**\*Re-keyed electronically for posting**

**Federal Emergency Management Agency**

Washington, D.C. 20472

December 12, 2002

Michael Bylsma

Director, Consumer Law

Office of the Comptroller of the Currency

250 E Street, SW

Washington, DC 20219

Dear Mr. Bylsma:

As you may be aware, the authority for certain provisions of the
National Flood Insurance Program ("NFIP"), including 42 U.S.C. §4026
relating to the issuance of new policies, expires on December 31,
2002.[^1] With the 107^th^ Congress adjourned, reauthorization cannot be
accomplished before the 108^th^ Congress convenes in January 2003. I
want you to know that FEMA is doing everything it can to resolve this
issue expeditiously and with as little disruption of insurance
operations as possible. We are also working with our insurance partners
to prepare for this situation.

FEMA has been asked whether the requirements of 42 U.S.C. §4012a
relating to mandatory purchase of flood insurance are affected by the
lapse of authority to issue new insurance contracts. It is our position
that during the lapse, flood insurance is not made available under the
National Flood Insurance Program for purposes of §4012a.

In anticipation that this period without authority to issue new policies
will be brief, FEMA has provided direction to its NFIP Servicing Agent
contractor that issues flood policies for the government, and provided
guidance to the Write Your Own companies, that any premium payments for
new and renewal policies received after December 31, 2002, are to be
held and policies not issued until authority to enter into new flood
insurance contracts has been reestablished. The Servicing Agent and the
companies should hold applications received in the ordinary course of
business and records of policy application and premium receipt dates are
to be maintained by them. We have provided a notice, attached hereto as
Notice 3, for distribution to applicants by the NFIP Servicing Agent and
recommended for use by Write Your Own companies. FEMA is actively
working with Congress to provide reauthorization retroactively to
January 1, 2003. Such retroactive reauthorization has been done in
similar circumstances for the NFIP in the past. Of course, FEMA has no
guarantee that retroactive reauthorization will occur.

If retroactive reauthorization does occur as expected, the NFIP intends
to honor all effective dates for flood insurance policy coverage based
on the normal application and premium receipt processes and
requirements, even though the issuance of the flood policy was held in
abeyance pending the congressional action. This includes both starting
applicable flood insurance waiting periods during the authority hiatus
period and putting a flood policy in force as of a qualifying loan
settlement date during the hiatus period. Thus any claims for flood
damage that occurs during the period in which FEMA's authority has
lapsed would be appropriately honored once authority is reestablished
and made retroactive.

If authorization is not provided retroactively, then insurance coverage
cannot be made effective earlier than the date of reauthorization. In
addition, if authorization is not granted within a reasonable period of
time after Congress convenes, the NFIP will have to refund premiums and
not issue the new and renewal policies held in abeyance.

It should be noted that even with the lapse in authority, new and
renewal policies for which premium is received on or before December 31,
2002, will still be issued for coverage that will become effective after
December 31. This includes premium payments made by lenders from escrow
accounts. Thus claims for existing policies and policies issued based on
premiums received prior to the hiatus, will be processed without delay.

Most authorities under the NFIP continue without lapse after December
31, 2002. For example, claims will be paid as noted above, flood maps
will still be in effect for determinations and floodplain management,
and floodplain management requirements will still be in force.

Finally, I ask that you devote the necessary resources to prepare for
this occurrence and to take appropriate action to minimize the impact
upon consumers and your stakeholders.

To the extent possible, FEMA will provide technical assistance and
support in working through this period. You or members of your staff may
contact me or Howard Leikin, Deputy Administrator for Insurance, at
(202) 646-2781, regarding this matter.

> Sincerely,
>
> Anthony S. Lowe
>
> Administrator
>
> Federal Insurance and Mitigation Administration

cc: Virginia Hagan, Office of the Comptroller of the Currency

John D. Hawke, Jr., Office of the Comptroller of the Currency

Carol Workman, Office of the Comptroller of the Currency

Margaret Hesse, Office of the Comptroller of the Currency

Notice 3

\[New Business or Coverage Increase Endorsements\]

You are applying for flood insurance or an increase in coverage from the
National Flood Insurance Program (NFIP), a government insurance program
that is administered by the Federal Emergency Management Agency (FEMA).

The NFIP operates under authority from Congress that has to be renewed
periodically. As of December 31, 2002, that authority has expired and is
awaiting Congressional renewal. Until such renewal is granted, the
premium you are paying will be held by FEMA.

FEMA will hold your premium in order that your policy or coverage
increase can go into effect at the earliest date, consistent with the
receipt of premium and waiting period rules of the NFIP and the
extension of authority for the NFIP. For applications made in connection
with a mortgage loan, if, as FEMA has requested, renewal of the
authority to issue flood insurance policies under the NFIP is granted
retroactively, your policy will be issued effective as of the date of
the closing of your loan. If Congressional renewal is granted
retroactively, any claim for insurable losses you suffer from that
effective date onward will be honored by the NFIP, even if the authority
is granted after the date of such losses.

If Congressional renewal is not granted within a reasonable period after
Congress reconvenes, FEMA will refund your premium. In such an event,
and provided that you do not purchase alternative flood coverage, you
will not have had the protection of flood insurance during this period
and will be at risk for any damage to the property caused by flood.

Please note, you are under no obligation to purchase your flood
insurance from the NFIP. You may choose to purchase flood insurance
elsewhere if other providers are available in your area. If your
purchase of insurance is due to your lender's requirement, then any
other provider is subject to your lender's approval.

[^1]: Pub. L. 107-73, Title III, November 26, 2001, 115 Stat.689.