OCC 2008-7 (Attachment) 73 FR 15259 by CCO

VIEWS: 21 PAGES: 20

									                                                                             Federal Register / Vol. 73, No. 56 / Friday, March 21, 2008 / Notices                                           15259

                                                                                                     Answers contain staff guidance for                       • E-mail:
                                                                                                     agency personnel, financial institutions,             regs.comments@federalreserve.gov.
                                                                                                     and the public.                                       Include docket number in the subject
                                                                                                     DATE: Comments must be submitted on                   line of the message.
                                                                                                     or before May 20, 2008.                                  • Fax: (202) 452–3819 or (202) 452–
                                                                                                     ADDRESSES: OCC: Because paper mail in                 3102.
                                                                                                     the Washington, DC area and at the                       • Mail: Jennifer J. Johnson, Secretary,
                                                                                                     Agencies is subject to delay,                         Board of Governors of the Federal
                                                                                                     commenters are encouraged to submit                   Reserve System, 20th Street and
                                                                                                     comments by e-mail, if possible. Please               Constitution Avenue, NW., Washington,
                                                                                                     use the title ‘‘Loans in Areas Having                 DC 20551.
                                             DEPARTMENT OF THE TREASURY                                                                                       All public comments are available
                                                                                                     Special Flood Hazards; Interagency
                                             Office of the Comptroller of the                        Questions and Answers Regarding                       from the Board’s Web site at http://
                                             Currency                                                Flood Insurance’’ to facilitate the                   www.federalreserve.gov/generalinfo/
                                                                                                     organization and distribution of the                  foia/ProposedRegs.cfm as submitted,
                                             [Docket ID OCC–2008–0002]                                                                                     unless modified for technical reasons.
                                                                                                     comments. You may submit comments
                                                                                                     by any of the following methods:                      Accordingly, your comments will not be
                                             FEDERAL RESERVE SYSTEM                                                                                        edited to remove any identifying or
                                                                                                        • E-mail:
                                             [Docket No. OP–1311]                                    regs.comments@occ.treas.gov.                          contact information.
                                                                                                        • Mail: Office of the Comptroller of                  Public comments may also be viewed
                                             FEDERAL DEPOSIT INSURANCE                               the Currency, 250 E Street, SW., Mail                 electronically or in paper in Room MP–
                                             CORPORATION                                             Stop 1–5, Washington, DC 20219.                       500 of the Board’s Martin Building (20th
                                             RIN 3064–ZA00                                              • Fax: (202) 874–4448.                             and C Streets, NW.) between 9 a.m. and
                                                                                                        • Hand Delivery/Courier: 250 E                     5 p.m. on weekdays.
                                             DEPARTMENT OF THE TREASURY                              Street, SW., Attn: Public Information                    FDIC: You may submit comments,
                                                                                                     Room, Mail Stop 1–5, Washington, DC                   identified by RIN number 3064–ZA00
                                             Office of Thrift Supervision                            20219.                                                by any of the following methods:
                                                                                                        Instructions: You must include                        • Agency Web site: http://
                                             [Docket ID OTS–2008–0001]                               ‘‘OCC’’ as the agency name and ‘‘Docket               www.fdic.gov/regulations/laws/federal/
                                                                                                     ID OCC–2008–0002’’ in your comment.                   propose.html. Follow instructions for
                                             FARM CREDIT ADMINISTRATION
                                                                                                     Comments received, including                          submitting comments on the Agency
                                             RIN 3052–AC46                                           attachments and other supporting                      Web Site.
                                                                                                     materials, are part of the public record                 • E-mail: Comments@FDIC.gov.
                                             NATIONAL CREDIT UNION                                   and subject to public disclosure. Do not              Include the RIN number in the subject
                                             ADMINISTRATION                                          enclose any information in your                       line of the message.
                                             RIN 3133–AD41                                           comment or supporting materials that                     • Mail: Robert E. Feldman, Executive
                                                                                                     you consider confidential or                          Secretary, Attention: Comments, Federal
                                             Loans in Areas Having Special Flood                     inappropriate for public disclosure.                  Deposit Insurance Corporation, 550 17th
                                             Hazards; Interagency Questions and                         You may review comments and other                  Street, NW., Washington, DC 20429.
                                             Answers Regarding Flood Insurance                       related materials that pertain to this                   • Hand Delivery/Courier: Guard
                                                                                                     notice by any of the following methods:               station at the rear of the 550 17th Street
                                             AGENCIES: Office of the Comptroller of                     • Viewing Comments Personally: You                 Building (located on F Street) on
                                             the Currency, Treasury (OCC); Board of                  may personally inspect and photocopy                  business days between 7 a.m. and 5 p.m.
                                             Governors of the Federal Reserve                        comments at the OCC’s Public                             Instructions: All submissions received
                                             System (Board); Federal Deposit                         Information Room, 250 E Street, SW.,                  must include the agency name and RIN
                                             Insurance Corporation (FDIC); Office of                 Washington, DC. For security reasons,                 number. All comments received will be
                                             Thrift Supervision, Treasury (OTS);                     the OCC requires that visitors make an                posted without change to http://
                                             Farm Credit Administration (FCA);                       appointment to inspect comments. You                  www.fdic.gov/regulations/laws/federal/
                                             National Credit Union Administration                    may do so by calling (202) 874–5043.                  propose.html including any personal
                                             (NCUA).                                                 Upon arrival, visitors will be required to            information provided.
                                             ACTION: Notice and request for comment.                 present valid government-issued photo                    OTS: You may submit comments,
                                                                                                     identification and submit to security                 identified by OTS–2007–0001, by any of
                                             SUMMARY: The OCC, Board, FDIC, OTS,                     screening in order to inspect and                     the following methods:
                                             FCA, and NCUA (collectively, the                        photocopy comments.                                      • E-mail:
                                             Agencies) are soliciting comment on                        • Docket: You may also view or                     regs.comments@ots.treas.gov. Please
                                             proposed revisions to the Interagency                   request available background                          include ID OTS–2008–0001 in the
                                             Questions and Answers Regarding                         documents and project summaries using                 subject line of the message and include
                                             Flood Insurance (Interagency Questions                  the methods described above.                          your name and telephone number in the
                                             and Answers). To help financial                            Board: You may submit comments,                    message.
                                             institutions meet their responsibilities                identified by Docket No. OP–1311, by                     • Fax: (202) 906–6518.
                                             under Federal flood insurance                           any of the following methods:                            • Mail: Regulation Comments, Chief
                                             legislation and to increase public                         • Agency Web Site: http://                         Counsel’s Office, Office of Thrift
                                             understanding of their flood insurance                  www.federalreserve.gov. Follow the                    Supervision, 1700 G Street, NW.,
mstockstill on PROD1PC66 with NOTICES




                                             regulations, the staffs of the Agencies                 instructions for submitting comments at               Washington, DC 20552, Attention: OTS–
                                             have prepared proposed new and                          http://www.federalreserve.gov/                        2008–0001.
                                             revised guidance addressing the most                    generalinfo/foia/ProposedRegs.cfm.                       • Hand Delivery/Courier: Guard’s
                                             frequently asked questions and answers                     • Federal eRulemaking Portal: http://              Desk, East Lobby Entrance, 1700 G
                                             about flood insurance. The proposed                     www.regulations.gov. Follow the                       Street, NW., from 9 a.m. to 4 p.m. on
                                             revised Interagency Questions and                       instructions for submitting comments.                 business days, Attention: Regulation


                                        VerDate Aug<31>2005   18:33 Mar 20, 2008   Jkt 214001   PO 00000   Frm 00140   Fmt 4703   Sfmt 4703   E:\FR\FM\21MRN1.SGM   21MRN1
                                             15260                           Federal Register / Vol. 73, No. 56 / Friday, March 21, 2008 / Notices

                                             Comments, Chief Counsel’s Office,                       http://www.fca.gov. Once you are in the               3721, Board of Governors of the Federal
                                             Attention: OTS–2008–0001.                               Web site, select ‘‘Legal Info,’’ and then             Reserve System, 20th Street and
                                                • Instructions: All submissions                      select ‘‘Public Comments.’’ We will                   Constitution Avenue, NW., Washington,
                                             received must include the agency name                   show your comments as submitted, but                  DC 20551. For the deaf, hard of hearing,
                                             and docket number for this rulemaking.                  for technical reasons we may omit items               and speech impaired only,
                                             All comments received will be entered                   such as logos and special characters.                 teletypewriter (TTY), (202) 263–4869.
                                             into the docket and posted on                           Identifying information that you                         FDIC: Mira N. Marshall, Senior Policy
                                             Regulations.gov without change,                         provide, such as phone numbers and                    Analyst (Compliance), Division of
                                             including any personal information                      addresses, will be publicly available.                Supervision and Consumer Protection,
                                             provided. Comments, including                           However, we will attempt to remove e-                 (202) 898–3912; or Mark Mellon,
                                             attachments and other supporting                        mail addresses to help reduce Internet                Counsel, Legal Division, (202) 898–
                                             materials received are part of the public               spam.                                                 3884, Federal Deposit Insurance
                                             record and subject to public disclosure.                  NCUA: You may submit comments by                    Corporation, 550 17th Street, NW.,
                                             Do not enclose any information in your                  any of the following methods (Please                  Washington, DC 20429. For the hearing
                                             comment or supporting materials that                    send comments by one method only):                    impaired only, telecommunications
                                             you consider confidential or                              • Federal eRulemaking Portal: http://               device for the deaf (TDD): 800–925–
                                             inappropriate for public disclosure.                    www.regulations.gov. Follow the                       4618.
                                                Viewing Comments Electronically:                     instructions for submitting comments,                    OTS: Ekita Mitchell, Consumer
                                             OTS will post comments on the OTS                         • NCUA Web Site: http://                            Regulations Analyst, (202) 906–6451;
                                             Internet Site at http://www.ots.treas.gov/              www.ncua.gov/                                         Glenn Gimble, Senior Project Manager,
                                             pagehtml.cfm?catNumber=67&an=1.                         RegulationsOpinionsLaws/                              (202) 906–7158; or Richard S. Bennett,
                                                Viewing Comments On-Site: You may                    proposed_regs/proposed_regs.html.                     Senior Compliance Counsel, (202) 906–
                                             inspect comments at the Public Reading                  Follow the instructions for submitting                7409, Office of Thrift Supervision, 1700
                                             Room, 1700 G Street, NW., by                            comments.                                             G Street, NW., Washington, DC 20552.
                                             appointment. To make an appointment                       • E-mail: Address to                                   FCA: Mark L. Johansen, Senior Policy
                                             for access, call (202) 906–5922, send an                                                                      Analyst, Office of Regulatory Policy,
                                                                                                     regcomments@ncua.gov. Include ‘‘[Your
                                             e-mail to public.info@ots.treas.gov, or                                                                       (703) 993–4498; or Mary Alice Donner,
                                                                                                     name] Comments on Flood Insurance,
                                             send a facsimile transmission to (202)                                                                        Attorney Advisor, Office of General
                                                                                                     Interagency Questions & Answers’’ in
                                             906–6518. (Prior notice identifying the                                                                       Counsel, (703) 883–4033, Farm Credit
                                                                                                     the e-mail subject line.
                                             materials you will be requesting will                                                                         Administration, 1501 Farm Credit Drive,
                                                                                                       • Fax: (703) 518–6319. Use the
                                             assist us in serving you.) We schedule                                                                        McLean, VA 22102–5090. For the
                                                                                                     subject line described above for e-mail.
                                             appointments on business days between                                                                         hearing impaired only, TDD: (703) 883–
                                                                                                       • Mail: Address to Mary Rupp,
                                             10 a.m. and 4 p.m. In most cases,                                                                             4444.
                                                                                                     Secretary of the Board, National Credit                  NCUA: Moisette I. Green, Staff
                                             appointments will be available the next                 Union Administration, 1775 Duke
                                             business day following the date we                                                                            Attorney, Office of General Counsel,
                                                                                                     Street, Alexandria, Virginia 22314–                   (703) 518–6540, National Credit Union
                                             receive a request.                                      3428.
                                                FCA: We offer a variety of methods for                                                                     Administration, 1775 Duke Street,
                                                                                                       • Hand Delivery/Courier: Same as                    Alexandria, VA 22314–3428.
                                             you to submit comments. For accuracy                    mail address.
                                             and efficiency reasons, we encourage                                                                          SUPPLEMENTARY INFORMATION:
                                                                                                       Public Inspection: All public
                                             commenters to submit comments by e-                     comments are available on the agency’s                Background
                                             mail or through the Agency’s Web site                   Web site at http://www.ncua.gov/
                                             or the Federal eRulemaking Portal. You                                                                           The National Flood Insurance Reform
                                                                                                     RegulationsOpinionsLaws/comments as                   Act of 1994 (the Reform Act) (Title V of
                                             may also send comments by mail or by                    submitted, except as may not be
                                             facsimile transmission. Regardless of the                                                                     the Riegle Community Development and
                                                                                                     possible for technical reasons. Public                Regulatory Improvement Act of 1994)
                                             method you use, please do not submit                    comments will not be edited to remove
                                             your comment multiple times via                                                                               comprehensively revised the two federal
                                                                                                     any identifying or contact information.               flood insurance statutes, the National
                                             different methods. You may submit                       Paper copies of comments may be
                                             comments by any of the following                                                                              Flood Insurance Act of 1968 and the
                                                                                                     inspected in NCUA’s law library at 1775               Flood Disaster Protection Act of 1973.
                                             methods:                                                Duke Street, Alexandria, Virginia 22314,
                                                • E-mail: Send us an e-mail at                                                                             The Reform Act required the OCC,
                                                                                                     by appointment weekdays between 9                     Board, FDIC, OTS, and NCUA to revise
                                             regcomm@fca.gov.                                        a.m. and 3 p.m. To make an
                                                • Agency Web Site: http://                                                                                 their flood insurance regulations and
                                                                                                     appointment, call (703) 518–6546 or                   required the FCA to promulgate flood
                                             www.fca.gov. Once you are at the Web
                                                                                                     send an e-mail to OGCMail@ncua.gov.                   insurance regulations for the first time.
                                             site, select ‘‘Legal Info,’’ then ‘‘Pending
                                             Regulations and Notices.’’                              FOR FURTHER INFORMATION CONTACT:                      The OCC, Board, FDIC, OTS, NCUA,
                                                • Federal eRulemaking Portal: http://                OCC: Pamela Mount, National Bank                      and FCA (collectively, ‘‘the Agencies’’)
                                             www.regulations.gov. Follow the                         Examiner, Compliance Policy, (202)                    fulfilled these requirements by issuing a
                                             instructions for submitting comments.                   874–4428; or Margaret Hesse, Special                  joint final rule in the summer of 1996.
                                                • Mail: Gary K. Van Meter, Deputy                    Counsel, Community and Consumer                       See 61 FR 45684 (August 29, 1996).
                                             Director, Office of Regulatory Policy,                  Law Division, (202) 874–5750, Office of                  In connection with the 1996 joint
                                             Farm Credit Administration, 1501 Farm                   the Comptroller of the Currency, 250 E                rulemaking process, the Agencies
                                             Credit Drive, McLean, VA 22102–5090.                    Street, SW., Washington, DC 20219.                    received a number of requests to clarify
                                                • Fax: (703) 883–4477. Posting and                     Board: Vivian Wong, Senior Attorney,                specific issues covering a wide
mstockstill on PROD1PC66 with NOTICES




                                             processing of faxes may be delayed.                     Division of Consumer and Community                    spectrum of the proposed rule’s
                                             Please consider another means to                        Affairs, (202) 452–2412; Anjanette                    provisions. Many of these requests were
                                             comment, if possible.                                   Kichline, Senior Supervisory Consumer                 addressed in the preamble to the joint
                                                You may review copies of comments                    Financial Services Analyst, (202) 785–                final rule. The Agencies concluded,
                                             we receive at our office in McLean,                     6054; or Brad Fleetwood, Senior                       however, that given the number, level of
                                             Virginia, or from our Web site at                       Counsel, Legal Division, (202) 452–                   detail, and diversity of subject matter of


                                        VerDate Aug<31>2005   18:33 Mar 20, 2008   Jkt 214001   PO 00000   Frm 00141   Fmt 4703   Sfmt 4703   E:\FR\FM\21MRN1.SGM   21MRN1
                                                                             Federal Register / Vol. 73, No. 56 / Friday, March 21, 2008 / Notices                                          15261

                                             the requests for additional information,                Section-by-Section Analysis                           Section II. Determining the Appropriate
                                             guidance addressing the more technical                                                                        Amount of Flood Insurance Required
                                                                                                     Section I. Determining When Certain
                                             compliance issues would be helpful and                                                                        Under the Act and Regulation
                                                                                                     Loans Are Designated Loans for Which
                                             appropriate. Consequently, the Agencies                 Flood Insurance Is Required Under the                    Proposed section II would provide
                                             decided to issue guidance to address                    Act and Regulation                                    guidance on how lenders should
                                             these technical issues subsequent to the                                                                      determine the appropriate amount of
                                                                                                        The Agencies propose to eliminate
                                             promulgation of the final rule (61 FR at                                                                      flood insurance to require the borrower
                                                                                                     current section I entitled ‘‘Definitions’’
                                             45685–86). That objective was fulfilled                                                                       to purchase. The Agencies are proposing
                                                                                                     and replace it with new proposed
                                             by the initial release of the Interagency               section I to address more specific                    to retain existing questions 5 and 7 of
                                             Questions and Answers in 1997 (1997                     circumstances a lender may encounter                  section II in new section II and
                                             Interagency Questions and Answers) by                   when deciding whether a loan should                   renumbering them as proposed
                                             the Federal Financial Institution                       be a designated loan for purposes of                  questions 12 and 11, respectively.
                                             Examination Council (FFIEC). 62 FR                      flood insurance. The Agencies are                     Although minor changes have been
                                             39523 (July 23, 1997).                                  proposing to move the questions and                   made to these two questions and
                                               In response to issues that have been                  answers currently in section I into                   answers for purposes of clarity, the
                                             brought to the attention of the Agencies                subsequent sections for better                        changes are not substantive.
                                             in coordination with the Federal                        organization. Meanwhile, questions and                Furthermore, part of the guidance
                                             Emergency Management Agency                             answers currently in other sections of                currently provided in existing question
                                             (FEMA), the Agencies are releasing for                  the 1997 Interagency Questions and                    7 would be moved to proposed question
                                                                                                     Answers that deal with determining                    22 in section V, as discussed below.
                                             public comment proposed revisions to
                                                                                                     when a loan is a designated loan under                   Proposed new question 7 would
                                             the 1997 Interagency Questions and
                                                                                                     the Act and Regulation would be                       discuss what is meant by the
                                             Answers.1 Among the changes the
                                                                                                     included in new section I.                            ‘‘maximum limit of coverage available
                                             Agencies are proposing are the                             Specifically, proposed question 1,                 for the particular type of property under
                                             introduction of new questions and                       which covers the applicability of the                 the Act.’’ This concept is important
                                             answers in a number of areas, including                 Regulation to a loan in a                             because the Regulation states that the
                                             second lien mortgages, the imposition of                nonparticipating community, would be                  amount of flood insurance required
                                             civil money penalties, and loan                         moved from current question 1 of                      ‘‘must be at least equal to the lesser of
                                             syndications/participations. The                        section II. Further, the Agencies propose             the outstanding principal balance of the
                                             Agencies are also proposing substantive                 to move current question 2 of section II,             designated loan or the maximum limit
                                             modifications to questions and answers                  discussing whether a loan is a                        of coverage available for the particular
                                             previously adopted in the 1997                          designated loan when a lender                         type of property under the Act.’’
                                             Interagency Questions and Answers                       purchases a whole loan, to question 3 of              Proposed question 7 would introduce
                                             pertaining to construction loans and                    new section I. Current question 9 of                  and define the insurance term,
                                             condominiums. Finally, the Agencies                     section I, discussing whether a loan is               ‘‘insurable value,’’ as it relates to the
                                             are proposing to revise and reorganize                  a designated loan when a lender                       determination of the maximum limit of
                                             certain of the existing questions and                   restructures a loan, would be moved to                coverage available under the Act.
                                             answers to clarify areas of potential                   question 4 of this new section I, and                 Proposed question 7 would also
                                             misunderstanding and to provide                         proposed question 5, which addresses                  introduce the terms, ‘‘residential
                                             clearer guidance to users. It is the                    table funded loans, would be moved                    building’’ and ‘‘nonresidential
                                             intention of the Agencies that after                    from question 3 of current section II. In             building.’’ These terms would be more
                                                                                                     addition, minor nonsubstantive changes                fully defined in proposed new questions
                                             public comment has been received and
                                                                                                     have been made to these moved                         8 and 9 of this section, respectively.
                                             considered, and the Interagency
                                                                                                     questions and answers to provide
                                             Questions and Answers have been                                                                                  Proposed new question 10 would
                                                                                                     additional clarity.
                                             adopted in final form, they will                           The Agencies are also proposing to                 discuss how much flood insurance is
                                             supersede the 1997 Interagency                          add two new questions and answers to                  required on a building located in an
                                             Questions and Answers and supplement                    this section in response to questions the             SFHA in a participating community. It
                                             other guidance or interpretations issued                Agencies have received from lenders.                  would also provide an example showing
                                             by the Agencies and FEMA.                               Proposed new question 2 explains that,                how to calculate the amount of required
                                                                                                     upon a FEMA map change that results                   flood insurance on a nonresidential
                                               For ease of reference, the following
                                                                                                     in a building or mobile home securing                 building.
                                             terms are used throughout this
                                             document: ‘‘Act’’ refers to the National                a loan being removed from a special                      Proposed new question 13 would
                                             Flood Insurance Act of 1968 and the                     flood hazard area (SFHA), the lender no               clarify that a lender can require more
                                             Flood Disaster Protection Act of 1973, as               longer must require mandatory flood                   flood insurance than the minimum
                                                                                                     insurance; however, the lender may                    required by the Regulation. The
                                             revised by the National Flood Insurance
                                                                                                     choose to continue to require flood                   Regulation requires a minimum amount
                                             Reform Act of 1994 (codified at 42
                                                                                                     insurance for risk management                         of flood insurance; however, lenders
                                             U.S.C. 4001 et seq.). ‘‘Regulation’’ refers
                                                                                                     purposes.                                             may require more coverage, if
                                             to each agency’s current final rule.2                                                                         appropriate.
                                                                                                        Proposed new question 6 explains
                                               1 The proposed Interagency Questions and
                                                                                                     that portfolio reviews of existing loans                 Proposed new question 14 would
                                             Answers have been prepared by staff from the OCC,       are not required by the Act or                        address lender considerations regarding
mstockstill on PROD1PC66 with NOTICES




                                             Board, FDIC, OTS, NCUA and FCA in consultation          Regulation; however, sound risk                       the amount of the deductible on a flood
                                             with and with the assistance of the FFIEC pursuant      management practices may lead a lender                insurance policy purchased by a
                                             to 12 U.S.C. 3305(g).                                   to conduct periodic reviews. These two                borrower. Generally, the guidance
                                               2 The Agencies’ rules are codified at 2 CFR part

                                             22 (OCC), 12 CFR part 208 (Board), 12 CFR part 339
                                                                                                     new questions and answers are based on                advises a lender to determine the
                                             (FDIC), 12 CFR part 572 (OTS), 12 CFR part 614          current guidance the Agencies have                    reasonableness of the deductible on a
                                             (FCA), and 12 CFR part 760 (NCUA).                      provided to lenders.                                  case-by-case basis, taking into account


                                        VerDate Aug<31>2005   18:33 Mar 20, 2008   Jkt 214001   PO 00000   Frm 00142   Fmt 4703   Sfmt 4703   E:\FR\FM\21MRN1.SGM   21MRN1
                                             15262                           Federal Register / Vol. 73, No. 56 / Friday, March 21, 2008 / Notices

                                             the risk that such a deductible would                   coverage may be purchased prior to the                such cases.3 The NFIP would rely on the
                                             pose to the borrower and lender.                        start of construction.                                insurance agent’s representation that the
                                                                                                        Proposed question 19 would address                 exception applies unless a loss has
                                             Section III. Exemptions from the
                                                                                                     the timing of when flood insurance                    occurred during the first 30 days of the
                                             mandatory flood insurance
                                                                                                     must be purchased for buildings under                 policy period.
                                             requirements
                                                                                                     the course of construction. The Act and
                                               As with current section III, proposed                                                                       Section V. Flood insurance
                                                                                                     Regulation provide that lenders may not
                                             section III would contain only one                                                                            requirements for agricultural buildings
                                                                                                     make, increase, extend, or renew any
                                             question and answer, which describes                    loan secured by improved real estate or                 The Agencies are proposing a new
                                             the statutory exemptions from the                       a mobile home that is located or to be                section V to address the flood insurance
                                             mandatory flood insurance                               located in an SFHA unless the building                requirements for agricultural buildings
                                             requirements. Proposed question and                     is covered by adequate flood insurance.               that are taken as security for a loan, but
                                             answer 15 under section III would be                    One way for lenders to comply with the                that have limited utility to a farming
                                             revised to provide greater clarity, with                mandatory purchase requirement for a                  operation. The section would also
                                             no intended change in substance or                      loan secured by a building in the course              address loans secured by multiple
                                             meaning.                                                of construction that is located in an                 buildings where some buildings are
                                             Section IV. Flood insurance                             SFHA is to require borrowers to have a                located in a flood hazard area and some
                                             requirements for construction loans                     flood insurance policy in place at the                buildings are not.
                                                                                                     time of loan origination.                               The proposed answer to new question
                                                The Agencies are proposing a series of                                                                     21 would explain that all buildings
                                                                                                        Recently, lenders have informed
                                             new and revised questions and answers                                                                         taken as security for a loan and located
                                                                                                     agency staff, however, that borrowers
                                             to clarify the requirements regarding the                                                                     in an SFHA require flood insurance.
                                             mandatory purchase of flood insurance                   have been encountering difficulties in
                                                                                                     obtaining flood insurance for                         Lenders have the option of carving a
                                             for construction loans to erect buildings                                                                     building from the security for a loan;
                                             that will be located in an SFHA. The                    construction loans at the time of loan
                                                                                                     origination due to insurers’ refusals to              however, the Agencies believe that it is
                                             Agencies believe that these questions                                                                         typically inappropriate for credit risk
                                             and answers are necessary in light of                   write policies on undeveloped land
                                                                                                     until either an elevation certificate has             management reasons to do so.
                                             recent concerns raised by some                                                                                  The guidance in current question 7
                                             regulated lenders regarding borrowers’                  been issued for the structure or at least
                                                                                                     two walls and a roof for the building                 under section II would be split between
                                             difficulties in obtaining flood insurance                                                                     question 11 under proposed section II,
                                             for construction loans at the time of loan              have been erected. The Agencies have
                                                                                                     also received reports that borrowers                  as discussed above, and question 22
                                             origination.                                                                                                  under proposed section V. The
                                                Existing question 2 in section I would               who are able to obtain flood insurance
                                                                                                     for construction loans at loan                        proposed answer to question 22 would
                                             be revised to provide greater clarity and                                                                     explain that a lender is always required
                                             would be moved to proposed question                     origination often pay the highest
                                                                                                     premiums possible because elevations                  to determine whether a building
                                             16 under proposed section IV. The                                                                             securing a loan is located in an SFHA,
                                             proposed answer to question 16 would                    for the insured property have not yet
                                                                                                     been established.                                     but that only those buildings located in
                                             revise the existing guidance to limit its                                                                     an SFHA and within a participating
                                             scope and explain that a loan secured by                   To address these concerns, the
                                                                                                     Agencies, in the answer to proposed                   community are required to have flood
                                             raw land located in an SFHA is not a                                                                          insurance. Flood insurance need not be
                                             designated loan that would require                      question 19, would provide lenders
                                                                                                     with flexibility regarding the timing of              required on those properties that (1) are
                                             flood insurance coverage. The                                                                                 not located in a special flood hazard
                                             remaining guidance currently in the                     the mandatory purchase requirement for
                                                                                                     construction loans by permitting lenders              area (whether or not within a
                                             answer to existing question 2 in section                                                                      participating community) or (2) are
                                             I would be discussed in subsequent                      to allow borrowers to defer the purchase
                                                                                                     of flood insurance until a foundation                 located in a special flood hazard area
                                             questions and answers in section IV in                                                                        that is not within a participating
                                             the proposed document, as detailed                      slab has been poured and/or an
                                                                                                     elevation certificate has been issued.                community.
                                             below.
                                                Proposed question 17, derived from                   Lenders, however, must require the                    Section VI. Flood insurance
                                             current question 1 in section I, would                  borrower to have flood insurance in                   requirements for residential
                                             address whether a loan secured or to be                 place before funds are disbursed to pay               condominiums
                                             secured by a building in the course of                  for building construction on the
                                                                                                                                                             For organizational purposes, the
                                             construction that is located or to be                   property securing the loan (except as
                                                                                                                                                           Agencies are proposing to consolidate
                                             located in an SFHA in which flood                       necessary to pour the slab or perform
                                                                                                                                                           questions and answers relating to the
                                             insurance is available under the Act is                 preliminary site work). A lender who
                                                                                                                                                           Regulation’s flood insurance
                                             a designated loan. The answer would                     elects this approach and does not
                                                                                                                                                           requirements for residential
                                             provide that a lender must make a flood                 require flood insurance at loan
                                                                                                                                                           condominiums into a new section VI. In
                                             determination prior to loan origination                 origination must have adequate internal
                                                                                                                                                           addition to modifying and expanding
                                             for a construction loan. If the flood                   controls in place to ensure compliance.
                                                                                                                                                           the two existing questions in the 1997
                                             determination shows that the building                      The Agencies also propose to add new
                                                                                                                                                           Interagency Questions and Answers on
                                             securing the loan will be located in an                 question 20 to clarify whether the 30-
                                                                                                                                                           residential condominiums, the Agencies
                                             SFHA, the lender must provide notice to                 day waiting period for an NFIP policy
                                                                                                                                                           are proposing to add five additional
                                             the borrower, and must comply with the                  applies when the purchase of flood
mstockstill on PROD1PC66 with NOTICES




                                             mandatory purchase requirements.                        insurance is deferred in connection with                3 FEMA, Mandatory Purchase of Flood Insurance

                                             Proposed question 18 would explain                      a construction loan since there has been              Guidelines, (September 2007) at 30. FEMA has
                                             that, generally, a building in the course               confusion among lenders on this issue                 made available a new version of this booklet
                                                                                                     in the past. Per guidance from FEMA,                  electronically at http://www.fema.gov/library/
                                             of construction is eligible for coverage                                                                      viewRecord.do?id=2954. Hard copies are available
                                             under a National Flood Insurance                        the answer would provide that the 30-                 by calling FEMA’s Publication Warehouse at (800)
                                             Program (NFIP) policy, and that                         day waiting period would not apply in                 480–2520.



                                        VerDate Aug<31>2005   18:33 Mar 20, 2008   Jkt 214001   PO 00000   Frm 00143   Fmt 4703   Sfmt 4703   E:\FR\FM\21MRN1.SGM   21MRN1
                                                                             Federal Register / Vol. 73, No. 56 / Friday, March 21, 2008 / Notices                                               15263

                                             questions and answers to provide better                 available under the NFIP for a                        association, unit owners, and lenders and
                                             clarity on the requirements.                            residential condominium unit is the                   also satisfies the statutory requirements.6
                                                Proposed question and answer 24                      lesser of the maximum limit available                    The Agencies plan that any guidance
                                             would modify and expand current                         for a residential condominium unit                    adopted as final in question and answer
                                             question 8 under section II to more                     (currently, $250,000) or the insurable                24 would apply to any loan that is
                                             completely address the Regulation’s                     value of the unit (the replacement value              made, increased, extended, or renewed
                                             flood insurance requirements for                        of the building divided by the number                 after the effective date of the revised
                                             residential condominium units. The                      of units).4 The proposed question and                 guidance. The Agencies further plan
                                             proposed answer would first explain                     answer would also reflect that where the              that the revised guidance would apply
                                             that the amount of flood insurance                      outstanding principal balance of the                  to any loan made prior to the effective
                                             coverage on the condominium unit                        loan is greater than the maximum                      date of the revised guidance, which a
                                             required by the Regulation is the lesser                amount of coverage available under the                lender determines to be covered by
                                             of the outstanding principal balance of                 NFIP, an RCBAP written at 80 percent                  flood insurance in an amount less than
                                             the loan or the maximum amount of                       of the replacement cost value of the                  required by the Regulation, as set forth
                                             coverage available under the NFIP.                      building does not meet the Regulation’s               in proposed question and answer 24, at
                                                The proposed answer would then                       flood insurance requirements (unless                  the first flood insurance policy renewal
                                             explain that if the outstanding principal               that amount were equal to the maximum                 period following the effective date of the
                                             balance of the loan is greater than the                 amount of insurance available under the               revised guidance.
                                             maximum amount of coverage available                    NFIP, which is $250,000 multiplied by                    Proposed question 27 would modify
                                             under the NFIP, the lender must require                 the number of units), whereas the                     and expand current question 9 under
                                             a borrower whose loan is secured by a                   current answer suggested that such a                  section II to address lenders’ options
                                             residential condominium unit to either:                 coverage level was adequate. While                    when a loan secured by a residential
                                                • Ensure the condominium owners                      FEMA’s recent guidance prescribes 80                  condominium unit is in a multi-unit
                                             association has purchased an NFIP                       percent replacement cost value coverage               complex whose condominium
                                             Residential Condominium Building                        as the minimum amount necessary to                    association allows its existing flood
                                             Association Policy (RCBAP) covering                                                                           insurance policy to lapse. Specifically,
                                                                                                     avoid imposition of a co-insurance
                                             either 100 percent of the insurable value                                                                     if the borrower/unit owner or the
                                                                                                     penalty at the time of loss,5 proposed
                                             (replacement cost) of the building,                                                                           condominium association fails to
                                                                                                     answer 24 clarifies that this amount of
                                             including amounts to repair or replace                                                                        purchase adequate flood insurance
                                                                                                     insurance is insufficient to comply with
                                             the foundation and its supporting                                                                             within 45 days of the lender’s
                                                                                                     the Act’s and Regulation’s minimum
                                             structures, or an amount equal to the                                                                         notification of inadequate insurance
                                                                                                     requirements. The proposed answer
                                             total number of units in the                                                                                  coverage, the lender must force place
                                                                                                     would provide that where the
                                             condominium building times $250,000,                                                                          flood insurance to cover the unit
                                                                                                     outstanding principal balance of the
                                             whichever is less; or                                                                                         owner’s dwelling in an amount
                                                • Obtain an individual unit owner’s                  loan is greater than the maximum
                                                                                                     amount of coverage available under the                adequate to meet the Regulation’s flood
                                             dwelling policy in an amount sufficient                                                                       insurance requirements.
                                             to meet the Regulation’s flood insurance                NFIP and the RCBAP is written at less
                                                                                                     than 100 percent of the insurable value                  The Agencies are also proposing five
                                             requirements, if there is no RCBAP or                                                                         new questions and answers to address
                                             the RCBAP coverage is less than either                  (replacement cost) of the building or an
                                                                                                     amount equal to $250,000 multiplied by                additional issues regarding flood
                                             100 percent of the insurable value                                                                            insurance requirements for residential
                                             (replacement cost) of the building or the               the number of units, whichever is less,
                                                                                                     the lender must require the borrower to               condominiums. Proposed new question
                                             amount equal to the total number of                                                                           23 would be added to specifically affirm
                                             units in the condominium building                       obtain an individual unit owner’s
                                                                                                     dwelling policy to meet the Regulation’s              that the mandatory flood insurance
                                             times $250,000, whichever is less.                                                                            purchase requirements under the Act
                                                The proposed answer revises and                      flood insurance requirements.
                                                                                                                                                           and Regulation apply to loans secured
                                             clarifies the current answer to question                   The Agencies are proposing the                     by individual residential condominium
                                             8 under section II. The current answer                  modification contained in proposed                    units, including those in multi-story
                                             provides that ‘‘to meet federal flood                   question 24 and its answer to be in                   condominium complexes located in an
                                             insurance requirements, an RCBAP                        accordance with the general mandatory                 SFHA in which flood insurance is
                                             should be purchased in an amount of at                  purchase requirement in the Regulation.               available under the Act.
                                             least 80 percent of the replacement                     As FEMA has noted:                                       Proposed new question 25 would
                                             value of the building or the maximum                      Although unit owners have a shared                  address lenders’ options when a loan
                                             amount available under the NFIP                         interest in the common areas of the                   secured by a residential condominium
                                             (currently $250,000 multiplied by the                   condominium building, as well as in their             unit is in a multi-unit complex whose
                                             number of units), whichever is less.’’                  own unit, unit owners are unable to                   condominium association does not
                                                The proposed question and answer                     individually protect such common areas.               obtain or maintain the amount of flood
                                             recognizes that neither the Act nor the                 Therefore, the RCBAP, insured to its full
                                                                                                                                                           insurance coverage required under the
                                             Regulation addresses explicitly the                     replacement cost value (RCV) to the extent
                                                                                                     possible under the NFIP, is the correct way           Regulation. Specifically, it would
                                             appropriate level of RCBAP coverage;                    to insure a residential condominium building          provide that a lender must require the
                                             rather, they address the general                        against flood loss. A properly placed RCBAP           borrower to purchase an individual unit
                                             purchase requirement applicable to all                  protects the financial interests of the               owner’s dwelling policy in an amount
                                             types of buildings and mobile homes:                                                                          sufficient to meet the Regulation’s flood
                                             The lesser of the outstanding principal                   4 In recent guidance, FEMA expressly discusses      insurance requirements. The proposed
mstockstill on PROD1PC66 with NOTICES




                                             balance of the loan or the maximum                      the statutory standard for determining the required   answer would also detail what is
                                             amount of insurance available under the                 amount of flood insurance for a condominium.          considered an adequate amount of flood
                                             NFIP. The proposed question and                         FEMA Mandatory Purchase of Flood Insurance
                                                                                                     Guidelines, at 46.
                                                                                                                                                           insurance under the Regulation and
                                             answer acknowledges the standard set                      5 FEMA’s recent guidance encourages                 provide an example.
                                             forth in the Regulation, and clarifies that             condominium associations to obtain 100 percent
                                             the maximum amount of insurance                         coverage. Id. at 47.                                    6 See   id. at 46.



                                        VerDate Aug<31>2005   18:33 Mar 20, 2008   Jkt 214001   PO 00000   Frm 00144   Fmt 4703   Sfmt 4703   E:\FR\FM\21MRN1.SGM     21MRN1
                                             15264                           Federal Register / Vol. 73, No. 56 / Friday, March 21, 2008 / Notices

                                               Proposed new question 26 would                        question 40 in response to questions                  question 41 would expound on the two
                                             address the steps a lender must take if                 from lenders. The proposed question                   scenarios from current question 6 to
                                             the RCBAP coverage is insufficient to                   and answer would explain that, with                   provide greater clarity, with no intended
                                             meet the Regulation’s mandatory                         respect to loan syndications and                      change in substance or meaning.
                                             purchase requirements for a loan                        participations, individual participating
                                                                                                                                                           Section X. Escrow requirements
                                             secured by an individual residential                    lenders are responsible for ensuring
                                             condominium unit. The proposed                          compliance with flood insurance                         Current section IV on escrow
                                             answer would also summarize some of                     requirements. The Agencies believe that               requirements would be moved to
                                             the risks to which the lender and the                   the risk of flood loss can be a significant           proposed section X but would remain
                                             individual unit owner/borrower may be                   threat to the value of improved real                  largely unchanged. Question 1 under
                                             exposed should a loss occur where the                   property securing loans, especially in                current section IV, relating to the date
                                             condominium association did not                         light of many recent catastrophic flood-              loan originations were subject to the
                                             maintain adequate flood insurance                       related events such as Hurricane                      escrow requirement, would be deleted,
                                             coverage under an RCBAP.                                Katrina. Therefore, the Agencies believe              as it is now obsolete. Questions 2
                                               Proposed new question 28 would be                     that each lender in a loan participation/             through 7 under current section IV
                                             added to explain how the RCBAP’s co-                    syndication arrangement that is secured               would be renumbered as proposed
                                             insurance penalty applies when, at the                  by improved real property located in a                questions 48 through 53, respectively,
                                             time of loss, the RCBAP’s coverage                      special flood hazard area should be                   with minor changes for greater clarity
                                             amount is less than 80 percent of either                responsible for ensuring that the                     with no intended change in substance or
                                             the building’s replacement cost or the                  respective interest of the lender in the              meaning.
                                             maximum amount of flood insurance                       collateral that secures the lender’s
                                             available for that building under the                                                                         Section XI. Forced placement of flood
                                                                                                     portion of the loan is protected against
                                             NFIP (whichever is less). Examples of                                                                         insurance
                                                                                                     the risk of flood loss, at least to the
                                             how to calculate the penalty would also                 amount required by the Regulation. This                 For organizational purposes, the
                                             be provided. Proposed new question 29                   does not mean that each lender in a                   Agencies are proposing to move existing
                                             would be added to explain the interplay                 syndication or participant in a loan                  questions 1, 2, and 3 in Part VI to
                                             between the individual unit owner’s                     must individually undertake such                      questions 54, 55, and 56 in section XI
                                             dwelling policy coverage limitations                    activities as obtaining a flood                       of the proposed document, respectively.
                                             and the RCBAP.                                          determination or monitoring whether                   The Agencies are proposing minor
                                                                                                     flood insurance premiums are paid.                    revisions to proposed question and
                                             Section VII. Flood insurance
                                                                                                     Rather, it means that the participating               answer 54 to provide greater clarity,
                                             requirements for home equity loans,
                                                                                                     lender should perform upfront due                     with no intended change in substance or
                                             lines of credit, subordinate liens, and
                                                                                                     diligence to ensure both that the lead                meaning.
                                             other security interests in collateral
                                                                                                     lender or agent has undertaken the
                                             located in an SFHA                                                                                            Section XII. Gap insurance policies
                                                                                                     necessary activities to ensure that the
                                                Proposed new Section VII, which                      borrower obtains appropriate flood                       The Agencies are proposing to add a
                                             addresses flood insurance requirements                  insurance and that the lead lender or                 new section and question and answer
                                             for home equity loans, lines of credit,                 agent has adequate controls to monitor                on the appropriateness of gap or blanket
                                             subordinate liens, and other security                   the loan(s) on an on-going basis for                  insurance policies, often purchased by
                                             interests in collateral located in an                   compliance with the flood insurance                   lenders to ensure adequate life-of-loan
                                             SFHA, would include seven questions                     requirements. The participating lender                flood insurance coverage for designated
                                             from current section I and parts of two                 should require as a condition to the                  loans, as a result of questions received
                                             questions from current section V.                       participation, syndication or other                   by the Agencies on such policies. Gap
                                             Specifically, current questions 3, 4, 5, 6,             credit risk sharing agreement that the                or blanket insurance policies are lender-
                                             7, 8, and 10 would be renumbered as                     lead lender or agent will provide                     paid private policies that are meant to
                                             questions 30, 31, 34, 35 and 36, 37, 38,                participating lenders with sufficient                 cover a lender’s entire portfolio of loans
                                             and 39 respectively. Current question 5                 information on an ongoing basis to                    for insurance shortfalls or expired
                                             in section V would be split into                        monitor compliance with flood                         policies.
                                             proposed questions 32 and 33.                           insurance requirements.                                  The proposed answer to question 57
                                                Proposed questions and answers 30,                                                                         of section XII would explain that,
                                             31, and 39 would include minor                          Section IX. Flood insurance                           generally, gap or blanket insurance is
                                             wording changes without any intended                    requirements in the event of the sale or              not an adequate substitute for NFIP
                                             change in substance or meaning.                         transfer of a designated loan and/or its              insurance, as a gap or blanket policy
                                             Proposed question 32 would expand on                    servicing rights                                      typically protects only the lender’s, not
                                             part of current section V, question 5, but                The heading to proposed section IX                  the borrower’s interest, and cannot be
                                             would not change the substance of the                   has been modified to provide greater                  transferred when a loan is sold. The
                                             answer. New question 34 would be                        clarity with no intended change in                    question and answer would
                                             revised to clarify the issue discussed in               substance or meaning. The current                     acknowledge, however, that in limited
                                             current question 5 of section I without                 questions 1, 2, 3, 4, 5, and 6 under                  circumstances, a gap or blanket policy
                                             any change in substance or meaning.                     current section IX would be renumbered                may satisfy flood insurance obligations
                                             New questions 35 and 36 would be                        as proposed questions 42, 43, 44, 45, 46,             in instances where NFIP and private
                                             added to clarify the issues discussed in                and 47, respectively, with minor                      insurance for the borrower are otherwise
                                             current question 6 of section I.                        revisions to questions and answers 42                 unavailable.
mstockstill on PROD1PC66 with NOTICES




                                                                                                     and 46 to provide greater clarity, with
                                             Section VIII. Flood insurance                           no intended change in substance or                    Section XIII: Required use of the
                                             requirements for loan syndications/                     meaning. Proposed section IX would                    Standard Flood Hazard Determination
                                             participations                                          also incorporate and expand current                   Form (SFHDF)
                                               The Agencies are proposing to                         question 6 under section II as proposed                 Current section V would be moved to
                                             include a new section VIII and new                      question and answer 41. Proposed                      proposed section XIII, and questions 1,


                                        VerDate Aug<31>2005   18:33 Mar 20, 2008   Jkt 214001   PO 00000   Frm 00145   Fmt 4703   Sfmt 4703   E:\FR\FM\21MRN1.SGM   21MRN1
                                                                                       Federal Register / Vol. 73, No. 56 / Friday, March 21, 2008 / Notices                                                                                          15265

                                             2, 3, and 4 of current section V would                                     discusses the legitimate reasons why                                            Notice of Special Flood Hazards must be
                                             be renumbered as proposed questions                                        such discrepancies may exist and                                                provided to the borrower each time a
                                             58, 59, 60, and 61, respectively. The                                      describes how to resolve differences if                                         loan is made, increased, extended, or
                                             Agencies are proposing some minor                                          there is no legitimate reason for them.                                         renewed, even when a new
                                             changes to the answers for these                                           Proposed question 65 discusses when                                             determination is not required.
                                             questions to provide additional clarity                                    such flood zone discrepancies in a loan
                                             with no intended change in substance or                                                                                                                    Section XVII. Mandatory civil money
                                                                                                                        portfolio will result in a finding that the
                                             meaning. For organizational purposes,                                                                                                                      penalties
                                                                                                                        lender violated federal flood insurance
                                             the guidance found in question 5 of                                        requirements. If there are repeated                                               The Agencies are proposing a new
                                             current section V would be moved to                                        instances in the lender’s loan portfolio                                        section and two new questions
                                             proposed questions 32 and 33 under                                         of discrepancies between the flood                                              concerning the imposition of mandatory
                                             proposed section VII, as discussed                                         hazard zone listed on a flood hazard                                            civil money penalties for violations of
                                             above.                                                                     determination and the flood hazard                                              the flood insurance requirements.
                                             Section XIV. Flood determination fees                                      zone listed on a flood insurance policy,                                        Proposed new question 74 would list
                                                                                                                        and the lender has not taken steps to                                           the sections of the Act that trigger
                                               Current section VII would be moved                                       resolve such discrepancies, then an                                             mandatory civil money penalties when
                                             to proposed section XIV. Questions 1                                       agency may find that the lender has                                             examiners find a pattern or practice of
                                             and 2 in current section VII would be                                      violated the mandatory purchase                                                 violations of those sections. The
                                             renumbered as questions 62 and 63,                                         requirements.                                                                   question would also include
                                             respectively, with only minor language
                                                                                                                        Section XVI. Notice of special flood                                            information about statutory limits on
                                             modifications, with no intended change
                                                                                                                        hazards and availability of Federal                                             the amount of such penalties. Proposed
                                             in substance or meaning.
                                                                                                                        disaster relief                                                                 new question 75 would discuss the
                                             Section XV. Flood zone discrepancies                                                                                                                       general standards the Agencies consider
                                               The Agencies are proposing a new                                           The Agencies propose to move                                                  when determining whether violations
                                             section and two new questions                                              current section VIII to proposed section                                        constitute a pattern or practice for
                                             concerning issues where there is a                                         XVI. Therefore, questions 1, 2, 3, 4, 5,                                        which civil money penalties are
                                             discrepancy between the flood hazard                                       and 6 under current section VIII would                                          mandatory. These considerations are not
                                             zone designation on a flood hazard                                         be renumbered as proposed questions                                             dispositive of individual cases, but
                                             determination form and the flood                                           66, 67, 68, 69, 70, and 71, respectively,                                       serve as a reference point for reviewing
                                             hazard zone designation on the flood                                       with nonsubstantive changes made to                                             the particular facts and circumstances.
                                             insurance policy. Proposed new                                             provide additional clarity to the                                               Redesignation Table
                                             question 64 would address how lenders                                      answers. For organizational purposes,
                                             should respond when confronted with a                                      question 1 under current section X                                                The following redesignation table is
                                             discrepancy between the flood hazard                                       would be consolidated under this new                                            provided as an aide to assist the public
                                             zone designations on the flood hazard                                      section XVI and renumbered as question                                          in reviewing the proposed revisions to
                                             determination form and the flood                                           73. Furthermore, a new question 72 is                                           the 1997 Interagency Questions and
                                             insurance policy. The question                                             proposed to be added to clarify that the                                        Answers.

                                                                                                                           Current                                                                                                       Proposed

                                             Section I. Definitions: 

                                                 Section I, Question            1   ......................................................................................................................................
   Section IV, Question 17.
                                                 Section I, Question            2   ......................................................................................................................................
   Section IV, Question 16.
                                                 Section I, Question            3   ......................................................................................................................................
   Section VII, Question 30.
                                                 Section I, Question            4   ......................................................................................................................................
   Section VII, Question 31.
                                                 Section I, Question            5   ......................................................................................................................................
   Section VII, Question 34.
                                                 Section I, Question            6   ......................................................................................................................................
   Section VII, Question 35; and
                                                                                                                                                                                                                                Section VII, Question 36.
                                                 Section I, Question 7 ......................................................................................................................................
                Section VII, Question 37.
                                                 Section I, Question 8 ......................................................................................................................................
                Section VII, Question 38.
                                                 Section I, Question 9 ......................................................................................................................................
                Section I, Question 4.
                                                 Section I, Question 10 ....................................................................................................................................
                 Section VII, Question 39.
                                             Section II. Requirement to Purchase Flood Insurance Where Available: 

                                                 Section II, Question 1 .....................................................................................................................................
                Section I, Question 1.
                                                 Section II, Question 2 .....................................................................................................................................
                Section I, Question 3.
                                                 Section II, Question 3 .....................................................................................................................................
                Section I, Question 5.
                                                 Section II, Question 4 .....................................................................................................................................
                Deleted as obsolete.
                                                 Section II, Question 5 .....................................................................................................................................
                Section II, Question 12.
                                                 Section II, Question 6 .....................................................................................................................................
                Section IX, Question 41.
                                                 Section II, Question 7 .....................................................................................................................................
                Section II, Question 11; and Sec­
                                                                                                                                                                                                                                tion V, Question 22.
                                                 Section II, Question 8 .....................................................................................................................................
                Section VI, Question 24.
                                                 Section II, Question 9 .....................................................................................................................................
                Section VI, Question 27.
                                             Section III. Exemptions ..........................................................................................................................................
              Section III. Exemptions from the
                                                                                                                                                                                                                                mandatory flood insurance re­
mstockstill on PROD1PC66 with NOTICES




                                                                                                                                                                                                                                quirements.
                                                 Section III, Question 1 ....................................................................................................................................
                Section III, Question 15.
                                             Section IV. Escrow Requirements .........................................................................................................................
                       Section X. Escrow requirements.
                                                 Section IV, Question 1 ...................................................................................................................................
                  Deleted as obsolete.
                                                 Section IV, Question 2 ...................................................................................................................................
                  Section X, Question 48.
                                                 Section IV, Question 3 ...................................................................................................................................
                  Section X, Question 49.



                                        VerDate Aug<31>2005        18:33 Mar 20, 2008         Jkt 214001        PO 00000        Frm 00146        Fmt 4703        Sfmt 4703       E:\FR\FM\21MRN1.SGM                 21MRN1
                                             15266                                    Federal Register / Vol. 73, No. 56 / Friday, March 21, 2008 / Notices

                                                                                                                          Current                                                                                                       Proposed

                                                 Section IV, Question 4              ...................................................................................................................................
    Section X, Question 50. 

                                                 Section IV, Question 5              ...................................................................................................................................
    Section X, Question 51. 

                                                 Section IV, Question 6              ...................................................................................................................................
    Section X, Question 52. 

                                                 Section IV, Question 7              ...................................................................................................................................
    Section X, Question 53. 

                                             Section V. Required Use of              Standard Flood Hazard Determination Form (SFHDF) ...........................................
                                           Section XIII. Required use of 

                                                                                                                                                                                                                               Standard Flood Hazard Deter­
                                                                                                                                                                                                                               mination Form (SFHDF).
                                                   Section     V,   Question     1   ....................................................................................................................................
   Section XIII, Question 58.
                                                   Section     V,   Question     2   ....................................................................................................................................
   Section XIII, Question 59.
                                                   Section     V,   Question     3   ....................................................................................................................................
   Section XIII, Question 60.
                                                   Section     V,   Question     4   ....................................................................................................................................
   Section XIII, Question 61.
                                                   Section     V,   Question     5   ....................................................................................................................................
   Section VII, Question 32; and
                                                                                                                                                                                                                               Section VII, Question 33.
                                             Section VI. Forced Placement of Flood Insurance ...............................................................................................
                                Section XI. Forced placement of
                                                                                                                                                                                                                               flood insurance.
                                                 Section VI, Question 1 ...................................................................................................................................
                 Section XI, Question 54.
                                                 Section VI, Question 2 ...................................................................................................................................
                 Section XI, Question 55.
                                                 Section VI, Question 3 ...................................................................................................................................
                 Section XI, Question 56.
                                             Section VII. Determination Fees ............................................................................................................................
                   Section XIV. Flood determination
                                                                                                                                                                                                                               fees.
                                                 Section VII, Question 1 ..................................................................................................................................
                 Section XIV, Question 62.
                                                 Section VII, Question 2 ..................................................................................................................................
                 Section XIV, Question 63.
                                             Section VIII. Notice of Special Flood Hazards and Availability of Federal Disaster Relief ..................................
                                                   Section XVI. Notice of special
                                                                                                                                                                                                                               flood hazards and availability
                                                                                                                                                                                                                               of Federal disaster relief.
                                                 Section VIII, Question 1 .................................................................................................................................
                 Section XVI, Question 66.
                                                 Section VIII, Question 2 .................................................................................................................................
                 Section XVI, Question 67.
                                                 Section VIII, Question 3 .................................................................................................................................
                 Section XVI, Question 68.
                                                 Section VIII, Question 4 .................................................................................................................................
                 Section XVI, Question 69.
                                                 Section VIII, Question 5 .................................................................................................................................
                 Section XVI, Question 70.
                                                 Section VIII, Question 6 .................................................................................................................................
                 Section XVI, Question 71.
                                             Section IX. Notice of Servicer’s Identity ................................................................................................................
                     Section IX. Flood insurance re­
                                                                                                                                                                                                                               quirements in the event of the
                                                                                                                                                                                                                               sale or transfer of a designated
                                                                                                                                                                                                                               loan and/or its servicing rights.
                                                 Section IX, Question 1 ...................................................................................................................................
                 Section IX, Question 42. 

                                                 Section IX, Question 2 ...................................................................................................................................
                 Section IX, Question 43. 

                                                 Section IX, Question 3 ...................................................................................................................................
                 Section IX, Question 44. 

                                                 Section IX, Question 4 ...................................................................................................................................
                 Section IX, Question 45. 

                                                 Section IX, Question 5 ...................................................................................................................................
                 Section IX, Question 46. 

                                                 Section IX, Question 6 ...................................................................................................................................
                 Section IX, Question 47. 

                                             Section X Appendix A to the Regulation-Sample Form of Notice of Special Flood Hazards and Availability of                                                                       Section XVI. Notice of special 

                                               Federal Disaster Relief Assistance.                                                                                                                                             flood hazards and availability
                                                                                                                                                                                                                               of Federal disaster relief.
                                                   Section X, Question 1 ....................................................................................................................................
               Section XVI, Question 73.



                                             Public Comments                                                           comments are nevertheless invited on                                            refers to each agency’s current final
                                                The Agencies invite public comment                                     whether the proposed interagency                                                rule.7 The OCC, Board, FDIC, OTS,
                                             on the proposed new and revised                                           questions and answers are stated clearly                                        NCUA, and FCA (collectively, ‘‘the
                                             Interagency Questions and Answers. If                                     and effectively organized, and how the                                          Agencies’’) are providing answers to
                                             financial institutions, bank examiners,                                   guidance might be revised to make it                                            questions pertaining to the following
                                             community groups, or other interested                                     easier to read.                                                                 topics:
                                             parties have unanswered questions or                                        The text of the proposed Interagency                                          I. Determining when certain loans are
                                             comments about the Agencies’ flood                                        Questions and Answers follows:                                                        designated loans for which flood
                                             insurance regulations, they should                                                                                                                              insurance is required under the Act and
                                                                                                                       Interagency Questions and Answers                                                     Regulation.
                                             submit them to the Agencies. The                                          Regarding Flood Insurance                                                       II. Determining the appropriate amount of
                                             Agencies will consider including these                                                                                                                          flood insurance required under the Act
                                             questions and answers in the final                                           The Interagency Questions and                                                      and Regulation.
                                             guidance.                                                                 Answers are organized by topic. Each                                            III. Exemptions from the mandatory flood
                                                                                                                       topic addresses a major area of the                                                   insurance requirements.
                                             Solicitation of Comments Regarding the                                    revised flood insurance law and                                                 IV. Flood insurance requirements for
                                             Use of ‘‘Plain Language’’                                                 regulations. For ease of reference, the                                               construction loans.
                                                Section 722 of the Gramm-Leach-                                        following terms are used throughout                                             V. Flood insurance requirements for
mstockstill on PROD1PC66 with NOTICES




                                             Bliley Act of 1999, 12 U.S.C. 4809,                                       this document: ‘‘Act’’ refers to the                                                  agricultural buildings.
                                             requires the federal banking Agencies to                                  National Flood Insurance Act of 1968                                            VI. Flood insurance requirements for
                                             use ‘‘plain language’’ in all proposed                                    and the Flood Disaster Protection Act of                                          7 The Agencies’ rules are codified at 12 CFR part
                                             and final rules published after January                                   1973, as revised by the National Flood                                          22 (OCC), 12 CFR part 208 (Board), 12 CFR part 339
                                             1, 2000. Although this proposed                                           Insurance Reform Act of 1994 (codified                                          (FDIC), 12 CFR part 572 (OTS), 12 CFR part 614
                                             guidance is not a proposed rule,                                          at 42 U.S.C. 4001 et seq.). ‘‘Regulation’’                                      (FCA), and 12 CFR part 760 (NCUA).



                                        VerDate Aug<31>2005         18:33 Mar 20, 2008       Jkt 214001        PO 00000        Frm 00147        Fmt 4703        Sfmt 4703       E:\FR\FM\21MRN1.SGM                 21MRN1
                                                                             Federal Register / Vol. 73, No. 56 / Friday, March 21, 2008 / Notices                                           15267

                                                  residential condominiums.                             Answer: The lender is no longer                    requiring the party processing and
                                             VII. Flood insurance requirements for home              obligated to require mandatory flood                  underwriting the application to perform
                                                  equity loans, lines of credit, subordinate         insurance; however, the borrower can                  those functions on its behalf.
                                                  liens, and other security interests in             elect to convert the existing NFIP policy                6. Is a lender required to perform a
                                                  collateral located in an SFHA.                                                                           review of its, or its servicer’s, existing
                                             VIII. Flood insurance requirements for loan
                                                                                                     to a Preferred Risk Policy. For risk
                                                  syndications/participations.                       management purposes, the lender may,                  loan portfolio for compliance with the
                                             IX. Flood insurance requirements in the                 by contract, continue to require flood                flood insurance requirements under the
                                                  event of the sale or transfer of a                 insurance coverage.                                   Act and Regulation?
                                                  designated loan and/or its servicing                  3. Does a lender’s purchase of a loan,                Answer: No. Apart from the
                                                  rights.                                            secured by a building or mobile home                  requirements mandated when a loan is
                                             X. Escrow requirements.                                 located in an SFHA in which flood                     made, increased, extended, or renewed,
                                             XI. Forced placement of flood insurance.                insurance is available under the Act,                 a regulated lender need only review and
                                             XII. Gap insurance policies.                            from another lender trigger any                       take action on any part of its existing
                                             XIII. Required use of Standard Flood Hazard             requirements under the Regulation?                    portfolio for safety and soundness
                                                  Determination Form (SFHDF).                           Answer: No. A lender’s purchase of a               purposes, or if it knows or has reason
                                             XIV. Flood determination fees.
                                                                                                     loan, secured by a building or mobile                 to know of the need for NFIP coverage.
                                             XV. Flood zone discrepancies.
                                             XVI. Notice of special flood hazards and
                                                                                                     home located in an SFHA in which                      Regardless of the lack of such
                                                  availability of Federal disaster relief.           flood insurance is available under the                requirement in the Act and Regulation,
                                             XVII. Mandatory civil money penalties.                  Act, alone, is not an event that triggers             however, sound risk management
                                                                                                     the Regulation’s requirements, such as                practices may lead a lender to conduct
                                             I. Determining When Certain Loans Are                   making a new flood determination or                   scheduled periodic reviews that track
                                             Designated Loans for Which Flood                        requiring a borrower to purchase flood                the need for flood insurance on a loan
                                             Insurance is Required Under the Act                     insurance. Requirements under the                     portfolio.
                                             and Regulation                                          Regulation, generally, are triggered
                                                                                                                                                           II. Determining the Appropriate
                                                1. Does the Regulation apply to a loan               when a lender makes, increases,
                                                                                                                                                           Amount of Flood Insurance Required
                                             where the building or mobile home                       extends, or renews a designated loan. A
                                                                                                                                                           Under the Act and Regulation
                                             securing such loan is located in a                      lender’s purchase of a loan does not fall
                                                                                                     within any of those categories.                          7. The Regulation states that the
                                             community that does not participate in
                                                                                                        However, if a lender becomes aware at              amount of flood insurance required
                                             the National Flood Insurance Program
                                                                                                     any point during the life of a designated             ‘‘must be at least equal to the lesser of
                                             (NFIP)?                                                                                                       the outstanding principal balance of the
                                                                                                     loan that flood insurance is required,
                                                Answer: Yes. The Regulation does                     the lender must comply with the                       designated loan or the maximum limit
                                             apply; however, a lender need not                       Regulation, including force placing                   of coverage available for the particular
                                             require borrowers to obtain flood                       insurance, if necessary. Depending upon               type of property under the Act.’’ What
                                             insurance for a building or mobile home                 the circumstances, safety and soundness               is meant by the ‘‘maximum limit of
                                             located in a community that does not                    considerations may sometimes                          coverage available for the particular
                                             participate in the NFIP, even if the                    necessitate such due diligence upon                   type of property under the Act’’?
                                             building or mobile home securing the                    purchase of a loan as to put the lender                  Answer: ‘‘The maximum limit of
                                             loan is located in a Special Flood                      on notice of lack of adequate flood                   coverage available for the particular
                                             Hazard Area (SFHA). Nonetheless, a                      insurance. If the purchasing lender                   type of property under the Act’’
                                             lender, using the standard Special Flood                subsequently extends, increases, or                   depends on the value of the secured
                                             Hazard Determination Form (SFHDF),                      renews a designated loan, it must also                collateral. First, under the NFIP, there
                                             must still determine whether the                        comply with the Regulation.                           are maximum caps on the amount of
                                             building or mobile home is located in an                   4. Does the Regulation apply to loans              insurance available. For single-family
                                             SFHA. If the building or mobile home                    that are being restructured because of                and two-to-four family dwellings and
                                             is determined to be located in an SFHA,                 the borrower’s default on the original                other residential buildings located in a
                                             a lender is required to notify the                      loan?                                                 participating community under the
                                             borrower. In this case, a lender,                          Answer: Yes, if the loan otherwise                 regular program, the maximum cap is
                                             generally, may make a conventional                      meets the definition of a designated loan             $250,000. For nonresidential structures
                                             loan without requiring flood insurance,                 and if the lender increases the amount                located in a participating community
                                             if it chooses to do so. However, a lender               of the loan, or extends or renews the                 under the regular program, the
                                             may not make a Government-guaranteed                    terms of the original loan.                           maximum cap is $500,000. (In
                                             or insured loan, such as an SBA, VA, or                    5. Are table funded loans treated as               participating communities that are
                                             FHA, loan secured by a building or                      new loan originations?                                under the emergency program phase,
                                             mobile home located in an SFHA in a                        Answer: Yes. Table funding, as                     the caps are $35,000 for single-family
                                             community that does not participate in                  defined under HUD’s Real Estate                       and two-to-four family dwellings and
                                             the NFIP. See 42 U.S.C. 4106(a). Also,                  Settlement Procedure Act (RESPA) rule,                other residential structures, and
                                             a lender is responsible for exercising                  24 CFR 3500.2, is a settlement at which               $100,000 for nonresidential structures).
                                             sound risk management practices to                      a loan is funded by a contemporaneous                    In addition to the maximum caps
                                             ensure that it does not make a loan                     advance of loan funds and the                         under the NFIP, the Regulation also
                                             secured by a building or mobile home                    assignment of the loan to the person                  provides that ‘‘flood insurance coverage
                                             located in an SFHA where no flood                       advancing the funds. A loan made                      under the Act is limited to the overall
                                             insurance is available, if doing so would               through a table funding process is                    value of the property securing the
mstockstill on PROD1PC66 with NOTICES




                                             be an unacceptable risk.                                treated as though the party advancing                 designated loan minus the value of the
                                                2. What is a lender’s responsibility if              the funds has originated the loan. The                land on which the property is located,’’
                                             a particular building or mobile home                    funding party is required to comply                   which is commonly referred to as the
                                             that secures a loan, due to a map                       with the Regulation. The table funding                ‘‘insurable value’’ of a structure. The
                                             change, is no longer located within an                  lender can meet the administrative                    NFIP does not insure land; therefore,
                                             SFHA?                                                   requirements of the Regulation by                     land values should not be included in


                                        VerDate Aug<31>2005   18:33 Mar 20, 2008   Jkt 214001   PO 00000   Frm 00148   Fmt 4703   Sfmt 4703   E:\FR\FM\21MRN1.SGM   21MRN1
                                             15268                           Federal Register / Vol. 73, No. 56 / Friday, March 21, 2008 / Notices

                                             the calculation. An NFIP policy will not                   10. How much insurance is required                    Æ Maximum limit available for the
                                             cover an amount exceeding the                           on a building located in an SFHA in a                 type of structure is $500,000 per
                                             ‘‘insurable value’’ of the structure. In                participating community?                              building (non-residential buildings); or
                                             determining coverage amounts for flood                     Answer: The amount of insurance                       Æ Insurable value (for each non-
                                             insurance, lenders often follow the same                required by the Act and Regulation is                 residential building for which insurance
                                             practice used to establish other hazard                 the lesser of:                                        is required, which is $100,000, or
                                             insurance coverage amounts. However,                       • The outstanding principal balance                $300,000 total)
                                             unlike the insurable valuation used to                  of the loan(s) or                                        Amount of insurance required for the
                                             underwrite most other hazard insurance                     • The maximum amount of insurance                  three buildings is $150,000. This
                                             policies, the insurable value of                        available under the NFIP, which is the                amount of required flood insurance
                                             improved real property for flood                        lesser of:                                            could be allocated among the three
                                             insurance purposes also includes the                       Æ The maximum limit available for                  buildings in varying amounts, so long as
                                             repair or replacement cost of the                       the type of structure or                              each is covered by flood insurance.
                                             foundation and supporting structures. It                   Æ The ‘‘insurable value’’ of the                      12. If the insurable value of a building
                                             is very important to calculate the correct              structure (see Question 7).                           or mobile home, located in an SFHA in
                                             insurable value of the property;                           Example: (calculating insurance                    which flood insurance is available
                                             otherwise, the lender might                             required on a non-residential building):              under the Act, securing a designated
                                             inadvertently require the borrower to                   Loan security includes one equipment                  loan is less than the outstanding
                                             purchase too much or too little flood                                                                         principal balance of the loan, must a
                                                                                                     shed located in an SFHA in a
                                             insurance coverage. For example, if the                                                                       lender require the borrower to obtain
                                                                                                     participating community under the
                                             lender fails to exclude the value of the                                                                      flood insurance up to the balance of the
                                                                                                     regular program.
                                                                                                                                                           loan?
                                             land when determining the insurable                        • Outstanding loan principal is                       Answer: No. The Regulation provides
                                             value of the improved real property, the                $300,000                                              that the amount of flood insurance must
                                             borrower will be asked to purchase                         • Maximum amount of insurance                      be at least equal to the lesser of the
                                             coverage that exceeds the amount the                    available under the NFIP:                             outstanding principal balance of the
                                             NFIP will pay in the event of a loss.                      Æ Maximum limit available for type                 designated loan or the maximum limit
                                               (Please note, however, when taking a                  of structure is $500,000 per building                 of coverage available for a particular
                                             security interest in improved real property             (non-residential building)                            type of property under the Act. The
                                             where the value of the land, excluding the                 Æ Insurable value of the equipment                 Regulation also provides that flood
                                             value of the improvements, is sufficient                shed is $30,000
                                             collateral for the debt, the lender must                                                                      insurance coverage under the Act is
                                                                                                        The minimum amount of insurance                    limited to the overall value of the
                                             nonetheless require flood insurance to cover            required by the Regulation for the
                                             the value of the structure if it is located in                                                                property securing the designated loan
                                                                                                     equipment shed is $30,000.                            minus the value of the land on which
                                             a participating community’s SFHA).
                                                                                                        11. Is flood insurance required for                the building or mobile home is located.
                                                8. What are examples of residential                  each building when the real estate secu               Since the NFIP policy does not cover
                                             buildings?                                              rity contains more than one building                  land value, lenders should determine
                                                                                                     located in an SFHA in a participating                 the amount of insurance necessary
                                                Answer: Residential buildings include
                                                                                                     community? If so, how much coverage is                based on the insurable value of the
                                             one-to-four family dwellings; apartment
                                                                                                     required?                                             improvements.
                                             or other residential buildings containing
                                                                                                        Answer: Yes. The lender must                          13. Can a lender require more flood
                                             more than four dwelling units;
                                                                                                     determine the amount of insurance                     insurance than the minimum required
                                             condominiums and cooperatives in
                                                                                                     required on each building and add these               by the Regulation?
                                             which at least 75 percent of the square
                                                                                                     individual amounts together. The total                   Answer: Yes. Lenders are permitted to
                                             footage is residential; hotels or motels
                                                                                                     amount of required flood insurance is                 require more flood insurance coverage
                                             where the normal occupancy of a guest
                                                                                                     the lesser of:                                        than required by the Regulation. The
                                             is six months or more; and rooming
                                                                                                        • the outstanding principal balance of             borrower or lender may have to seek
                                             houses that have more than four
                                                                                                     the loan(s) or                                        such coverage outside the NFIP. Each
                                             roomers. A residential building may
                                                                                                        • the maximum amount of insurance                  lender has the responsibility to tailor its
                                             have incidental non-residential use,
                                                                                                     available under the NFIP, which is the                own flood insurance policies and
                                             such as an office or studio, as long as
                                                                                                     lesser of:                                            procedures to suit its business needs
                                             the total area of such incidental
                                             occupancy is limited to less than 25                       Æ the maximum limit available for the              and protect its ongoing interest in the
                                             percent of the square footage of the                    type of structures or                                 collateral. Lenders should avoid
                                             building.                                                  Æ the ‘‘insurable value’’ of the                   creating situations where a building is
                                                                                                     structures (see Question 7).                          being ‘‘over-insured’’.
                                                9. What are examples of                                 The amount of total required flood                    14. Can a lender allow the borrower
                                             nonresidential buildings?                               insurance can be allocated among the                  to use the maximum deductible to
                                                Answer: Nonresidential buildings                     secured buildings in varying amounts,                 reduce the cost of flood insurance?
                                             include small business concerns,                        but all buildings in an SFHA must have                   Answer: Yes. However, it is not a
                                             churches, schools, farm buildings                       some coverage.                                        sound business practice for a lender to
                                             (including grain bins and silos), pool                     Example: Lender makes a loan in the                allow the borrower to use the maximum
                                             houses, clubhouses, recreational                        principal amount of $150,000 secured                  deductible amount in every situation. A
                                             buildings, mercantile structures,                       by five nonresidential buildings, only                lender should determine the
mstockstill on PROD1PC66 with NOTICES




                                             agricultural and industrial structures,                 three of which are located in SFHAs                   reasonableness of the deductible on a
                                             warehouses, hotels and motels with                      within participating communities.                     case-by-case basis, taking into account
                                             normal room rentals for less than six                      • Outstanding loan principal is                    the risk that such a deductible would
                                             months’ duration, nursing homes, and                    $150,000                                              pose to the borrower and lender. A
                                             mixed-use buildings with less than 75                      • Maximum amount of insurance                      lender may not allow the borrower to
                                             percent residential square footage.                     available under the NFIP                              use a deductible amount equal to the


                                        VerDate Aug<31>2005   18:33 Mar 20, 2008   Jkt 214001   PO 00000   Frm 00149   Fmt 4703   Sfmt 4703   E:\FR\FM\21MRN1.SGM   21MRN1
                                                                             Federal Register / Vol. 73, No. 56 / Friday, March 21, 2008 / Notices                                            15269

                                             insurable value of the property to avoid                halted for more than 90 days and/or if                require flood insurance to be obtained at
                                             the mandatory purchase requirement for                  the lowest floor used for rating purposes             loan origination, then it must have
                                             flood insurance.                                        is below the Base Flood Elevation (BFE).              adequate internal controls in place at
                                                                                                     Materials or supplies intended for use in             origination to ensure that the borrower
                                             III. Exemptions From the Mandatory
                                                                                                     such construction, alteration, or repair              obtains flood insurance no later than
                                             Flood Insurance Requirements                            are not insurable unless they are                     when the foundation slab has been
                                                15. What are the exemptions from                     contained within an enclosed building                 poured and/or an elevation certificate
                                             coverage?                                               on the premises or adjacent to the                    has been issued.
                                                Answer: There are only two                           premises.                                                20. Does the 30-day waiting period
                                             exemptions from the purchase                               Flood Insurance Manual at p. GR 4                  apply when the purchase of the flood
                                             requirements. The first applies to state-               (October 2006). The definition section of             insurance policy is deferred in
                                             owned property covered under a policy                   the Flood Insurance Manual defines                    connection with a construction loan?
                                             of self-insurance satisfactory to the                   ‘‘start of construction’’ in the case of                 Answer: No. The NFIP will rely on an
                                             Director of FEMA. The second applies if                 new construction as ‘‘either the first                insurance agent’s representation on the
                                             both the original principal balance of                  placement of permanent construction of                application for flood insurance that the
                                             the loan is $5,000 or less, and the                     a building on site, such as the pouring               purchase of insurance has been properly
                                             original repayment term is one year or                  of a slab or footing, the installation of             deferred unless there is a loss during the
                                             less.                                                   piles, the construction of columns, or                first 30 days of the policy period. In that
                                                                                                     any work beyond the stage of                          case, the NFIP will require
                                             IV. Flood Insurance Requirements for
                                                                                                     excavation; or the placement of a                     documentation of the loan transaction,
                                             Construction Loans
                                                                                                     manufactured (mobile) home on a                       such as settlement papers, before
                                                16. Is a loan secured by raw land that               foundation.’’ Flood Insurance Manual at               adjusting the loss.
                                             is located in an SFHA in which flood                    p. DEF 9. While an NFIP policy may be
                                             insurance is available under the Act and                                                                      V. Flood Insurance Requirements for
                                                                                                     purchased prior to the start of
                                             that will be developed into buildable                                                                         Agricultural Buildings
                                                                                                     construction, as a practical matter,
                                             lot(s) a designated loan that requires                  coverage under an NFIP policy is not                     21. Some agricultural operations have
                                             flood insurance?                                        effective until actual construction                   buildings on their farms with limited
                                                Answer: No. A designated loan is                     commences or when materials or                        utility to the farming operation and, in
                                             defined as a loan secured by a building                 supplies intended for use in such                     many cases, the farmer would not
                                             or mobile home that is located or to be                 construction, alteration, or repair are               replace such buildings if lost in a flood.
                                             located in an SFHA in which flood                       contained in an enclosed building on                  Is a lender required to mandate flood
                                             insurance is available under the Act.                   the premises or adjacent to the                       insurance for such buildings?
                                             Any loan secured by only raw land that                  premises.                                                Answer: Yes. Under the Regulation,
                                             is located in an SFHA in which flood                       19. When must a lender require the                 lenders must require flood insurance on
                                             insurance is available is not a                         purchase of flood insurance for a loan                real estate improvements when those
                                             designated loan since it is not secured                 secured by a building in the course of                improvements are part of the property
                                             by a building or mobile home.                           construction that is located in an SFHA               securing the loan and are located in an
                                                17. Is a loan secured or to be secured               in which flood insurance is available?                SFHA in a participating community.
                                             by a building in the course of                             Answer: Under the Act, as                          The Act does not differentiate
                                             construction that is located or to be                   implemented by the Regulation, a                      agricultural lending from other types of
                                             located in an SFHA in which flood                       lender may not make, increase, extend,                lending.
                                             insurance is available under the Act a                  or renew any loan secured by a building                  The lender may consider ‘‘carving
                                             designated loan?                                        or a mobile home, located or to be                    out’’ buildings from the security it takes
                                                Answer: Yes. Therefore, a lender must                located in an SFHA in which flood                     on the loan. However, the lender should
                                             always make a flood determination prior                 insurance is available, unless the                    fully analyze the risks of this option. In
                                             to loan origination to determine whether                property is covered by adequate flood                 particular, a lender should consider
                                             a building to be constructed that is                    insurance for the term of the loan. One               whether it would be able to market the
                                             security for the loan is located or will                way for lenders to comply with the                    property securing its loan in the event
                                             be located in an SFHA in which flood                    mandatory purchase requirement for a                  of foreclosure. Additionally, the lender
                                             insurance is available under the Act. If                loan secured by a building in the course              should consider any local zoning issues
                                             so, then the loan is a designated loan                  of construction that is located in an                 or other issues that would affect its
                                             and the lender must provide the                         SFHA is to require borrowers to have a                collateral.
                                             requisite notice to the borrower prior to               flood insurance policy in place at the                   22. What are a lender’s requirements
                                             loan origination that mandatory flood                   time of loan origination.                             under the Regulation for a loan secured
                                             insurance is required. The lender must                     Alternatively, a lender may allow a                by multiple agricultural buildings
                                             then comply with the mandatory                          borrower to defer the purchase of flood               located throughout a large geographic
                                             purchase requirement under the Act and                  insurance until a foundation slab has                 area where some of the buildings are
                                             Regulation.                                             been poured and/or an elevation                       located in an SFHA in which flood
                                                18. Is a building in the course of                   certificate has been issued, provided                 insurance is available and other
                                             construction that is located in an SFHA                 that the lender requires the borrower to              buildings are not? What if the buildings
                                             in which flood insurance is available                   have flood insurance in place before the              are located in several jurisdictions or
                                             under the Act eligible for coverage                     lender disburses funds to pay for                     counties where some of the
                                             under an NFIP policy?                                   building construction (except as                      communities participate in the NFIP,
mstockstill on PROD1PC66 with NOTICES




                                                Answer: Yes. FEMA’s Flood                            necessary to pour the slab or perform                 and others do not?
                                             Insurance Manual, under general rules,                  preliminary site work, such as laying                    Answer: A lender is required to make
                                             states: buildings in the course of                      utilities, clearing brush, or the purchase            a determination as to whether the
                                             construction that have yet to be walled                 and/or delivery of building materials)                property securing the loan is in an
                                             and roofed are eligible for coverage                    on the property securing the loan. If the             SFHA. If secured property is located in
                                             except when construction has been                       lender elects this approach and does not              an SFHA, but not in a participating


                                        VerDate Aug<31>2005   18:33 Mar 20, 2008   Jkt 214001   PO 00000   Frm 00150   Fmt 4703   Sfmt 4703   E:\FR\FM\21MRN1.SGM   21MRN1
                                             15270                           Federal Register / Vol. 73, No. 56 / Friday, March 21, 2008 / Notices

                                             community, no flood insurance is                        secured by a residential condominium                     Æ Insurable value of the unit based on
                                             required, although a lender can require                 unit to either:                                       100 percent of the building’s
                                             the purchase of flood insurance (from a                    • Ensure the condominium owners                    replacement cost value ($15 million ÷
                                             private insurer) as a matter of safety and              association has purchased an NFIP                     50 = $300,000).
                                             soundness. Conversely, where a secured                  Residential Condominium Building                         The lender does not need to require
                                             property is located in a participating                  Association Policy (RCBAP) covering                   additional flood insurance since the
                                             community but not in an SFHA, no                        either 100 percent of the insurable value             RCBAP’s $250,000 per unit coverage
                                             insurance is required. A lender must                    (replacement cost) of the building,                   ($12.5 million ÷ 50 = $250,000) satisfies
                                             provide appropriate notice and require                  including amounts to repair or replace                the Regulation’s mandatory flood
                                             the purchase of flood insurance for                     the foundation and its supporting                     insurance requirement. (This is the
                                             designated loans located in an SFHA in                  structures, or the total number of units              lesser of the outstanding principal
                                             a participating community. Agricultural                 in the condominium building times                     balance ($300,000), the maximum
                                             buildings that are part of the loan’s                   $250,000, whichever is less; or                       coverage available under the NFIP
                                             security and are located in an SFHA in                     • Obtain a dwelling policy if there is             ($250,000), or the insurable value
                                             a participating community are required                  no RCBAP, as explained in Question 25,                ($300,000).)
                                             to have flood insurance.                                or if the RCBAP coverage is less than                    The guidance in question and answer
                                                                                                     100 percent of the replacement cost                   24 will apply to any loan that is made,
                                             VI. Flood Insurance Requirements for                    value of the building or the total number             increased, extended, or renewed after
                                             Residential Condominiums                                of units in the condominium building                  the effective date of the revised
                                               23. Are residential condominiums,                     times $250,000, whichever is less, as                 guidance. Further, the guidance will
                                             including multi-story condominium                       explained in Question 26.                             apply to any loan made prior to the
                                             complexes, subject to the statutory and                    The RCBAP, which is a master policy                effective date of the guidance, which a
                                             regulatory requirements for flood                       for condominiums issued by FEMA,                      lender determines to be covered by
                                             insurance?                                              may only be purchased by the                          flood insurance in an amount less than
                                               Answer: Yes. The mandatory flood                      condominium owners association. The                   required by the Regulation, and as set
                                             insurance purchase requirements under                   RCBAP covers both the common and                      forth in proposed question and answer
                                             the Act and Regulation apply to loans                   individually owned building elements                  24, at the first flood insurance policy
                                             secured by individual residential                       within the units, improvements within                 renewal period following the effective
                                             condominium units, including those                      the units, and contents owned in                      date of the revised guidance.
                                             located in multi-story condominium                      common. The maximum amount of                            25. What action must a lender take if
                                             complexes, located in an SFHA in                        building coverage that can be purchased               there is no RCBAP coverage?
                                             which flood insurance is available                      under an RCBAP is either 100 percent                     Answer: If there is no RCBAP, either
                                             under the Act. The mandatory purchase                   of the replacement cost value of the                  because the condominium association
                                             requirements also apply to loans                        building, including amounts to repair or              will not obtain a policy or because
                                             secured by other condominium                            replace the foundation and its                        individual unit owners are responsible
                                             property, such as loans to a developer                  supporting structures, or the total                   for obtaining their own insurance, then
                                             for construction of the condominium or                  number of units in the condominium                    the lender must require the individual
                                             loans to a condominium association.                     building times $250,000, whichever is                 unit owner/borrower to obtain a
                                               24. What is the amount of flood                       less.                                                 dwelling policy in an amount sufficient
                                                                                                        The dwelling policy provides                       to meet the requirements outlined in
                                             insurance coverage that a lender must
                                                                                                     individual unit owners with                           Question 24.
                                             require with respect to residential
                                                                                                     supplemental building coverage to the                    Example: The lender makes a loan in
                                             condominium units, including those
                                                                                                     RCBAP. The policies are coordinated                   the principal amount of $175,000
                                             located in multi-story condominium
                                                                                                     such that the dwelling policy purchased               secured by a condominium unit in a 50-
                                             complexes, to comply with the
                                                                                                     by the unit owner responds to shortfalls              unit condominium building, which is
                                             mandatory purchase requirements
                                                                                                     on building coverages pertaining either               located in an SFHA within a
                                             under the Act and the Regulation?
                                                                                                     to improvements owned by the insured                  participating community, with a
                                               Answer: To comply with the
                                                                                                     unit owner or to assessments. However,                replacement cost value of $10 million;
                                             Regulation, the lender must ensure that
                                                                                                     the dwelling policy does not extend the               however, there is no RCBAP.
                                             the minimum amount of flood insurance
                                                                                                     RCBAP limits, nor does it enable the                     • Outstanding principal balance of
                                             covering the condominium unit is the
                                                                                                     condominium association to fill in gaps               loan is $175,000.
                                             lesser of:                                                                                                       • Maximum amount of coverage
                                                                                                     in coverage.
                                               • The outstanding principal balance                      Example: Lender makes a loan in the                available under the NFIP, which is the
                                             of the loan(s) or                                       principal amount of $300,000 secured                  lesser of:
                                               • The maximum amount of insurance                     by a condominium unit in a 50-unit                       Æ Maximum limit available for the
                                             available under the NFIP, which is the                  condominium building, which is                        residential condominium unit is
                                             lesser of:                                              located in an SFHA within a                           $250,000; or
                                               Æ The maximum limit available for                     participating community, with a                          Æ Insurable value of the unit based on
                                             the residential condominium unit or                     replacement cost of $15 million and                   100 percent of the building’s
                                               Æ The ‘‘insurable value’’ allocated to                insured by an RCBAP with $12.5                        replacement cost value ($10 million ÷
                                             the residential condominium unit,                       million of coverage.                                  50 = $200,000).
                                             which is the replacement cost value of                     • Outstanding principal balance of                    The lender must require the
                                             the condominium building divided by                     loan is $300,000;                                     individual unit owner/borrower to
mstockstill on PROD1PC66 with NOTICES




                                             the number of units.                                       • Maximum amount of coverage                       purchase a flood insurance dwelling
                                               Assuming that the outstanding                         available under the NFIP, which is the                policy in the amount of $175,000, since
                                             principal balance of the loan is greater                lesser of:                                            there is no RCBAP, to satisfy the
                                             than the maximum amount of coverage                        Æ Maximum limit available for the                  Regulation’s mandatory flood insurance
                                             available under the NFIP, the lender                    residential condominium unit is                       requirement. (This is the lesser of the
                                             must require a borrower whose loan is                   $250,000; or                                          outstanding principal balance


                                        VerDate Aug<31>2005   18:33 Mar 20, 2008   Jkt 214001   PO 00000   Frm 00151   Fmt 4703   Sfmt 4703   E:\FR\FM\21MRN1.SGM   21MRN1
                                                                             Federal Register / Vol. 73, No. 56 / Friday, March 21, 2008 / Notices                                          15271

                                             ($175,000), the maximum coverage                           While the individual unit owner’s                  sufficient to meet the Regulation’s
                                             available under the NFIP ($250,000), or                 purchase of a separate dwelling policy                mandatory flood insurance requirement
                                             the insurable value ($200,000).)                        that provides for adequate flood                      (see Questions 25 and 26). If the
                                                26. What action must a lender take if                insurance coverage under the                          borrower/unit owner or the
                                             the RCBAP coverage is insufficient to                   Regulation will satisfy the Regulation’s              condominium association fails to
                                             meet the Regulation’s mandatory                         mandatory flood insurance                             purchase flood insurance sufficient to
                                             purchase requirements for a loan                        requirements, the lender and the                      meet the Regulation’s mandatory
                                             secured by an individual residential                    individual unit owner/borrower may                    requirements within 45 days of the
                                             condominium unit?                                       still be exposed to additional risk of                lender’s notification to the individual
                                                Answer: If the lender determines that                loss. Lenders are encouraged to apprise               unit owner/borrower of inadequate
                                             flood insurance coverage purchased                      borrowers of this risk. The dwelling                  insurance coverage, the lender must
                                             under the RCBAP is insufficient to meet                 policy provides individual unit owners                force place the necessary flood
                                             the Regulation’s mandatory purchase                     with supplemental building coverage to                insurance.
                                             requirements, then the lender should                    the RCBAP. The policies are                              28. How does the RCBAP’s co-
                                             request the individual unit owner/                      coordinated such that the dwelling                    insurance penalty apply in the case of
                                             borrower to ask the condominium                         policy purchased by the unit owner                    residential condominiums, including
                                             association to obtain additional                        responds to shortfalls on building                    those located in multi-story
                                             coverage that would be sufficient to                    coverages pertaining either to                        condominium complexes?
                                             meet the Regulation’s requirements (see                 improvements owned by the insured                        Answer: In the event the RCBAP’s
                                             Question 24). If the condominium                        unit owner or to assessments. However,                coverage on a condominium building at
                                             association does not obtain sufficient                  the dwelling policy does not extend the               the time of loss is less than 80 percent
                                             coverage, then the lender must require                  RCBAP limits, nor does it enable the                  of either the building’s replacement cost
                                             the individual unit owner/borrower to                   condominium association to fill in gaps               or the maximum amount of insurance
                                             purchase a dwelling policy in an                        in coverage.                                          available for that building under the
                                             amount sufficient to meet the                              The risk arises because the individual             NFIP (whichever is less), then the loss
                                             Regulation’s flood insurance                            unit owner’s dwelling policy may                      payment, which is subject to a co-
                                             requirements. The amount of coverage                    contain claim limitations that prevent                insurance penalty, is determined as
                                             under the dwelling policy required to be                the dwelling policy from covering the                 follows (subject to all other relevant
                                             purchased by the individual unit owner                  individual unit owner’s share of the co-              conditions in this policy, including
                                             would be the difference between the                     insurance penalty, which is triggered                 those pertaining to valuation,
                                             RCBAP’s coverage allocated to that unit                 when the amount of insurance under                    adjustment, settlement, and payment of
                                             and the Regulation’s mandatory flood                    the RCBAP is less than 80 percent of the              loss):
                                             insurance requirements (see Question                    building’s replacement cost value at the                 A. Divide the actual amount of flood
                                             24).                                                    time of loss. In addition, following a                insurance carried on the condominium
                                                Example: Lender makes a loan in the                  major flood loss, the insured unit owner              building at the time of loss by 80
                                             principal amount of $300,000 secured                    may have to rely upon the                             percent of either its replacement cost or
                                             by a condominium unit in a 50-unit                      condominium association’s and other                   the maximum amount of insurance
                                             condominium building, which is                          unit owners’ financial ability to make                available for the building under the
                                             located in an SFHA within a                             the necessary repairs to common                       NFIP, whichever is less.
                                             participating community, with a                         elements in the building, such as                        B. Multiply the amount of loss, before
                                             replacement cost value of $10 million;                  electricity, heating, plumbing, elevators,            application of the deductible, by the
                                             however, the RCBAP is at 80 percent of                  etc. It is incumbent on the lender to                 figure determined in A above.
                                             replacement cost value ($8 million or                   understand these limitations.                            C. Subtract the deductible from the
                                             $160,000 per unit).                                        27. What must a lender do when a
                                                                                                                                                           figure determined in B above.
                                                • Outstanding principal balance of                   loan secured by a residential
                                                                                                                                                              The policy will pay the amount
                                             loan is $300,000                                        condominium unit is in a complex
                                                                                                                                                           determined in C above, or the amount
                                                • Maximum amount of coverage                         whose condominium association allows
                                                                                                                                                           of insurance carried, whichever is less.
                                             available under the NFIP, which is the                  its existing RCBAP to lapse?
                                                                                                        Answer: If a lender determines at any                 Example 1: (inadequate insurance
                                             lesser of:
                                                                                                     time during the term of a designated                  amount to avoid penalty)
                                                Æ Maximum limit available for the
                                             residential condominium unit is                         loan that the loan is not covered by                  Replacement value of the building—
                                             $250,000; or                                            flood insurance or is covered by such                    $250,000
                                                Æ Insurable value of the unit based on               insurance in an amount less than that                 80% of replacement value of the
                                             100 percent of the building’s                           required under the Act and the                           building—$200,000
                                             replacement value ($10 million ÷ 50 =                   Regulation, the lender must notify the                Actual amount of insurance carried—
                                             $200,000).                                              individual unit owner/borrower of the                    $180,000
                                                The lender must require the                          requirement to maintain flood insurance               Amount of the loss—$150,000
                                             individual unit owner/borrower to                       coverage sufficient to meet the                       Deductible—$500
                                             purchase a flood insurance dwelling                     Regulation’s mandatory requirements.                  Step A: 180,000 ÷ 200,000 = .90
                                             policy in the amount of $40,000 to                      The lender should encourage the                       (90% of what should be carried to avoid
                                             satisfy the Regulation’s mandatory flood                individual unit owner/borrower to work                   co-insurance penalty)
                                             insurance requirement of $200,000.                      with the condominium association to                   Step B: 150,000 × .90 = 135,000
                                             (This is the lesser of the outstanding                  acquire a new RCBAP in an amount                      Step C: 135,000 ¥ 500 = 134,500
mstockstill on PROD1PC66 with NOTICES




                                             principal balance ($300,000), the                       sufficient to meet the Regulation’s                      The policy will pay no more than
                                             maximum coverage available under the                    mandatory flood insurance requirement                 $134,500. The remaining $15,500 is not
                                             NFIP ($250,000), or the insurable value                 (see Question 24). Failing that, the                  covered due to the co-insurance penalty
                                             ($200,000).) The RCBAP fulfills only                    lender must require the individual unit               ($15,000) and application of the
                                             $160,000 of the Regulation’s flood                      owner/borrower to obtain a flood                      deductible ($500). Unit owners’
                                             insurance requirement.                                  insurance dwelling policy in an amount                dwelling policies will not cover any


                                        VerDate Aug<31>2005   18:33 Mar 20, 2008   Jkt 214001   PO 00000   Frm 00152   Fmt 4703   Sfmt 4703   E:\FR\FM\21MRN1.SGM   21MRN1
                                             15272                           Federal Register / Vol. 73, No. 56 / Friday, March 21, 2008 / Notices

                                             assessment that may be imposed to                       insured to less than 80 percent of the                done. (See the response to Question 61
                                             cover the costs of repair that are not                  building replacement cost value at the                in Section XIII. Required use of
                                             covered by the RCBAP.                                   time of loss, the loss assessment                     Standard Flood Hazard Determination
                                                Example 2: (adequate insurance                       coverage cannot be used to reimburse                  Form).
                                             amount to avoid penalty)                                the association for its co-insurance                     32. When a lender makes a second
                                             Replacement value of the building—                      penalty.                                              mortgage secured by a building or
                                                $250,000                                                • Loss assessment is available only to             mobile home located in an SFHA, how
                                             80% of replacement value of the                         cover the building damages in excess of               much flood insurance must the lender
                                                building—$200,000                                    the 80-percent required amount at the                 require?
                                             Actual amount of insurance carried—                     time of loss. Thus, the covered damages                  Answer: A lender must ensure that
                                                $200,000                                             to the condominium association                        adequate flood insurance is in place or
                                                                                                     building must be greater than 80 percent              require that additional flood insurance
                                             Amount of the loss—$150,000
                                                                                                     of the building replacement cost value                coverage be added to the flood
                                             Deductible—$500
                                                                                                     at the time of loss before the loss                   insurance policy in the amount of the
                                             Step A: 200,000 ÷ 200,000 = 1.00
                                                                                                     assessment coverage under the dwelling                lesser of either the combined total
                                             (100% of what should be carried to
                                                                                                     policy becomes available. Under the                   outstanding principal balance of the
                                                avoid co-insurance penalty)
                                                                                                     dwelling policy, covered repairs to the               first and second loan, the maximum
                                             Step B: 150,000 × 1.00 = 150,000
                                                                                                     unit, if applicable, would have priority              amount available under the Act
                                             Step C: 150,000 ¥ 500 = 149,500
                                                                                                     in payment over loss assessments                      (currently $250,000 for a residential
                                                In this example there is no co-
                                                                                                     against the unit owner.                               building and $500,000 for a
                                             insurance penalty, because the actual
                                                                                                        Example 3: (No RCBAP)                              nonresidential building), or the
                                             amount of insurance carried meets the
                                                                                                        • If the unit owner purchases                      insurable value of the building or
                                             80 percent requirement to avoid the co-                                                                       mobile home. The lender on the second
                                                                                                     building coverage under the dwelling
                                             insurance penalty. The policy will pay                                                                        mortgage cannot comply with the Act
                                                                                                     policy and there is no RCBAP, the
                                             no more than $149,500 ($150,000                                                                               and Regulation by requiring flood
                                                                                                     dwelling policy covers assessments
                                             amount of loss minus the $500                                                                                 insurance only in the amount of the
                                                                                                     against unit owners for damages to
                                             deductible). This example also assumes                                                                        outstanding principal balance of the
                                                                                                     common areas up to the dwelling policy
                                             a $150,000 outstanding principal loan                                                                         second mortgage without regard to the
                                                                                                     limit.
                                             balance.                                                   • However, if there is damage to the               amount of flood insurance coverage on
                                                29. What are the major factors                       building elements of the unit as well,                a first mortgage.
                                             involved with the individual unit                       the combined payment of unit building                    Example 1: Lender A makes a first
                                             owner’s dwelling policy’s coverage                      damages, which would apply first, and                 mortgage with a principal balance of
                                             limitations with respect to the                         the loss assessment may not exceed the                $100,000, but improperly requires only
                                             condominium association’s RCBAP                         building coverage limit under the                     $75,000 of flood insurance coverage.
                                             coverage?                                               dwelling policy.                                      Lender B issues a second mortgage with
                                                Answer: The following examples                                                                             a principal balance of $50,000. The
                                             demonstrate how the unit owner’s                        VII. Flood Insurance Requirements for                 insurable value of the residential
                                             dwelling policy may cover in certain                    Home Equity Loans, Lines of Credit,                   building securing the loans is $200,000.
                                             loss situations:                                        Subordinate Liens, and Other Security                 Lender B must ensure that flood
                                                Example 1: (RCBAP insured to at least                Interests in Collateral Located in an                 insurance in the amount of $150,000 is
                                             80 percent of building replacement cost)                SFHA                                                  purchased and maintained. If Lender B
                                                • If the unit owner purchases                           30. Is a home equity loan considered               were to require flood insurance only in
                                             building coverage under the dwelling                    a designated loan that requires flood                 an amount equal to the principal
                                             policy and if there is an RCBAP                         insurance?                                            balance of the second mortgage
                                             covering at least 80 percent of the                        Answer: Yes. A home equity loan is                 ($50,000), its interest in the secured
                                             building replacement cost value, the                    a designated loan, regardless of the lien             property would not be fully protected in
                                             loss assessment coverage under the                      priority, if the loan is secured by a                 the event of a flood loss because Lender
                                             dwelling policy will pay that part of a                 building or a mobile home located in an               A would have prior claim on the entire
                                             loss that exceeds 80 percent of the                     SFHA in which flood insurance is                      $100,000 of the loss payment towards
                                             association’s building replacement cost                 available under the Act.                              its principal balance of $100,000, while
                                             allocated to that unit.                                    31. Does a draw against an approved                Lender B would receive only $25,000 of
                                                • The loss assessment coverage under                 line of credit secured by a building or               the loss payment toward its principal
                                             the dwelling policy will not cover the                  mobile home, which is located in an                   balance of $50,000.
                                             association’s policy deductible                         SFHA in which flood insurance is                         Example 2: Lender A, who is not
                                             purchased by the condominium                            available under the Act, require a flood              directly covered by the Act or
                                             association.                                            determination under the Regulation?                   Regulation, makes a first mortgage with
                                                • If building elements within units                     Answer: No. While a line of credit,                a principal balance of $100,000 and
                                             have also been damaged, the dwelling                    secured by a building or mobile home                  does not require flood insurance. Lender
                                             policy pays to repair building elements                 located in an SFHA in which flood                     B, who is directly covered by the Act
                                             after the RCBAP limits that apply to the                insurance is available under the Act, is              and Regulation, issues a second
                                             unit have been exhausted. Coverage                      a designated loan and, therefore,                     mortgage with a principal balance of
                                             combinations cannot exceed the total                    requires a flood determination when                   $50,000. The insurable value of the
                                             limit of $250,000 per unit.                             application is made for the loan, draws               residential building securing the loans
mstockstill on PROD1PC66 with NOTICES




                                                Example 2: (RCBAP insured to less                    against an approved line do not require               is $200,000. Lender B must ensure that
                                             than 80 percent of building replacement                 further determinations. However, a                    flood insurance in the amount of
                                             cost)                                                   request made for an increase in an                    $150,000 is purchased and maintained.
                                                • If the unit owner purchases                        approved line of credit may require a                 If Lender B were to require flood
                                             building coverage under the dwelling                    new determination, depending upon                     insurance only in an amount equal to
                                             policy and there is an RCBAP that was                   whether a previous determination was                  the principal balance of the second


                                        VerDate Aug<31>2005   18:33 Mar 20, 2008   Jkt 214001   PO 00000   Frm 00153   Fmt 4703   Sfmt 4703   E:\FR\FM\21MRN1.SGM   21MRN1
                                                                             Federal Register / Vol. 73, No. 56 / Friday, March 21, 2008 / Notices                                            15273

                                             mortgage ($50,000), its interest in the                 secure a designated loan because it does              lender participates in a loan
                                             secured property would not be                           not include a building or mobile home;                syndication/participation?
                                             protected in the event of a flood loss                  rather, the collateral is the inventory                  Answer: Although a syndication/
                                             because Lender A would have prior                       alone.                                                participation agreement may assign
                                             claim on the entire $50,000 loss                           35. Is flood insurance required if a               compliance duties to the lead lender or
                                             payment towards its principal balance                   building and its contents both secure a               agent, and include clauses in which the
                                             of $100,000.                                            loan, and the building is located in an               lead lender or agent indemnifies
                                                Example 3: Lender A made a first                     SFHA in which flood insurance is                      participating lenders against flood
                                             mortgage with a principal balance of                    available?                                            losses, each participating lender
                                             $100,000 on real property with a fair                      Answer: Yes. Flood insurance is                    remains individually responsible for
                                             market value of $150,000. The insurable                 required for the building located in the              ensuring compliance with the Act and
                                             value of the residential building on the                SFHA and any contents stored in that                  Regulation.
                                             real property is $90,000; however,                      building.                                                Therefore, the Agencies will examine
                                             Lender A improperly required only                          36. If a loan is secured by Building A,            whether the regulated institution/
                                             $70,000 of flood insurance coverage.                    which is located in an SFHA, and                      participating lender has performed
                                             Lender B later takes a second mortgage                  contents, which are located in Building               upfront due diligence to ensure both
                                             on the property with a principal balance                B, is flood insurance required on the                 that the lead lender or agent has
                                             of $10,000. Lender B must ensure that                   contents securing a loan?                             undertaken the necessary activities to
                                             flood insurance in the amount of                           Answer: No. If collateral securing the             ensure that the borrower obtains
                                             $90,000 is purchased and maintained on                  loan is stored in Building B, which does              appropriate flood insurance and that the
                                             the secured property to comply with the                 not secure the loan, then flood                       lead lender or agent has adequate
                                             Act and Regulation.                                     insurance is not required on those                    controls to monitor the loan(s) on an on-
                                                33. If a borrower requesting a home                  contents whether or not Building B is                 going basis for compliance with the
                                             equity loan secured by a junior lien                    located in an SFHA.                                   flood insurance requirements. Further,
                                             provides evidence that flood insurance                     37. Does the Regulation apply where
                                                                                                                                                           the Agencies expect the participating
                                             coverage is in place, does the lender                   the lender takes a security interest in a
                                                                                                                                                           lender to have adequate controls to
                                             have to make a new determination?                       building or mobile home located in an
                                                                                                                                                           monitor the activities of the lead lender
                                             Does the lender have to adjust the                      SFHA only as an ‘‘abundance of
                                                                                                                                                           or agent to ensure compliance with
                                             insurance coverage?                                     caution’’?
                                                Answer: It depends. Assuming the                                                                           flood insurance requirements over the
                                                                                                        Answer: Yes. The Act and Regulation
                                             requirements in Section 528 of the Act                                                                        term of the loan.
                                                                                                     look to the collateral securing the loan.
                                             (42 U.S.C. 4104b) are met and the same                  If the lender takes a security interest in            IX. Flood Insurance Requirements in
                                             lender made the first mortgage, then a                  improved real estate located in an                    the Event of the Sale or Transfer of a
                                             new determination may not be                            SFHA, then flood insurance is required.               Designated Loan and/or its Servicing
                                             necessary, when the existing                               38. If a borrower offers a note on a               Rights
                                             determination is not more than seven                    single-family dwelling as collateral for a
                                             years old, there have been no map                                                                                41. How do the flood insurance
                                                                                                     loan but the lender does not take a
                                             changes, and the determination was                                                                            requirements under the Regulation
                                                                                                     security interest in the dwelling itself, is
                                             recorded on an SFHDF. If, however, a                                                                          apply to lenders under the following
                                                                                                     this a designated loan that requires
                                             lender other than the one that made the                                                                       scenarios involving loan servicing?
                                                                                                     flood insurance?
                                             first mortgage loan is making the home                     Answer: No. A designated loan is a                    Scenario 1: A regulated lender
                                             equity loan, a new determination would                  loan secured by a building or mobile                  originates a designated loan secured by
                                             be required because this lender would                   home. In this example, the lender did                 a building or mobile home located in an
                                             be deemed to be ‘‘making’’ a new loan.                  not take a security interest in the                   SFHA in which flood insurance is
                                             In either situation, the lender will need               building; therefore, the loan is not a                available under the Act. The lender
                                             to determine whether the amount of                      designated loan.                                      makes the initial flood determination,
                                             insurance in force is sufficient to cover                  39. If a lender makes a loan that is not           provides the borrower with appropriate
                                             the lesser of the combined outstanding                  secured by real estate, but is made on                notice, and flood insurance is obtained.
                                             principal balance of all loans (including               the condition of a personal guarantee by              The lender initially services the loan;
                                             the home equity loan), the insurable                    a third party who gives the lender a                  however, the lender subsequently sells
                                             value, or the maximum amount of                         security interest in improved real estate             both the loan and the servicing rights to
                                             coverage available on the improved real                 owned by the third party that is located              a non-regulated party. What are the
                                             estate.                                                 in an SFHA in which flood insurance is                regulated lender’s requirements under
                                                34. If the loan request is to finance                available, is it a designated loan that               the Regulation? What are the regulated
                                             inventory stored in a building located                  requires flood insurance?                             lender’s requirements under the
                                             within an SFHA, but the building is not                    Answer: Yes. The making of a loan on               Regulation if it only transfers or sells the
                                             security for the loan, is flood insurance               condition of a personal guarantee by a                servicing rights, but retains ownership of
                                             required?                                               third party and further secured by                    the loan?
                                                Answer: No. The Act and the                          improved real estate, which is located in                Answer: The lender must comply
                                             Regulation provide that a lender shall                  an SFHA, owned by that third party is                 with all requirements of the Regulation,
                                             not make, increase, extend, or renew a                  so closely tied to the making of the loan             including making the initial flood
                                             designated loan, that is a loan secured                 that it is considered a designated loan               determination, providing appropriate
                                             by a building or mobile home located or                 that requires flood insurance.                        notice to the borrower, and ensuring
mstockstill on PROD1PC66 with NOTICES




                                             to be located in an SFHA, ‘‘unless the                                                                        that the proper amount of insurance is
                                             building or mobile home and any                         VIII. Flood Insurance Requirements for                obtained. In the event the lender sells or
                                             personal property securing such loan’’ is               Loan Syndications/Participations                      transfers the loan and servicing rights,
                                             covered by flood insurance for the term                   40. How do the Agencies enforce the                 the lender must provide notice of the
                                             of the loan. In this example, the                       mandatory purchase requirements                       identity of the new servicer to FEMA or
                                             collateral is not the type that could                   under the Act and Regulation when a                   its designee.


                                        VerDate Aug<31>2005   18:33 Mar 20, 2008   Jkt 214001   PO 00000   Frm 00154   Fmt 4703   Sfmt 4703   E:\FR\FM\21MRN1.SGM   21MRN1
                                             15274                           Federal Register / Vol. 73, No. 56 / Friday, March 21, 2008 / Notices

                                                If the lender retains ownership of the               any point during the life of a designated                45. If the loan and its servicing rights
                                             loan and only transfers or sells the                    loan that flood insurance is required,                are sold by the lender, is the lender
                                             servicing rights to a non-regulated party,              then the lender must comply with the                  required to provide notice to the
                                             the lender must notify FEMA or its                      Regulation, including force placing                   Director or the Director’s designee?
                                             designee of the identity of the new                     insurance, if necessary. Similarly, if the               Answer: Yes. Failure to provide such
                                             servicer. The servicing contract should                 lender subsequently extends, increases,               notice would defeat the purpose of the
                                             require the servicer to comply with all                 or renews a designated loan, the lender               notice requirement because FEMA
                                             the requirements that are imposed on                    must also comply with the Regulation.                 would have no record of the identity of
                                             the lender as owner of the loan,                           Where a regulated lender purchases                 either the owner or servicer of the loan.
                                             including escrow of insurance                           only the servicing rights to a loan                      46. Is a lender required to provide
                                             premiums and forced placement of                        originated by a non-regulated lender,                 notice when the servicer, not the lender,
                                             insurance, if necessary.                                the regulated lender is obligated only to             sells or transfers the servicing rights to
                                                Generally, the Regulation does not                   follow the terms of its servicing contract            another servicer?
                                             impose obligations on a loan servicer                   with the owner of the loan. In the event                 Answer: No. After servicing rights are
                                             independent from the obligations it                     the regulated lender subsequently sells               sold or transferred, subsequent
                                             imposes on the owner of a loan. Loan                    or transfers the servicing rights on that             notification obligations are the
                                             servicers are covered by the escrow,                    loan, the lender must notify FEMA or its              responsibility of the new servicer. The
                                             forced placement, and flood hazard                      designee of the identity of the new                   obligation of the lender to notify the
                                             determination fee provisions of the Act                 servicer, if required to do so by the                 Director or the Director’s designee of the
                                             and Regulation primarily so that they                   servicing contract with the owner of the              identity of the servicer transfers to the
                                             may perform the administrative tasks for                loan.                                                 new servicer. The duty to notify the
                                             the lender, without fear of liability to                   42. When a lender makes a designated               Director or the Director’s designee of
                                             the borrower for the imposition of                      loan and will be servicing that loan,                 any subsequent sale or transfer of the
                                             unauthorized charges. In addition, the                  what are the requirements for notifying               servicing rights and responsibilities
                                             preamble to the Regulation emphasizes                   the Director of FEMA or the Director’s                belongs to that servicer. For example, a
                                             that the obligation of a loan servicer to               designee?                                             financial institution makes and services
                                             fulfill administrative duties with respect                 Answer: FEMA stated in a June 4,                   the loan. It then sells the loan in the
                                             to the flood insurance requirements                     1996, letter that the Director’s designee             secondary market and also sells the
                                             arises from the contractual relationship                is the insurance company issuing the                  servicing rights to a mortgage company.
                                             between the loan servicer and the lender                flood insurance policy. The borrower’s                The financial institution notifies the
                                             or from other commonly accepted                         purchase of a policy (or the lender’s                 Director’s designee of the identity of the
                                             standards for performance of servicing                  forced placement of a policy) will                    new servicer and the other information
                                             obligations. The lender remains                         constitute notice to FEMA when the                    requested by FEMA so that flood
                                             ultimately liable for fulfillment of those              lender is servicing that loan.                        insurance transactions can be properly
                                             responsibilities, and must take adequate                   In the event the servicing is                      administered by the Director’s designee.
                                             steps to ensure that the loan servicer                  subsequently transferred to a new                     If the mortgage company later sells the
                                             will maintain compliance with the flood                 servicer, the lender must provide notice              servicing rights to another firm, the
                                             insurance requirements.                                 to the insurance company of the identity              mortgage company, not the financial
                                                Scenario 2: A non-regulated lender                   of the new servicer no later than 60 days             institution, is responsible for notifying
                                             originates a designated loan, secured by                after the effective date of such a change.            the Director’s designee of the identity of
                                             a building or mobile home located in an                    43. Would a RESPA Notice of Transfer               the new servicer.
                                             SFHA in which flood insurance is                        sent to the Director of FEMA (or the                     47. In the event of a merger of one
                                             available under the Act. The non-                       Director’s designee) satisfy the                      lending institution with another, what
                                             regulated lender does not make an                       regulatory provisions of the Act?                     are the responsibilities of the parties for
                                             initial flood determination or notify the                  Answer: Yes. The delivery of a copy                notifying the Director’s designee?
                                             borrower of the need to obtain                          of the Notice of Transfer or any other                   Answer: If an institution is acquired
                                             insurance. The non-regulated lender                     form of notice is sufficient if the sender            by or merges with another institution,
                                             sells the loan and servicing rights to a                includes, on or with the notice, the                  the duty to provide notice for the loans
                                             regulated lender. What are the regulated                following information that FEMA has                   being serviced by the acquired
                                             lender’s requirements under the                         indicated is needed by its designee:                  institution will fall to the successor
                                             Regulation? What are the regulated                         • Borrower’s full name;                            institution in the event that notification
                                             lender’s requirements if it only                           • Flood insurance policy number;                   is not provided by the acquired
                                             purchases the servicing rights?                            • Property address (including city                 institution prior to the effective date of
                                                Answer: A regulated lender’s                         and state);                                           the acquisition or merger.
                                             purchase of a loan and servicing rights,                   • Name of lender or servicer making
                                             secured by a building or mobile home                    notification;                                         X. Escrow Requirements
                                             located in an SFHA in which flood                          • Name and address of new servicer;                   48. Are multi-family buildings or
                                             insurance is available under the Act, is                and                                                   mixed-use properties included in the
                                             not an event that triggers any                             • Name and telephone number of                     definition of ‘‘residential improved real
                                             requirements under the Regulation,                      contact person at new servicer.                       estate’’ under the Regulation for which
                                             such as making a new flood                                 44. Can delivery of the notice be made             escrows are required?
                                             determination or requiring a borrower to                electronically, including batch                          Answer: ‘‘Residential improved real
                                             purchase flood insurance. The                           transmissions?                                        estate’’ is defined under the Regulation
mstockstill on PROD1PC66 with NOTICES




                                             Regulation’s requirements are triggered                    Answer: Yes. The Regulation                        as ‘‘real estate upon which a home or
                                             when a lender makes, increases,                         specifically permits transmission by                  other residential building is located or
                                             extends, or renews a designated loan. A                 electronic means. A timely batch                      to be located.’’ A loan secured by
                                             lender’s purchase of a loan does not fall               transmission of the notice would also be              residential improved real estate located
                                             within any of those categories. However,                permissible, if it is acceptable to the               or to be located in an SFHA in which
                                             if a regulated lender becomes aware at                  Director’s designee.                                  flood insurance is available is a


                                        VerDate Aug<31>2005   18:33 Mar 20, 2008   Jkt 214001   PO 00000   Frm 00155   Fmt 4703   Sfmt 4703   E:\FR\FM\21MRN1.SGM   21MRN1
                                                                             Federal Register / Vol. 73, No. 56 / Friday, March 21, 2008 / Notices                                          15275

                                             designated loan. Lenders are required to                requires escrows for other purposes,                    Answer: RCBAPs are policies
                                             escrow flood insurance premiums and                     such as hazard insurance or taxes. This               purchased by the condominium
                                             fees for any mandatory flood insurance                  requirement pertains to any loan,                     association on behalf of itself and the
                                             for such loans if the lender requires the               including those subject to RESPA. The                 individual unit owners in the
                                             escrow of taxes, hazard insurance                       preceding paragraph addresses the                     condominium. A portion of the periodic
                                             premiums or other loan charges for                      requirement for administering loans                   dues paid to the association by the
                                             loans secured by residential improved                   covered by RESPA. The preamble to the                 condominium owners applies to the
                                             real estate.                                            Regulation contains a more detailed                   premiums on the policy. When a lender
                                                Multi-family buildings. For the                      discussion of the escrow requirements.                makes a loan for the purchase of a
                                             purposes of the Act and the Regulation,                    50. Do voluntary escrow accounts                   condominium unit and when dues to
                                             the definition of residential improved                  established at the request of the                     the condominium association apply to
                                             real estate does not make a distinction                 borrower trigger a requirement for the                the RCBAP premiums, an escrow
                                             between whether a building is single- or                lender to escrow premiums for required                account is not required. Lenders should
                                             multi-family, or whether a building is                  flood insurance?                                      exercise due diligence with respect to
                                             owner- or renter-occupied. The                             Answer: No. If escrow accounts for                 continuing compliance with the
                                             preamble to the Regulation indicates                    other purposes are established at the                 insurance requirements on the part of
                                             that single-family dwellings (including                 voluntary request of the borrower, the                the condominium association.
                                             mobile homes), two-to-four family                       lender is not required to establish
                                             dwellings, and multi-family properties                                                                        XI. Forced Placement of Flood
                                                                                                     escrow accounts for flood insurance                   Insurance
                                             containing five or more residential units               premiums. Examiners should review the
                                             are covered under the Act’s escrow                      loan policies of the lender and the                      54. What is the requirement for the
                                             provisions. If the building securing the                underlying legal obligation between the               forced placement of flood insurance
                                             loan meets the Regulation’s definition of               parties to the loan to determine whether              under the Act and Regulation?
                                             residential improved real estate, and the               the accounts are, in fact, voluntary. For                Answer: The Act and Regulation
                                             lender requires the escrow of other                     example, when a lender’s loan policies                require a lender to force place flood
                                             items, such as taxes or hazard insurance                require borrowers to establish escrow                 insurance, if all of the following
                                             premiums, then the lender is required to                accounts for other purposes and the                   circumstances occur:
                                             also escrow premiums and fees for flood                 contractual obligation permits the                       • The lender determines at any time
                                             insurance.                                              lender to establish escrow accounts for               during the life of the loan that the
                                                Mixed-use properties. The lender                                                                           property securing the loan is located in
                                                                                                     those other purposes, the lender will
                                             should look to the primary use of a                                                                           an SFHA;
                                                                                                     have the burden of demonstrating that
                                             building to determine whether it meets                                                                           • The community in which the
                                                                                                     an existing escrow was made pursuant
                                             the definition of ‘‘residential improved                                                                      property is located participates in the
                                                                                                     to a voluntary request by the borrower.
                                             real estate.’’ For example, a building                                                                        NFIP;
                                             having a retail store on the ground level                  51. Will premiums paid for credit life                • The lender determines that flood
                                             with a small upstairs apartment used by                 insurance, disability insurance, or                   insurance coverage is inadequate or
                                             the store’s owner generally is                          similar insurance programs be viewed                  does not exist; and
                                             considered a commercial enterprise and                  as escrow accounts requiring the escrow                  • After required notice, the borrower
                                             consequently would not constitute a                     of flood insurance premiums?                          fails to purchase the appropriate amount
                                             residential building under the                             Answer: No. Premiums paid for these                of coverage.
                                             definition. If the primary use of a                     types of insurance policies will not                     A lender must notify the borrower of
                                             mixed-use property is for residential                   trigger the escrow requirement for flood              the required amount of flood insurance
                                             purposes, the Regulation’s escrow                       insurance premiums.                                   that must be obtained within 45 days
                                             requirements apply. (See Questions 8                       52. Will escrow-type accounts for                  after notification. The notice to the
                                             and 9 for examples of residential and                   commercial loans, secured by multi-                   borrower must also state that if the
                                             nonresidential buildings.)                              family residential buildings, trigger the             borrower does not obtain the insurance
                                                49. When must escrow accounts be                     escrow requirement for flood insurance                within the 45-day period, the lender
                                             established for flood insurance                         premiums?                                             will purchase the insurance on behalf of
                                             purposes?                                                  Answer: It depends. Escrow-type                    the borrower and may charge the
                                                Answer: Lenders should look to the                   accounts established in connection with               borrower the cost of premiums and fees
                                             definition of ‘‘federally related mortgage              the underlying agreement between the                  to obtain the coverage. If adequate
                                             loan’’ contained in the Real Estate                     buyer and seller, or that relate to the               insurance is not obtained within the 45-
                                             Settlement Procedures Act (RESPA) to                    commercial venture itself, such as                    day period, then the insurance must be
                                             see whether a particular loan is subject                ‘‘interest reserve accounts,’’                        force placed. Standard Fannie Mae/
                                             to Section 10. Generally, for flood                     ‘‘compensating balance accounts,’’                    Freddie Mac documents permit the
                                             insurance purposes, only loans on one-                  ‘‘marketing accounts,’’ and similar                   servicer or lender to add those charges
                                             to-four family dwellings will be subject                accounts are not the type of accounts                 to the principal amount of the loan.
                                             to the escrow requirements of RESPA.                    that constitute escrow accounts for the                  FEMA developed the Mortgage
                                             (This includes individual units of                      purpose of the Regulation. However,                   Portfolio Protection Program (MPPP) to
                                             condominiums. Individual units of                       escrow accounts established for the                   assist lenders in connection with forced
                                             cooperatives, although covered by                       protection of the property, such as                   placement procedures. FEMA published
                                             Section 10 of RESPA, are not insured for                escrows for hazard insurance premiums                 these procedures in the Federal Register
                                             flood insurance purposes.)                              or local real estate taxes, are the types             on August 29, 1995 (60 FR 44881).
mstockstill on PROD1PC66 with NOTICES




                                                Loans on multi-family dwellings with                 of escrow accounts that trigger the                   Appendix A of the FEMA publication
                                             five or more units are not covered by                   requirement to escrow flood insurance                 contains examples of notification letters
                                             RESPA requirements. Pursuant to the                     premiums.                                             to be used in connection with the
                                             Regulation, however, lenders must                          53. What requirements for escrow                   MPPP.
                                             escrow premiums and fees for any                        accounts apply to properties covered by                  55. Can a servicer force place on
                                             required flood insurance if the lender                  RCBAPs?                                               behalf of a lender?


                                        VerDate Aug<31>2005   18:33 Mar 20, 2008   Jkt 214001   PO 00000   Frm 00156   Fmt 4703   Sfmt 4703   E:\FR\FM\21MRN1.SGM   21MRN1
                                             15276                           Federal Register / Vol. 73, No. 56 / Friday, March 21, 2008 / Notices

                                               Answer: Yes. Assuming the statutory                   XIII. Required Use of Standard Flood                  security property since the original
                                             prerequisites for forced placement are                  Hazard Determination Form (SFHDF)                     determination was made. A loan
                                             met, and subject to the servicing                          58. Does the SFHDF replace the                     refinancing or assumption made by a
                                             contract between the lender and the                     borrower notification form?                           lender different from the one who
                                             servicer, the Act clearly authorizes                       Answer: No. The notification form is               obtained the original determination
                                             servicers to force place flood insurance                used to notify the borrower(s) that he or             constitutes a new loan, thereby
                                             on behalf of the lender, following the                  she is purchasing improved property                   requiring a new determination.
                                             procedures set forth in the Regulation.                 located in an SFHA. The financial
                                               56. When forced placement occurs,                                                                           XIV. Flood Determination Fees
                                                                                                     regulatory Agencies, in consultation
                                             what is the amount of insurance                                                                                  62. When can lenders or servicers
                                                                                                     with FEMA, included a revised version
                                             required to be placed?                                                                                        charge the borrower a fee for making a
                                               Answer: The amount of flood                           of the sample borrower notification form
                                                                                                                                                           determination?
                                             insurance coverage required is the same                 in Appendix A to the Regulation. The                     Answer: There are four instances
                                             regardless of how the insurance is                      SFHDF is used by the lender to                        under the Act and Regulation when the
                                             placed. (See Section II. Determining the                determine whether the property                        borrower can be charged a specific fee
                                             appropriate amount of flood insurance                   securing the loan is located in an SFHA.              for a flood determination:
                                             required under the Act and Regulation.)                    59. Is the lender required to provide                 • When the determination is made in
                                                                                                     the SFHDF to the borrower?                            connection with the making, increasing,
                                             XII. Gap Insurance Policies                                Answer: No. While it may be a                      extending, or renewing of a loan that is
                                                57. May a lender rely on a gap or                    common practice in some areas for                     initiated by the borrower;
                                             blanket insurance policy to meet its                    lenders to provide a copy of the SFHDF                   • When the determination is
                                             obligation to ensure that its designated                to the borrower to give to the insurance              prompted by a revision or updating by
                                             loans are covered by an adequate                        agent, lenders are neither required nor               FEMA of floodplain areas or flood-risk
                                             amount of flood insurance over the life                 prohibited from providing the borrower                zones;
                                             of the loans?                                           with a copy of the form. In the event a                  • When the determination is
                                                Answer: Generally no. Gap or blanket                 lender does provide the SFHDF to the                  prompted by FEMA’s publication of
                                             insurance typically is not an adequate                  borrower, the signature of the borrower               notices or compendia that affect the area
                                             substitute for NFIP insurance. Among                    is not required to acknowledge receipt                in which the security property is
                                             other things, a gap or blanket policy                   of the form.                                          located; or
                                             typically protects only the lender’s, not                  60. May the SFHDF be used in                          • When the determination results in
                                             the borrower’s, interest and, therefore,                electronic format?                                    forced placement of insurance.
                                             may not be transferred when a loan is                      Answer: Yes. FEMA, in the final rule                  Loan or other contractual documents
                                             sold. The presence of a gap or blanket                  adopting the SFHDF stated: ‘‘If an                    between the parties may also permit the
                                             policy may serve as a disincentive for                  electronic format is used, the format and             imposition of fees.
                                             the lender or its servicer to perform its               exact layout of the Standard Flood                       63. May charges made for life of loan
                                             due diligence and ensure that there is                  Hazard Determination Form is not                      reviews by flood determination firms be
                                             adequate coverage for a designated loan.                required, but the fields and elements                 passed along to the borrower?
                                             Finally, a lender that substitutes a gap                listed on the form are required. Any                     Answer: Yes. In addition to the initial
                                             or blanket policy for an individual flood               electronic format used by lenders must                determination at the time a loan is
                                             insurance policy would be unable to sell                contain all mandatory fields indicated                made, increased, renewed, or extended,
                                             the loan in the secondary market, since                 on the form.’’ It should be noted,                    many flood determination firms provide
                                             Fannie Mae and Freddie Mac will not                     however, that the lender must be able to              a service to the lender to review and
                                             accept loans that are covered solely by                 reproduce the form upon receiving a                   report changes in the flood status of a
                                             a gap or blanket policy.                                document request by its federal                       dwelling for the entire term of the loan.
                                                In limited circumstances, a gap or                   supervisory agency.                                   The fee charged for the service at loan
                                             blanket policy may satisfy a lender’s                      61. Section 528 of the Act, 42 U.S.C.              closing is a composite one for
                                             flood insurance obligations, when NFIP                  4104b(e), permits a lender to rely on a               conducting both the original and
                                             and private insurance is otherwise                      previous flood determination using the                subsequent reviews. Charging a fee for
                                             unavailable. For example, when a                        SFHDF when it is increasing, extending,               the original determination is clearly
                                             designated loan does not have sufficient                renewing or purchasing a loan secured                 within the permissible purpose
                                             coverage, but the borrower refuses to                   by a building or a mobile home. Under                 envisioned by the Act. The Agencies
                                             increase coverage under his NFIP                        the Act, the ‘‘making’’ of a loan is not              agree that a determination fee may
                                             insurance, a gap or blanket policy may                  listed as a permissible event that                    include, among other things, reasonable
                                             be appropriate when the lender is                       permits a lender to rely on a previous                fees for a lender, servicer, or third party
                                             unable to force-place private insurance                 determination. May a lender rely on a                 to monitor the flood hazard status of
                                             for some reason. Similarly, when a                      previous determination for a refinancing              property securing a loan in order to
                                             policy has expired, and the borrower                    or assumption of a loan?                              make determinations on an ongoing
                                             has failed to renew coverage, gap or                       Answer: It depends. When the loan                  basis.
                                             blanket coverage may be adequate                        involves a refinancing or assumption by                  However, the life-of-loan fee is based
                                             protection for the lender for the 15-day                the same lender who obtained the                      on the authority to charge a
                                             gap in coverage between the end of the                  original flood determination on the                   determination fee and, therefore, the
                                             30-day ‘‘grace’’ period after the NFIP                  same property, the lender may rely on                 monitoring fee may be charged only if
                                             policy expiration and the end of the 45-                the previous determination only if the                the events specified in the answer to
mstockstill on PROD1PC66 with NOTICES




                                             day force placement notice period.                      original determination was made not                   Question 62 occur.
                                             However, the lender must force place                    more than seven years before the date of
                                             adequate coverage in a timely manner,                   the transaction, the basis for the                    XV. Flood Zone Discrepancies
                                             as required, and may not rely on the gap                determination was set forth on the                      64. What should a lender do when
                                             or blanket coverage on an on-going                      SFHDF, and there were no map                          there is a discrepancy between the flood
                                             basis.                                                  revisions or updates affecting the                    hazard zone designation on the flood


                                        VerDate Aug<31>2005   18:33 Mar 20, 2008   Jkt 214001   PO 00000   Frm 00157   Fmt 4703   Sfmt 4703   E:\FR\FM\21MRN1.SGM   21MRN1
                                                                             Federal Register / Vol. 73, No. 56 / Friday, March 21, 2008 / Notices                                            15277

                                             determination form and the flood                           Answer: Yes. As noted in Question 64               later located on a permanent foundation
                                             insurance policy?                                       above, lenders should have a process in               in an SFHA, flood insurance will be
                                                Answer: Lenders should have a                        place to identify and resolve such                    required. If the lender, when notified of
                                             process in place to identify and resolve                discrepancies. If a lender is able to                 the location of the mobile home
                                             such discrepancies. In attempting to                    resolve a discrepancy—either by finding               subsequent to the loan closing,
                                             resolve a particular discrepancy, a                     a legitimate reason for such discrepancy              determines that it has been placed on a
                                             lender should determine whether there                   or by attempting to resolve the                       permanent foundation and is located in
                                             may be a legitimate reason for a                        discrepancy by contacting FEMA to                     an SFHA in which flood insurance is
                                             discrepancy.                                            review the determination, then no                     available under the Act, flood insurance
                                                The flood determination form                         violation will be cited. However, if more             coverage becomes mandatory and
                                             designates a flood hazard zone where                    than occasional, isolated instances of                appropriate notice must be given to the
                                             the building or mobile home is actually                 unresolved discrepancies are found in a               borrower under those provisions. If the
                                             located based on the latest FEMA                        lender’s loan portfolio, the Agencies                 borrower fails to purchase flood
                                             information; the flood insurance policy                 may cite the lender for a violation of the            insurance coverage within 45 days after
                                             designates the flood hazard zone for                    mandatory purchase requirements.                      notification, the lender must force place
                                             purposes of rating the degree of flood                  Failure to resolve such discrepancies                 the insurance.
                                             hazard risk. The two respective flood                   could result in the lender’s collateral                  68. When is the lender required to
                                             hazard zone designations may                            not being covered by the amount of                    provide notice to the servicer of a loan
                                             legitimately differ by virtue of the                    legally required flood insurance.                     that flood insurance is required?
                                             NFIP’s ‘‘Grandfather Rule,’’ which                                                                               Answer: Because the servicer of a loan
                                                                                                     XVI. Notice of Special Flood Hazards
                                             provides for the continued use of a                                                                           is often not identified prior to the
                                                                                                     and Availability of Federal Disaster
                                             rating on an insured property when the                  Relief                                                closing of a loan, the Regulation
                                             initial flood insurance policy was issued                                                                     requires that notice be provided no later
                                                                                                        66. Does the notice have to be                     than the time the lender transmits other
                                             prior to changes in the hazard rating for
                                                                                                     provided to each borrower for a real                  loan data, such as information
                                             the particular flood zone where the
                                                                                                     estate related loan?                                  concerning hazard insurance and taxes,
                                             property is located. The Grandfather                       Answer: No. In a transaction
                                             Rule allows policyholders who have                                                                            to the servicer.
                                                                                                     involving multiple borrowers, the                        69. What will constitute appropriate
                                             maintained continuous coverage and/or                   lender need only provide the notice to
                                             who have built in compliance with the                                                                         form of notice to the servicer?
                                                                                                     any one of the borrowers in the                          Answer: Delivery to the servicer of a
                                             Flood Insurance Rate Map to continue                    transaction. Lenders may provide
                                             to benefit from the prior, more favorable                                                                     copy of the notice given to the borrower
                                                                                                     multiple notices if they choose. The                  is appropriate notice. The Regulation
                                             rating for particular pieces of improved                lender and borrower(s) typically
                                             property. A discrepancy caused as a                                                                           also provides that the notice can be
                                                                                                     designate the borrower to whom the                    made either electronically or by a
                                             result of the application of the NFIP’s                 notice will be provided. The notice
                                             Grandfather Rule is reasonable and                                                                            written copy.
                                                                                                     must be provided to a borrower when                      70. In the case of a servicer affiliated
                                             acceptable. In such an event where the                  the lender determines that the property               with the lender, is it necessary to
                                             lender determines that there is a                       securing the loan is or will be located               provide the notice?
                                             legitimate reason for the discrepancy, it               in an SFHA.                                              Answer: Yes. The Act requires the
                                             should document its findings.                              67. Lenders making loans on mobile                 lender to notify the servicer of special
                                                If the lender is unable to reconcile a               homes may not always know where the                   flood hazards and the Regulation
                                             discrepancy between the flood hazard                    home is to be located until just prior to,            reflects this requirement. Neither
                                             zone designation on the flood                           or sometimes after, the time of loan                  contains an exception for affiliates.
                                             determination form and the flood                        closing. How is the notice requirement                   71. How long does the lender have to
                                             insurance policy and there is no                        applied in these situations?                          maintain the record of receipt by the
                                             legitimate reason for the discrepancy,                     Answer: When it is not reasonably                  borrower of the notice?
                                             the lender and borrower may jointly                     feasible to give notice before the                       Answer: The record of receipt
                                             request that FEMA review the                            completion of the transaction, the notice             provided by the borrower must be
                                             determination. This procedure is                        requirement can be met by lenders in                  maintained for the time that the lender
                                             intended to confirm or disprove the                     mobile home loan transactions if notice               owns the loan. Lenders may keep the
                                             accuracy of the original determination.                 is provided to the borrower as soon as                record in the form that best suits the
                                             The procedures for initiating a FEMA                    practicable after determination that the              lender’s business practices. Lenders
                                             review are found at 44 CFR 65.17. This                  mobile home will be located in an                     may retain the record electronically, but
                                             request must be submitted within 45                     SFHA. Whenever time constraints can                   they must be able to retrieve the record
                                             days of the lender’s notification to the                be anticipated, regulated lenders should              within a reasonable time pursuant to a
                                             borrower of the requirement to obtain                   use their best efforts to provide adequate            document request from their federal
                                             flood insurance.                                        notice of flood hazards to borrowers at               supervisory agency.
                                                65. Can a lender be found in violation               the earliest possible time. In the case of               72. Can a lender rely on a previous
                                             of the requirements of federal flood                    loan transactions secured by mobile                   notice if it is less than seven years old
                                             insurance regulations if, despite the                   homes not located on a permanent                      and it is the same property, same
                                             lender’s diligence in making the flood                  foundation, the Agencies note that such               borrower, and same lender?
                                             hazard determination, notifying the                     ‘‘home only’’ transactions are excluded                  Answer: No. The preamble to the
                                             borrower of the risk of flood and the                   from the definition of mobile home and                Regulation states that subsequent
mstockstill on PROD1PC66 with NOTICES




                                             need to obtain flood insurance, and                     the notice requirements would not                     transactions by the same lender with
                                             requiring mandatory flood insurance,                    apply to these transactions.                          respect to the same property will be
                                             there is a discrepancy between the flood                   However, as indicated in the                       treated as a renewal and will require no
                                             hazard zone designation on the flood                    preamble to the Regulation, the                       new determination. However, neither
                                             determination form and the flood                        Agencies encourage a lender to advise                 the Regulation nor the preamble
                                             insurance policy?                                       the borrower that if the mobile home is               addresses waiving the requirement to


                                        VerDate Aug<31>2005   18:33 Mar 20, 2008   Jkt 214001   PO 00000   Frm 00158   Fmt 4703   Sfmt 4703   E:\FR\FM\21MRN1.SGM   21MRN1
                                             15278                           Federal Register / Vol. 73, No. 56 / Friday, March 21, 2008 / Notices

                                             provide the notice to the borrower.                     money penalties must be imposed under                 deficiencies in its flood insurance
                                             Therefore, the lender must provide a                    the Act?                                              compliance; and
                                             new notice to the borrower, even if a                      Answer: The Act does not define                       • Whether the financial institution
                                             new determination is not required.                      ‘‘pattern or practice.’’ The Agencies                 lacks generally effective flood insurance
                                               73. Is use of the sample form of notice               make a determination of whether one                   compliance policies and procedures
                                             mandatory?                                              exists by weighing the individual facts               and/or a training program for its
                                               Answer: No. Although lenders are                      and circumstances of each case. In                    employees.
                                             required to provide a notice to a                       making the determination, the Agencies                   Although these guidelines and
                                             borrower when it makes, increases,                      look both to guidance and experience                  considerations are not dispositive of a
                                             extends, or renews a loan secured by an                 with determinations of pattern or                     final resolution, they do serve as a
                                             improved structure located in an SFHA,                  practice under other regulations (such                reference point in assessing whether
                                             use of the sample form of notice                        as Regulation B (Equal Credit                         there may be a pattern or practice of
                                             provided in Appendix A is not                           Opportunity) and Regulation Z (Truth in               violations of the Act and Regulation in
                                             mandatory. It should be noted that the                  Lending)), as well as Agencies’                       a particular case. As previously stated,
                                             sample form includes other information                  precedents in assessing civil money                   the presence or absence of one or more
                                             in addition to what is required by the                  penalties for flood insurance violations.             of these considerations may not
                                             Act and the Regulation. Lenders may                        The Policy Statement on                            eliminate a finding that a pattern or
                                             personalize, change the format of, and                  Discrimination in Lending (Policy                     practice exists.
                                             add information to the sample form of                   Statement) provided the following                        End of text of the Interagency
                                             notice, if they choose. However, a                      guidance on what constitutes a pattern                Questions and Answers Regarding
                                             lender-revised notice must provide the                  or practice:                                          Flood Insurance.
                                             borrower with at least the minimum                        Isolated, unrelated, or accidental                    Dated: March 5, 2008.
                                             information required by the Act and                     occurrences will not constitute a pattern or          John C. Dugan,
                                             Regulation. Therefore, lenders should                   practice. However, repeated, intentional,
                                                                                                     regular, usual, deliberate, or institutionalized      Comptroller of the Currency.
                                             consult the Act and Regulation to
                                             determine the information needed.                       practices will almost always constitute a               By order of the Board of Governors of the
                                                                                                     pattern or practice. The totality of the              Federal Reserve System, March 12, 2008.
                                             XVII. Mandatory Civil Money Penalties                   circumstances must be considered when
                                                                                                                                                           Jennifer J. Johnson,
                                                                                                     assessing whether a pattern or practice is
                                                74. What violations of the Act can                   present.                                              Secretary of the Board.
                                             result in a mandatory civil money
                                                                                                        In determining whether a financial                   Dated at Washington, DC, this 14th day of
                                             penalty?
                                                                                                     institution has engaged in a pattern or               March, 2008. Federal Deposit Insurance
                                                Answer: A pattern or practice of                                                                           Corporation.
                                             violations of any of the following                      practice of flood insurance violations,
                                                                                                     the Agencies’ considerations may                      Valerie J. Best,
                                             requirements of the Act and their
                                                                                                     include, but are not limited to, the                  Assistant Executive Secretary.
                                             implementing Regulations triggers a
                                             mandatory civil money penalty:                          presence of one or more of the following                Dated: February 5, 2008.
                                                (i) Purchase of flood insurance where                factors:
                                             available (42 U.S.C. 4012a(b));                            • Whether the conduct resulted from                  By the Office of Thrift Supervision.
                                                                                                     a common cause or source within the                   John M. Reich,
                                                (ii) Escrow of flood insurance
                                                                                                     financial institution’s control;                      Director.
                                             premiums (42 U.S.C. 4012a(d));
                                                                                                        • Whether the conduct appears to be
                                                (iii) Forced placement of flood                      grounded in a written or unwritten
                                                                                                                                                             Dated: March 13, 2008.
                                             insurance (42 U.S.C. 4012a(e));                         policy or established practice;                       Roland E Smith,
                                                (iv) Notice of special flood hazards                    • Whether the noncompliance                        Secretary, Farm Credit Administration Board.
                                             and the availability of Federal disaster                occurred over an extended period of
                                             relief assistance (42 U.S.C. 4104a(a));                                                                         By the National Credit Union
                                                                                                     time;                                                 Administration Board, on March 13, 2008.
                                             and                                                        • The relationship of the instances of
                                                (v) Notice of servicer and any change                                                                      Mary F. Rupp,
                                                                                                     noncompliance to one another (for
                                             of servicer (42 U.S.C. 4101a(b)).                                                                             Secretary of the Board.
                                                                                                     example, whether the instances of
                                                The Act states that any regulated                                                                          [FR Doc. E8–5787 Filed 3–20–08; 8:45 am]
                                                                                                     noncompliance occurred in the same
                                             lending institution found to have a                     area of a financial institution’s                     BILLING CODES 4810–33–P; 6210–01–P; 6714–01–P;
                                                                                                                                                           6720–01–P; 6705–01–P; 7535–01–P
                                             pattern or practice of certain violations               operations);
                                             ‘‘shall be assessed a civil penalty’’ by its               • Whether the number of instances of
                                             Federal supervisor in an amount not to                  noncompliance is significant relative to
                                             exceed $350 per violation, with a ceiling               the total number of applicable
                                             per institution of $100,000 during any                  transactions. (Depending on the
                                             calendar year (42 U.S.C. 4012a(f)(5)).                  circumstances, however, violations that
                                             This limit has since been raised to $385                involve only a small percentage of an
                                             per violation, and the annual ceiling to                institution’s total activity could
                                             $125,000 pursuant to the Federal Civil                  constitute a pattern or practice);
                                             Penalties Inflation Adjustment Act of                      • Whether a financial institution was
                                             1990, as amended by the Debt                            cited for violations of the Act and
                                             Collection Improvement Act of 1996, 28                  Regulation at prior examinations and
mstockstill on PROD1PC66 with NOTICES




                                             U.S.C. 2461 note. Lenders pay the                       the steps taken by the financial
                                             penalties into the National Flood                       institution to correct the identified
                                             Mitigation Fund held by the Department                  deficiencies;
                                             of the Treasury for the benefit of FEMA.                   • Whether a financial institution’s
                                                75. What constitutes a ‘‘pattern or                  internal and/or external audit process
                                             practice’’ of violations for which civil                had not identified and addressed


                                        VerDate Aug<31>2005   18:33 Mar 20, 2008   Jkt 214001   PO 00000   Frm 00159   Fmt 4703   Sfmt 4703   E:\FR\FM\21MRN1.SGM   21MRN1

								
To top