[Federal Register Volume 84, Number 34 (Wednesday, February 20, 2019)]
[Rules and Regulations]
[Pages 4953-4975]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-02650]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Parts 22 and 172

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

FEDERAL RESERVE SYSTEM

12 CFR Part 208

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

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 339

RIN 3064-AE50

FARM CREDIT ADMINISTRATION

12 CFR Part 614

RIN 3052-AC93

NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 760

RIN 3133-AE64


Loans in Areas Having Special Flood Hazards

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

ACTION: Final rule.

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SUMMARY: The Office of the Comptroller of the Currency (OCC), 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 amending 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 final rule requires regulated lending institutions to accept 
policies that meet the statutory definition of ``private flood 
insurance'' in the Biggert-Waters Act; and permits regulated lending 
institutions to exercise their discretion to accept flood insurance 
policies issued by private insurers and plans providing flood coverage 
issued by mutual aid societies that do not meet the statutory 
definition of ``private flood insurance,'' subject to certain 
restrictions.

DATES: This rule is effective on July 1, 2019.

FOR FURTHER INFORMATION CONTACT: 
    OCC: Rhonda L. Daniels, Compliance Specialist, Compliance Policy 
Division, (202) 649-5405; Sadia Chaudhary, Counsel, (202) 649-6350, 
Heidi M. Thomas, Special Counsel, or Melissa Lisenbee, Senior Attorney, 
(202) 649-5490, Chief Counsel's Office. For persons who are hearing 
impaired, 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, Senior Counsel, (202) 452-3359, Legal Division; for users of 
Telecommunications Device for the Deaf (TDD) only, contact (202) 263-
4869.
    FDIC: Simin Ho, Senior Policy Analyst, Division of Depositor and 
Consumer Protection, (202) 898-6907, [email protected]; Navid Choudhury, 
Counsel, Consumer Compliance Unit, Legal Division, [email protected] 
(202) 898-6526.
    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, Senior Staff Attorney, or Thomas Zells, Staff 
Attorney, Office of General Counsel, (703) 518-6540; or Jeff Marshall, 
Policy Officer, (703) 518-6360.

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 a 
special flood hazard area (SFHA) \5\ in which flood insurance is 
available under the NFIP. The laws specify the amount of insurance that 
must be purchased, and also require such insurance be maintained for 
the term of the loan. (The requirement for flood insurance, and the 
term and amounts of such coverage, are hereinafter described as ``the 
flood insurance purchase requirement.'') The OCC, Board, FDIC, FCA, and 
NCUA (collectively, the Agencies) each have issued regulations 
implementing these statutory requirements for the lending institutions 
they supervise.\6\
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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 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 Subpart S (FCA), and part 760 (NCUA).
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    The Biggert-Waters Act \7\ amends the Federal flood insurance 
statutes that the Agencies have authority to implement and enforce. 
Among other things, the Biggert-Waters Act: (1) Requires the Agencies 
to issue a rule regarding the escrow of premiums and fees for flood 
insurance; \8\ (2) clarifies the requirement to force place insurance; 
\9\ and (3) requires 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

[[Page 4954]]

flood insurance coverage issued by private insurers.\10\
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    \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 Biggert-Waters 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 a proposed rule to 
implement the escrow, force placement, and private flood insurance 
provisions of the Biggert-Waters Act (the October 2013 Proposed 
Rule).\11\ With respect to private flood insurance, the October 2013 
Proposed Rule would have required a regulated lending institution to 
accept all policies meeting the statutory definition of ``private flood 
insurance'' in the Biggert-Waters Act (mandatory acceptance). The 
October 2013 Proposed Rule also included a safe harbor provision that 
would have allowed regulated lending institutions to rely on the 
expertise of State insurance regulators to determine whether a policy 
meets the statutory definition of ``private flood insurance'' and must 
be accepted by the institution. Additionally, the Agencies specifically 
solicited comment on whether the rule should include a provision 
expressly permitting regulated lending institutions to exercise their 
discretion to accept flood insurance provided by private insurers that 
does not meet the Biggert-Waters Act's definition of ``private flood 
insurance'' (discretionary acceptance) and what criteria the Agencies 
might require for such a policy.
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    \11\ 78 FR 65108 (Oct. 30, 2013).
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    Of the 81 written comments received on the October 2013 Proposed 
Rule, 51 comments addressed some aspect of private flood insurance. 
Most commenters requested more guidance regarding the statutory 
definition of ``private flood insurance.'' Most commenters also 
supported a provision specifically permitting the discretionary 
acceptance of flood insurance issued by private insurers. However, many 
of these commenters raised concerns about including prescriptive 
criteria in the discretionary acceptance provision, noting that private 
flood insurance policies vary based on the nature of the property and 
the needs and financial capability of the borrower. Commenters also 
supported a safe harbor provision although some commenters, including 
State insurance regulators, had concerns with the safe harbor as 
proposed.
    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 flood insurance 
purchase requirement for certain detached structures. Accordingly, the 
Agencies jointly issued a new proposed rule in October 2014 to 
implement these HFIAA provisions.\13\ Based on comments received in 
response to the private flood insurance provisions of the October 2013 
Proposed Rule, and the statutory effective date for the escrow 
provisions of HFIAA, the Agencies decided to finalize the Biggert-
Waters Act force-placement insurance provisions and the HFIAA escrow 
and detached structure provisions in July 2015 \14\ and to revise and 
re-propose the private flood insurance provisions. The Agencies re-
proposed the private flood insurance rule in November 2016 (the 
November 2016 Proposed Rule or proposed rule),\15\ and this rulemaking 
sets forth the final rule.\16\
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    \12\ Public Law 113-89, 128 Stat. 1020 (2014).
    \13\ 79 FR 64518 (Oct. 30, 2014).
    \14\ 80 FR 43216 (July 21, 2015).
    \15\ 81 FR 78063 (November 7, 2016).
    \16\ In connection with the issuance of the final rule, the 
Agencies have coordinated and consulted with the Federal Financial 
Institutions Examination Council (FFIEC), as required by certain 
provisions of the Federal 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. Overview of Proposed Rule and Public Comments

    The November 2016 Proposed Rule significantly revised the October 
2013 Proposed Rule. In addition to provisions requiring regulated 
lending institutions to accept policies that meet the statutory 
definition of ``private flood insurance'' in the Biggert-Waters Act, 
the November 2016 Proposed Rule provided a compliance aid and further 
clarifications to assist regulated lending institutions in determining 
whether a policy meets the definition of ``private flood insurance.'' 
The November 2016 Proposed Rule also included a provision to permit 
regulated lending institutions to exercise their discretion to accept 
flood insurance policies issued by private insurers that do not meet 
the statutory definition of ``private flood insurance,'' subject to 
certain restrictions, and permitted the acceptance of certain flood 
coverage provided by ``mutual aid societies.''
    The Agencies received approximately 60 comments on the proposed 
rule from a wide range of commenters, including: Financial institutions 
(including banks, credit unions, and farm credit institutions); various 
trade associations (including bankers' trade associations, credit union 
trade associations, a farm credit trade association, and home building 
and realtor trade associations); the insurance industry (including 
insurance companies, trade associations, and brokers); individuals; 
nonprofit organizations; a flood risk management association; a State 
non-profit corporation; a State-regulatory organization; a Federal 
agency; and a State agency.\17\ The commenters addressed specific 
issues, such as: The regulatory definition of ``private flood 
insurance;'' the use of a compliance aid or regulatory safe harbor to 
facilitate compliance by regulated lending institutions; whether 
private flood insurance that does not conform to the statutory 
definition of ``private flood insurance'' can be accepted by regulated 
lending institutions; whether and what type of alternative criteria for 
such non-conforming private flood insurance should be required by the 
Agencies; and whether regulated lending institutions should be 
permitted to accept certain non-traditional, non-conforming flood 
insurance coverage, such as mutual aid society plans. These comments 
and the Agencies' responses to them are discussed in the summary and 
section-by-section analysis of the final rule that follows.
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    \17\ In addition to receiving written comments, the Agencies 
conferred with National Association of Insurance Commissioners 
(NAIC) staff to obtain further information on State regulation of 
insurance companies.
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III. Summary of the Final Rule

    The final rule requires regulated lending institutions to accept 
``private flood insurance,'' as defined in the Biggert-Waters Act.\18\ 
As suggested by commenters, the final rule also includes a streamlined 
compliance aid provision to help regulated lending institutions 
evaluate whether a flood insurance policy meets the definition of 
``private flood insurance.'' This compliance aid allows a regulated 
lending institution to conclude that a policy meets the definition of 
``private flood insurance'' without further review of the policy if the 
policy, or an endorsement to the policy, states: ``This policy meets 
the definition of private flood insurance contained in 42 U.S.C. 
4012a(b)(7) and the corresponding regulation.''
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    \18\ See 42 U.S.C. 4012a(b)(7).
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    In addition, the final rule permits regulated lending institutions 
to choose to accept certain flood insurance policies issued by private 
insurers, even if the policies do not meet the statutory and regulatory 
definition of ``private flood insurance.'' The proposed rule included 
conditions for accepting these policies. In response to commenters, the 
Agencies removed some of these conditions from the final rule. The key

[[Page 4955]]

conditions in the final rule are a requirement that the policy provide 
sufficient protection for a designated loan,\19\ consistent with 
general safety and soundness principles, and a requirement that the 
regulated lending institution document its conclusion regarding the 
sufficiency of protection in writing. The final rule also allows 
regulated lending institutions to exercise their discretion to accept 
certain plans providing flood coverage issued by ``mutual aid 
societies.''
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    \19\ The Agencies' rules define ``designated loan'' to mean ``a 
loan secured by a building or mobile home that is located or to be 
located in a special flood hazard area in which flood insurance is 
available under the Act.'' 12 CFR 22.2(e) (OCC); 12 CFR 208.25(b)(5) 
(Board), 12 CFR 339.2 (FDIC), 12 CFR 614.4925 (FCA), and 12 CFR 
760.2 (NCUA).
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IV. Section-by-Section Analysis of the Final Rule

A. Definitions

    Mutual aid society. As discussed below, the Agencies proposed, and 
are including in the final rule, a provision that would permit 
regulated lending institutions to accept, in satisfaction of the flood 
insurance purchase requirement, certain plans providing flood coverage 
issued by mutual aid societies. In connection with this provision, the 
Agencies proposed to add a definition of ``mutual aid society'' to 
their rules. Specifically, the proposal defined the term ``mutual aid 
society'' as an organization that meets 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 pursuant to an agreement, including damage caused by 
flooding, 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.
    Although the Agencies received comments in support of the proposed 
mutual aid provisions, several commenters asserted that regulated 
lending institutions would find it difficult to determine whether an 
organization has ``a demonstrated history of fulfilling the terms of 
agreements to cover losses to members' property caused by flooding'' 
because there is no established source for that information.
    The Agencies believe that a demonstrated history requirement is 
necessary for reasons of safety and soundness, namely, to ensure that 
property securing a loan extended by a regulated lending institution is 
adequately protected. Moreover, the Agencies believe that it will be 
feasible for regulated lending institutions to obtain sufficient 
information regarding an organization's history in covering losses to 
members' property caused by flooding. Regulated lending institutions 
may make determinations based on factors such as their experiences with 
mutual aid societies or examples that the mutual aid society provides 
of previously-covered losses. Therefore, the Agencies are retaining 
this prong of the definition in the final rule.
    One commenter requested that the Agencies add a fourth criterion to 
the definition that would require an organization to demonstrate that 
it meets a specified exemption under State insurance or licensing rules 
allowing mutual aid societies to provide insurance. This commenter 
asserted that this additional criterion is needed to prevent the 
definition from including unlawful insurers. The Agencies have 
considered this suggestion and believe that it is not necessary. 
Although this final rule would permit regulated financial institutions 
to accept plans providing flood coverage issued by mutual aid 
societies, the rule would not interfere with a State's ability to 
regulate the provision of such coverage, including a State's ability to 
explicitly prohibit such coverage from being issued in a particular 
State. Moreover, it is the Agencies' understanding that many States may 
not have explicit policies, rules, or laws addressing mutual aid 
societies, which may result in mutual aid society coverage being 
inadvertently prohibited if organizations are required to demonstrate 
that State law affirmatively permits them to provide coverage. 
Therefore, the Agencies are not adding the suggested criterion and are 
adopting the definition as proposed.
    Private flood insurance. The proposed rule included the definition 
of ``private flood insurance'' as specified in section 100239 of the 
Biggert-Waters Act, which added a new section 102(b)(7) to the 
FDPA.\20\ Specifically, the proposed rule defined ``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 in the State or jurisdiction in 
which the property to be insured is located, by the insurance regulator 
of that State or jurisdiction 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 
issued under the NFIP (SFIP), including when considering deductibles, 
exclusions, and conditions offered by the insurer; (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.
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    \20\ 42 U.S.C. 4012a(b)(7).
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    As discussed in more detail below, the proposed rule also contained 
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 both general and specific comments on the 
proposed definition of ``private flood insurance.'' Some commenters 
stated that, as a general matter, the proposed definition would make it 
more difficult for insurers, regulators, and regulated lending 
institutions to develop, obtain approval for, and accept flood 
insurance policies issued by private insurers. Others stated that the 
definition contained in the Biggert-Waters Act, from which the proposed 
definition derived, is unworkable and based on outdated FEMA 
guidelines. Other commenters stated that the definition should be 
broader or that State laws and regulations should dictate flood 
insurance requirements. While acknowledging commenters' concerns, the 
Agencies note that ``private flood insurance'' is a term defined in the 
Biggert-Waters Act, and the Agencies' definition is based on that 
statutory definition.
    The Agencies received specific comments on the section of the 
proposed definition of ``private flood insurance'' relating to the 
State licensing of insurers. These commenters expressed concern that 
this definition could be interpreted to exclude policies issued by 
surplus lines insurers for noncommercial properties. In response

[[Page 4956]]

to these commenters, the Agencies confirm that policies issued by 
surplus lines insurers for noncommercial properties already are covered 
in the definition of ``private flood insurance'' as policies that are 
issued by insurance companies that are ``otherwise approved to engage 
in the business of insurance by the insurance regulator of the State or 
jurisdiction in which the property to be insured is located.'' \21\ 
Therefore, the Agencies do not believe it is necessary to amend the 
proposed regulatory text to address this issue and adopt this section 
of the definition of ``private flood insurance'' as proposed, with 
nonsubstantive changes to simplify its wording.
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    \21\ During discussion of the Biggert-Waters Act on the Senate 
floor, Sen. Crapo noted that surplus lines insurers can provide 
coverage for residential properties and asked for clarification 
regarding the inclusion of surplus lines coverage in the definition 
of ``private flood insurance.'' In his response, Sen. Johnson 
stated, ``[T]he definition of `private flood insurance' includes 
private flood insurance provided by a surplus lines insurer and is 
not intended to limit surplus lines eligibility to nonresidential 
properties. While the Senator is correct that surplus lines 
insurance is specifically mentioned in that context, overall the 
definition accommodates private flood insurance from insurers who 
are `licensed, admitted, or otherwise approved' in the State where 
the property is located.'' 158 Cong. Rec. S6051 (daily ed. Sept. 10, 
2012).
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    In addition, the Agencies received specific comments on the section 
of the proposed definition of ``private flood insurance'' that states 
that the policy must include a requirement for the insurer to give 
written notice 45 days before cancellation or non-renewal of flood 
insurance coverage. Although one commenter supported the notification 
requirement, others stated that NFIP cancellation rules are not 
contained in an SFIP and such a notification requirement would generate 
confusion about whether ``private flood insurance'' policies must be 
broader than an SFIP. The Agencies decline to modify this section 
because the statutory definition states that to meet the definition of 
``private of flood insurance,'' a policy must include a requirement for 
the insurer to give 45 days' written notice of cancellation or non-
renewal of flood insurance coverage to the insured and the regulated 
lending institution.\22\ Therefore, the Agencies are adopting this 
section of the definition as proposed.
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    \22\ 42 U.S.C. 4012a(b)(7)(C)(i).
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    The Agencies also received a comment on the section of the proposed 
definition that would require a policy to include information about the 
availability of flood insurance coverage under the NFIP. This commenter 
stated that private flood insurance policies do not contain NFIP 
information and such information is unnecessary because the customer 
already receives such information with the Notice of Special Flood 
Hazards. The Agencies cannot modify this section because the statutory 
definition states that the policy must include ``information about the 
availability of flood insurance coverage under the [NFIP].'' \23\ 
Accordingly, the Agencies are adopting this part of the definition as 
proposed.
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    \23\ 42 U.S.C. 4012a(b)(7)(C)(ii).
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    The Agencies received a variety of comments on the section of the 
proposed definition that would require a policy to contain a mortgage 
interest clause similar to the clause contained in an SFIP. The 
mortgage interest clause in an SFIP typically covers the borrower and 
the regulated lending institution. One commenter supported the 
provision, but others stated that requiring a policy to have a mortgage 
interest clause would be incompatible with condominium and planned 
community policies that provide coverage for multiple properties 
without explicitly naming the borrower's regulated lending institution 
as a loss payee. The Agencies note that this provision is part of the 
statutory definition and, therefore, are adopting it in the final rule 
consistent with the statute.
    Commenters asserted that the section of the proposed definition 
stating that a policy must require 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 would disqualify private policies with different 
or no statutes of limitations. However, this provision also is part of 
the statutory definition,\24\ and, therefore, the Agencies are 
retaining it in the final rule.
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    \24\ 42 U.S.C. 4012a(b)(7)(C)(iv).
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    ``At least as broad as.'' Many commenters on the October 2013 
Proposed Rule stated that it would be difficult for regulated lending 
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 
proposed to clarify the meaning of this phrase. Specifically, the 
proposed definition of ``private flood insurance'' provided 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 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; (4) 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, for any total policy 
coverage amount up to the maximum available under the NFIP at the time 
the policy is provided to the regulated lending institution; (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.
    Although some commenters supported the proposed definition of ``at 
least as broad as,'' others generally criticized the definition of this 
phrase as overly technical, too narrow, insufficiently detailed, too 
subjective, and unnecessarily burdensome. The Agencies also received 
specific comments on the proposed individual requirements defining this 
phrase, as discussed below.
    Several commenters addressed the requirement that the private flood 
insurance policy cover both the mortgagor(s) and the mortgagee(s) as 
loss payees. Similar to comments raised about the mortgage interest 
clause in the definition of ``private flood insurance,'' discussed 
previously, several commenters noted concerns for condominium buildings 
and planned unit developments that use policies that provide coverage 
for multiple properties without explicitly naming the mortgagor or 
mortgagee as loss payees. After reviewing this provision, the Agencies 
are removing the proposed requirement here because it is unnecessary 
given the statutory requirement for a policy to include a mortgage 
interest clause similar to that contained in an SFIP, which, in 
general, provides for coverage of the mortgagor and mortgagee.\25\
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    \25\ The SFIP currently includes the following language, in 
section Q, Mortgage Clause: ``Any loss payable under Coverage A--
Building Property will be paid to any mortgagee of whom we have 
actual notice, as well as any other mortgagee or loss payee 
determined to exist at the time of loss, and you, as interests 
appear. If more than one mortgagee is named, the order of payment 
will be the same as the order of precedence of the mortgages.''
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    Several commenters criticized the proposed criteria that the policy 
must

[[Page 4957]]

contain the coverage specified in an SFIP, including building property 
coverage; personal property coverage, if purchased by the insured 
mortgagor(s); other coverages; and increased cost of compliance 
coverage. Generally, commenters supported requiring increased cost of 
compliance coverage, which assists mortgagors whose property is damaged 
by a flood to meet certain local ordinances or regulatory requirements 
relating to the reduction of future flood damage before the mortgagor 
can repair or rebuild the property. One commenter stated that overall, 
the provision could be interpreted as a requirement that private flood 
insurance policies exactly replicate the SFIP. The Agencies note that 
the enumerated minimum coverage requirements in this provision mirror 
those in an SFIP and implement the statutory requirement that private 
flood insurance be ``at least as broad as'' an SFIP policy. For this 
reason, the Agencies are adopting this provision as proposed. The 
Agencies also note that under this provision, as proposed and as 
adopted, the coverage specified in an SFIP is only a minimum 
requirement.
    A few commenters addressed the proposed requirement that a policy 
must contain deductibles no higher than the specified maximum for the 
same type of property, and include similar non-applicability 
provisions, as in 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 regulated lending institution. The commenters noted that in 
certain cases, reasonable deductibles may not match those contained in 
the SFIP and that there is no equivalent coverage for comparison for 
policies with coverage exceeding that available under the NFIP.
    In response to this concern, the Agencies clarify that for purposes 
of the mandatory acceptance requirement, deductibles must be ``at least 
as broad as'' an SFIP. For policies with coverage exceeding that 
available under the NFIP, the policy must only meet the deductible for 
the amount of coverage available in an SFIP. For example, a regulated 
lending institution cannot make a designated loan unless the policy is 
at least equal to the lesser of the outstanding balance of the loan or 
the maximum limit of coverage available for the particular type of 
property under the NFIP. If a private policy for a commercial structure 
provided coverage of $1,000,000, in excess of the NFIP maximum of 
$500,000 for that type of structure, then the policy only would need to 
match the SFIP deductible for the first $500,000. It would be 
acceptable for that policy to have deductibles higher than the maximum 
deductible for a policy available under the NFIP for the coverage over 
$500,000. Therefore, the Agencies do not believe they need to modify 
this provision to address these commenters' concern.
    However, the Agencies are making one technical change to this 
provision. As proposed, this provision provides that the deductibles in 
the policy must be compared to the SFIP deductibles for the same type 
of property. Because the phrase ``for the same type of property'' 
applies to other factors necessary to be considered ``at least as broad 
as,'' the Agencies have moved this phrase to the introductory text of 
this provision.
    One commenter addressed the proposed requirement that ``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.'' The commenter noted that this criterion 
could generate confusion because ``different exclusions'' may actually 
have the effect of providing broader coverage. This is contrary to the 
Agencies' intention in specifying when coverage is ``at least as broad 
as'' an SFIP. Therefore, the final rule provides that regulated lending 
institutions need not accept policies with additional exclusions unless 
the exclusions have the effect of providing broader coverage to the 
policyholder.
    Other commenters asked the Agencies to clarify whether a policy 
with an anti-concurrent causation clause can qualify as a policy that 
is ``at least as broad as an SFIP.'' These clauses provide that if a 
loss is caused by two perils, one of which is excluded and one of which 
is covered, the loss is not covered. The SFIP includes a provision 
regarding concurrent perils, which is effectively an anti-concurrent 
clause. As long as the private policy's anti-concurrent causation 
clause excludes losses to no greater degree than an SFIP, the policy 
will be ``at least as broad as'' an SFIP.
    The Agencies also received many comments stating that various 
aspects of the definitions of ``private flood insurance'' and ``at 
least as broad as'' would interfere with existing State law. These 
comments are discussed in more detail in the mandatory acceptance 
requirement section that follows.
    In addition to these changes, the Agencies have made nonsubstantive 
technical changes to the proposed definitions of ``private flood 
insurance'' and ``at least as broad as'' in the final rule.
    ``SFIP.'' The proposed rule defined ``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 requested comment on whether this is the correct time-frame 
for determining what version of the SFIP a regulated lending 
institution should use to evaluate private policies.
    One commenter on the proposed definition of ``SFIP'' expressed 
concern that the definition would require FEMA to give adequate advance 
notice of changes it makes to the Federal flood policies. Another 
commenter suggested that regulated lending institutions be given a 
reasonable period of time to update systems and change processes to 
accommodate material changes to the SFIP forms. Other commenters 
supported the proposed definition. Given the infrequency of SFIP 
changes, the Agencies expect that the burden of changing systems to 
compare against new versions of the SFIP will be minimal. Therefore, 
the Agencies are adopting the definition as proposed, with one 
technical change. Instead of defining SFIP with reference to the date a 
``private policy'' is provided to a regulated lending institution, the 
definition references the date private flood insurance is provided to 
the institution.
    Commenters also asked the Agencies to clarify which version of an 
SFIP a regulated lending institution should use for comparison with a 
private flood insurance policy. As stated in the Supplementary 
Information section of the proposed rule, when determining whether 
coverage is at least as broad as coverage provided under an SFIP, 
regulated lending institutions 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). As noted previously, the ``at least as broad as'' provision in 
the final rule now includes language requiring a comparison with an 
SFIP for the same type of property.

B. Requirement To Purchase Flood Insurance

    The Agencies' existing rules implement the statutory flood 
insurance purchase requirement and provide that a regulated lending 
institution shall not make, increase, extend, or renew any

[[Page 4958]]

designated loan \26\ unless the building or mobile home and any 
personal property securing the loan is covered by flood insurance for 
the term of the loan. Furthermore, the coverage amount must be at least 
equal to the lesser of the outstanding principal balance of the 
designated loan or the maximum limit of coverage available for the 
particular type of property under the Federal flood insurance statutes. 
The rules also provide that flood insurance coverage under the Federal 
flood insurance statutes is limited to the building or mobile home and 
any personal property that secures a loan and not the land itself.
---------------------------------------------------------------------------

    \26\ Supra footnote 19 defining ``designated loan.''
---------------------------------------------------------------------------

    The Agencies proposed to amend this section of their rules 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, in satisfaction of the flood insurance purchase 
requirement if the policy meets the requirements for coverage under the 
flood insurance purchase requirement.\27\ Meeting the ``requirements 
for coverage'' means that the policy must cover the building or mobile 
home and any personal property securing the loan in an amount at least 
equal to the outstanding principal balance of the loan or the maximum 
limit of coverage made available under the Federal flood insurance 
statutes with respect to the particular type of property, whichever is 
less.
---------------------------------------------------------------------------

    \27\ 42 U.S.C. 4012a(b)(1)(B).
---------------------------------------------------------------------------

    Although some commenters supported the proposed mandatory 
acceptance requirement, several commenters expressed concern that the 
proposed requirement would not permit regulated lending institutions to 
reject policies for reasons of safety and soundness. In response to 
these concerns, the Agencies note that the private flood insurance 
definition already contains criteria that address safety and soundness, 
such as the requirement for the insurance company to be licensed, 
admitted, or otherwise approved to engage in the business of insurance 
by a State regulator.
    Other commenters asserted that regulated lending institutions would 
be unable to comply with the proposed mandatory acceptance requirement 
because they would not have timely access to the necessary documents. 
These commenters stated that regulated lending institutions typically 
only receive a declarations page and often do not receive copies of the 
full policies or only receive them after considerable time has passed. 
One commenter was unsure how the mandatory acceptance requirement would 
affect preexisting force placement requirements \28\ that provide for 
the release of a force placed policy following the presentation of a 
declarations page by the borrower evidencing the borrower's purchase of 
flood insurance. Another commenter asked whether regulated lending 
institutions are expected to force place insurance if the full policy 
is not available.
---------------------------------------------------------------------------

    \28\ See 12 CFR 22.7(b)(2) (OCC); 12 CFR 208.25(g)(2)(ii) 
(Board); 12 CFR 339.7(b)(2) (FDIC); 12 CFR 760.7(b)(2) (NCUA); 12 
CFR 614.4945(b)(2) (FCA).
---------------------------------------------------------------------------

    The Agencies acknowledge that under existing force placement 
requirements, a declarations page is sufficient to evidence a 
borrower's purchase of flood insurance. However, a declarations page 
may be insufficient for a regulated lending institution to make a 
determination that the institution must accept a private flood 
insurance policy in satisfaction of the flood insurance purchase 
requirement if the declarations page does not provide enough 
information for the institution to determine that the policy meets the 
statutory definition of ``private flood insurance.'' In these 
circumstances, the regulated lending institution should request 
additional information about the policy to aid it in making its 
determination.
    Several commenters requested that the Agencies provide flexibility 
for private flood insurance that exceeds the coverage required by the 
flood insurance purchase requirement. The Agencies believe that there 
is no need for such additional flexibility because the mandatory 
acceptance requirement applies only to private flood insurance provided 
in satisfaction of the flood insurance purchase requirement. Regulated 
lending institutions can exercise their discretion to accept any policy 
provided by a private insurer offering additional coverage beyond the 
flood insurance purchase requirement.
    As previously mentioned, some commenters raised concerns that the 
mandatory acceptance requirement would conflict with existing State 
laws. Some of the examples commenters cited involved the 
restrictiveness of cancellation provisions, the 45-day cancellation 
notice, the one-year maximum for filing suit from date of a claim 
denial, and the inclusion of information on the availability of NFIP 
policies. The Agencies recognize that there may be conflicts between 
the definition of ``private flood insurance'' and State laws, and that 
the laws of certain States may prevent flood insurance policies issued 
by companies regulated by these States from meeting the definition of 
``private flood insurance.'' In such cases, regulated lending 
institutions are not required to accept policies that comply with State 
laws and conflict with the definition of ``private flood insurance.'' 
However, as discussed in greater detail below, regulated lending 
institutions may still exercise their discretion to accept certain 
policies issued by private flood insurers, even if the policies do not 
conform to the definition of ``private flood insurance.''
    For the reasons stated previously, and because the Biggert-Waters 
Act specifically mandates that regulated lending institutions accept 
``private flood insurance'' as defined in the statute, the Agencies are 
adopting the mandatory acceptance requirement as proposed, with 
nonsubstantive changes to simplify the provision's wording and to add a 
cross-reference citation for the flood insurance purchase requirement.

C. Compliance Aid for Mandatory Acceptance

    The Agencies were concerned that many regulated lending 
institutions, especially small institutions with a lack of technical 
expertise regarding flood insurance policies, would have difficulty 
evaluating whether a flood insurance policy meets the definition of 
``private flood insurance.'' For this reason, the proposed rule 
included a compliance aid that provided a policy would be deemed to 
meet the definition of ``private flood insurance'' if the following 
three criteria were 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 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 statement 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.''
    The Agencies received numerous comments on the proposed compliance 
aid. Although there was broad support for the inclusion of a compliance 
aid to facilitate regulated lending institutions'

[[Page 4959]]

determinations, commenters largely reacted negatively to the specific 
proposed criteria and contended that the proposed compliance aid would 
not be helpful. Moreover, commenters stated that the proposed 
compliance aid would not cause insurance providers to alter their 
policies to include all of the requirements in the compliance aid 
simply to demonstrate that their policies meet the definition of 
``private flood insurance.'' A number of commenters suggested that it 
would be more useful to include a safe harbor to shield regulated 
lending institutions.
    With respect to the first criterion, commenters stated that 
permitting a policy to be deemed to meet the definition of ``private 
flood insurance,'' only if it includes or is accompanied by a written 
summary that, among other requirements, demonstrates how the policy 
meets the definition of ``private flood insurance,'' would be 
unworkable and unnecessarily burdensome for insurance companies and 
therefore prevent the compliance aid from becoming widely adopted. 
These commenters further indicated that insurers would be reluctant to 
take on the additional liability potentially associated with a summary, 
especially because regulated lending institutions would be required to 
accept a policy that meets the definition of ``private flood 
insurance'' even if the policy were not accompanied by a summary. Some 
commenters stated that a summary would provide assurance and recourse 
for regulated lending institutions, but others stated that the summary 
may lead to increased confusion about the breadth of coverage.
    In response to the second criterion, commenters contended that 
requiring a regulated lending institution to provide written 
verification that the policy includes the provisions identified by the 
insurer in its summary would be unnecessarily burdensome for regulated 
lending institutions, especially those that do not immediately receive 
all of the documentation associated with the insurance policy in a 
timely manner or that do not have relevant insurance expertise. Some 
commenters noted that this criterion would require regulated lending 
institutions to duplicate the insurance company's work under the first 
and third criteria and still not relieve institutions of liability for 
their determinations. Others noted that this criterion would cause 
delays for borrowers. One commenter proposed only requiring regulated 
lending institutions to verify effective dates, coverage amounts, and 
names of insurers for the purpose of the compliance aid.
    With respect to the third criterion, some commenters suggested that 
insurers would be unwilling to provide the proposed statement because 
it could lead to unwanted liability for the insurance company. Other 
commenters stated that the statement would be unnecessarily burdensome 
for the insurance industry because insurers would need to compare their 
policies to the SFIP and possibly consult with State regulators for 
review or approval. Another commenter stated that many private flood 
insurance policies already contain assurance clauses. Several 
commenters stated that the proposed statement would provide regulated 
lending institutions and policyholders with adequate recourse in cases 
where the coverage does not actually meet the definition of ``private 
flood insurance.'' Other commenters requested that the Agencies modify 
the mandatory acceptance requirement to permit or require regulated 
lending institutions to reject policies that are not accompanied by the 
statement.
    Many commenters suggested alternative approaches to make it easier 
for regulated lending institutions to apply the mandatory criteria and 
to relieve regulated lending institutions of liability for their 
determinations. One commenter suggested a safe harbor based on State 
regulatory approval. Two other commenters requested that the Agencies 
provide a template or model language for a compliance aid that could be 
used in insurance policies. Several commenters supported a safe harbor 
that would permit regulated lending institutions to rely on insurer 
certifications. Some commenters contended that this type of safe harbor 
would remove burden and delays, reduce risk and uncertainty, improve 
consistency across the market, and promote the acceptance of private 
flood insurance. One commenter stated that permitting regulated lending 
institutions to rely on insurer certifications would align flood 
insurance with the larger hazard insurance market. Another commenter 
stated that regulated lending institutions should be permitted to rely 
on any type of assurance that is legally enforceable against the 
insurer, rather than only allowing the statement as a provision of, or 
endorsement to, a private flood insurance policy.
    In response to commenter concerns, the Agencies have simplified the 
compliance aid in the final rule by removing the first two criteria--
the insurer's written summary demonstrating how the policy meets the 
definition of ``private flood insurance'' and the regulated lending 
institution's written verification of the accuracy of this summary. 
Furthermore, the Agencies have revised the third proposed criterion to 
clarify that a regulated lending institution may determine that a 
policy meets the definition of ``private flood insurance'' without 
further review of the policy if the following statement is included 
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.'' To clarify, if a policy 
includes this statement, the regulated lending institution may rely on 
the statement and would not need to review the policy to determine 
whether it meets the definition of ``private flood insurance.'' 
However, the institution could choose not to rely on this statement and 
instead make its own determination.
    The Agencies do not generally regulate insurers and cannot require 
an insurance policy to include this compliance aid statement. However, 
if insurers choose to include this statement in their policies, it will 
facilitate the ability of regulated lending institutions, as well as 
consumers, to recognize policies that meet the definition of ``private 
flood insurance'' and promote the consistent acceptance of policies 
that meet this definition across the market. In this way, the 
compliance aid is intended to leverage the expertise of insurers to 
assist regulated lending institutions. Additionally, a policy that 
includes this statement may provide policyholders and regulated lending 
institutions with recourse against insurance companies that fail to 
abide by the terms included in the definition of ``private flood 
insurance,'' consistent with relevant State law. The Agencies note, 
however, that this provision does not relieve a regulated lending 
institution of the requirement to accept a policy that both meets the 
definition of ``private flood insurance'' and fulfills the flood 
insurance coverage requirement, even if the policy does not include the 
statement. In other words, this provision does not permit regulated 
lending institutions to reject policies solely because they are not 
accompanied by the statement.

D. Discretionary Acceptance

    As noted in the Supplementary Information section of the proposed 
rule, although section 102(b)(1)(B) of the FDPA \29\ (as added by 
section 100239(a)(1) of the Biggert-Waters Act) requires a regulated 
lending institution

[[Page 4960]]

to accept ``private flood insurance,'' as that term is defined by 
statute, in satisfaction of the flood insurance purchase requirement, 
the Biggert-Waters Act 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 of ``private flood 
insurance.'' Furthermore, the Agencies observe that the Biggert-Waters 
Act did not disturb the ``flood insurance'' purchase requirement in 
section 102(b) of the FDPA and that the term ``flood insurance'' in the 
FDPA remains undefined after the passage of the Biggert-Waters Act. 
Accordingly, consistent with the Congressional intent of the Biggert-
Waters Act to stimulate the private flood insurance market,\30\ the 
Agencies are construing the term ``flood insurance'' in the flood 
insurance purchase requirement in section 102(b) of the FDPA to 
continue to permit regulated lending institutions to exercise their 
discretion to accept certain policies issued by private insurers that 
do not contain all of the criteria in the statutory definition of 
``private flood insurance.''
---------------------------------------------------------------------------

    \29\ 42 U.S.C. 4012a(b)(1)(B).
    \30\ 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).
---------------------------------------------------------------------------

    To this end, the proposed rule provided that regulated lending 
institutions could accept, on a discretionary basis, a flood insurance 
policy issued by a private insurer if the policy meets the amount and 
term requirements specified in the flood insurance purchase 
requirement, and: (1) 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; (2) covers both the mortgagor and mortgagee as loss payees; 
(3) 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 
(4) is either ``at least as broad'' as the coverage provided under an 
SFIP or provides coverage that is ``similar'' to coverage provided 
under an SFIP, including when considering deductibles, exclusions, and 
conditions offered by the insurer.\31\
---------------------------------------------------------------------------

    \31\ The Agencies included this proposed provision pursuant to 
their authority under the FDPA to issue regulations directing 
regulated 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).
---------------------------------------------------------------------------

    The proposed rule stated that to determine whether the coverage 
``is similar'' to coverage provided under an SFIP, a regulated lending 
institution would have 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 received numerous comments on this provision. Although 
a few commenters were critical of allowing the discretionary acceptance 
of private flood insurance, the majority of commenters expressly 
supported having some type of discretionary acceptance provision in the 
regulation. One commenter critical of this provision stated that 
private flood insurance that does not meet the statutory minimum 
standards is likely to lead to abuse of homeowners, and that to protect 
consumers, the Agencies should eliminate the discretionary acceptance 
of private polices that do not meet the minimum statutory requirements. 
Another commenter stated that permitting discretionary acceptance would 
leave room for errors and increased risks of liability.
    In response to these concerns, the Agencies note the important role 
that State insurance laws and regulators play regarding the oversight 
of insurance activities in each State. This role is acknowledged in the 
discretionary acceptance provision, which provides that a regulated 
lending institution may only accept a flood insurance policy issued by 
a private insurer, including a policy for residential property issued 
by a surplus lines insurer, that is licensed, admitted, or otherwise 
approved to engage in the business of insurance by a State insurance 
regulator. In the case of a policy insuring nonresidential commercial 
property issued by a surplus lines insurer, the insurer must be 
recognized, or not disapproved, by a State insurance regulator.
    A third commenter disagreed with the interpretation in the proposed 
rule 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 of ``private flood 
insurance'' in the Biggert-Waters Act. However, as discussed 
previously, section 100239 of the Biggert-Waters Act, which requires 
the acceptance of policies that meet the definition of ``private flood 
insurance,'' did not disturb the ``flood insurance'' purchase 
requirement in section 102(b) of the FDPA. Furthermore, the term 
``flood insurance'' as used in section 102(b) of the FDPA remains 
undefined after the passage of the Biggert-Waters Act. Therefore, the 
Agencies find that the statute may be interpreted, consistent with the 
Congressional intent of the Biggert-Waters Act, to permit regulated 
lending institutions to accept certain flood insurance policies issued 
by private insurers that may not contain all of the criteria in the 
statutory definition of ``private flood insurance.''
    Those commenters in favor of this provision stated that 
discretionary acceptance is consistent with Congressional intent, and 
that current law and regulations permit regulated lending institutions 
to accept private flood insurance. However, most of these commenters 
criticized the criteria for discretionary acceptance in the proposed 
rule as overly burdensome and restrictive.
    The Agencies received many general comments indicating that the 
proposed criteria would not provide regulated lending institutions with 
the flexibility or certainty needed to encourage the acceptance of 
flood insurance policies issued by private insurers. Two of these 
comments stated that the proposed discretionary acceptance criteria 
were too similar to the mandatory acceptance criteria and would prevent 
the development of an alternative private flood insurance market. One 
commenter noted that the proposed criteria would result in the 
rejection of many private policies that are widely accepted by 
regulated lending institutions today.
    Commenters also addressed the difficulty for regulated lending 
institutions in applying the criteria. Some commenters noted that the 
analysis required by the proposed provision would be overly burdensome 
for regulated lending institutions and that institutions would struggle 
to apply all of the criteria because they do not have the insurance 
expertise required for the necessary determinations. One commenter 
stated that the criteria were insufficiently detailed, which would 
result in inconsistent application of the rule. Some commenters 
asserted that

[[Page 4961]]

regulated lending institutions would be unwilling to perform the 
analysis required by the proposed provision due to the potential 
liability associated with discretionary acceptance. These commenters 
maintained that lenders would be concerned that they would be held 
liable if they approve a private flood policy later found not to have 
met the definition of ``private flood insurance.'' Commenters also 
stated that these criteria would be difficult for regulated lending 
institutions to apply, and therefore would create delays in mortgage 
loan closings.
    Two commenters suggested adopting the ``mutual aid society'' 
criteria for all discretionary acceptance, which would involve applying 
a standard based on whether a policy provides sufficient protection of 
the loan consistent with general safety and soundness principles. Other 
commenters advocated for leaving the discretion to accept private 
policies with the regulated lending institution. Several commenters 
maintained that discretionary acceptance should rely on the State 
insurance regulatory system.
    Another commenter requested the Agencies to make clear that the 
requirements in the Agencies' private flood insurance rule are in 
addition to requirements related to private flood insurance imposed by 
secondary market investors (such as Fannie Mae and Freddie Mac) that 
apply if the mortgage loan is sold to these investors.
    With respect to specific aspects of the provision, some commenters 
noted that the cancellation requirement would not conform to State 
insurance laws. Two commenters noted that State laws generally provide 
for the circumstances under which cancellation of a policy is 
permitted, but they may not require a policy to be cancelled if such 
circumstances occur, as provided for in the proposed rule. One 
commenter stated that private policies are unlikely to conform to SFIP 
time frames and supported having ``reasonable'' cancellation notices. 
Two commenters supported having a mandatory 45-day notice of 
cancellation to protect consumers.
    Many commenters were opposed to a requirement that policies be ``at 
least as broad as'' an SFIP for the purposes of discretionary 
acceptance and raised similar issues to those raised about this 
standard in the mandatory acceptance requirement, described previously. 
Several commenters requested further clarification of the ``similar'' 
standard, especially regarding deductibles that do not align with the 
SFIP. One commenter supported replacing ``similar'' with ``comparable'' 
to prevent a rigid feature-by-feature approach, while another commenter 
stated that regulated lending institutions only should be permitted to 
accept ``at least as broad as'' policies because ``similar'' policies 
would endanger consumers. Another commenter suggested that instead of 
the ``similar'' standard, regulated lending institutions should be 
permitted to accept policies that provide sufficient protection of the 
loan consistent with general safety and soundness principles, noting 
that this standard would reduce ambiguity, complexity, and inconsistent 
application of the discretionary standard and that institutions already 
have processes to assess the safety and soundness of insurance 
policies. Another commenter stated that a private policy may offer 
equal or better overall protection even though it has provisions that 
are not entirely equivalent to those of an SFIP. One commenter 
suggested allowing consumers to determine the amount and extent of 
personal property coverage, rather than requiring the policy to match 
the coverage specified in an SFIP.
    Several commenters noted that the proposal's requirement that 
regulated lending institutions compare a private policy to an SFIP to 
determine the differences between the two policies would be burdensome 
for institutions. One commenter specifically stated that this provision 
would require an unnecessarily detailed comparison with the SFIP and 
that regulated lending institutions instead should be permitted to 
accept (without conducting further analysis) any policy that provides 
sufficient protection of the loan, meets the other discretionary 
acceptance criteria, and has similar deductibles, exclusions, and 
conditions. Another commenter asserted that this requirement is 
redundant given the requirement that regulated lending institutions 
evaluate how a private policy's coverage compares to an SFIP.
    Several commenters also requested the Agencies to clarify the 
phrase ``sufficient protection of the loan.'' One commenter recommended 
focusing on safety and soundness similar to the standard for the 
proposed mutual aid societies provision. Another commenter suggested 
that current due diligence practices would be sufficient to meet this 
standard. One commenter stated that ``sufficient protection of the 
loan'' is adequately clear.
    Some commenters opposed the requirement that regulated lending 
institutions document both their findings relating to the comparison of 
the policy to an SFIP, and the determination that the policy provides 
sufficient protection of the loan. One commenter stated that regulated 
lending institutions will avoid accepting private policies because they 
will be unwilling to undergo the work necessary to document decisions. 
Another commenter supported allowing regulated lending institutions to 
use existing practices and a basic checklist instead of the more 
burdensome process required by the proposal.
    Several commenters stated that regulated lending institutions 
should have the discretion to accept private flood insurance for 
residential properties, in addition to nonresidential properties, 
issued by surplus lines insurers. Several of these commenters noted 
that State insurance regulators impose requirements on surplus lines 
insurers and that surplus lines insurance constitutes a substantial 
portion of the private flood insurance market.
    Several commenters expressed support for a separate approach under 
discretionary acceptance for nonresidential flood insurance policies. 
These commenters noted that owners of such properties are often more 
sophisticated than owners of residential properties. They also noted 
that private commercial policies are frequently very different from 
SFIPs in that they cover multiple perils, have higher deductibles, and 
may cover multiple properties located in different States, and 
therefore, would not meet the discretionary acceptance criteria. One 
commenter stated that the rule would impose unnecessary burdens on 
nonresidential and commercial property owners and that regulated 
lending institutions should have more discretion to accept flood 
insurance policies related to commercial properties. Some commenters 
also stated that regulated lending institutions do not have the 
expertise to conduct the review of complex commercial and multifamily 
policies necessary to apply the criteria. One commenter advocated for 
allowing regulated lending institutions to accept a nonresidential 
policy based on a determination that the policy provides sufficient 
protection of the loan consistent with safety and soundness.
    As with the proposed definition of ``private flood insurance,'' 
commenters also raised concerns with respect to the application of the 
proposed discretionary criteria to condominium mortgage loans or mixed-
use community associations. Some commenters specifically requested an 
exception for policies covering condominiums from the proposed 
requirement that the policy must cover both the mortgagor(s) and the 
mortgagee(s) as loss payees because regulated lending institutions are 
often

[[Page 4962]]

not listed as loss payees in policies that cover loans for individual 
condominium units. These commenters stated that a regulated lending 
institution would not be permitted to accept a policy issued to a 
homeowners' association for a condominium building or planned unit 
development in satisfaction of the flood insurance purchase requirement 
because policies, such as a Residential Condominium Building 
Association Policy (RCBAP), are purchased by homeowners' associations 
for the benefit of the association and its unit owners, and typically 
do not include as beneficiary each regulated lending institution that 
provides mortgage loans to individual unit owners.
    Several commenters requested a compliance aid, as provided for the 
proposed mandatory acceptance requirement, to assist regulated lending 
institutions in performing the discretionary acceptance analysis. One 
commenter suggested that a compliance aid could take the form of a 
model disclosure form.
    After reviewing the comment letters, the Agencies have concluded 
that the final rule should include a discretionary acceptance 
provision, but that the provision should be less burdensome and 
restrictive than that included in the proposed rule, and more closely 
reflect the current policy of the Agencies with respect to both private 
flood insurance and hazard insurance. Therefore, the discretionary 
acceptance provision in the final rule no longer includes some of the 
proposed criteria, including the requirement that a policy include a 
specific cancellation clause, and the requirement that coverage in a 
flood insurance policy issued by a private insurer be ``at least as 
broad as'' or ``similar to an SFIP.'' By eliminating the cancellation 
provision and the ``at least as broad as'' and ``similar to an SFIP'' 
criteria, the final rule addresses commenters' concerns that the 
proposed criteria would be difficult to apply to commercial policies. 
Thus, the Agencies have concluded that a separate provision 
specifically applicable to commercial policies is not necessary. 
Furthermore, the Agencies believe that the simplification of the 
discretionary acceptance provision negates the need for a compliance 
aid provision for discretionary acceptance as some commenters 
advocated.
    The Agencies also have modified the mortgage interest clause 
provision to address commenters' concerns related to condominium 
properties. The final rule now provides that to be accepted under the 
discretionary acceptance provision, the policy must cover both the 
mortgagor(s) and the mortgagee(s) as loss payees, except in the case of 
a policy that is provided by a condominium association, cooperative, 
homeowners association, or other applicable group and for which the 
premium is paid by the condominium association, cooperative, homeowners 
association or other applicable group as a common expense. This 
exception is identical to the exception provided for the requirement to 
escrow flood premiums currently contained in the Agencies' flood 
insurance rules.\32\
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    \32\ 12 CFR 22.5(a)(2)(iii) (OCC), 12 CFR 208.25(e)(1)(ii)(C) 
(Board), 12 CFR 339.5(a)(2)(iii) (FDIC), 12 CFR 614.4935(a)(2)(iii) 
(FCA), and 12 CFR 760.5(a)(2)(iii) (NCUA).
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    Finally, the Agencies have made a number of technical amendments to 
the discretionary acceptance provision in the final rule. First, the 
proposed rule provided that the policy must meet the ``amount and term 
requirements'' of the flood insurance purchase requirement. As 
indicated previously, these requirements provide that the property 
securing a designated loan must be covered by flood insurance for the 
term of the loan and that the amount of insurance coverage must be at 
least equal to the lesser of the outstanding principal balance of the 
designated loan or the maximum limit of coverage available for the 
particular type of property under the Federal flood insurance statutes. 
However, the requirement that the property be covered for the term of 
the loan applies to the regulated lending institution, and is not a 
provision that must be included in the flood insurance policy. 
Therefore, the final rule removes the reference to the term 
requirement. The Agencies also have moved the amount requirement from 
the introductory text to a separate prong of the provision to more 
clearly delineate it as a criterion of acceptance.
    Second, the agencies have replaced the phrase ``loan secured by the 
property located in a special flood hazard area'' each time it appears 
with the more accurate defined term ``designated loan.'' Third, the 
Agencies have added ``jurisdiction'' each time ``State'' is referenced 
to correct inconsistencies in the proposed rule. Finally, the Agencies 
have made nonsubstantive changes to simplify wording.
    Accordingly, the final rule permits regulated lending institutions 
to accept flood insurance policies issued by private insurers that do 
not meet the statutory and regulatory definition of ``private flood 
insurance'' if four criteria are met.\33\
---------------------------------------------------------------------------

    \33\ The Agencies note that regulated lending institutions 
intending to sell mortgages into the secondary market also should 
review the requirements of such secondary market investors regarding 
acceptable private flood insurance.
---------------------------------------------------------------------------

    First, the policy must provide coverage in the amount required by 
the flood insurance purchase requirement.
    Second, the policy must 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 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 issued by a 
surplus lines insurer recognized, or not disapproved, by the insurance 
regulator of the State or jurisdiction where the property to be insured 
is located. As indicated in the proposed rule, this criterion is 
included in the definition of ``private flood insurance'' in the 
Biggert-Waters Act, and the Agencies find that it is appropriate to 
include it as a criterion for discretionary acceptance in the final 
rule as well. As noted previously in the discussion of mandatory 
acceptance, the Agencies believe that surplus lines insurers for 
noncommercial properties are covered as insurance companies that are 
``otherwise approved to engage in the business of insurance by the 
insurance regulator of the State or jurisdiction in which the property 
to be insured is located.''
    Third, the policy must cover both the mortgagor(s) and the 
mortgagee(s) as loss payees, except in the case of a policy that is 
provided by a condominium association, cooperative, homeowners 
association, or other applicable group and for which the premium is 
paid by the condominium association, cooperative, homeowners 
association, or other applicable group as a common expense.
    Fourth, the policy must provide sufficient protection of the 
designated loan, consistent with general safety and soundness 
principles, and the regulated lending institution must document its 
conclusion regarding sufficiency of the protection of the loan in 
writing.
    Basing the discretionary acceptance provision on loan protection 
appropriately focuses the ability of a regulated lending institution to 
accept a flood insurance policy issued by a private insurer on a key 
purpose of the Agencies' flood insurance rules. It also simplifies this 
provision, thereby facilitating the ability of regulated lending 
institutions, especially community financial institutions, to accept 
flood insurance policies issued by private insurers that do not satisfy 
the definition of ``private flood

[[Page 4963]]

insurance'' in the Biggert-Waters Act. Furthermore, the addition of a 
safety and soundness criterion makes the final rule's standard for 
discretionary acceptance similar to the standard included in both the 
proposed and final ``mutual aid society'' provision, and reflects 
suggestions made by public commenters.
    The Agencies note that some factors, among others, that a regulated 
lending institution could consider in determining whether a flood 
insurance policy provides sufficient protection of a loan include: 
Whether the flood insurance policy's deductibles are reasonable based 
on the borrower's financial condition; whether the insurer provides 
adequate notice of cancellation to the mortgagor and mortgagee to 
ensure timely force placement of flood insurance, if necessary; whether 
the terms and conditions of the flood insurance policy with respect to 
payment per occurrence or per loss and aggregate limits are adequate to 
protect the regulated lending institution's interest in the collateral; 
whether the flood insurance policy complies with applicable State 
insurance laws; and whether the private insurance company has the 
financial solvency, strength, and ability to satisfy claims.

E. Mutual Aid Societies

    The proposed rule permitted regulated lending institutions to 
accept certain flood coverage provided by mutual aid societies, which 
by their nature do not meet all of the requirements for discretionary 
acceptance in the proposed rule. As indicated previously, the final 
rule defines ``mutual aid society'' as 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. Under the proposed rule, a 
regulated lending institution could accept a private policy issued by a 
``mutual aid society'' in satisfaction of the flood insurance purchase 
requirement provided four criteria are met: (1) The institution's 
primary supervisory agency has determined that such types of policies 
qualify as flood insurance for purposes of the Federal flood insurance 
statutes; (2) the policy meets the amount of coverage for losses and 
term requirements specified in the 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. The proposed rule 
required that in meeting this last criterion, the institution would 
need to 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; consider the policy provider's 
ability to satisfy claims, such as whether the policy provider has a 
demonstrated record of covering losses; and document its conclusions. 
The Agencies included this mutual aid societies provision in the 
proposal in response to several commenters on the October 2013 Proposed 
Rule that supported adding provisions permitting regulated lending 
institutions to accept certain non-traditional coverage, such as 
certain Amish Aid Plans.
    Most commenters were generally supportive of this mutual aid 
societies provision. One commenter noted that having the ability to 
accept coverage issued by mutual aid societies would better meet the 
needs of certain communities and the regulated lending institutions 
that serve them by keeping down costs and respecting the borrower's 
religious or other beliefs. Another commenter noted that the Agencies' 
proposed provision for mutual aid societies contained requirements that 
more closely reflect the manner in which regulated lending institutions 
actually evaluate private policies today. One commenter in particular 
noted that the provision for mutual aid societies would be very useful 
for Farm Credit System institutions.
    A few commenters questioned the scope of the mutual aid societies 
provision. One commenter recommended that loans secured by commercial 
and multifamily properties should be exempted from a provision that 
permits the acceptance of coverage provided by mutual aid societies 
because mutual aid societies would be unable to repair large commercial 
and multifamily buildings.
    The Agencies believe there is no need to limit the mutual aid 
societies provision in this fashion as the final rule does not require 
regulated lending institutions to accept coverage issued by mutual aid 
societies. The mutual aid societies provision only makes it possible 
for regulated lending institutions to exercise their discretion to 
accept coverage issued by mutual aid societies in satisfaction of the 
flood insurance purchase requirement, provided the coverage meets the 
criteria adopted by the Agencies. Furthermore, such coverage only can 
be accepted if the institution determines that the coverage provides 
sufficient protection of the loan consistent with general safety and 
soundness principles.
    A few commenters encouraged the Agencies to expand the mutual aid 
societies provision to include other variations of traditional private 
flood insurance, including self-insurance and captive insurance 
companies, which employ risk shifting and distribution mechanisms or 
otherwise mitigate risks by partnering with unrelated insurance 
companies. The Agencies note that other forms of insurance, including 
captive insurance, self-insurance, and other types of alternative 
insurance policies, are permissible if they meet the requirements of 
discretionary acceptance and otherwise comply with applicable laws. 
Therefore, the Agencies decline to expand the mutual aid societies 
provision in this manner.
    One commenter stated that the proposed rule did not address how to 
comply with the escrow requirement for mutual aid society agreements. 
The Agencies note that the escrow requirement only applies if the 
borrower is paying a premium for the flood coverage. If there is no 
premium collected for flood coverage provided by mutual aid societies, 
the escrow requirement would not apply.
    The Agencies also received comments on the specific criteria for 
accepting mutual aid society coverage included in the proposed rule. 
One commenter requested clarification with respect to the first 
criterion, which required the regulated lending institution's primary 
supervisory agency to have determined that mutual aid society policies 
qualify as flood insurance. This commenter requested that the Agencies 
provide clarifying guidance as to how the Agencies will determine that 
policies issued by mutual aid societies will be acceptable. This 
commenter also suggested that the Agencies provide an approved list of 
acceptable mutual aid societies. As noted in the proposed rule, the OCC 
and FCA will conduct their own evaluations of mutual aid societies 
using the criteria that regulated lending 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, the Board, FDIC, and NCUA expect that 
cases in which they approve policies issued by mutual aid societies 
will be rare and limited.

[[Page 4964]]

    Another commenter criticized the proposed rule for permitting the 
Agencies to adopt different approaches to accepting mutual aid society 
coverage. Specifically, this commenter opined that mutual aid society 
coverage should be treated similarly by each Agency, and that 
inconsistent acceptance will create unnecessary confusion and barriers 
for borrowers who may already be limited in their banking options due 
to the rural location of many communities, and who would be further 
limited if only certain banks are able to accept mutual aid society 
policies. However, the Agencies believe that this provision maintains 
the status quo for how the Agencies currently regulate their 
institutions and, therefore, should not create additional difficulties 
for borrowers or regulated lending institutions.\34\ The Agencies, 
therefore, adopt this first criterion as proposed, with technical 
changes. The Agencies have replaced the word ``policy'' with ``plan'' 
in this criterion, as well as throughout the mutual aid societies 
provision, to more accurately describe the type of agreement issued by 
mutual aid societies. The Agencies also have removed the superfluous 
phrase ``types of'' in this criterion.
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    \34\ The OCC notes that it currently permits national banks and 
Federal savings associations to accept mutual aid society plans, 
such as plans issued by the Amish, in satisfaction of the flood 
insurance purchase requirement. The FCA also permits its System 
institutions to accept this coverage. Such plans are written 
agreements issued by members of a community who share a common 
religious bond and have a demonstrated history of covering 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. Accordingly, the OCC and FCA 
believe that such plans provide sufficient protection of a loan 
secured by the property, protect the institution as well as the 
borrower, and are issued by an organization that meets the 
definition of ``mutual aid society'' included in the final rule. 
Therefore, the final rule maintains the status quo by continuing to 
allow national banks, Federal savings associations, and Farm Credit 
System institutions to accept flood coverage issued by mutual aid 
societies, such as Amish Aid Plans.
---------------------------------------------------------------------------

    One commenter requested that the Agencies clarify their 
expectations for the requirements in the mutual aid societies 
provision, particularly with respect to ``the amount of coverage for 
losses and term requirements'' and identification of ``loss payees,'' 
as included in the second and third criteria, respectively. This 
commenter maintained that strict compliance with these expectations 
would prohibit a regulated lending institution from offering a mortgage 
secured by property located in an SFHA to a member of a mutual aid 
society because the written agreements provided by mutual aid societies 
do not necessarily include such specific details, do not state the 
insurable value of a property, and do not name the regulated lending 
institution as a loss payee. Instead, this commenter continued, these 
agreements are simply assurances by the community to rebuild a 
structure in the event that it is damaged or destroyed by a flood.
    The Agencies understand that coverage provided by mutual aid 
societies may not contain all of the same information included in 
private flood insurance policies issued by regulated insurance 
companies. However, mutual aid society plans reviewed by the Agencies 
to date have contained clauses that name the regulated lending 
institution and the borrower as loss payees and have stated the 
insurable amount. Therefore, the Agencies are adopting the second and 
third criteria as proposed, with one technical change to the second 
criterion. The Agencies have removed the reference to term 
requirements, because this reference, as noted in the discretionary 
acceptance discussion, is the separate responsibility of the lender, 
and not a provision that must be included in the policy. Instead, as 
with the discretionary acceptance provision, the final rule provides 
that the mutual aid society plan must provide coverage in the amount 
required by the flood insurance purchase requirement, i.e., the amount 
of coverage must be at least equal to the lesser of the outstanding 
principal balance of the loan or the maximum limit of coverage 
available for the particular type of property under the Federal flood 
insurance statutes.
    As indicated previously, the fourth criterion in the proposed rule 
provided that, to accept flood coverage from a mutual aid society, a 
regulated lending institution would need to determine that the coverage 
provides sufficient protection of the loan secured by the property 
located in an SFHA. In meeting this criterion, the regulated lending 
institution would need 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.
    Several commenters stated that the ``demonstrated record of 
covering losses'' provision in this criterion would create a major 
impediment to accepting mutual aid society policies because regulated 
lending institutions would struggle to determine and document the 
policy provider's demonstrated record of covering losses. As previously 
explained in the discussion of the analogous term ``demonstrated 
history'' in the definition of ``mutual aid society,'' the Agencies 
view this criterion as necessary for preventing abuse and believe 
regulated lending institutions will be able to obtain the information 
they need to document their determinations.
    However, after further review, the Agencies are simplifying and 
streamlining this criterion in the final rule. Because the definition 
of ``mutual aid society'' already requires that the entity ``has a 
demonstrated history of fulfilling the terms of agreements to cover 
losses to members' property caused by flooding,'' the proposed 
requirement that the regulated lending institution consider the policy 
provider's ability to satisfy claims, such as whether the policy 
provider has a demonstrated record of covering losses, is duplicative 
and unnecessary. Therefore, the Agencies have removed this ``ability to 
satisfy claims'' language, and have included a specific cross-reference 
to the definition in the introductory text of this provision. The 
Agencies also have removed the reference to deductibles in this 
criterion so that it is similar to the language included in the revised 
discretionary acceptance provision, which does not specifically list 
factors that a regulated lending institution could consider when 
determining whether a private insurance policy is consistent with 
safety and soundness. However, as previously indicated in the 
discretionary acceptance provision discussion, regulated lending 
institutions can still consider the reasonableness of deductibles when 
determining whether the mutual aid society coverage provides sufficient 
protection of a loan.
    Accordingly, the final rule provides that a regulated lending 
institution may accept a plan issued by a mutual aid society in 
satisfaction of the flood insurance purchase requirement provided that 
the following four criteria are met:
    First, the regulated lending institution's primary Federal 
supervisory agency has determined that such plans qualify as flood 
insurance for purposes of this Act;
    Second, the plan must provide coverage in the amount required by 
the flood insurance purchase requirement;
    Third, the plan must cover both the mortgagor(s) and the 
mortgagee(s) as loss payees; and
    Fourth, the plan must provide sufficient protection of the 
designated

[[Page 4965]]

loan, consistent with general safety and soundness principles, and the 
regulated lending institution must document its conclusion regarding 
sufficiency of the protection of the loan in writing.

F. Effective Date

    The Agencies received comments regarding the amount of time 
regulated lending institutions would need to implement a final rule on 
the private flood insurance provisions of the Biggert-Waters Act. Some 
commenters requested that the Agencies provide at least one year to 
implement the final rule. One commenter stated that the Agencies should 
provide at least 180 days from the time the final rule is published in 
the Federal Register to implement the rule.
    The Agencies are adopting an effective date of July 1, 2019. The 
Agencies believe this date affords regulated lending institutions 
sufficient time to make necessary changes to their policies and 
procedures as well as operating systems, and to train staff on such 
changes to ensure compliance with the final rule, without unnecessarily 
delaying the implementation of the rule. Moreover, this date complies 
with requirements in the Administrative Procedure Act (APA) and section 
302(b) of the Riegle Community Development and Regulatory Improvement 
Act of 1994 (RCDRIA), as discussed in the Regulatory Analysis section 
below regarding the Effective Date. In addition, the Agencies note that 
section 302(b)(2) of the RCDRIA provides that a person may comply with 
the regulation before the effective date of the regulation.\35\ 
Therefore, those regulated lending institutions that are able to and 
would like to comply with the final rule prior to July 1, 2019, may do 
so. The Agencies note that until July 1, 2019, regulated lending 
institutions may continue to accept flood insurance policies issued by 
private insurers and coverage provided by mutual aid societies as 
currently permitted by each Agency.
---------------------------------------------------------------------------

    \35\ 12 U.S.C. 4802(b)(2).
---------------------------------------------------------------------------

V. Regulatory Analysis

A. Regulatory Flexibility Act

    OCC: Pursuant to the Regulatory Flexibility Act (RFA), an agency 
must prepare a regulatory flexibility analysis for all proposed and 
final rules that describes the impact of the rule on small 
entities.\36\ Under section 605(b) of the RFA, this analysis is not 
required if the head of the agency certifies that the rule will not 
have a significant economic impact on a substantial number of small 
entities and publishes its certification and a short explanatory 
statement in the Federal Register along with its rule.
---------------------------------------------------------------------------

    \36\ See 5 U.S.C. 601 et seq.
---------------------------------------------------------------------------

    The OCC currently supervises 1,246 banks (national banks, Federal 
savings associations, and branches or agencies of foreign banks). The 
OCC finds that 1,094 OCC-supervised banks may be affected by the 
rule,\37\ of which approximately 774 are small entities.\38\ Thus, the 
OCC assumes the rule impacts a substantial number of small banks.
---------------------------------------------------------------------------

    \37\ To estimate the number of banks that may be affected by the 
final rule the OCC determined the number of 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 2017 or one of the first three quarters of 2018 or (b) 
are identified by OCC examiners as originating residential mortgage 
loans or as Home Mortgage Disclosure Act (HMDA) filers.
    \38\ The OCC bases its estimate of the number of small entities 
on the SBA's size thresholds for commercial banks and savings 
institutions, and trust companies, which are $550 million and $38.5 
million, respectively. Consistent with the General Principles of 
Affiliation 13 CFR 121.103(a), the OCC counts the assets of 
affiliated financial institutions when determining whether to 
classify an OCC-supervised institution as a small entity. The OCC 
uses December 31, 2017, 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.
---------------------------------------------------------------------------

    Because a limited number of borrowers are required to have flood 
insurance, part of the OCC cost estimate is based on the reported 
number of flood insurance policies in place for designated loans in 
July 2018, which is 3,226,416.\39\ Assuming that no more than 10 
percent \40\ of these policies (per year) could be issued by private 
insurance companies going forward, the OCC's estimated compliance cost 
related to the acceptance of private flood insurance policies is 
approximately $40.31 million.\41\
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    \39\ The reported numbers are found at Policy & Claim Statistics 
for Flood Insurance. The OCC's cost estimate may be overstated 
because the estimate does not exclude loans serviced by institutions 
for which another agency is the primary Federal regulator.
    \40\ The RFA discussion in the proposed rule also specified a 10 
percent increase in private flood insurance policies as a result of 
this rulemaking. The OCC did not receive any comments on this 
number.
    \41\ This amount is based on an estimated per policy cost of 
$117 applied to 10 percent of the policies (322,642 policies x $117 
per policy = $37.75 million), plus the cost to update policies and 
procedures of approximately $2.56 million. The time required to 
comply with the final rule is based on an estimate of approximately 
1 hour per policy. The time required to update policies and 
procedures to address the final rule is based on an estimate of 20 
hours per bank. To estimate compensation costs associated with the 
rule, the OCC uses $117 per hour, which is based on the average of 
the 90th percentile for seven occupations adjusted for inflation, 
plus an additional 34.2 percent to cover private sector benefits, 
based on our review of data from May 2017 for wages (by industry and 
occupation) from the U.S. Bureau of Labor Statistics (BLS) for 
depository credit intermediation (NAICS 522100).
---------------------------------------------------------------------------

    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 $12,900 per year,\42\ which is a 
combination of per policy costs ($10,544) \43\ and costs associated 
with modifying existing policies and procedures ($2,340).\44\ Using 
this cost estimate, the OCC believes the final rule will have a 
significant economic impact on two small banks, which is not a 
substantial number. Therefore, the OCC certifies that this final rule 
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.
---------------------------------------------------------------------------

    \42\ Because the OCC assumes that the 20 banks that reported 
mortgage servicing assets in excess of $100 million will bear more 
of the costs than the average bank, the OCC allocates 70 percent of 
the per policy costs to these 20 banks.
    \43\ This number is derived as follows: 322,642 policies x $117 
per policy x .30 (percent of policies allocated to banks that did 
not report mortgage servicing assets in excess of $100 million) / 
1,074 banks (1,094 total banks minus the 20 banks that reported 
mortgage servicing assets in excess of $100 million). The estimated 
cost per bank to modify policies and procedures is $2,340.
    \44\ Twenty hours x $117 per hour.
---------------------------------------------------------------------------

    Board: The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq., 
requires an agency to perform an assessment of the impact a rule is 
expected to have on small entities. Based on its analysis, and for the 
reasons stated below, the Board believes this final rule will not have 
a significant economic impact on a substantial number of small 
entities.
    1. Statement of the need for, and objectives of, the final rule. 
The Board is adopting revisions to Regulation H to implement the 
private flood insurance provisions of the Biggert-Waters Act. 
Consistent with the Biggert-Waters Act, the final rule would require 
regulated lending institutions to accept any private insurance policy 
that meets the Biggert-Waters Act's definition of ``private flood 
insurance'' in satisfaction of the flood insurance purchase 
requirement. The final rule would also include a compliance aid that 
would permit a regulated lending institution to conclude that a policy 
meets the Biggert-Waters Act definition of ``private flood insurance'' 
without further review of the policy if the policy, or an endorsement 
to the policy, states: ``This policy meets the definition of private 
flood insurance contained in 42 U.S.C.

[[Page 4966]]

4012a(b)(7) and the corresponding regulation.'' The final rule would 
also 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. Summary of issues raised by comments in response to the initial 
regulatory flexibility analysis. The Board did not receive any comments 
on the initial regulatory flexibility analysis.
    3. Small entities affected by the final rule. All state member 
banks that are subject to the Federal flood insurance statutes and the 
flood insurance provisions of Regulation H would be subject to the 
final rule. As of January 2, 2019, there were 794 State member banks. 
Under regulations issued by the Small Business Administration (SBA), 
banks and other depository institutions with total assets of $550 
million or less are considered small. Approximately 528 State member 
banks would be considered small entities by the SBA.
    4. Recordkeeping, reporting and compliance requirements. The Board 
believes the final rule will not have a significant impact on small 
entities. First, the Board believes, based on comments received by the 
Agencies in response to the October 2013 and November 2016 Proposed 
Rules, 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 likely request 
that lenders accept the policies under the more flexible discretionary 
acceptance provisions. The provisions on discretionary acceptance, 
including acceptance of plans issued by mutual aid societies, do not 
impose affirmative obligations upon lenders. Accordingly, regulated 
lending institutions may choose not to accept policies under those 
provisions and therefore would have no associated compliance burden.
    Second, with respect to flood insurance policies that a private 
insurer would seek to have a lender accept under the mandatory 
acceptance provisions, the Board notes that those regulated lending 
institutions, including those that are considered small entities, 
accepting flood insurance policies issued by private insurers today 
already have experience evaluating policies with the criteria in the 
Biggert-Waters Act definition of ``private flood insurance.'' The 
Biggert-Waters Act criteria are almost identical to the criteria 
referenced in guidance that currently governs the acceptance of private 
policies by Federal Reserve-supervised institutions. Third, as 
discussed in the SUPPLEMENTARY INFORMATION, the Board believes the 
final 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 compliance aid that 
leverages the expertise of the insurer issuing the policy.
    Although the final 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 $7,630 during the first year the 
proposal goes into effect. This estimate includes first year compliance 
costs \45\ and ongoing costs \46\ and assumes that the usage of private 
flood insurance policies by borrower, as defined by the final 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 Federal Reserve-supervised institutions when some of these loans may 
be held by institutions supervised by other Agencies.
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    \45\ Fixed compliance costs are estimated assuming each small 
entity requires one full-time employee working 20 hours at a rate of 
$117 an hour. The total fixed cost of compliance for all 794 covered 
entities is approximately $1.858 million, or $2,340 for each small 
entity in the first year.
    \46\ Ongoing compliance costs are estimated based upon available 
data. According to FEMA's Policy and Claim Statistics for Flood 
Insurance there are approximately 5,080,300 flood insurance policies 
nationally as of October 2018. Only 3,182,833 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 7.5 percent of all loans secured by real estate 
held in portfolio by all Federal Reserve-supervised banks as of 
September 30, 2018. 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 $5,290 per year for each small entity, assuming one 
labor hour per year, per policy, at $117 per hour.
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    5. Significant alternatives to the final revisions. The Board has 
not identified any significant alternatives that would reduce the 
regulatory burden associated with this final rule on small entities.
    FDIC: The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq., 
generally requires an agency, in connection with a final rule, to 
prepare and make available a final regulatory flexibility analysis that 
describes the impact of a final rule on small entities.\47\ However, a 
regulatory flexibility analysis is not required 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 
(SBA) has defined ``small entities'' to include banking organizations 
with total assets of less than or equal to $550 million.\48\
---------------------------------------------------------------------------

    \47\ 5 U.S.C. 601 et seq.
    \48\ The SBA defines a small banking organization as having $550 
million or less in assets, where ``a financial institution's assets 
are determined by averaging the assets reported on its four 
quarterly financial statements for the preceding year.'' See 13 CFR 
121.201 (as amended, effective December 2, 2014). ``SBA counts the 
receipts, employees, or other measure of size of the concern whose 
size is at issue and all of its domestic and foreign affiliates.'' 
See 13 CFR 121.103. Following these regulations, the FDIC uses a 
covered entity's affiliated and acquired assets, averaged over the 
preceding four quarters, to determine whether the covered entity is 
``small'' for the purposes of RFA.
---------------------------------------------------------------------------

Description of Need and Policy Objectives
    The objective of this rule is to enact the private flood insurance 
provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 
(Biggert-Waters). Existing regulations require lending institutions to 
ensure that loans secured by properties located in Special Flood Hazard 
Areas (SFHAs) are covered by flood insurance that provides sufficient 
protection for the loan. This rule requires lenders to accept private 
flood insurance policies in order to meet flood insurance requirements, 
if the private policies meet the statutory definition of ``private 
flood insurance'' as defined in Biggert-Waters. The rule also provides 
lending institutions with broad discretion to accept private flood 
insurance that does not meet the Biggert-Waters definition of ``private 
flood insurance'' provided that the policies meet minimum criteria such 
as providing sufficient protection for the lender and borrower and 
meeting existing flood insurance requirements.
Description of the Final Rule
    A description of the rule is presented in Section III: Summary of 
the Final Rule. Please refer to it for further information.
Other Federal Rules
    The FDIC has not identified any likely duplication, overlap, and/or 
potential conflicts between the final rule and any other Federal rule.
Response to Comments Regarding the Regulatory Flexibility Act
    The FDIC did not receive any public comments on the supporting 
information it presented in the RFA

[[Page 4967]]

section of the Notice of Proposed Rulemaking.
    The Agencies did receive public comments on the proposed 
rulemaking. A summary of those comments, and the Agencies' 
consideration of them, is presented in Section II. Many commenters 
stated that small institutions would be heavily burdened by the need to 
review private flood insurance policies to determine if the policies 
met the criteria for discretionary acceptance in the proposed rule. The 
Agencies have simplified the criteria for discretionary acceptance in 
the final rule so as to create less regulatory burden for lenders in 
general and for small institutions in particular.
Economic Impacts on Small Entities
    The FDIC supervises 3,533 depository institutions, of which 2,726 
are defined as small banking entities by the terms of the RFA.\49\ This 
rule potentially affects all small entities that make loans secured by 
real estate. There are 2,716 FDIC-supervised small entities that hold 
some volume of loans secured by real estate and would therefore be 
affected by this rule,\50\ so the rule potentially affects a 
substantial number of small entities. However, the FDIC does not 
believe the economic impact of the rule will be significant.
---------------------------------------------------------------------------

    \49\ Call Report data, September 2018.
    \50\ Ibid.
---------------------------------------------------------------------------

    Banks do not report the number of loans issued that are secured by 
properties located in Special Flood Hazard Areas (SFHAs). However, FEMA 
reports that as of October 2018 there were 5,080,300 total flood 
insurance policies in force in the United States, and that 3,182,833 
cover properties located in High Risk Areas and would therefore require 
flood insurance under existing regulations.\51\ We assume that between 
one and ten percent, or 31,828 to 318,283 flood insurance policies, 
would be covered by private flood insurance as a result of adopting 
this rule.\52\ This estimate does not count the number of existing 
private flood insurance policies; however, the FDIC believes that any 
such policies are likely included in the estimated range of flood 
insurance policies covered by private flood insurance.
---------------------------------------------------------------------------

    \51\ Federal Emergency Management Agency (FEMA). Policy & Claim 
Statistics for Flood Insurance. Accessed December 20, 2018. https://www.fema.gov/policy-claim-statistics-flood-insurance.
    \52\ A 2018 study estimated that private flood insurance 
accounts for 3.5 to 4.5 percent of primary residential flood 
insurance policies. This rule applies to both residential and 
commercial properties, so for this exercise we use an estimated 
maximum of 10 percent in order to arrive at a conservative estimate 
of the number of flood insurance policies covered by private flood 
insurance and to account for the fact that the prevalence of private 
flood insurance is likely to increase in the future. See Kousky, 
Carolyn, Howard Kunreuther, Brett Lingle, and Leonard Shabman, The 
Emerging Private Residential Flood Insurance Market in the United 
States, Wharton Risk Management and Decision Process Center: July 
2018.
---------------------------------------------------------------------------

    The Federal Reserve estimates the total outstanding value of 
mortgage debt in the United States as of September 2018 at 
$15,269,457,000,000 and reports that $4,897,585,000,000 (32.07 percent) 
of mortgage debt is held by depository institutions.\53\ Assuming that 
FDIC-insured institutions hold the same percentage of all flood 
insurance policies in SFHAs as they do of total outstanding mortgage 
debt, then FDIC-insured depository institutions hold a total of 
1,020,735 loans in SFHAs covered by flood insurance policies,\54\ of 
which 10,207 to 102,073 are assumed to be covered by private flood 
insurance.
---------------------------------------------------------------------------

    \53\ Board of Governors of the Federal Reserve System. Mortgage 
Debt Outstanding. Accessed December 20, 2018. https://www.federalreserve.gov/data/mortoutstand/current.htm.
    \54\ 3,182,833 x .3207 = 1,020,735.
---------------------------------------------------------------------------

    Using Call Report data \55\ and assuming that all FDIC-insured 
institutions hold the same percentage of total loans covered by flood 
insurance policies in SFHAs as they do of all mortgage debt, the FDIC 
calculates that depository institutions supervised by the FDIC hold 
between 2,971 and 29,707 loans covered by private flood insurance 
policies for properties located in SFHAs, and FDIC-supervised small 
entities hold between 535 and 5,350 loans covered by private flood 
insurance policies for properties located in SFHAs.
---------------------------------------------------------------------------

    \55\ Call Report data for September 2018 data show a total value 
of mortgage debt at depository institutions of $4,874,383,173,000 
which is sufficiently close to the Federal Reserve's estimate to 
provide confidence that Call Report data and Federal Reserve data 
can be used together for this analysis.
---------------------------------------------------------------------------

    We assume that institutions will spend 45 minutes reviewing each 
private flood insurance policy and an additional 15 minutes documenting 
their conclusions (1 hour total) as a result of this rule. Under that 
assumption, and assuming an hourly cost of $112.32,\56\ no small 
entities will incur costs resulting from this rule that exceed 2.5 
percent of annual noninterest expense or 5 percent of annual salary 
expense.
---------------------------------------------------------------------------

    \56\ The estimate includes the May 2017 75th percentile hourly 
wage rate for Lawyers ($99.89) and Compliance Officers ($40.55) 
reported by the Bureau of Labor Statistics, National Industry-
Specific Occupational Employment, and Wage Estimates. These wage 
rates have been adjusted for changes in the Consumer Price Index for 
all Urban Consumers between May 2017 and June 2018 (2.85 percent) 
and grossed up by 55.5 percent to account for non-monetary 
compensation as reported by the June 2018 Employer Costs for 
Employee Compensation Data. The calculation assumes that Lawyers and 
Compliance Officers would each complete 50 percent of the task of 
reviewing private flood insurance policies. The hourly cost estimate 
is calculated as (.50 * $159.77 + .50 * $64.86 = $112.32).
---------------------------------------------------------------------------

    Based on the information presented above, the FDIC certifies that 
this rule will not have a significant economic impact on a substantial 
number of small entities.
Alternatives Considered
    This final rule differs from the proposal by simplifying the 
criteria that a private flood insurance policy must meet in order for 
lenders to accept the policy so as to comply with existing flood 
insurance requirements. The Agencies retained some criteria that 
private flood insurance policies must meet in order for an institution 
to accept them.
    The Agencies considered not including any discretionary acceptance 
criteria in the final rule, which would allow institutions to accept 
any private flood insurance policy and would potentially be less 
burdensome for small institutions. The Agencies included minimum 
criteria in order to ensure that flood insurance, whether from a public 
or private insurer, sufficiently protects lenders and borrowers. The 
Agencies also understand that many institutions are reluctant to accept 
private flood insurance at all since existing regulations are unclear 
about what they can and cannot accept. This final rule outlines minimum 
criteria for discretionary acceptance in order to clarify the 
regulatory treatment of private flood insurance policies for loans in 
SFHAs.
    FCA: Pursuant to section 605(b) of the Regulatory Flexibility Act 
(5 U.S.C. 601 et seq.), 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 System, considered together with its 
affiliated associations, has assets and annual income more than the 
amounts that would qualify them as small entities. Therefore, System 
institutions are not ``small entities'' as defined in the Regulatory 
Flexibility Act.
    NCUA: The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., 
requires the NCUA to prepare an analysis to describe any significant 
economic impact a regulation may have on a substantial number of small 
entities.\57\ Under section 605(b) of the RFA, this analysis is not 
required if an agency certifies that

[[Page 4968]]

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.\58\ 
For purposes of this analysis, the NCUA considers small credit unions 
to be those having under $100 million in assets.\59\ As of September 
30, 2018, there are 3,862 small, Federally insured credit unions, and 
only about 2,593 of these credit unions would be affected by the final 
rule.
---------------------------------------------------------------------------

    \57\ 5 U.S.C. 603(a).
    \58\ 5 U.S.C. 605(b).
    \59\ 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 $2,409 per year. Using 
this cost estimate, NCUA believes the final rule will have a 
significant economic impact on 62 small credit unions, which is not a 
substantial number. Therefore, NCUA certifies that this final rule 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 final rule under the factors in the 
Unfunded Mandates Reform Act of 1995 (UMRA).\60\ Under this analysis, 
the OCC considered whether the final 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). The 
UMRA does not apply to regulations that incorporate requirements 
specifically set forth in law.
---------------------------------------------------------------------------

    \60\ 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 $37.75 
million.\61\ This number is based on the cost of compliance with the 
final rule described in the OCC's RFA analysis of this final rule, 
minus the cost of updating policies and procedures, which is not 
mandated by the rule. Therefore, the OCC finds that the final rule does 
not trigger the UMRA cost threshold. Accordingly, the OCC has not 
prepared the written statement described in section 202 of the UMRA.
---------------------------------------------------------------------------

    \61\ This is a conservative estimate because, although not 
required by UMRA, it includes the statutory mandate that banks 
accept policies that meet the definition of ``private flood 
insurance.''
---------------------------------------------------------------------------

C. Paperwork Reduction Act of 1995

    The OCC, Board, FDIC, and NCUA (the Agencies) \62\ have determined 
that this final rule involves a collection of information pursuant to 
the provisions of the Paperwork Reduction Act of 1995 (the PRA) (44 
U.S.C. 3501 et seq.).
---------------------------------------------------------------------------

    \62\ Farm Credit 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).
---------------------------------------------------------------------------

    The OCC, FDIC, and NCUA each made a submission to OMB in connection 
with the proposed rule under the PRA. OMB instructed the OCC, FDIC, and 
NCUA to examine public comment in response to the proposed rule and 
include in the supporting statement of their submissions in connection 
with the final rule, a description of how they have responded to any 
public comments on the information collection, including comments on 
maximizing the practical utility of the collection and minimizing the 
burden. No comments were received regarding the information collection.
    In accordance with the PRA (44 U.S.C. 3506; 5 CFR 1320 Appendix 
A.1), the Board reviewed the final rule under the authority delegated 
to the Board by the Office of Management and Budget (OMB).
    The collection of information that is subject to the PRA by this 
final rule is found in 12 CFR 22.3, 208.25(c), 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), 3064-
0120 (FDIC), and 3133-0190 (NCUA).
    Under Sec. Sec.  22.3(c)(3), 208.25(c)(3)(iii), 339.3(c)(3), and 
760.3(c)(3), institutions have the discretion to accept a flood 
insurance policy issued by a private insurer that does not meet the 
definition of ``private flood insurance'' if, among other things, the 
policy provides sufficient protection of the designated loan, 
consistent with general safety and soundness principles, and the 
institution has documented its conclusion regarding sufficiency of the 
protection of the loan in writing.
    Under Sec. Sec.  22.3(c)(4), 208.25(c)(3)(iv), 339.3(c)(4), and 
760.3(c)(4), institutions may accept a private policy issued by a 
mutual aid society if, among other things, the coverage provides 
sufficient protection of the designated loan, consistent with general 
safety and soundness principles, and the institution has documented its 
conclusion regarding sufficiency of the protection of the loan in 
writing.
Burden Estimates
OCC
    Number of respondents: 56,469 responses from 1,094 respondents.
    Estimated average hours per response: 0.25 hours.
    Proposed revisions estimated annual burden hours: 14,118 hours.
Board
    Number of respondents: 15,904 responses from 791 respondents.
    Estimated average hours per response: 0.25 hours.
    Proposed revisions estimated annual burden hours: 3,976 hours.
FDIC
    Number of respondents: 29,711 responses from 3,509 respondents.
    Estimated average hours per response: 0.25 hours.
    Proposed revisions estimated annual burden hours: 7,428 hours.
NCUA
    Number of respondents: 10,990 responses from 4,164 respondents.
    Estimated average hours per response: 0.25 hours.
    Proposed revisions estimated annual burden hours: 2,705 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. Effective Date

    The APA \63\ requires that a substantive rule must be published not 
less than 30 days before its effective date, unless,

[[Page 4969]]

among other things, the rule grants or recognizes an exemption or 
relieves a restriction.\64\ Section 302(b) of the Riegle Community 
Development and Regulatory Improvement Act of 1994 (RCDRIA) requires 
that regulations issued by a Federal banking agency \65\ imposing 
additional reporting, disclosure, or other requirements on insured 
depository institutions take effect on the first day of a calendar 
quarter that begins on or after the date of publication of the final 
rule, unless, among other things, the agency determines for good cause 
that the regulations should become effective before such time.\66\ The 
July 1, 2019 effective date of this final rule meets both the APA and 
RCDRIA effective date requirements, as it will take effect at least 30 
days after its publication date of February 20, 2019 and on the first 
day of a calendar quarter following publication, July 1, 2019.
---------------------------------------------------------------------------

    \63\ Codified at 5 U.S.C. 551 et seq.
    \64\ 5 U.S.C. 553(d).
    \65\ For purposes of RCDRIA, ``Federal banking agency'' means 
the OCC, FDIC, and Board. See 12 U.S.C. 4801.
    \66\ 12 U.S.C. 4802(b).
---------------------------------------------------------------------------

E. Riegle Community Development and Regulatory Improvement Act of 1994

    Section 302(a) of the RCDRIA requires that each Federal banking 
agency,\67\ 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.\68\
---------------------------------------------------------------------------

    \67\ Supra, footnote 50.
    \68\ 12 U.S.C. 4802(a).
---------------------------------------------------------------------------

    With respect to the effective date, the Federal banking agencies 
have considered the changes made by this final rule and believe that 
the effective date of July 1, 2019 should provide regulated lending 
institutions with adequate time to make appropriate adjustments to 
their review and closing process for designated loans to comply with 
these changes. With respect to administrative compliance requirements, 
the Federal banking agencies have considered the administrative burdens 
and the benefits of this final rule, and addressed them by modifying 
the proposed provision regarding the compliance aid for mandatory 
acceptance and the discretionary acceptance provision to make them 
simpler and less burdensome for regulated lending institutions. Further 
discussion of the Federal banking agencies' consideration of these 
provisions is found in other sections of this SUPPLEMENTARY INFORMATION 
section.

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, chapter I of title 12 of the Code of 
Federal Regulations is revised to read 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 (l) and (m) as (o) and (p), paragraphs (j) 
and (k) as (l) and (m), and paragraphs (h) and (i) as paragraphs (i) 
and (j); and
0
b. Adding new paragraphs (h) and (k) and paragraph (n).
    The additions 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 by the insurance regulator of the State or 
jurisdiction in which the property to be insured is located; 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 for the same type of property, 
including when considering deductibles, exclusions, and conditions 
offered by the insurer. To be at least as broad as the coverage 
provided under an SFIP, the policy must, at a minimum:
    (i) Define the term ``flood'' to include the events defined as a 
``flood'' in an SFIP;
    (ii) Contain the coverage specified in an SFIP, including that 
relating to building property coverage; personal property coverage, if 
purchased by the insured mortgagor(s); other coverages; and increased 
cost of compliance coverage;
    (iii) Contain deductibles no higher than the specified maximum, and 
include 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;
    (iv) Provide coverage for direct physical loss caused by a flood 
and may only exclude other causes of loss that are excluded in an SFIP. 
Any exclusions other 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 or have the effect of providing broader coverage to 
the policyholder; and

[[Page 4970]]

    (v) 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(k), a standard 
flood insurance policy issued under the NFIP in effect as of the date 
private flood insurance 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 in paragraph (a) of this section if the 
policy meets the requirements for coverage in paragraph (a) of this 
section.
    (2) Compliance aid for mandatory acceptance. A national bank or 
Federal savings association may determine that a policy meets the 
definition of private flood insurance in Sec.  22.2(k), without further 
review of the policy, if the following statement is included 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 that does not meet the 
definition of private flood insurance in Sec.  22.2(k) in satisfaction 
of the flood insurance purchase requirement in paragraph (a) of this 
section if the policy:
    (i) Provides coverage in the amount required by paragraph (a) of 
this section;
    (ii) Is 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 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 issued by a surplus 
lines insurer recognized, or not disapproved, by the insurance 
regulator of the State or jurisdiction where the property to be insured 
is located;
    (iii) Covers both the mortgagor(s) and the mortgagee(s) as loss 
payees, except in the case of a policy that is provided by a 
condominium association, cooperative, homeowners association, or other 
applicable group and for which the premium is paid by the condominium 
association, cooperative, homeowners association, or other applicable 
group as a common expense; and
    (iv) Provides sufficient protection of the designated loan, 
consistent with general safety and soundness principles, and the 
national bank or Federal savings association documents its conclusion 
regarding sufficiency of the protection of the loan in writing.
    (4) Mutual aid societies. Notwithstanding the requirements of 
paragraph (c)(3) of this section, a national bank or Federal savings 
association may accept a plan issued by a mutual aid society, as 
defined in Sec.  22.2(h), in satisfaction of the flood insurance 
purchase requirement in paragraph (a) of this section if:
    (i) The OCC has determined that such plans qualify as flood 
insurance for purposes of the Act;
    (ii) The plan provides coverage in the amount required by paragraph 
(a) of this section;
    (iii) The plan covers both the mortgagor(s) and the mortgagee(s) as 
loss payees; and
    (iv) The plan provides sufficient protection of the designated 
loan, consistent with general safety and soundness principles, and the 
national bank or Federal savings association documents its conclusion 
regarding sufficiency of the protection of the loan in writing.

FEDERAL RESERVE SYSTEM

12 CFR Chapter II

Authority and Issuance

    For the reasons set forth in the joint preamble, part 208 of 
chapter II of title 12 of the Code of Federal Regulations is revised 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 continues to read as follows:

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


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


Sec.  208.25  Loans in areas having special flood hazards.

* * * * *
    (b) * * *
    (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 by the insurance regulator of the State or 
jurisdiction in which the property to be insured is located; 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

[[Page 4971]]

provided under an SFIP for the same type of property, including when 
considering deductibles, exclusions, and conditions offered by the 
insurer. To be at least as broad as the coverage provided under an 
SFIP, the policy must, at a minimum:
    (A) Define the term ``flood'' to include the events defined as a 
``flood'' in an SFIP;
    (B) Contain the coverage specified in an SFIP, including that 
relating to building property coverage; personal property coverage, if 
purchased by the insured mortgagor(s); other coverages; and increased 
cost of compliance coverage;
    (C) Contain deductibles no higher than the specified maximum, and 
include 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;
    (D) Provide coverage for direct physical loss caused by a flood and 
may only exclude other causes of loss that are excluded in an SFIP. Any 
exclusions other 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 or have the effect of providing broader coverage to 
the policyholder; and
    (E) 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 paragraph (b)(9) of this section, 
a standard flood insurance policy issued under the NFIP in effect as of 
the date private flood insurance 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) * * *
    (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 in paragraph (c)(1) of this section if the policy meets the 
requirements for coverage in paragraph (c)(1) of this section.
    (ii) Compliance aid for mandatory acceptance. A member bank may 
determine that a policy meets the definition of private flood insurance 
in paragraph (b)(9) of this section, without further review of the 
policy, if the following statement is included 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 that does not meet the definition of private flood 
insurance in paragraph (b)(9) of this section in satisfaction of the 
flood insurance purchase requirement in paragraph (c)(1) of this 
section if the policy:
    (A) Provides coverage in the amount required by paragraph (c)(1) of 
this section;
    (B) Is 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 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 issued by a surplus 
lines insurer recognized, or not disapproved, by the insurance 
regulator of the State or jurisdiction where the property to be insured 
is located;
    (C) Covers both the mortgagor(s) and the mortgagee(s) as loss 
payees, except in the case of a policy that is provided by a 
condominium association, cooperative, homeowners association, or other 
applicable group and for which the premium is paid by the condominium 
association, cooperative, homeowners association, or other applicable 
group as a common expense; and
    (D) Provides sufficient protection of the designated loan, 
consistent with general safety and soundness principles, and the member 
bank documents its conclusion regarding sufficiency of the protection 
of the loan in writing.
    (iv) Mutual aid societies. Notwithstanding the requirements of 
paragraph (c)(3)(iii) of this section, a member bank may accept a plan 
issued by a mutual aid society, as defined in paragraph (b)(7) of this 
section, in satisfaction of the flood insurance purchase requirement in 
paragraph (c)(1) of this section if:
    (A) The Board has determined that such plans qualify as flood 
insurance for purposes of the Act.
    (B) The plan provides coverage in the amount required by paragraph 
(c)(1) of this section;
    (C) The plan covers both the mortgagor(s) and the mortgagee(s) as 
loss payees; and
    (D) The plan provides sufficient protection of the designated loan, 
consistent with general safety and soundness principles, and the member 
bank documents its conclusion regarding sufficiency of the protection 
of the loan in writing.
* * * * *

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Chapter III

Authority and Issuance

    For the reasons set forth in the joint preamble, part 339 of 
chapter III of title 12 of the Code of Federal Regulations is revised 
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.


[[Page 4972]]



0
7. Section 339.2 is amended by adding definitions for ``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 by the insurance regulator of the State or 
jurisdiction in which the property to be insured is located; 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 for the same type of property, 
including when considering deductibles, exclusions, and conditions 
offered by the insurer. To be at least as broad as the coverage 
provided under an SFIP, the policy must, at a minimum:
    (i) Define the term ``flood'' to include the events defined as a 
``flood'' in an SFIP;
    (ii) Contain the coverage specified in an SFIP, including that 
relating to building property coverage; personal property coverage, if 
purchased by the insured mortgagor(s); other coverages; and increased 
cost of compliance coverage;
    (iii) Contain deductibles no higher than the specified maximum, and 
include 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;
    (iv) Provide coverage for direct physical loss caused by a flood 
and may only exclude other causes of loss that are excluded in an SFIP. 
Any exclusions other 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 or have the effect of providing broader coverage to 
the policyholder; and
    (v) 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
    (4) Contains cancellation provisions that are as restrictive as the 
provisions contained in an SFIP.
* * * * *
    SFIP means, for purposes of Sec. Sec.  339.2, a standard flood 
insurance policy issued under the NFIP in effect as of the date private 
flood insurance 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 in paragraph (a) of this section if the policy meets the 
requirements for coverage in paragraph (a) of this section.
    (2) Compliance aid for mandatory acceptance. An FDIC-supervised 
institution may determine that a policy meets the definition of private 
flood insurance in Sec.  339.2, without further review of the policy, 
if the following statement is included 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 that does not meet the definition of private 
flood insurance in Sec.  339.2 in satisfaction of the flood insurance 
purchase requirement in paragraph (a) of this section if the policy:
    (i) Provides coverage in the amount required by paragraph (a) of 
this section;
    (ii) Is 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 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 issued by a surplus 
lines insurer recognized, or not disapproved, by the insurance 
regulator of the State or jurisdiction where the property to be insured 
is located;
    (iii) Covers both the mortgagor(s) and the mortgagee(s) as loss 
payees, except in the case of a policy that is provided by a 
condominium association, cooperative, homeowners association, or other 
applicable group and for which the premium is paid by the condominium 
association, cooperative, homeowners association, or other applicable 
group as a common expense; and
    (iv) Provides sufficient protection of the designated loan, 
consistent with general safety and soundness principles, and the FDIC-
supervised institution documents its conclusion regarding sufficiency 
of the protection of the loan in writing.
    (4) Mutual aid societies. Notwithstanding the requirements of 
paragraph (c)(3) of this section, an FDIC-supervised institution may 
accept a plan issued by a mutual aid society, as defined in Sec.  
339.2, in satisfaction of the flood insurance purchase requirement in 
paragraph (a) of this section if:
    (i) The FDIC has determined that such plans qualify as flood 
insurance for purposes of the Act;
    (ii) The plan provides coverage in the amount required by paragraph 
(a) of this section;
    (iii) The plan covers both the mortgagor(s) and the mortgagee(s) as 
loss payees; and
    (iv) The plan provides sufficient protection of the designated 
loan, consistent with general safety and soundness principles, and the 
FDIC-supervised institution documents its conclusion regarding 
sufficiency of the protection of the loan in writing.

[[Page 4973]]

FARM CREDIT ADMINISTRATION

12 CFR Chapter IV

Authority and Issuance

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

PART 614--LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS

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

    Authority:  42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128; secs. 
1.3, 1.5, 1.6, 1.7, 1.9, 1.10, 2.0, 2.2, 2.3, 2.4, 2.10, 2.12, 2.13, 
2.15, 3.0, 3.1, 3.3, 3.7, 3.8, 3.10, 3.20, 3.28, 4.12,4.12A, 4.13, 
4.13B, 4.14, 4.14A, 4.14C, 4.14D, 4.14E, 4.18, 4.19, 4.36, 4.37, 
5.9, 5.10, 5.17, 7.0, 7.2, 7.6, 7.7, 7.8, 7.12, 7.13, 8.0, 8.5 of 
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. Amend Section 614.4925 by adding definitions for ``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.
* * * * *
    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 by the insurance regulator of the State or 
jurisdiction in which the property to be insured is located; 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 for the same type of property, 
including when considering deductibles, exclusions, and conditions 
offered by the insurer. To be at least as broad as the coverage 
provided under an SFIP, the policy must, at a minimum:
    (i) Define the term ``flood'' to include the events defined as a 
``flood'' in an SFIP;
    (ii) Contain the coverage specified in an SFIP, including that 
relating to building property coverage; personal property coverage, if 
purchased by the insured mortgagor(s); other coverages; and increased 
cost of compliance coverage;
    (iii) Contain deductibles no higher than the specified maximum, and 
include 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;
    (iv) Provide coverage for direct physical loss caused by a flood 
and may only exclude other causes of loss that are excluded in an SFIP. 
Any exclusions other 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 or have the effect of providing broader coverage to 
the policyholder; and
    (v) 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.  614.4925, a standard flood 
insurance policy issued under the NFIP in effect as of the date private 
flood insurance 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 
in paragraph (a) of this section if the policy meets the requirements 
for coverage in paragraph (a) of this section.
    (2) Compliance aid for mandatory acceptance. A System institution 
may determine that a policy meets the definition of private flood 
insurance in Sec.  614.4925, without further review of the policy, if 
the following statement is included 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 System institution may accept a 
flood insurance policy issued by a private insurer that is not issued 
under the NFIP and that does not meet the definition of private flood 
insurance in Sec.  614.4925 in satisfaction of the flood insurance 
purchase requirement of this section if the policy:
    (i) Provides coverage in the amount required by paragraph (a) of 
this section;
    (ii) Is 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 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 issued by a surplus 
lines insurer recognized, or not disapproved, by the insurance 
regulator of the State or jurisdiction where the property to be insured 
is located;
    (iii) Covers both the mortgagor(s) and the mortgagee(s) as loss 
payees, except in the case of a policy that is provided by a 
condominium association, cooperative, homeowners association, or other 
applicable group and for which the premium is paid by the condominium 
association, cooperative, homeowners association, or other applicable 
group as a common expense; and
    (iv) Provides sufficient protection of the designated loan, 
consistent with

[[Page 4974]]

general safety and soundness principles, and the System institution 
documents its conclusion regarding sufficiency of the protection of the 
loan in writing.
    (4) Mutual aid societies. Notwithstanding the requirements of 
paragraph (c)(3) of this section, a System institution may accept a 
plan issued by a mutual aid society, as defined in Sec.  614.4925, in 
satisfaction of the flood insurance purchase requirement of this 
section if:
    (i) The FCA has determined that such plans qualify as flood 
insurance for purposes of the Act;
    (ii) The plan provides coverage in the amount required by paragraph 
(a) of this section;
    (iii) The plan covers both the mortgagor(s) and the mortgagee(s) as 
loss payees; and
    (iv) The plan provides sufficient protection of the designated 
loan, consistent with general safety and soundness principles, and the 
System institution documents its conclusion regarding sufficiency of 
the protection of the loan in writing.

NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Chapter VII

Authority and Issuance

    For the reasons set forth in the joint preamble, the NCUA Board 
amends part 760 of chapter VII of title 12 of the Code of Federal 
Regulations 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, 1784(e), 1789; 42 U.S.C. 4012a, 
4104a, 4104b, 4106, and 4128.


0
13. Section 760.2 is amended by adding definitions for ``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 by the insurance regulator of the State or 
jurisdiction in which the property to be insured is located; 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 for the same type of property, 
including when considering deductibles, exclusions, and conditions 
offered by the insurer. To be at least as broad as the coverage 
provided under an SFIP, the policy must, at a minimum:
    (i) Define the term ``flood'' to include the events defined as a 
``flood'' in an SFIP;
    (ii) Contain the coverage specified in an SFIP, including that 
relating to building property coverage; personal property coverage, if 
purchased by the insured mortgagor(s); other coverages; and increased 
cost of compliance coverage;
    (iii) Contain deductibles no higher than the specified maximum, and 
include 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;
    (iv) Provide coverage for direct physical loss caused by a flood 
and may only exclude other causes of loss that are excluded in an SFIP. 
Any exclusions other 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 or have the effect of providing broader coverage to 
the policyholder; and
    (v) 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.  760.2, a standard flood insurance 
policy issued under the NFIP in effect as of the date private flood 
insurance 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 in 
paragraph (a) of this section if the policy meets the requirements for 
coverage in paragraph (a) of this section.
    (2) Compliance aid for mandatory acceptance. A credit union may 
determine that a policy meets the definition of private flood insurance 
in Sec.  760.2, without further review of the policy, if the following 
statement is included 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 that does not meet the definition of private flood 
insurance in Sec.  760.2 in satisfaction of the flood insurance 
purchase requirement in paragraph (a) of this section if the policy:
    (i) Provides coverage in the amount required by paragraph (a) of 
this section;
    (ii) Is 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 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

[[Page 4975]]

issued by a surplus lines insurer recognized, or not disapproved, by 
the insurance regulator of the State or jurisdiction where the property 
to be insured is located;
    (iii) Covers both the mortgagor(s) and the mortgagee(s) as loss 
payees, except in the case of a policy that is provided by a 
condominium association, cooperative, homeowners association, or other 
applicable group and for which the premium is paid by the condominium 
association, cooperative, homeowners association, or other applicable 
group as a common expense; and
    (iv) Provides sufficient protection of the designated loan, 
consistent with general safety and soundness principles, and the credit 
union documents its conclusion regarding sufficiency of the protection 
of the loan in writing.
    (4) Mutual aid societies. Notwithstanding the requirements of 
paragraph (c)(3) of this section, a credit union may accept a plan 
issued by a mutual aid society, as defined in Sec.  760.2, in 
satisfaction of the flood insurance purchase requirement in paragraph 
(a) of this section if:
    (i) The NCUA has determined that such plans qualify as flood 
insurance for purposes of the Act;
    (ii) The plan provides coverage in the amount required by paragraph 
(a) of this section;
    (iii) The plan covers both the mortgagor(s) and the mortgagee(s) as 
loss payees; and
    (iv) The plan provides sufficient protection of the designated 
loan, consistent with general safety and soundness principles, and the 
credit union documents its conclusion regarding sufficiency of the 
protection of the loan in writing.

    Dated: January 24, 2019
Joseph M. Otting,
Comptroller of the Currency.
    By order of the Board of Governors of the Federal Reserve 
System, February 7, 2019.
Ann E. Misback,
Secretary of the Board.

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

    Dated at Washington, DC, on 25th day of January, 2019.
Valerie J. Best,
Assistant Executive Secretary.

    By order of the Board of the Farm Credit Administration.

    Dated at McLean, VA, this 5th day of February 2019
Dale L. Aultman,
Secretary.

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

    Dated at Alexandria, VA, this 31st day of January, 2019.
Gerard S. Poliquin,
Secretary of the Board.
[FR Doc. 2019-02650 Filed 2-19-19; 8:45 am]
 BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P; 7535-01-P