference in conditions, 
multiple peril, all risk, or other blanket coverage insuring 
nonresidential commercial property, is recognized, or not disapproved, 
as a surplus lines insurer by the State insurance regulator of the 
State or jurisdiction where the property to be insured is located;
    2. Provides flood insurance coverage that is at least as broad as 
the coverage provided under a standard flood insurance policy (SFIP), 
including when considering deductibles, exclusions, and conditions 
offered by the insurer; \16\
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    \16\ When determining whether coverage is at least as broad as 
coverage provided under an SFIP, regulated lenders should compare 
like policies (e.g., a policy covering a 1-4 family residence or a 
single family dwelling unit in a condominium to an SFIP dwelling 
policy, a policy covering all other buildings except residential 
condominium buildings to an SFIP general property policy, or a 
policy covering a residential condominium building to an SFIP 
Residential Condominium Building Association Policy).
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    3. Includes a requirement for the insurer to give written notice 45 
days before cancellation or non-renewal of flood insurance coverage to 
the insured and the regulated lending institution, or a servicer acting 
on the institution's behalf;
    4. Includes information about the availability of flood insurance 
coverage under the NFIP;
    5. Includes a mortgage interest clause similar to the clause 
contained in an SFIP;
    6. Includes a provision requiring an insured to file suit not later 
than one year after the date of a written denial for all or part of a 
claim under a policy; and
    7. Contains cancellation provisions that are as restrictive as the 
provisions contained in an SFIP.
    The proposed rule would define ``SFIP'' to mean a standard flood 
insurance policy issued under the NFIP in effect as of the date the 
private policy is provided to a regulated lending institution. The 
Agencies request comment on whether this is the correct time-frame for 
determining what version of the SFIP the regulated lending institution 
should use to evaluate the private policy. As discussed in more detail 
below, the proposed rule also contains criteria that regulated lending 
institutions would apply to determine whether a policy's coverage is 
``at least as broad as'' SFIP coverage.
    The Agencies received a number of general comments in response to 
this definition of ``private flood insurance'' in the October 2013 
Proposed Rule. One commenter argued that imposing a requirement on 
regulated lending institutions to evaluate a private flood insurance 
policy for compliance with the statutory definition would put such 
institutions in an untenable position: A failure to accept a compliant 
private policy would be considered a violation, while accepting a 
private policy that is later judged by an examiner to be non-compliant 
would also result in a violation with potential civil monetary 
penalties. Another commenter stated that private flood insurance is 
market-based, and that it is not realistic to require such coverage to 
duplicate NFIP terms.
    The Agencies also received comments on the specific requirements in 
the definition. One commenter stated that the definition of ``flood'' 
included in some private flood insurance policies can differ from that 
of the NFIP, which has led to private policies being rejected by 
lenders and regulators. Some commenters asserted that the higher 
deductibles offered under many private flood insurance policies 
directly conflict with NFIP maximum deductibles. One of these 
commenters further noted that there are many instances when a higher 
deductible is reasonable on a policy purchased by a commercial business 
that has the financial capability to handle such a deductible. Another 
commenter noted that private flood insurance policies typically include 
a provision that details the maximum coverage amount, or aggregate 
limit, payable during the policy term. The statutory definition does 
not permit such maximum limits, which the commenter characterized as a 
major change that may not be acceptable to private insurers. One 
commenter also stated that the statute of limitations provision in the 
definition should be amended to allow for filing suit within two years 
after date of loss for commercial properties, not one year as in the 
definition.
    The Agencies also received comments regarding the cancellation 
provision in the definition. One commenter asserted that the 
cancellation provision in the proposed definition is problematic 
because nothing in an SFIP provides a basis to cancel a policy. Another 
commenter recommended that the definition be amended to recognize the 
notice of cancellation standards for commercial properties (typically 
10 or 30 days). A commenter also stated that notice of cancellation 
provisions should be allowed that are no more restrictive than 
provisions in commercial property forms. Another commenter noted that 
the requirement to provide 45 days written notice of cancellation or 
non-renewal of flood insurance coverage is problematic because very few 
private flood policies require this type of notice. This commenter 
specifically noted that lenders would be unable to accept private flood 
policies under this definition going forward, including those policies 
lenders have historically considered acceptable.
    The Agencies note that the definition of ``private flood 
insurance'' included in the October 2013 Proposed Rule and in this 
current proposal is mandated by the Biggert-Waters Act. Therefore, the 
Agencies may not make substantive changes to this definition in our 
regulations. However, the issues raised in connection with this 
definition by commenters influenced the Agencies' development and 
inclusion of a proposed provision that would permit institutions at 
their discretion to accept a private flood policy that does not meet 
the definition of ``private flood insurance'' in the Biggert-Waters 
Act, as discussed below.
    ``At least as broad as.'' Many commenters on the October 2013 
Proposed Rule also asserted that it would be difficult for institutions 
to determine whether private flood insurance coverage is ``at least as 
broad as'' the coverage provided under the SFIP, as required by 
statute. In response to these comments, the Agencies have proposed to 
clarify the meaning of this phrase. Specifically, the proposed 
definition of ``private flood insurance'' would provide that a policy 
is ``at least as broad as'' the coverage provided under an SFIP if the 
policy, at a minimum: (1) Defines the term ``flood'' to include the 
events defined as a ``flood'' in an SFIP; (2) covers both the 
mortgagor(s) and the mortgagee(s) as loss payees; (3) contains the 
coverage provisions specified in an SFIP, including those relating to 
building property coverage; personal property coverage, if purchased by 
the insured mortgagor(s); other coverages; and the increased cost of 
compliance; (4) for any total policy coverage amount up to the maximum 
available under the NFIP at the time the policy is provided to the 
lender, contains deductibles no higher than the specified NFIP maximum 
for the same type of property, and includes similar non-applicability 
provisions as under an SFIP; (5) provides coverage for direct physical 
loss caused by a flood and may exclude other causes of loss identified 
in an SFIP; any additional or different exclusions than those in an 
SFIP may only pertain to coverage that is in addition to the amount and 
type of coverage that could be provided by an SFIP; and (6) does not 
contain conditions that narrow the coverage that would be provided in 
an SFIP.

[[Page 78067]]

    The Agencies believe these criteria would ensure that a private 
flood insurance policy provides coverage that would protect the 
collateral securing the mortgage loan, thereby protecting both the 
property owner and the regulated lending institution making the loan, 
to the same extent as a policy issued under the NFIP. The Agencies 
specifically request comment on whether these criteria facilitate a 
regulated lending institution's determination of whether flood 
insurance coverage is ``at least as broad as'' the coverage provided 
under the SFIP.

B. Requirement To Purchase Flood Insurance

    This section currently sets forth the general requirement that a 
regulated lending 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 coverage amount must at least equal 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 (mandatory purchase requirement). It 
further provides that flood insurance coverage under the FDPA is 
limited to the building or mobile home and any personal property that 
secures a loan and not the land itself. A ``designated loan'' means a 
loan secured by a building or mobile home that is located or to be 
located in an SFHA in which flood insurance is available under the 1968 
Act, as amended.
    As in the October 2013 Proposed Rule, the Agencies are proposing to 
amend this section to implement section 102(b)(1)(B) of the FDPA, as 
added by section 100239(a)(1) of the Biggert-Waters Act, which requires 
that all regulated lending institutions accept ``private flood 
insurance,'' as defined in the statute, if certain conditions are met. 
Specifically, the proposed rule includes a new provision that would 
require a regulated lending institution to accept a private flood 
insurance policy that meets both: (1) The statutory definition of 
``private flood insurance,'' and (2) the mandatory purchase 
requirement, described above.

C. Compliance Aid for Mandatory Acceptance

    The October 2013 Proposed Rule proposed to add to the flood 
insurance regulations a safe harbor that would have allowed lenders to 
rely on a State insurance regulator's written determination that a 
particular private insurance policy satisfies the rule's definition of 
``private flood insurance'' and, therefore, must be accepted by the 
lender in satisfaction of the mandatory purchase requirement. The 
Agencies included this safe harbor because of concern that many 
regulated lending institutions, especially small institutions, would 
have difficulty evaluating whether a flood insurance policy meets the 
definition of ``private flood insurance'' that must be accepted, given 
their lack of technical insurance expertise regarding flood insurance 
policies.
    Commenters on the October 2013 Proposed Rule expressed considerable 
support for the inclusion of a safe harbor, with many noting that few 
lenders have the capacity to determine whether policies meet the 
required standards. However, some commenters criticized the specific 
safe harbor included in the proposal and suggested alternatives.
    In particular, many commenters raised concerns about the 
feasibility of State insurance regulators determining if private flood 
insurance is compliant with the Biggert-Waters Act, a Federal statute. 
Commenters noted there currently is no mechanism or process for a State 
insurance regulator to make such a determination. They further noted 
that even if such a mechanism is developed, States might not implement 
it consistently and it could lead to fifty different State standards. 
Many commenters also indicated that a State insurance regulator does 
not directly supervise providers of surplus lines insurance and, 
therefore, the safe harbor would not be available for surplus lines 
insurers.
    State insurance regulators raised many of the concerns regarding 
the proposed safe harbor. One State insurance regulatory agency stated 
that the proposed safe harbor should provide only a rebuttable 
presumption that the lender must accept the private flood insurance 
policy. Accordingly, the lender would not have to accept the policy if 
the lender or the lender's Federal supervisory agency determines that 
the policy does not meet the Federal legal standards for ``private 
flood insurance.'' This commenter also noted that a State insurance 
regulator lacks the legal authority to certify that a private flood 
insurance policy complies with Federal law, but could inform the 
insurer if it sees something in the policy that would make it non-
compliant with Federal law. The National Association of State Insurance 
Commissioners (NAIC) raised a similar objection. It stated that its 
members had raised concerns about the proposed safe harbor because it 
may not be possible for some State insurance regulators to determine 
whether a private flood insurance policy satisfies the Federal 
statutory definition of the term because of the particular State laws 
under which they operate.
    Another commenter noted that, even if included in the regulation, a 
lender would not always benefit from the safe harbor because a State 
may not have made a determination regarding a particular policy. In 
this case, a lender would have to determine whether private flood 
insurance is compliant, particularly with respect to the ``as broad 
as'' requirement.
    Among the numerous alternative safe harbors suggested, some 
commenters recommended that, instead of a State insurance regulator, 
the insurance company should certify that the private flood insurance 
policy being provided meets the statutory definition. One commenter 
stated that the insurance company should not only certify compliance 
with Federal law requirements, but also indemnify the lender if the 
policy should prove not to comply with Federal law and result in a loss 
to the lender. Another commenter recommended that an insurer's 
certification should provide that the private flood insurance policy's 
coverage is ``at least as broad as'' that provided under the NFIP. 
Commenters also suggested that the Agencies provide model certification 
language or a certification checklist.
    The Agencies believe that it would be appropriate for the rule to 
include a compliance aid provision to assist consumers and regulated 
lending institutions in determining whether and how a flood insurance 
policy meets the definition of ``private flood insurance'' and is 
therefore a policy that the institution is required to accept as long 
as it otherwise meets the mandatory purchase requirement. Therefore, 
after careful consideration, and based on the comments received on the 
proposed ``safe harbor'' under the October 2013 Proposed Rule, the 
Agencies have included in this proposed rule a compliance aid 
provision, which provides that a policy is deemed to meet the 
definition of ``private flood insurance'' if the following three 
criteria are met: (1) The policy includes, or is accompanied by, a 
written summary that demonstrates how the policy meets the definition 
of private flood insurance by identifying the provisions of the policy 
that meet each criterion in the definition, and confirms that the 
insurer is regulated in accordance with that definition; (2) the 
regulated lending institution verifies in writing that the

[[Page 78068]]

policy includes the provisions identified by the insurer in its summary 
and that these provisions satisfy the criteria included in the 
definition; and (3) the policy includes the following provision within 
the policy or as an endorsement to the policy: ``This policy meets the 
definition of private flood insurance contained in 42 U.S.C. 
4012a(b)(7) and the corresponding regulation'' (assurance clause).
    The Agencies believe that the first criterion of this proposed 
compliance aid provision, an insurance company's written summary 
demonstrating how the policy meets the definition of private flood 
insurance, would assist a regulated lending institution in reviewing 
flood insurance policies, which are often lengthy and complicated. By 
identifying provisions of the policy that meet each criterion in this 
definition, this summary would enable the institution to conduct 
expeditiously the verification process described in the second 
criterion. To satisfy the second criterion, a regulated lending 
institution would be required to perform its own due diligence before 
accepting the policy instead of solely relying on the insurance 
company's claim that the policy meets the statutory and regulatory 
definition of ``private flood insurance.'' The third prong, the 
insurance company's statement that the policy complies with the 
definition of ``private flood insurance,'' could provide the 
policyholder and the regulated lending institution with recourse 
against the insurance company if the company fails to abide by the 
terms included in the definition of ``private flood insurance.''
    The Agencies recognize that this provision does not relieve a 
regulated lending institution of the requirement to accept a policy 
that meets the definition of ``private flood insurance'' and the 
mandatory purchase requirement, even if the policy is not accompanied 
by a written summary and does not include an assurance clause. However, 
the Agencies believe that this provision would facilitate the ability 
of regulated institutions, as well as consumers, to recognize policies 
that a lender must accept and may encourage insurance providers to 
issue policies that meet these criteria.\17\
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    \17\ We note that this provision is not a ``safe harbor'' as 
generally understood. Because the statute mandates that regulated 
institutions accept any private flood insurance policy that meets 
the statutory definition of ``private flood insurance'' (provided it 
meets the mandatory purchase requirement), the provision would not 
reduce or eliminate liability if a lender failed to accept a policy 
that met the requirements in the statutory definition of private 
flood insurance. Therefore, we have not used the term ``safe 
harbor'' in this proposal.
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    The Agencies request comment on all aspects of this proposed 
compliance aid provision. In particular, commenters should address 
whether the provision as proposed would assist regulated lending 
institutions in complying with the requirement to accept insurance 
policies that meet the definition of ``private flood insurance.'' 
Furthermore, commenters should address whether each of the three 
criteria in this proposed provision is necessary and feasible. 
Moreover, the Agencies request comment on whether this provision may 
provide an incentive to insurance providers to demonstrate that their 
policy meets the definition of ``private flood insurance'' and, 
therefore, must be accepted by regulated lending institutions.

D. Discretionary Acceptance

    In general. The Agencies are proposing to permit a regulated 
lending institution to exercise its discretion to accept certain types 
of flood insurance policies issued by a private insurer other than 
private flood insurance policies that an institution is required to 
accept. Although section 102(b)(1)(B) of the FDPA, as added by section 
100239(a)(1) of the Biggert-Waters Act, requires a regulated lending 
institution to accept ``private flood insurance'' as that term is 
defined by statute, the Agencies note that the statute is silent about 
whether a regulated lending institution may accept a flood insurance 
policy issued by a private insurer that does not meet the statutory 
definition. The Agencies believe that the Congressional intent of the 
statute was to stimulate the private flood insurance market and, 
therefore, the statute should be construed to permit discretionary 
acceptance of flood insurance policies issued by private insurers that 
do not meet the statutory definition requiring mandatory 
acceptance.\18\
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    \18\ The Biggert-Waters Act's reforms were designed to improve 
the NFIP's financial integrity and stability as well as to 
``increase the role of private markets in the management of flood 
insurance risk.'' H. Rep. No. 112-102, at 1 (2011); see also 158 
Cong. Rec. H4622 (daily ed. June 29, 2012) (statement of Rep. 
Biggert).
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    Additionally, in the October 2013 Proposed Rule, the Agencies 
specifically requested comment on whether the Agencies should include a 
provision allowing lenders to exercise discretion in accepting a flood 
insurance policy issued by a private insurer that does not meet the 
statutory definition, but otherwise would provide flood coverage 
consistent with the FDPA, and a majority of commenters were supportive. 
Among other reasons, commenters suggested that permitting discretionary 
acceptance would promote a diverse market for flood insurance policies 
issued by private insurers; reduce delays in lenders' analyses of 
policies; and limit the likelihood of lender confusion if NFIP 
requirements included in the definition of ``private flood insurance'' 
change. Moreover, as noted above, commenters stated that it would be 
difficult for many policies to meet the statutory definition of 
``private flood insurance'' in the Biggert-Waters Act.
    In addition to soliciting comment on whether the rule should 
specifically state that regulated lending institutions may accept flood 
insurance policies issued by private insurers that do not meet all of 
the statutory criteria for ``private flood insurance,'' the Agencies 
asked whether some criteria should be required for such policies. The 
Agencies received comments with various views on the imposition of such 
criteria. This proposed rule adds criteria intended to address some of 
the comments received.
    Consequently, in addition to requiring regulated lending 
institutions to accept private flood insurance policies that comply 
with the statutory definition of ``private flood insurance,'' the 
proposed rule would expressly permit a regulated lending institution to 
accept other types of flood insurance policies issued by private 
insurers, provided the following criteria are met.\19\
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    \19\ The Agencies have included this provision pursuant to their 
authority under the FDPA to issue regulations directing lending 
institutions not to make, increase, extend, or renew any loan 
secured by property located in an SFHA unless the property is 
covered by ``flood insurance.'' See 42 U.S.C. 4012a(b).
---------------------------------------------------------------------------

    First, under the proposed rule, the flood insurance policy issued 
by a private insurer would be required to be issued by an insurer that 
is licensed, admitted, or otherwise approved to engage in the business 
of insurance by the insurance regulator of the State in which the 
property to be insured is located. In the case of a policy of 
difference in conditions, multiple peril, all risk, or other blanket 
coverage insuring nonresidential commercial property, the flood 
insurance issued by a private insurer would be required to be issued by 
a surplus lines insurer recognized, or not disapproved, by the 
insurance regulator of the State where the property to be insured is 
located. This criterion is included in the definition of ``private 
flood insurance'' in the Biggert-Waters Act, and the Agencies believe 
it is appropriate to include it as a criterion for discretionary 
acceptance as well. Because State

[[Page 78069]]

insurance regulators, as the functional regulators of insurance 
companies, may be in the best position to evaluate the financial 
condition and ability of a private insurer to meet its obligations 
under a flood insurance policy, the Agencies believe this proposed 
criterion would safeguard both the consumer purchasing the policy and 
the regulated lending institution issuing a loan for which the insured 
property serves as collateral.
    Second, under the proposed rule, the flood insurance policy issued 
by a private insurer would be required to cover both the mortgagor(s) 
and the mortgagee(s) as loss payees. This proposed criterion would 
ensure that the flood policy protects both the property owner and the 
regulated lending institution issuing the mortgage loan.
    Third, the proposal would require that a flood insurance policy 
issued by a private insurer must provide for cancellation following 
reasonable notice to the borrower only for reasons permitted by FEMA 
for an SFIP on the Flood Insurance Cancellation Request/Nullification 
Form, in any case of non-payment, or when cancellation is mandated 
pursuant to State law. This proposed criterion would ensure that a 
policy is cancelled only for limited reasons and that the policyholder 
receives reasonable notification of cancellation.
    Finally, the proposal would require that a flood insurance policy 
issued by a private insurer must either be ``at least as broad'' as the 
coverage provided under an SFIP, as defined above, or provide coverage 
that is ``similar'' to coverage provided under an SFIP, including when 
considering deductibles, exclusions, and conditions offered by the 
insurer. In determining whether the coverage is similar to coverage 
provided under an SFIP, the proposal would require the regulated 
lending institution to: (1) Compare the private policy with an SFIP to 
determine the differences between the private policy and an SFIP; (2) 
reasonably determine that the private policy provides sufficient 
protection of the loan secured by the property located in an SFHA; and 
(3) document its findings. The Agencies believe these proposed criteria 
would provide safeguards so that a regulated lending institution does 
not accept policies that do not sufficiently protect the collateral 
securing the loan.
    The Agencies believe that the proposed discretionary acceptance 
provision provides regulated lending institutions with greater 
flexibility to accept flood insurance policies that do not contain all 
of the requirements included in the definition of ``private flood 
insurance.'' Specifically, under this provision, regulated lending 
institutions would be able to accept a flood insurance policy issued by 
a private insurer that: (1) Does not contain a mortgage interest clause 
similar to the clause contained in an SFIP, provided that the policy 
covers the mortgagor and the mortgagee; \20\ (2) does not contain 
information about the availability of flood insurance coverage under 
the NFIP; (3) provides for cancellation of the policy following 
``reasonable notice'' to the borrower instead of requiring 45 days 
prior written notice for cancellation or non-renewal; (4) permits 
cancellation of the policy for reasons of non-payment or when State law 
mandates cancellation, in addition to the reasons for cancellation 
permitted in an SFIP; and (5) does not contain a provision requiring an 
insured to file suit not later than one year after the date of a 
written denial of all or part of a claim under the policy. In addition, 
with respect to deductibles, exclusions, and conditions, coverage under 
a policy accepted pursuant to the proposed discretionary acceptance 
provision could be ``similar to'' an SFIP instead of ``at least as 
broad as'' an SFIP, provided the institution documents that it has 
compared the differences between the policy and an SFIP and that it has 
reasonably determined that the private policy provides sufficient 
protection of the loan secured by the property to be insured.
---------------------------------------------------------------------------

    \20\ The SFIP mortgage interest clause ensures that any loss 
payable will be paid to any mortgagee named in the NFIP policy 
application and declarations page, as well as any other mortgagee or 
loss payee determined to exist at the time of the loss. We note that 
this differs from a clause covering both the mortgagor and the 
mortgagee, who are named in the policy.
---------------------------------------------------------------------------

    The Agencies solicit comment as to whether these proposed criteria 
are appropriate for regulated lending institutions accepting flood 
insurance policies issued by a private insurer that do not meet the 
statutory definition of ``private flood insurance.'' In particular, the 
Agencies seek comment on whether the proposed criteria are compatible 
with industry practice, or whether the proposed criteria would exclude 
currently accepted policies or significantly limit the growth of the 
market for flood insurance policies issued by private insurers.
    Separately, the Agencies request comment in three other areas 
related to the proposed discretionary acceptance criteria: (1) Whether 
the phrase ``sufficient protection of the loan'' is adequately clear, 
(2) whether the proposed criteria raise any safety and soundness risks 
for regulated lending institutions, and (3) whether the proposed 
criteria raise any consumer protection issues.
    Exception for mutual aid societies. The proposed rule also includes 
an exception for certain private flood coverage provided by mutual aid 
societies. This proposed exception is intended to be responsive to 
several commenters on the October 2013 Proposed Rule that supported 
adding provisions permitting regulated lending institutions to accept 
certain non-traditional coverage that does not satisfy the statutory 
definition for ``private flood insurance,'' such as Amish Aid plans, 
even though this coverage is not provided by a State-regulated 
insurance company. Under this proposed exception, flood protection 
offered by mutual aid societies that would not meet all of the above 
requirements for discretionary acceptance could continue to be offered, 
for example, to members of religious communities who do not purchase 
insurance from traditional insurance companies, provided certain 
conditions are met.
    Specifically, the proposed rule would permit a regulated lending 
institution to accept a private policy issued by a mutual aid society 
in satisfaction of the mandatory flood insurance purchase requirement 
if: (1) The institution's primary supervisory agency determines that 
such policy or types of policies meet the requirement for flood 
insurance for purposes of the Federal flood insurance statutes; (2) the 
policy meets the amount of coverage for losses and term requirements in 
the mandatory flood insurance purchase requirement; (3) the policy 
covers both the mortgagor(s) and the mortgagee(s) as loss payees; and 
(4) the regulated lending institution has determined that the policy 
provides sufficient protection of the loan secured by the property 
located in an SFHA.
    In determining whether a policy issued by a mutual aid society 
provides sufficient protection of the loan under the proposed rule, the 
regulated lending institution would be required to: (1) Verify that the 
policy is consistent with general safety and soundness principles, such 
as whether deductibles are reasonable based on the borrower's financial 
condition; (2) consider the policy provider's ability to satisfy 
claims, such as whether the policy provider has a demonstrated record 
of covering losses; and (3) document its conclusions.
    Under the proposed rule, each Agency would use its discretion 
individually to determine whether policies offered by

[[Page 78070]]

mutual aid societies qualify as flood insurance for purposes of the 
Federal flood insurance statutes. The OCC and FCA propose to conduct 
their own evaluations using the criteria that institutions are expected 
to consider under 12 CFR 22.3(c)(4) or 12 CFR 614.4930(c)(4), 
respectively. Based on their current practices regarding non-
traditional flood insurance plans, the Board, FDIC, and NCUA expect 
that cases in which they approve policies issued by mutual aid 
societies to be rare and limited.
    The OCC notes that it currently permits national banks and Federal 
savings associations to accept flood coverage issued by Amish mutual 
aid societies, such as Amish Aid plans. Amish Aid societies consist of 
members who share a common religious bond and, in accordance with this 
common bond, have a demonstrated history of fulfilling the terms of 
agreements (Amish Aid plans) to cover losses to members' property 
caused by flooding in accordance with this common bond, either by 
paying to cover the cost of damaged structures or by repairing or 
rebuilding the structures. Amish Aid plans thereby provide sufficient 
protection of the loan secured by the property and protect the lender 
as well as the borrower. The proposed rule, therefore, would maintain 
the status quo by continuing to allow national banks and Federal 
savings associations to accept flood coverage issued by mutual aid 
societies that have a demonstrated history of covering expenses caused 
by flood damage to members' property, and that is approved by the OCC, 
such as Amish Aid plans.
    The Agencies request comment on the proposed requirements for 
discretionary acceptance of polices issued by mutual aid societies, 
including the proposed criteria a regulated lending institution would 
be required to consider in determining whether the policy provides 
sufficient protection for the loan.
    Discretionary acceptance for nonresidential property. The mandatory 
flood insurance purchase requirement applies to loans secured by either 
residential or nonresidential properties. The Agencies understand that 
flood insurance policies issued by private insurers covering loans 
secured by nonresidential properties, such as commercial properties, 
may have coverage, deductibles, exclusions, and conditions that differ 
from NFIP policies based on the type, size, and number of 
nonresidential properties covered by the policy. In some instances, 
such policies are individually negotiated and tailored to the 
nonresidential property that secures a loan. The Agencies request 
comment on whether the proposed definition of ``private flood 
insurance'' or the proposed discretionary acceptance provision, both of 
which include specific requirements with respect to deductibles, 
exclusions, conditions, and cancellation, would prevent regulated 
lending institutions from accepting flood insurance policies issued by 
private insurers in the nonresidential lending context, even though 
coverage not including these requirements would be acceptable for 
policies covering another type of risk, such as fire or wind.
    Furthermore, the Agencies request comment on whether the final rule 
should include criteria for the discretionary acceptance of flood 
insurance policies issued by private insurers for nonresidential 
properties that are different from the criteria applicable to flood 
insurance policies issued by private insurers for residential 
properties. For example, the Agencies could require that the policy: 
(1) Meet the amount of coverage for losses and term requirements 
specified in the mandatory purchase requirement, (2) cover both the 
mortgagor(s) and the mortgagee(s) as loss payees, and (3) require the 
regulated institution to determine that the policy provides sufficient 
protection of the loan secured by the property, consistent with general 
safety and soundness principles, as is required for the acceptance of 
coverage provided by mutual aid societies. The Agencies request comment 
on whether a provision for flood insurance issued by private insurers 
covering nonresidential properties that includes these criteria is 
appropriate or whether different or additional criteria should be 
applied in the nonresidential context. For example, should the Agencies 
require the policy to be issued by an insurer that is licensed, 
admitted, or otherwise approved to engage in the business of insurance 
by the insurance regulator of the State where the property to be 
insured is located, or issued by a surplus lines insurer recognized, or 
not disapproved, by the insurance regulator of the State where the 
property to be insured is located?

III. Regulatory Analysis

A. Regulatory Flexibility Act

    OCC: In general, the Regulatory Flexibility Act (RFA) requires that 
in connection with a notice of proposed rulemaking an agency prepare 
and make available for public comment an initial regulatory flexibility 
analysis that describes the impact of a proposed rule on small 
entities.\21\ Under section 605(b) of the RFA, this analysis is not 
required if an agency certifies that the rule would not have a 
significant economic impact on a substantial number of small entities 
and publishes its certification and a short explanatory statement in 
the Federal Register along with its rule.
---------------------------------------------------------------------------

    \21\ See 5 U.S.C. 601 et seq.
---------------------------------------------------------------------------

    The OCC currently supervises approximately 1,032 small 
entities.\22\ We identified 974 OCC-supervised small entities that may 
be impacted by the proposed rule, which is a substantial number.\23\ 
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 $10,400 per year. Using this cost estimate, 
we believe the proposed rule will have a significant economic impact on 
four small banks, which is not a substantial number. Therefore, the OCC 
certifies that this regulation, if adopted, will not have a significant 
economic impact on a substantial number of small entities supervised by 
the OCC. Accordingly, a regulatory flexibility analysis is not 
required.
---------------------------------------------------------------------------

    \22\ We base our estimate of the number of small entities on the 
Small Business Administration's size thresholds for commercial banks 
and savings institutions, and trust companies, which are $550 
million and $38.5 million, respectively. Consistent with the General 
Principles of Affiliation 13 CFR 121.103(a), we count the assets of 
affiliated financial institutions when determining if we should 
classify an institution we supervise as a small entity. We used 
December 31, 2015, to determine size because a ``financial 
institution's assets are determined by averaging the assets reported 
on its four quarterly financial statements for the preceding year.'' 
See footnote 8 of the U.S. Small Business Administration's Table of 
Size Standards.
    \23\ To estimate the number of small banks that may be affected 
if the proposed rule is implemented, we determined the number of 
small banks that (a) self-identify by reporting mortgage servicing 
assets, reporting loans secured by real estate, or as originating 1-
4 family residential mortgage loans on a Call Report submitted for 
any quarter in calendar year 2015 or during the first quarter of 
2016 or (b) are identified by OCC examiners as originating 
residential mortgage loans or as Home Mortgage Disclosure Act 
filers.
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    Board: The RFA requires an agency to publish an initial regulatory 
flexibility analysis with a proposed rule or certify that the proposed 
rule will not have a significant economic impact on a substantial 
number of small entities. The Board is publishing an initial regulatory 
flexibility analysis and requests public comment on all aspects of its 
analysis. The Board will conduct a final regulatory flexibility 
analysis after considering the comments received during the public 
comment period.

[[Page 78071]]

    1. Statement of the need for, and objectives of, the proposed rule. 
The Board is proposing revisions to Regulation H to implement the 
private flood insurance provisions of the Biggert-Waters Act. 
Consistent with the Biggert-Waters Act, the proposal would require 
regulated lending institutions accept any private insurance policy that 
meets the Biggert-Waters Act's definition of ``private flood 
insurance'' in satisfaction of the mandatory flood insurance purchase 
requirement. The proposed rule would also include a compliance aid that 
would deem a policy to meet the Biggert-Waters Act definition of 
``private flood insurance'' if: (i) The policy includes, or is 
accompanied by, a written summary from the insurer that demonstrates 
how the policy meets the definition of private flood insurance; (ii) 
the lender verifies that the policy includes the provisions identified 
in the summary; and (iii) the policy includes language certifying that 
the policy meets the criteria. The Agencies are also proposing to 
permit lenders to accept, at their discretion, flood insurance policies 
issued by private insurers, and plans issued by mutual aid societies, 
that do not meet the definition of ``private flood insurance,'' 
provided they meet certain conditions.
    2. Small entities affected by the proposed rule. All State member 
banks that are subject to the Federal flood insurance statutes and the 
flood insurance provisions of Regulation H would be subject to the 
proposed rule. As of September 27, 2016, there were 821 State member 
banks. Under regulations issued by the Small Business Administration, 
banks and other depository institutions with total assets of $550 
million or less are considered small. Approximately 588 State member 
banks would be considered small entities by the Small Business 
Administration.\24\
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    \24\ The Board reviewed the number of State member banks that 
reported mortgage servicing assets, loans secured by real estate, or 
originating 1-4 family residential mortgage loans on a Call Report 
submitted for the four quarters ending on June 30, 2016, which 
included nearly all State member banks. Consequently, the Board is 
estimating that all small State member banks may be affected if the 
proposed rule is implemented.
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    The Board believes the proposal will not have a significant impact 
on small entities. First, the Board believes that most existing flood 
insurance policies issued by private insurers would not meet the 
definition of ``private flood insurance'' under the Biggert-Waters Act 
and that insurers would request that lenders accept the policies under 
the more flexible proposed discretionary acceptance provisions. The 
proposed provisions on discretionary acceptance, including plans issued 
by mutual aid societies, are at the discretion of the lender. As a 
result, regulated lending institutions may choose not to accept 
policies under those proposed provisions and would therefore have no 
compliance burden associated with those provisions.
    Second, with respect to flood insurance policies that a private 
insurer would seek to have a lender accept under the proposed mandatory 
acceptance provisions, the Board notes that for those regulated lending 
institutions, including those that are considered small entities, that 
accept flood insurance policies issued by private insurers today, such 
institutions already have experience evaluating such policies with the 
criteria in the Biggert-Waters Act definition of ``private flood 
insurance,'' which are almost identical to the criteria referenced in 
guidance issued by the Agencies and that currently govern the 
acceptance of private policies by regulated lending institutions. 
Third, as discussed in the SUPPLEMENTARY INFORMATION, the Board 
believes the proposed rule would alleviate the burden on regulated 
lending institutions, including those that are considered small 
entities, of evaluating whether a flood insurance policy issued by a 
private insurer meets the definition of ``private flood insurance'' 
under the mandatory acceptance provisions with the addition of a 
proposed compliance aid that leverages the expertise of the insurer 
issuing the policy.
    Although the proposed rule could impact a substantial number of 
small entities, the Board estimates that the costs to these entities 
will not be significant. The Board estimates that the cost for each 
covered small entity will be approximately $8,096 during the first year 
the proposal goes into effect. This estimate includes first year 
compliance costs \25\ and ongoing costs \26\ and assumes that the usage 
of private flood insurance policies by borrower, as defined by the 
proposed rule, is distributed consistently across small entities. The 
actual ongoing cost estimate may be lower than stated because the 
estimate assumes that all of the policies for properties in High Risk 
Areas will cover loans held by Board-supervised institutions when some 
of these loans may be held by institutions supervised by other 
Agencies.
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    \25\ Fixed compliance costs are estimated assuming each small 
entity requires one full-time employee working 20 hours at a rate of 
$101 an hour. The total cost of compliance for all 821 covered 
entities is approximately $1.658 million, or $2,020 for each small 
entity.
    \26\ Ongoing compliance costs are estimated based on available 
data. According to FEMA's Policy and Claim Statistics for Flood 
Insurance there are approximately 5,083,071 flood insurance policies 
nationally as of June 2016. Only 3,537,059 of these policies are 
located in ``High Risk Areas'' and would therefore require flood 
insurance. The Board estimated the future adoption rate of private 
flood insurance will be approximately 10 percent of the total of 
flood insurance policies in any given year. Further, small entities 
hold approximately 10 percent of all loans secured by real estate 
held in portfolio by all Board-supervised banks as of June 30, 2016. 
The Board therefore assumed that small entities will have to review 
a similar share of annual private flood insurance policies. Ongoing 
policy review costs are estimated to be approximately $6,076 per 
year for each small entity, assuming one labor hour per year, per 
policy, at $101 per hour.
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    3. Other Federal rules. The Board has not identified any likely 
duplication, overlap and/or potential conflict between the proposed 
rule and any Federal rule.
    4. Significant alternatives to the proposed revisions. The Board 
solicits comment on any significant alternatives that would reduce the 
regulatory burden associated with this proposed rule on small entities.
    FDIC: The RFA generally requires that, in connection with a notice 
of proposed rulemaking, an agency prepare and make available for public 
comment an initial regulatory flexibility analysis describing the 
impact of the proposed rule on small entities.\27\ 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. The Small Business Administration 
has defined ``small entities'' to include banking organizations with 
total assets less than or equal to $550 million.\28\
---------------------------------------------------------------------------

    \27\ 5 U.S.C. 601 et seq.
    \28\ 13 CFR 121.201 (as amended, effective December 2, 2014).
---------------------------------------------------------------------------

    The FDIC supervises 3,204 small banking entities that have 
originated 1-4 family residential mortgage loans or have reported 
holding mortgage servicing assets or loans secured by real estate and 
may therefore be affected by the proposed rule.\29\ The FDIC estimates 
that the annual cost for each covered small entity will range between 
$2,020 and $4,500 per year, on average. This estimate includes 
compliance costs \30\ and ongoing costs \31\ and assumes that

[[Page 78072]]

the usage of private flood insurance policies by borrowers, as defined 
by the proposed rule, is distributed consistently across small 
entities. The actual ongoing cost estimates are likely to be lower than 
stated because the estimate assumes that all of the loans for 
properties in High Risk Areas are held by FDIC-supervised institutions; 
at least some of these loans are held by OCC- and Board-supervised 
institutions.
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    \29\ FDIC Call Reports (four quarters ending on March 31, 2016).
    \30\ Fixed compliance costs are estimated assuming each small 
entity requires one full-time employee working 20 hours at a rate of 
$101 an hour. The total cost of compliance for all 3,204 covered 
entities is approximately $6.5 million, or $2,020 for each small 
entity.
    \31\ Ongoing compliance costs are estimated based on available 
data. According to FEMA's Policy and Claim Statistics for Flood 
Insurance there are approximately 5,118,254 flood insurance policies 
nationally as of March 2016. Only 3,568,638 of these policies are 
located in ``High Risk Areas'' and would therefore require flood 
insurance. The FDIC estimated the future adoption rate of private 
flood insurance will be between 1 percent and 10 percent of the 
total of flood insurance policies in any given year. Further, small 
entities hold approximately 22 percent of all loans secured by real 
estate held in portfolio by all FDIC-supervised banks as of March 
31, 2016. The FDIC therefore assumed that small entities will have 
to review a similar share of annual private flood insurance 
policies. Ongoing policy review costs are estimated to be between 
$250 and $2,500 per year for each small entity, assuming one labor 
hour per year, per policy, at $101 per hour.
---------------------------------------------------------------------------

    The proposed rule could impact a substantial number of small 
entities; however, the costs to those entities are not estimated to be 
significant. For this reason, the FDIC certifies that this proposed 
rule will not have a significant economic impact on a substantial 
number of small entities that it supervises.
    FCA: Pursuant to section 605(b) of the RFA, the FCA hereby 
certifies that the 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.\32\ Under section 605(b) of the RFA, this 
analysis is not required if an agency certifies that the rule would not 
have a significant economic impact on a substantial number of small 
entities and publishes its certification and a short explanatory 
statement in the Federal Register along with its rule.\33\ For purposes 
of this analysis, NCUA considers small credit unions to be those having 
under $100 million in assets.\34\ As of June 30, 2016, there are 4,345 
small, Federally insured credit unions, and only about 2,894 of these 
credit unions have real estate loans.
---------------------------------------------------------------------------

    \32\ 5 U.S.C. 603(a).
    \33\ 5 U.S.C. 605(b).
    \34\ 80 FR 57512 (September 24, 2015).
---------------------------------------------------------------------------

    NCUA classifies the economic impact of total costs on a credit 
union 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. NCUA estimates that the average 
cost per small credit union is approximately $2,020 per year. Using 
this cost estimate, NCUA believes the proposed rule will have a 
significant economic impact on 63 small credit unions, which is not a 
substantial number. Therefore, NCUA certifies that this proposed rule, 
if adopted, will not have a significant economic impact on a 
substantial number of small entities.

B. Unfunded Mandates Reform Act of 1995

    The OCC has analyzed the proposed rule under the factors in the 
Unfunded Mandates Reform Act of 1995 (UMRA).\35\ Under this analysis, 
the OCC considered whether the proposed rule 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 (adjusted annually for inflation). 
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. The UMRA does not apply to 
regulations that incorporate requirements specifically set forth in 
law.
---------------------------------------------------------------------------

    \35\ Public Law 104-4, 109 Stat. 48 (1995), codified at 2 U.S.C. 
1501 et seq.
---------------------------------------------------------------------------

    The OCC's estimated annual UMRA cost is approximately $36 million. 
Therefore, the OCC finds that the proposed rule does not trigger the 
UMRA cost threshold. Accordingly, the OCC has not prepared the written 
statement described in section 202 of the UMRA.

C. Paperwork Reduction Act of 1995

    The OCC, Board, FDIC, and NCUA (the Agencies) \36\ have determined 
that this proposed rule involves a collection of information pursuant 
to the provisions of the Paperwork Reduction Act of 1995 (the PRA) (44 
U.S.C. 3501 et seq.).
---------------------------------------------------------------------------

    \36\ The FCA has determined that the proposed rule does not 
involve a collection of information pursuant to the PRA for System 
institutions because System institutions are Federally chartered 
instrumentalities of the United States and instrumentalities of the 
United States are specifically excepted from the definition of 
``collection of information'' contained in 44 U.S.C. 3502(3).
---------------------------------------------------------------------------

    In accordance with the PRA (44 U.S.C. 3506; 5 CFR 1320 Appendix 
A.1), the Board reviewed the proposed rule under the authority 
delegated to the Board by the Office of Management and Budget (OMB). 
The collection of information that is subject to the PRA by this 
proposed rule is found in 12 CFR 22.3, 208.25, 339.3, and 760.3.
    The 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 OMB control numbers are 1557-0326 (OCC), 7100-0280 (Board), and 
3133-0143 (NCUA). The FDIC will seek a new OMB control number.
    Under Sec. Sec.  22.3(c)(2), 208.25(c)(3)(ii), 339.3(c)(2), and 
760.3(c)(2), a policy is deemed to meet the definition of private flood 
insurance if, among other things, (i) it includes a written summary 
demonstrating how the policy meets the definition of private flood 
insurance, identifying the provisions of the policy that meet each 
criterion in the definition and confirms that the insurer is regulated 
in accordance with that definition and (ii) the institution verifies in 
writing that the policy includes the provisions identified by the 
insurer in the summary provided and that these provisions satisfy the 
criteria included in the definition.
    Under Sec. Sec.  22.3(c)(3)(iv)(B)(3), 
208.25(c)(3)(iii)(D)(2)(iii), 339.3(c)(3)(iv)(B)(3), and 
760.3(c)(3)(iv)(B)(3), institutions have the discretion to accept a 
flood insurance policy issued by a private insurer that is not issued 
under the NFIP, does not meet the definition of private flood 
insurance, and does not satisfy Sec. Sec.  22.3(c)(3)(iv)(A), 
208.25(c)(3)(iii)(D)(1), 339.3(c)(3)(iv)(A), and 760.3(c)(iv)(A) if, 
among other things, the institution has documented in writing that it 
has compared the private policy with an SFIP to determine the 
differences between the private policy and an SFIP and reasonably 
determines that the private policy provides sufficient protection of 
the loan.
    Under Sec. Sec.  22.3(c)(4)(iv), 208.5(c)(iv)(D), 339.3(c)(4)(iv), 
and 760.3(c)(4)(iv), institutions may accept a private policy issued by 
a mutual aid society if, among other things, it has determined that the 
policy provides sufficient protection of the loan secured by the 
property located in the SFHA and documented its conclusions.

[[Page 78073]]

Burden Estimates
    OCC:
    Number of Respondents: 1,341.
    Total Burden: 129,968 hours.
    Board:
    Number of Respondents: 846.
    Total Burden: 42,050 hours.
    FDIC:
    Number of Respondents:3,885.
    Total Burden: 136,100 hours.
    NCUA:
    Number of Respondents: 4,058.
    Total Burden: 95,211 hours.
    These collections are available to the public at www.reginfo.gov.
    Comments are invited on:
    (a) Whether the information collections are necessary for the 
proper performance of the Agencies' functions, including whether the 
information has practical utility;
    (b) The accuracy of the Agencies' estimates of the burden of the 
information collections, including the validity of the methodology and 
assumptions used;
    (c) Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    (d) Ways to minimize the burden of information collections on 
respondents, including through the use of automated collection 
techniques or other forms of information technology; and
    (e) Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.

D. Riegle Community Development and Regulatory Improvement Act of 1994

    Section 302(a) of the Riegle Community Development and Regulatory 
Improvement Act of 1994 (RCDRIA) \37\ requires that each Federal 
banking agency,\38\ in determining the effective date and 
administrative compliance requirements for new regulations that impose 
additional reporting, disclosure, or other requirements on insured 
depository institutions, consider, consistent with principles of safety 
and soundness and the public interest, any administrative burdens that 
such regulations would place on depository institutions, including 
small depository institutions, and customers of depository 
institutions, as well as the benefits of such regulations. In addition, 
new regulations that impose additional reporting, disclosures, or other 
new requirements on insured depository institutions generally must take 
effect on the first day of a calendar quarter that begins on or after 
the date on which the regulations are published in final form.
---------------------------------------------------------------------------

    \37\ 12 U.S.C. 4802(a).
    \38\ For purposes of RCDRIA, ``Federal banking agency'' means 
the OCC, FDIC, and Board. See 12 U.S.C. 4801.
---------------------------------------------------------------------------

    The Federal banking agencies note that comment on these matters has 
been solicited in other sections of this SUPPLEMENTARY INFORMATION 
section, and that the requirements of RCDRIA will be considered as part 
of the overall rulemaking process. In addition, the Federal banking 
agencies invite any other comments that further will inform the Federal 
banking agencies' consideration of RCDRIA.

List of Subjects

12 CFR Part 22

    Flood insurance, Mortgages, National banks, 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, the OCC proposes to amend chapter I of 
title 12 of the Code of Federal Regulations as follows:

PART 22--LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS

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

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

0
2. Section 22.2 is amended by:
0
a. Redesignating paragraphs (h) and (i) as paragraphs (i) and (j), 
paragraphs (j) and (k) as (l) and (m), and (l) and (m) as (o) and (p); 
and
0
b. Adding new paragraphs (h), (k) and (n) to read as follows:


Sec.  22.2  Definitions.

* * * * *
    (h) Mutual aid society means an organization--
    (1) Whose members share a common religious, charitable, 
educational, or fraternal bond;
    (2) That covers losses caused by damage to members' property 
pursuant to an agreement, including damage caused by flooding, in 
accordance with this common bond; and
    (3) That has a demonstrated history of fulfilling the terms of 
agreements to cover losses to members' property caused by flooding.
* * * * *
    (k) Private flood insurance means an insurance policy that:
    (1) Is issued by an insurance company that is:
    (i) Licensed, admitted, or otherwise approved to engage in the 
business of insurance in the State or jurisdiction in which the 
property to be insured is located, by the insurance regulator of that 
State or jurisdiction; or
    (ii) Recognized, or not disapproved, as a surplus lines insurer by 
the insurance regulator of the State or jurisdiction in which the 
property to be insured is located in the case of a policy of difference 
in conditions, multiple peril, all risk, or other blanket coverage 
insuring nonresidential commercial property;
    (2) Provides flood insurance coverage that is at least as broad as 
the coverage provided under an SFIP, including when considering 
deductibles, exclusions, and conditions offered by the insurer. For 
purposes of this part, a policy is at least as broad as the coverage 
provided under an SFIP if, at a minimum, the policy:
    (i) Defines the term ``flood'' to include the events defined as a 
``flood'' in an SFIP;
    (ii) Covers both the mortgagor(s) and the mortgagee(s) as loss 
payees;
    (iii) Contains the coverage and provisions specified in an SFIP, 
including those relating to building property coverage; personal 
property coverage, if purchased by the insured mortgagor(s); other 
coverages; and the increased cost of compliance;
    (iv) Contains deductibles no higher than the specified maximum for 
the same type of property, and includes similar non-applicability 
provisions, as under an SFIP, for any total policy coverage amount up 
to the maximum

[[Page 78074]]

available under the NFIP at the time the policy is provided to the 
lender;
    (v) Provides coverage for direct physical loss caused by a flood 
and may exclude other causes of loss identified in an SFIP. Any 
additional or different exclusions than those in an SFIP may pertain 
only to coverage that is in addition to the amount and type of coverage 
that could be provided by an SFIP; and
    (vi) May not contain conditions that narrow the coverage provided 
in an SFIP;
    (3) Includes all of the following:
    (i) A requirement for the insurer to give written notice 45 days 
before cancellation or non-renewal of flood insurance coverage to:
    (A) The insured; and
    (B) The national bank or Federal savings association that made the 
designated loan secured by the property covered by the flood insurance, 
or the servicer acting on its behalf;
    (ii) Information about the availability of flood insurance coverage 
under the NFIP;
    (iii) A mortgage interest clause similar to the clause contained in 
an SFIP; and
    (iv) A provision requiring an insured to file suit not later than 
one year after the date of a written denial of all or part of a claim 
under the policy; and
    (4) Contains cancellation provisions that are as restrictive as the 
provisions contained in an SFIP.
* * * * *
    (n) SFIP means, for purposes of Sec. Sec.  22.2 and 22.3, a 
standard flood insurance policy issued under the NFIP in effect as of 
the date the private policy is provided to a national bank or Federal 
savings association.
* * * * *
0
3. Section 22.3 is amended by adding paragraph (c) to read as follows:


Sec.  22.3  Requirement to purchase flood insurance where available.

* * * * *
    (c) Private flood insurance. (1) Mandatory acceptance. A national 
bank or Federal savings association must accept private flood 
insurance, as defined in Sec.  22.2(k), in satisfaction of the flood 
insurance purchase requirement, provided that the private flood 
insurance meets the requirement for coverage under paragraph (a) of 
this section.
    (2) Compliance aid for mandatory acceptance. A flood insurance 
policy is deemed to meet the definition of private flood insurance in 
Sec.  22.2(k) for purposes of paragraph (a) of this section if:
    (i) The policy includes, or is accompanied by, a written summary 
that demonstrates how the policy meets the definition of private flood 
insurance in Sec.  22.2(k) by identifying the provisions of the policy 
that meet each criterion in the definition, and confirms that the 
insurer is regulated in accordance with that definition;
    (ii) The national bank or Federal savings association verifies in 
writing that the policy includes the provisions identified by the 
insurer in the summary provided pursuant to paragraph (c)(2)(i) of this 
section and that these provisions satisfy the criteria included in the 
definition; and
    (iii) The policy includes the following provision within the policy 
or as an endorsement to the policy: ``This policy meets the definition 
of private flood insurance contained in 42 U.S.C. 4012a(b)(7) and the 
corresponding regulation.''
    (3) Discretionary acceptance. A national bank or Federal savings 
association may accept a flood insurance policy issued by a private 
insurer that is not issued under the NFIP and does not meet the 
definition of private flood insurance, as defined in Sec.  22.2(k), in 
satisfaction of the flood insurance purchase requirement under 
paragraph (a) of this section, only if the coverage under such flood 
insurance policy meets the amount and term requirements specified in 
paragraph (a) of this section, and the policy:
    (i) Is issued by an insurer that is licensed, admitted, or 
otherwise approved to engage in the business of insurance in the State 
or jurisdiction in which the property to be insured is located by the 
insurance regulator of that State; or in the case of a policy of 
difference in conditions, multiple peril, all risk, or other blanket 
coverage insuring nonresidential commercial property, is issued by a 
surplus lines insurer recognized, or not disapproved, by the insurance 
regulator of the State where the property to be insured is located;
    (ii) Covers both the mortgagor(s) and the mortgagee(s) as loss 
payees;
    (iii) Provides for cancellation following reasonable notice to the 
borrower only for reasons permitted by FEMA for an SFIP on the Flood 
Insurance Cancellation Request/Nullification Form, in any case of non-
payment, or when cancellation is mandated pursuant to State law; and
    (iv) Either:
    (A) Meets the criteria set forth in paragraphs (k)(2)(i) and (iii) 
through (vi) of this section; or
    (B) Provides coverage that is similar to coverage provided under an 
SFIP, including when considering deductibles, exclusions, and 
conditions offered by the insurer, and the national bank or Federal 
savings association has:
    (1) Compared the private policy with an SFIP to determine the 
differences between the private policy and an SFIP;
    (2) Reasonably determined that the private policy provides 
sufficient protection of the loan secured by the property located in a 
special flood hazard area; and
    (3) Documented its findings under paragraphs (c)(3)(iv)(B)(1) and 
(2) of this section.
    (4) Exception for mutual aid societies. Notwithstanding the 
requirements of paragraph (c)(3) of this section, a national bank or 
Federal savings association may accept a private policy issued by a 
mutual aid society in satisfaction of the flood insurance purchase 
requirement under paragraph (a) of this section if:
    (i) The OCC has determined that such types of policies qualify as 
flood insurance for purposes of this Act;
    (ii) The policy meets the amount of coverage for losses and term 
requirements specified in paragraph (a) of this section;
    (iii) The policy covers both the mortgagor(s) and the mortgagee(s) 
as loss payees; and
    (iv) The national bank or Federal savings association has 
determined that the policy provides sufficient protection of the loan 
secured by the property located in a special flood hazard area. In 
making this determination, the national bank or Federal savings 
association must:
    (A) Verify that the policy is consistent with general safety and 
soundness principles, such as whether deductibles are reasonable based 
on the borrower's financial condition;
    (B) Consider the policy provider's ability to satisfy claims, such 
as whether the policy provider has a demonstrated record of covering 
losses; and
    (C) Document its conclusions.

Federal Reserve System

12 CFR CHAPTER II

Authority and Issuance

    For the reasons set forth in the joint preamble, the Board proposes 
to amend part 208 of chapter II of title 12 of the Code of Federal 
Regulations as set forth below:

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

0
4. The authority citation for part 208 is revised to read as follows:

    Authority: 12 U.S.C. 24, 36, 92a, 93a, 248(a), 248(c), 321-338a, 
371d, 461, 481-486,

[[Page 78075]]

601, 611, 1814, 1816, 1818, 1820(d)(9), 1823(j), 1828(o), 1831, 
1831o, 1831p-1, 1831r-1, 1831w, 1831x, 1835a, 1882, 2901-2907, 3105, 
3310, 3331-3351, 3353, and 3905-3909; 15 U.S.C. 78b, 78l(b), 78l(i), 
780-4(c)(5), 78q, 78q-1, 78w, 1681s, 1681w, 6801 and 6805; 31 U.S.C. 
5318; 42 U.S.C. 4012a, 4104b, 4106, and 4128.

0
5. Amend Sec.  208.25 by revising paragraphs (b)(7) through (b)(11) and 
adding paragraphs (b)(12) through (b)(14) and (c)(3) to read as 
follows:


Sec.  208.25  Loans in areas having special flood hazards.

* * * * *
    (b) Definitions. For purposes of this section:
* * * * *
    (7) Mutual aid society means an organization--
    (i) Whose members share a common religious, charitable, 
educational, or fraternal bond;
    (ii) That covers losses caused by damage to members' property 
pursuant to an agreement, including damage caused by flooding, in 
accordance with this common bond; and
    (iii) That has a demonstrated history of fulfilling the terms of 
agreements to cover losses to members' property caused by flooding.
    (8) NFIP means the National Flood Insurance Program authorized 
under the Act.
    (9) Private flood insurance means an insurance policy that:
    (i) Is issued by an insurance company that is:
    (A) Licensed, admitted, or otherwise approved to engage in the 
business of insurance in the State or jurisdiction in which the 
property to be insured is located, by the insurance regulator of that 
State or jurisdiction; or
    (B) Recognized, or not disapproved, as a surplus lines insurer by 
the insurance regulator of the State or jurisdiction in which the 
property to be insured is located in the case of a policy of difference 
in conditions, multiple peril, all risk, or other blanket coverage 
insuring nonresidential commercial property;
    (ii) Provides flood insurance coverage that is at least as broad as 
the coverage provided under an SFIP, including when considering 
deductibles, exclusions, and conditions offered by the insurer. For 
purposes of this part, a policy is at least as broad as the coverage 
provided under an SFIP if, at a minimum, the policy:
    (A) Defines the term ``flood'' to include the events defined as a 
``flood'' in an SFIP;
    (B) Covers both the mortgagor(s) and the mortgagee(s) as loss 
payees;
    (C) Contains the coverage and provisions specified in an SFIP, 
including those relating to building property coverage; personal 
property coverage, if purchased by the insured mortgagor(s); other 
coverages; and the increased cost of compliance;
    (D) Contains deductibles no higher than the specified maximum for 
the same type of property, and includes similar non-applicability 
provisions, as under an SFIP, for any total policy coverage amount up 
to the maximum available under the NFIP at the time the policy is 
provided to the lender;
    (E) Provides coverage for direct physical loss caused by a flood 
and may exclude other causes of loss identified in an SFIP. Any 
additional or different exclusions than those in an SFIP may pertain 
only to coverage that is in addition to the amount and type of coverage 
that could be provided by an SFIP; and
    (F) May not contain conditions that narrow the coverage provided in 
an SFIP;
    (iii) Includes all of the following:
    (A) A requirement for the insurer to give written notice 45 days 
before cancellation or non-renewal of flood insurance coverage to:
    (1) The insured; and
    (2) The member bank that made the designated loan secured by the 
property covered by the flood insurance, or the servicer acting on its 
behalf;
    (B) Information about the availability of flood insurance coverage 
under the NFIP;
    (C) A mortgage interest clause similar to the clause contained in 
an SFIP; and
    (D) A provision requiring an insured to file suit not later than 
one year after the date of a written denial of all or part of a claim 
under the policy; and
    (iv) Contains cancellation provisions that are as restrictive as 
the provisions contained in an SFIP.
    (10) Residential improved real estate means real estate upon which 
a home or other residential building is located or to be located.
    (11) 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.
    (12) SFIP means, for purposes of paragraphs (b) and (c) of this 
section, a standard flood insurance policy issued under the NFIP in 
effect as of the date the private policy is provided to a member bank.
    (13) 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.
    (14) 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.
* * * * *
    (3) Private flood insurance. (i) Mandatory acceptance. A member 
bank must accept private flood insurance, as defined in paragraph 
(b)(9) of this section, in satisfaction of the flood insurance purchase 
requirement, provided that the private flood insurance meets the 
requirement for coverage under paragraph (c)(1) of this section.
    (ii) Compliance aid for mandatory acceptance. A flood insurance 
policy is deemed to meet the definition of private flood insurance in 
paragraph (b)(9) of this section for purposes of paragraph (c)(1) of 
this section if:
    (A) The policy includes, or is accompanied by, a written summary 
that demonstrates how the policy meets the definition of private flood 
insurance in paragraph (b)(9) of this section by identifying the 
provisions of the policy that meet each criterion in the definition, 
and confirms that the insurer is regulated in accordance with that 
definition;
    (B) The member bank verifies in writing that the policy includes 
the provisions identified by the insurer in the summary provided 
pursuant to paragraph (c)(3)(ii)(A) of this section and that these 
provisions satisfy the criteria included in the definition; and
    (C) The policy includes the following provision within the policy 
or as an endorsement to the policy: ``This policy meets the definition 
of private flood insurance contained in 42 U.S.C. 4012a(b)(7) and the 
corresponding regulation.''
    (iii) Discretionary acceptance. A member bank may accept a flood 
insurance policy issued by a private insurer that is not issued under 
the NFIP and does not meet the definition of private flood insurance, 
as defined in paragraph (b)(9) of this section, in satisfaction of the 
flood insurance purchase requirement under paragraph (c)(1) of this 
section, only if the coverage under such flood insurance policy

[[Page 78076]]

meets the amount and term requirements specified in paragraph (c)(1) of 
this section, and the policy:
    (A) Is issued by an insurer that is licensed, admitted, or 
otherwise approved to engage in the business of insurance in the State 
or jurisdiction in which the property to be insured is located by the 
insurance regulator of that State; or in the case of a policy of 
difference in conditions, multiple peril, all risk, or other blanket 
coverage insuring nonresidential commercial property, is issued by a 
surplus lines insurer recognized, or not disapproved, by the insurance 
regulator of the State where the property to be insured is located;
    (B) Covers both the mortgagor(s) and the mortgagee(s) as loss 
payees;
    (C) Provides for cancellation following reasonable notice to the 
borrower only for reasons permitted by FEMA for an SFIP on the Flood 
Insurance Cancellation Request/Nullification Form, in any case of non-
payment, or when cancellation is mandated pursuant to State law; and
    (D) Either:
    (1) Meets the criteria set forth in paragraphs (b)(9)(ii)(A) and 
(C) through (F) of this section; or
    (2) Provides coverage that is similar to coverage provided under an 
SFIP, including when considering deductibles, exclusions, and 
conditions offered by the insurer, and the member bank has:
    (i) Compared the private policy with an SFIP to determine the 
differences between the private policy and an SFIP;
    (ii) Reasonably determined that the private policy provides 
sufficient protection of the loan secured by the property located in a 
special flood hazard area; and
    (iii) Documented its findings under paragraphs (c)(3)(iii)(D)(2)(i) 
and (ii) of this section.
    (iv) Exception for mutual aid societies. Notwithstanding the 
requirements of paragraph (c)(3)(iii) of this section, a member bank 
may accept a private policy issued by a mutual aid society in 
satisfaction of the flood insurance purchase requirement under 
paragraph (c)(1) of this section if:
    (A) The Board has determined that such types of policies qualify as 
flood insurance for purposes of this Act.
    (B) The policy meets the amount of coverage for losses and term 
requirements specified in paragraph (c)(1) of this section;
    (C) The policy covers both the mortgagor(s) and the mortgagee(s) as 
loss payees; and
    (D) The member bank has determined that the policy provides 
sufficient protection of the loan secured by the property located in a 
special flood hazard area. In making this determination, the member 
bank must:
    (1) Verify that the policy is consistent with general safety and 
soundness principles, such as whether deductibles are reasonable based 
on the borrower's financial condition;
    (2) Consider the policy provider's ability to satisfy claims, such 
as whether the policy provider has a demonstrated record of covering 
losses; and
    (3) Document its conclusions.

Federal Deposit Insurance Corporation

12 CFR CHAPTER III

Authority and Issuance

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

PART 339--LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS

0
6. The authority citation for part 339 continues to read as follows:

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

0
7. Section 339.2 is amended by adding the definitions of ``Mutual aid 
society'', ``Private flood insurance'', and ``SFIP'' in alphabetical 
order to read as follows:


Sec.  339.2  Definitions.

* * * * *
    Mutual aid society means an organization--
    (1) Whose members share a common religious, charitable, 
educational, or fraternal bond;
    (2) That covers losses caused by damage to members' property 
pursuant to an agreement, including damage caused by flooding, in 
accordance with this common bond; and
    (3) That has a demonstrated history of fulfilling the terms of 
agreements to cover losses to members' property caused by flooding.
* * * * *
    Private flood insurance means an insurance policy that:
    (1) Is issued by an insurance company that is:
    (i) Licensed, admitted, or otherwise approved to engage in the 
business of insurance in the State or jurisdiction in which the 
property to be insured is located, by the insurance regulator of that 
State or jurisdiction; or
    (ii) Recognized, or not disapproved, as a surplus lines insurer by 
the insurance regulator of the State or jurisdiction in which the 
property to be insured is located in the case of a policy of difference 
in conditions, multiple peril, all risk, or other blanket coverage 
insuring nonresidential commercial property;
    (2) Provides flood insurance coverage that is at least as broad as 
the coverage provided under an SFIP, including when considering 
deductibles, exclusions, and conditions offered by the insurer. For 
purposes of this part, a policy is at least as broad as the coverage 
provided under an SFIP if, at a minimum, the policy:
    (i) Defines the term ``flood'' to include the events defined as a 
``flood'' in an SFIP;
    (ii) Covers both the mortgagor(s) and the mortgagee(s) as loss 
payees;
    (iii) Contains the coverage and provisions specified in an SFIP, 
including those relating to building property coverage; personal 
property coverage, if purchased by the insured mortgagor(s); other 
coverages; and the increased cost of compliance;
    (iv) Contains deductibles no higher than the specified maximum for 
the same type of property, and includes similar non-applicability 
provisions, as under an SFIP, for any total policy coverage amount up 
to the maximum available under the NFIP at the time the policy is 
provided to the lender;
    (v) Provides coverage for direct physical loss caused by a flood 
and may exclude other causes of loss identified in an SFIP. Any 
additional or different exclusions than those in an SFIP may pertain 
only to coverage that is in addition to the amount and type of coverage 
that could be provided by an SFIP; and
    (vi) May not contain conditions that narrow the coverage provided 
in an SFIP;
    (3) Includes all of the following:
    (i) A requirement for the insurer to give written notice 45 days 
before cancellation or non-renewal of flood insurance coverage to:
    (A) The insured; and
    (B) The FDIC-supervised institution that made the designated loan 
secured by the property covered by the flood insurance, or the servicer 
acting on its behalf;
    (ii) Information about the availability of flood insurance coverage 
under the NFIP;
    (iii) A mortgage interest clause similar to the clause contained in 
an SFIP; and
    (iv) A provision requiring an insured to file suit not later than 
one year after the date of a written denial of all or part of a claim 
under the policy; and

[[Page 78077]]

    (4) Contains cancellation provisions that are as restrictive as the 
provisions contained in an SFIP.
* * * * *
    SFIP means, for purposes of Sec. Sec.  339.2 and 339.3, a standard 
flood insurance policy issued under the NFIP in effect as of the date 
the private policy is provided to an FDIC-supervised institution.
* * * * *
0
8. Section 339.3 is amended by adding paragraph (c) to read as follows:


Sec.  339.3  Requirement to purchase flood insurance where available.

* * * * *
    (c) Private flood insurance. (1) Mandatory acceptance. An FDIC-
supervised institution must accept private flood insurance, as defined 
in Sec.  339.2, in satisfaction of the flood insurance purchase 
requirement, provided that the private flood insurance meets the 
requirement for coverage under paragraph (a) of this section.
    (2) Compliance aid for mandatory acceptance. A flood insurance 
policy is deemed to meet the definition of private flood insurance in 
Sec.  339.2 for purposes of paragraph (a) of this section if:
    (i) The policy includes, or is accompanied by, a written summary 
that demonstrates how the policy meets the definition of private flood 
insurance in Sec.  339.2 by identifying the provisions of the policy 
that meet each criterion in the definition, and confirms that the 
insurer is regulated in accordance with that definition;
    (ii) The FDIC-supervised institution verifies in writing that the 
policy includes the provisions identified by the insurer in the summary 
provided pursuant to paragraph (c)(2)(i) of this section and that these 
provisions satisfy the criteria included in the definition; and
    (iii) The policy includes the following provision within the policy 
or as an endorsement to the policy: ``This policy meets the definition 
of private flood insurance contained in 42 U.S.C. 4012a(b)(7) and the 
corresponding regulation.''
    (3) Discretionary acceptance. An FDIC-supervised institution may 
accept a flood insurance policy issued by a private insurer that is not 
issued under the NFIP and does not meet the definition of private flood 
insurance, as defined in Sec.  339.2, in satisfaction of the flood 
insurance purchase requirement under paragraph (a) of this section, 
only if the coverage under such flood insurance policy meets the amount 
and term requirements specified in paragraph (a) of this section, and 
the policy:
    (i) Is issued by an insurer that is licensed, admitted, or 
otherwise approved to engage in the business of insurance in the State 
or jurisdiction in which the property to be insured is located by the 
insurance regulator of that State; or in the case of a policy of 
difference in conditions, multiple peril, all risk, or other blanket 
coverage insuring nonresidential commercial property, is issued by a 
surplus lines insurer recognized, or not disapproved, by the insurance 
regulator of the State where the property to be insured is located;
    (ii) Covers both the mortgagor(s) and the mortgagee(s) as loss 
payees;
    (iii) Provides for cancellation following reasonable notice to the 
borrower only for reasons permitted by FEMA for an SFIP on the Flood 
Insurance Cancellation Request/Nullification Form, in any case of non-
payment, or when cancellation is mandated pursuant to State law; and
    (iv) Either:
    (A) Meets the criteria of private flood insurance, as defined in 
Sec.  339.2, set forth in paragraphs (2)(i) and (iii) through (vi) of 
this section; or
    (B) Provides coverage that is similar to coverage provided under an 
SFIP, including when considering deductibles, exclusions, and 
conditions offered by the insurer, and the FDIC-supervised institution 
has:
    (1) Compared the private policy with an SFIP to determine the 
differences between the private policy and an SFIP;
    (2) Reasonably determined that the private policy provides 
sufficient protection of the loan secured by the property located in a 
special flood hazard area; and
    (3) Documented its findings under paragraphs (c)(3)(iv)(B)(1) and 
(2) of this section.
    (4) Exception for mutual aid societies. Notwithstanding the 
requirements of paragraph (c)(3) of this section, an FDIC-supervised 
institution may accept a private policy issued by a mutual aid society 
in satisfaction of the flood insurance purchase requirement under 
paragraph (a) of this section if:
    (i) The FDIC has determined that such types of policies qualify as 
flood insurance for purposes of this Act;
    (ii) The policy meets the amount of coverage for losses and term 
requirements specified in paragraph (a) of this section;
    (iii) The policy covers both the mortgagor(s) and the mortgagee(s) 
as loss payees; and
    (iv) The FDIC-supervised institution has determined that the policy 
provides sufficient protection of the loan secured by the property 
located in a special flood hazard area. In making this determination, 
the FDIC-supervised institution must:
    (A) Verify that the policy is consistent with general safety and 
soundness principles, such as whether deductibles are reasonable based 
on the borrower's financial condition;
    (B) Consider the policy provider's ability to satisfy claims, such 
as whether the policy provider has a demonstrated record of covering 
losses; and
    (C) Document its conclusions.

Farm Credit Administration

12 CFR CHAPTER VI

Authority and Issuance

    For the reasons set forth in the joint preamble, the FCA proposes 
to amend part 614 subpart S of chapter VI, title 12 of the Code of 
Federal Regulations as set forth below:

PART 614--LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS

0
9. The authority citation for part 614 is revised 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 
Pub. L. 92-181, 85 Stat. 583 (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
10. Section 614.4925, is amended by adding the definitions of ``mutual 
aid society'', ``private flood insurance'', and ``SFIP'' in 
alphabetical order to read as follows:


Sec.  614.4925  Definitions.

* * * * *
    Mutual aid society means an organization:
    (1) Whose members share a common religious, charitable, 
educational, or fraternal bond;
    (2) That covers losses caused by damage to members' property 
pursuant to an agreement, including damage caused by flooding, in 
accordance with this common bond; and
    (3) That has a demonstrated history of fulfilling the terms of 
agreements to cover losses to members' property caused by flooding.
* * * * *

[[Page 78078]]

    Private flood insurance means an insurance policy that:
    (1) Is issued by an insurance company that is:
    (i) Licensed, admitted, or otherwise approved to engage in the 
business of insurance in the State or jurisdiction in which the 
property to be insured is located, by the insurance regulator of that 
State or jurisdiction; or
    (ii) Recognized, or not disapproved, as a surplus lines insurer by 
the insurance regulator of the State or jurisdiction in which the 
property to be insured is located in the case of a policy of difference 
in conditions, multiple peril, all risk, or other blanket coverage 
insuring nonresidential commercial property;
    (2) Provides flood insurance coverage that is at least as broad as 
the coverage provided under an SFIP, including when considering 
deductibles, exclusions, and conditions offered by the insurer. For 
purposes of this subpart, a policy is at least as broad as the coverage 
provided under an SFIP if, at a minimum, the policy:
    (i) Defines the term ``flood'' to include the events defined as a 
``flood'' in an SFIP;
    (ii) Covers both the mortgagor(s) and the mortgagee(s) as loss 
payees;
    (iii) Contains the coverage and provisions specified in an SFIP, 
including those relating to building property coverage; personal 
property coverage, if purchased by the insured mortgagor(s); other 
coverages; and the increased cost of compliance;
    (iv) Contains deductibles no higher than the specified maximum for 
the same type of property, and includes similar non-applicability 
provisions, as under an SFIP, for any total policy coverage amount up 
to the maximum available under the NFIP at the time the policy is 
provided to the lender;
    (v) Provides coverage for direct physical loss caused by a flood 
and may exclude other causes of loss identified in an SFIP. Any 
additional or different exclusions than those in an SFIP may pertain 
only to coverage that is in addition to the amount and type of coverage 
that could be provided by an SFIP; and
    (vi) May not contain conditions that narrow the coverage provided 
in an SFIP;
    (3) Includes all of the following:
    (i) A requirement for the insurer to give written notice 45 days 
before cancellation or non-renewal of flood insurance coverage to:
    (A) The insured; and
    (B) The System institution that made the designated loan secured by 
the property covered by the flood insurance, or the servicer acting on 
its behalf;
    (ii) Information about the availability of flood insurance coverage 
under the NFIP;
    (iii) A mortgage interest clause similar to the clause contained in 
an SFIP; and
    (iv) A provision requiring an insured to file suit not later than 
one year after the date of a written denial of all or part of a claim 
under the policy; and
    (4) Contains cancellation provisions that are as restrictive as the 
provisions contained in an SFIP.
* * * * *
    SFIP means, for purposes of Sec. Sec.  614.4925 and 614.4930, a 
standard flood insurance policy issued under the NFIP in effect as of 
the date the private policy is provided to a System institution.
* * * * *
0
11. Section 614.4930 is amended by adding paragraph (c) to read as 
follows:


Sec.  614.4930  Requirement to purchase flood insurance where 
available.

* * * * *
    (c) Private flood insurance--(1) Mandatory acceptance. A System 
institution must accept private flood insurance, as defined in Sec.  
614.4925, in satisfaction of the flood insurance purchase requirement, 
provided that the private flood insurance meets the requirement for 
coverage under paragraph (a) of this section.
    (2) Compliance aid for mandatory acceptance. A flood insurance 
policy is deemed to meet the definition of private flood insurance in 
Sec.  614.4925 for purposes of paragraph (a) of this section if:
    (i) The policy includes, or is accompanied by, a written summary 
that demonstrates how the policy meets the definition of private flood 
insurance in Sec.  614.4925 by identifying the provisions of the policy 
that meet each criterion in the definition, and confirms that the 
insurer is regulated in accordance with that definition;
    (ii) The System institution verifies in writing that the policy 
includes the provisions identified by the insurer in the summary 
provided pursuant to paragraph (c)(2)(i) of this section and that these 
provisions satisfy the criteria included in the definition; and
    (iii) The policy includes the following provision within the policy 
or as an endorsement to the policy: ``This policy meets the definition 
of private flood insurance contained in 42 U.S.C. 4012a(b)(7) and the 
corresponding regulation.''
    (3) Discretionary acceptance.--In general. A System institution may 
accept a flood insurance policy issued by a private insurer that is not 
issued under the NFIP and does not meet the definition of private flood 
insurance, as defined in Sec.  614.4925, in satisfaction of the flood 
insurance purchase requirement under paragraph (a) of this section, 
only if the coverage under such flood insurance policy meets the amount 
and term requirements specified in paragraph (a) of this section, and 
the policy:
    (i) Is issued by an insurer that is licensed, admitted, or 
otherwise approved to engage in the business of insurance in the State 
or jurisdiction in which the property to be insured is located by the 
insurance regulator of that State; or in the case of a policy of 
difference in conditions, multiple peril, all risk, or other blanket 
coverage insuring nonresidential commercial property, is issued by a 
surplus lines insurer recognized, or not disapproved, by the insurance 
regulator of the State where the property to be insured is located;
    (ii) Covers both the mortgagor(s) and the mortgagee(s) as loss 
payees;
    (iii) Provides for cancellation following reasonable notice to the 
borrower only for reasons permitted by FEMA for an SFIP on the Flood 
Insurance Cancellation Request/Nullification Form, in any case of non-
payment, or when cancellation is mandated pursuant to State law; and
    (iv) Either:
    (A) Meets the criteria set forth in paragraphs (2)(i) and (iii) 
through (vi) of the definition of private flood insurance in Sec.  
614.4925; or
    (B) Provides coverage that is similar to coverage provided under an 
SFIP, including when considering deductibles, exclusions, and 
conditions offered by the insurer, and the System institution has:
    (1) Compared the private policy with an SFIP to determine the 
differences between the private policy and an SFIP;
    (2) Reasonably determined that the private policy provides 
sufficient protection of the loan secured by the property located in a 
special flood hazard area; and
    (3) Documented its findings under paragraphs (c)(3)(iv)(A)(B)(1) 
and (B)(2) of this section.
    (4) Exception for mutual aid societies. Notwithstanding the 
requirements of paragraph (c)(3) of this section, a System institution 
may accept a private policy issued by a mutual aid society in 
satisfaction of the flood insurance purchase requirement under 
paragraph (a) of this section if:
    (i) The FCA has determined that such types of policies qualify as 
flood insurance for purposes of the 1968 Act;

[[Page 78079]]

    (ii) The policy meets the amount of coverage for losses and term 
requirements specified in paragraph (a) of this section;
    (iii) The policy covers both the mortgagor(s) and the mortgagee(s) 
as loss payees; and
    (iv) The System institution has determined that the policy provides 
sufficient protection of the loan secured by the property located in a 
special flood hazard area. In making this determination, the System 
institution must:
    (A) Verify that the policy is consistent with general safety and 
soundness principles, such as whether deductibles are reasonable based 
on the borrower's financial condition;
    (B) Consider the policy provider's ability to satisfy claims, such 
as whether the policy provider has a demonstrated record of covering 
losses; and
    (C) Document its conclusions.

National Credit Union Administration

12 CFR CHAPTER VII

Authority and Issuance

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

PART 760--LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS

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

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

0
13. Section 760.2 is amended by adding the definitions of ``Mutual aid 
society'', ``Private flood insurance'', and ``SFIP'' in alphabetical 
order to read as follows:


Sec.  760.2  Definitions.

* * * * *
    Mutual aid society means an organization--
    (1) Whose members share a common religious, charitable, 
educational, or fraternal bond;
    (2) That covers losses caused by damage to members' property 
pursuant to an agreement, including damage caused by flooding, in 
accordance with this common bond; and
    (3) That has a demonstrated history of fulfilling the terms of 
agreements to cover losses to members' property caused by flooding.
* * * * *
    Private flood insurance means an insurance policy that:
    (1) Is issued by an insurance company that is:
    (i) Licensed, admitted, or otherwise approved to engage in the 
business of insurance in the State or jurisdiction in which the 
property to be insured is located, by the insurance regulator of that 
State or jurisdiction; or
    (ii) Recognized, or not disapproved, as a surplus lines insurer by 
the insurance regulator of the State or jurisdiction in which the 
property to be insured is located in the case of a policy of difference 
in conditions, multiple peril, all risk, or other blanket coverage 
insuring nonresidential commercial property;
    (2) Provides flood insurance coverage that is at least as broad as 
the coverage provided under an SFIP, including when considering 
deductibles, exclusions, and conditions offered by the insurer. For 
purposes of this part, a policy is at least as broad as the coverage 
provided under an SFIP if, at a minimum, the policy:
    (i) Defines the term ``flood'' to include the events defined as a 
``flood'' in an SFIP;
    (ii) Covers both the mortgagor(s) and the mortgagee(s) as loss 
payees;
    (iii) Contains the coverage and provisions specified in an SFIP, 
including those relating to building property coverage; personal 
property coverage, if purchased by the insured mortgagor(s); other 
coverages; and the increased cost of compliance;
    (iv) Contains deductibles no higher than the specified maximum for 
the same type of property, and includes similar non-applicability 
provisions, as under an SFIP, for any total policy coverage amount up 
to the maximum available under the NFIP at the time the policy is 
provided to the lender;
    (v) Provides coverage for direct physical loss caused by a flood 
and may exclude other causes of loss identified in an SFIP. Any 
additional or different exclusions than those in an SFIP may pertain 
only to coverage that is in addition to the amount and type of coverage 
that could be provided by an SFIP; and
    (vi) May not contain conditions that narrow the coverage provided 
in an SFIP;
    (3) Includes all of the following:
    (i) A requirement for the insurer to give written notice 45 days 
before cancellation or non-renewal of flood insurance coverage to:
    (A) The insured; and
    (B) The credit union that made the designated loan secured by the 
property covered by the flood insurance, or the servicer acting on its 
behalf;
    (ii) Information about the availability of flood insurance coverage 
under the NFIP;
    (iii) A mortgage interest clause similar to the clause contained in 
an SFIP; and
    (iv) A provision requiring an insured to file suit not later than 
one year after the date of a written denial of all or part of a claim 
under the policy; and
    (4) Contains cancellation provisions that are as restrictive as the 
provisions contained in an SFIP.
* * * * *
    SFIP means, for purposes of Sec. Sec.  760.2 and 760.3, a standard 
flood insurance policy issued under the NFIP in effect as of the date 
the private policy is provided to a credit union.
* * * * *
0
14. Section 760.3 is amended by adding paragraph (c) to read as 
follows:


Sec.  760.3  Requirement to purchase flood insurance where available.

* * * * *
    (c) Private flood insurance--(1) Mandatory acceptance. A credit 
union must accept private flood insurance, as defined in Sec.  760.2, 
in satisfaction of the flood insurance purchase requirement, provided 
that the private flood insurance meets the requirement for coverage 
under paragraph (a) of this section.
    (2) Compliance aid for mandatory acceptance. A flood insurance 
policy is deemed to meet the definition of private flood insurance in 
Sec.  760.2 for purposes of paragraph (a) of this section if:
    (i) The policy includes, or is accompanied by, a written summary 
that demonstrates how the policy meets the definition of private flood 
insurance in Sec.  760.2 by identifying the provisions of the policy 
that meet each criterion in the definition, and confirms that the 
insurer is regulated in accordance with that definition;
    (ii) The credit union verifies in writing that the policy includes 
the provisions identified by the insurer in the summary provided 
pursuant to paragraph (c)(2)(i) of this section and that these 
provisions satisfy the criteria included in the definition; and
    (iii) The policy includes the following provision within the policy 
or as an endorsement to the policy: ``This policy meets the definition 
of private flood insurance contained in 42 U.S.C. 4012a(b)(7) and the 
corresponding regulation.''
    (3) Discretionary acceptance. A credit union may accept a flood 
insurance policy issued by a private insurer that is not issued under 
the NFIP and does not meet the definition of private flood insurance, 
as defined in Sec.  760.2, in satisfaction of the flood insurance 
purchase requirement under paragraph (a) of this section, only if the 
coverage under such flood insurance policy

[[Page 78080]]

meets the amount and term requirements specified in paragraph (a) of 
this section, and the policy:
    (i) Is issued by an insurer that is licensed, admitted, or 
otherwise approved to engage in the business of insurance in the State 
or jurisdiction in which the property to be insured is located by the 
insurance regulator of that State; or in the case of a policy of 
difference in conditions, multiple peril, all risk, or other blanket 
coverage insuring nonresidential commercial property, is issued by a 
surplus lines insurer recognized, or not disapproved, by the insurance 
regulator of the State where the property to be insured is located;
    (ii) Covers both the mortgagor(s) and the mortgagee(s) as loss 
payees;
    (iii) Provides for cancellation following reasonable notice to the 
borrower only for reasons permitted by FEMA for an SFIP on the Flood 
Insurance Cancellation Request/Nullification Form, in any case of non-
payment, or when cancellation is mandated pursuant to State law; and
    (iv) Either:
    (A) Meets the criteria set forth in paragraphs (2)(i) and (iii) 
through (vi) of the definition of private flood insurance in Sec.  
760.2; or
    (B) Provides coverage that is similar to coverage provided under an 
SFIP, including when considering deductibles, exclusions, and 
conditions offered by the insurer, and the credit union has:
    (1) Compared the private policy with an SFIP to determine the 
differences between the private policy and an SFIP;
    (2) Reasonably determined that the private policy provides 
sufficient protection of the loan secured by the property located in a 
special flood hazard area; and
    (3) Documented its findings under paragraphs (c)(3)(iv)(B)(1) and 
(2) of this section.
    (4) Exception for mutual aid societies. Notwithstanding the 
requirements of paragraph (c)(3) of this section, a credit union may 
accept a private policy issued by a mutual aid society in satisfaction 
of the flood insurance purchase requirement under paragraph (a) of this 
section if:
    (i) The National Credit Union Administration has determined that 
such types of policies qualify as flood insurance for purposes of this 
Act;
    (ii) The policy meets the amount of coverage for losses and term 
requirements specified in paragraph (a) of this section;
    (iii) The policy covers both the mortgagor(s) and the mortgagee(s) 
as loss payees; and
    (iv) The credit union has determined that the policy provides 
sufficient protection of the loan secured by the property located in a 
special flood hazard area. In making this determination, the credit 
union must:
    (A) Verify that the policy is consistent with general safety and 
soundness principles, such as whether deductibles are reasonable based 
on the borrower's financial condition;
    (B) Consider the policy provider's ability to satisfy claims, such 
as whether the policy provider has a demonstrated record of covering 
losses; and
    (C) Document its conclusions.

    Dated: October 19, 2016.
Thomas J. Curry,
Comptroller of the Currency.
    By order of the Board of Governors of the Federal Reserve 
System, October 12, 2016.
Robert deV. Frierson,
Secretary of the Board.

    By order of the Board of Directors of the Federal Deposit 
Insurance Corporation.

    Dated at Washington, DC, this 19th day of October, 2016.
Robert E. Feldmanm
Executive Secretary,

    By order of the Board of the Farm Credit Administration.

    Dated at McLean, VA, this 14th day of October, 2016.
Dale L. Aultman,
Secretary.

    By order of the Board of the National Credit Union 
Administration.

    Dated at Alexandria, VA, this 27th day of October, 2016.
Gerard S. Poliquin,
Secretary of the Board.
[FR Doc. 2016-26411 Filed 11-4-16; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 7535-01-P; 6705-01-P