32826 Federal Register / Vol. 87, No. 104 / Tuesday, May 31, 2022 / Rules and Regulations 

1Public Law 90–448, 82 Stat. 572 (1968). 

2Public Law 93–234, 87 Stat. 975 (1973). 

3Public Law 103–325, 108 Stat. 2255 (1994). 

4Throughout this document ‘‘the Agencies’’ 

includes the OTS with respect to events that 

occurred prior to July 21, 2011, but does not 

include OTS with respect to events thereafter. 

Sections 311 and 312 of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act transferred 

OTS’s functions to other agencies on July 21, 2011. 

The OTS’s supervisory functions relating to Federal 

savings associations were transferred to the OCC, 

while those relating to State savings associations 

were transferred to the FDIC. See also 76 FR 39246 

(July 6, 2011). 

5 61 FR 45684 (Aug. 29, 1996). 

6 78 FR 65107 (Oct. 30, 2013). 

7Public Law 112–141, 126 Stat. 916 (2012). 

8Public Law 113–89, 128 Stat. 1020 (2014). 

9 80 FR 43215 (July 21, 2015). Subsequently, on 

November 7, 2016, the Agencies re-proposed the 

DEPARTMENT OF THE TREASURY 

Office of the Comptroller of the 

Currency 

12 CFR Part 22 

[Docket IDs OCC–2020–0033, OCC–2020– 

0008] 

FEDERAL RESERVE SYSTEM 

12 CFR Part 208 

[Docket No. R–1742, OP–1720] 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

12 CFR Part 339 

RIN 3064–ZA16 

FARM CREDIT ADMINISTRATION 

12 CFR Part 614 

NATIONAL CREDIT UNION 

ADMINISTRATION 

12 CFR Part 760 

RIN 3133–AF31, 3133–AF14 

Loans in Areas Having Special Flood 

Hazards; Interagency Questions and 

Answers Regarding Flood Insurance 

AGENCY: Office of the Comptroller of the 

Currency (OCC), Treasury; Board of 

Governors of the Federal Reserve 

System (Board); Federal Deposit 

Insurance Corporation (FDIC); Farm 

Credit Administration (FCA); and 

National Credit Union Administration 

(NCUA). 

ACTION: Guidance. 

SUMMARY: The OCC, Board, FDIC, FCA, 

and NCUA (collectively, the Agencies) 

are reorganizing, revising, and 

expanding the Interagency Questions 

and Answers Regarding Flood 

Insurance. This revised guidance will 

assist lenders in meeting their 

responsibilities under Federal flood 

insurance law and increase public 

understanding of the Agencies’ 

respective flood insurance regulations. 

Significant topics addressed by the 

revisions include guidance related to 

major amendments to the flood 

insurance laws with regard to the 

escrow of flood insurance premiums, 

the detached structure exemption, force 

placement procedures, and the 

acceptance of flood insurance policies 

issued by private insurers. With this 

issuance, the Agencies are consolidating 

the Questions and Answers proposed by 

the Agencies in July 2020 and the 

Questions and Answers proposed by the 

Agencies in March 2021 into one set of 

Interagency Questions and Answers 

Regarding Flood Insurance. 

DATES: The issuance date of this 

guidance is May 11, 2022. 

FOR FURTHER INFORMATION CONTACT: 

OCC: Rhonda L. Daniels, Compliance 

Specialist, Compliance Risk Policy 

Division, (202) 649–5405; Amber 

Dapshi, Compliance Specialist, 

Compliance Risk Policy Division, (240) 

646–4348; Heidi M. Thomas, Special 

Counsel, Sadia Chaudhary, Counsel, 

Rima Kundnani, Counsel, or Cyndy 

MacMahon, Attorney, Chief Counsel’s 

Office, (202) 649–5490. If you are deaf, 

hard of hearing, or have a speech 

disability, please dial 7–1–1 to access 

telecommunications relay services. 

Board: Vivian W. Wong, Senior 

Counsel, (202) 452–3667, Matthew 

Dukes, Counsel, (202) 973–5096, or 

Keshia King, Lead Supervisory Policy 

Analyst, (202) 452–2496, Division of 

Consumer and Community Affairs; or 

Daniel Ericson, Senior Counsel, (202) 

452–3359, Legal Division; for users of 

Telecommunications Relay Service 

(TRS),Telecommunications Device for 

the Deaf (TDD) only, contact 711 or 

(202) 263–4869. 

FDIC: Navid Choudhury, Counsel, 

Policy Unit, Legal Division, (202) 898– 

6526; or Simin Ho, Senior Policy 

Analyst, Division of Depositor and 

Consumer Protection, (202) 898–6907. 

FCA: Ira D. Marshall, Senior Policy 

Analyst, Office of Regulatory Policy, 

(703) 883–4379, TTY (703) 883–4056 or 

Jennifer Cohn, Assistant General 

Counsel, Office of General Counsel, 

(720) 213–0440. 

NCUA: Thomas Zells, Senior Staff 

Attorney, Office of General Counsel, 

(703) 518–6540, or Simon Hermann, 

Senior Credit Specialist, Office of 

Examination and Insurance, (703) 518– 

6360. 

SUPPLEMENTARY INFORMATION: 

Background 

The National Flood Insurance Act of 

1968 created the National Flood 

Insurance Program (NFIP), which is 

administered by the Federal Emergency 

Management Agency (FEMA).1 The 

NFIP enables property owners in 

participating communities to purchase 

flood insurance if the community has 

adopted floodplain management 

ordinances and minimum standards for 

new and substantially damaged or 

improved construction. Thus, in 

participating communities, federallybacked flood insurance is available for 

property owners in flood risk areas. 

Congress expanded the NFIP by 

enacting the Flood Disaster Protection 

Act of 1973 (FDPA).2 The FDPA made 

the purchase of flood insurance 

mandatory in connection with loans 

made by federally-regulated lending 

institutions when the loans are secured 

by improved real estate or mobile homes 

located in a special flood hazard area 

(SFHA). The National Flood Insurance 

Reform Act of 1994 (the Reform Act) 

(Title V of the Riegle Community 

Development and Regulatory 

Improvement Act of 1994) 

comprehensively revised the Federal 

flood insurance statutes.3 The Reform 

Act required the OCC, Board, FDIC, 

Office of Thrift Supervision (OTS), and 

NCUA to revise their flood insurance 

regulations, and required the FCA to 

promulgate a flood insurance regulation 

for the first time. The OCC, Board, FDIC, 

OTS, FCA, and NCUA 4 fulfilled these 

requirements by issuing a joint final rule 

in the summer of 1996.5

In October 2013, the Agencies jointly 

issued proposed rules 6 to implement 

the escrow, force placement, and private 

flood insurance provisions of the 

Biggert-Waters Flood Insurance Reform 

Act of 2012 (the Biggert-Waters Act).7 In 

March 2014, Congress enacted the 

Homeowner Flood Insurance 

Affordability Act (HFIAA), which, 

among other things, amended the 

Biggert-Waters Act’s requirements 

regarding the escrow of flood insurance 

premiums and fees and created a new 

exemption from the mandatory flood 

insurance purchase requirement for 

certain detached structures.8 The 

Agencies finalized the regulations to 

implement provisions in the BiggertWaters Act and HFIAA under the 

Agencies’ jurisdiction, except for the 

provisions in the Biggert-Waters Act 

related to private flood insurance, with 

a final rule issued in July 2015 (2015 

Final Rule).9 In February 2019, the 


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private flood insurance provisions through a joint 

notice of proposed rulemaking (81 FR 78063). 

10 84 FR 4953 (Feb. 20, 2019). 

11Throughout this document, ‘‘Interagency 

Questions and Answers’’ refers to the Interagency 

Questions and Answers Regarding Flood Insurance 

in its entirety; ‘‘Q&A’’ refers to an individual 

question and answer within the Questions and 

Answers. 

12For additional information on the history of the 

Interagency Questions and Answers, please see the 

preamble to the July 2020 Proposed Interagency 

Questions and Answers at 85 FR 40442 (July 6, 

2020). 

13See 85 FR 40442 (July 6, 2020). The comment 

period for the July 2020 Proposed Questions and 

Answers was extended from Sept. 4, 2020 to Nov. 

3, 2020. See 85 FR 54946 (Sept. 3, 2020). 

14See 86 FR 14696 (Mar. 18, 2021). 

15Public Law 104–208, 110 Stat. 3001 (1996) 

(codified at 12 U.S.C. 3311). The most recent report 

to Congress required by EGRPRA was published by 

the Board, FDIC, OCC, and NCUA under the FFIEC 

in March 2017 and is available at https:// 

www.ffiec.gov/pdf/2017_FFIEC_EGRPRA_JointReport_to_Congress.pdf. The NCUA, although an 

FFIEC member, is not a ‘‘Federal banking agency’’ 

within the meaning of EGRPRA and so is not 

required to participate in the review process. 

Nevertheless, the NCUA elected to participate in 

the EGRPRA review and conducted its own parallel 

review of its regulations. The FCA is not subject to 

EGRPRA; however, as required by the Farm Credit 

System Reform Act of 1996 (see 12 U.S.C. 2252 

note), FCA engages in periodic regulatory review. 

The Consumer Financial Protection Bureau (CFPB), 

although an FFIEC member, is not a ‘‘Federal 

banking agency’’ within the meaning of EGRPRA 

and so is not required to participate in the review 

process. 

16Specifically, the OCC, Board, and FDIC stated 

in the EGRPRA report that they ‘‘agree with these 

EGRPRA commenters that additional agency 

guidance on flood insurance requirements would be 

helpful to the banking industry and that the 

Interagency Flood Q&As should be updated to 

address recent amendments to the flood insurance 

statutes. In fact, the agencies have begun work on 

revising the Interagency Flood Q&As to reflect the 

agencies’ recently issued final rules implementing 

the Biggert-Waters Act and HFIAA requirements 

and to address other issues that have arisen since 

the last update in 2011. As part of this revision, the 

agencies also plan to address many of the flood 

insurance issues raised by EGRPRA commenters.’’ 

FFIEC Joint EGRPRA Report to Congress, March 

2017 at 56; available at https://www.ffiec.gov/pdf/ 

2017_FFIEC_EGRPRA_Joint-Report_to_

Congress.pdf. 

Agencies finalized regulations to 

implement the private flood insurance 

related provisions of the Biggert-Waters 

Act (2019 Final Rule).10

Interagency Questions and Answers 

Regarding Flood Insurance 

Since 1997, the Interagency Questions 

and Answers 11 have provided the 

lending industry and other interested 

parties with guidance addressing a wide 

spectrum of technical flood insurancerelated compliance issues. In 2009, the 

Agencies comprehensively revised and 

reorganized the initial 1997 Interagency 

Questions and Answers (2009 

Interagency Questions and Answers). In 

2011, the Agencies further finalized two 

additional Q&As that were proposed in 

2009, and re-proposed three Q&As that 

were never finalized.12

In light of the significant changes to 

flood insurance requirements pursuant 

to the Biggert-Waters Act and HFIAA, as 

well as the Agencies’ regulations issued 

to implement these laws, the Agencies 

proposed new and revised Interagency 

Questions and Answers in July 2020 

(July 2020 Proposed Questions and 

Answers) that covered a broad range of 

topics related to technical flood 

insurance-related issues, including the 

escrow of flood insurance premiums, 

the detached structure exemption to the 

mandatory purchase of flood insurance 

requirement, and force placement 

procedures.13 This proposal also 

reorganized the Interagency Questions 

and Answers to provide a more logical 

flow of questions through the flood 

insurance process. The Agencies also 

committed in the July 2020 Proposed 

Questions and Answers to separately 

issuing for notice and comment 

additional proposed questions and 

answers relating to the 2019 Final Rule 

implementing the private flood 

insurance provisions of the BiggertWaters Act. The Agencies published 

these proposed questions and answers 

in March 2021 (March 2021 Proposed 

Questions and Answers).14

With this Federal Register document, 

the Agencies are consolidating the July 

2020 Proposed Questions and Answers 

and the March 2021 Proposed Questions 

and Answers into one set of Interagency 

Questions and Answers Regarding 

Flood Insurance (2022 Interagency 

Questions and Answers), consisting of 

144 Questions and Answers (including 

24 private flood insurance questions 

and answers), revised as appropriate 

based on comments received. 

Specifically, the Q&As in the March 

2021 Proposed Questions and Answers 

are now set forth as sections III, IV, and 

V in the 2020 Interagency Questions and 

Answers, and the remaining sections, 

with the exception of proposed Section 

III discussed below, are renumbered 

accordingly. The Agencies also are 

making non-substantive revisions to 

certain questions and answers to more 

directly respond to the question asked, 

provide additional clarity, or make 

technical corrections. 

These 2022 Interagency Questions 

and Answers supersede the 2009 

Interagency Questions and Answers 

(and the 2011 amendments to the 2009 

Interagency Questions and Answers) 

and supplement other guidance or 

interpretations issued by the Agencies 

related to loans in areas having special 

flood hazards. In addition to guidance 

and interpretations issued by the 

Agencies, lenders should be aware of 

information related to the NFIP 

provided by FEMA that may address 

questions pertaining to NFIP 

requirements. 

The issuance of these 2022 

Interagency Questions and Answers 

responds to requests over the years from 

the lending industry, including at 

conferences and through interagency 

webinars, to provide additional 

guidance on flood insurance compliance 

issues. In addition, the 2022 Interagency 

Questions and Answers are responsive 

to requests made pursuant to the most 

recent review under the Economic 

Growth and Regulatory Paperwork 

Reduction Act of 1996 (EGRPRA), 

which directs some of the Agencies to 

conduct a joint review of their 

regulations every 10 years and consider 

whether any of those regulations are 

outdated, unnecessary, or unduly 

burdensome.15 As part of the most 

recent joint review, the Board, FDIC, 

OCC, and NCUA received comments on 

the Agencies’ flood insurance rules. 

Several commenters asked for more 

guidance to the industry on flood 

insurance requirements, particularly 

with respect to renewal notices for 

force-placed insurance policies, the 

required amount of flood insurance, and 

flood insurance requirements for tenantowned buildings and detached 

structures. One commenter specifically 

requested that the Agencies update the 

Interagency Questions and Answers. In 

the 2017 EGRPRA Joint Report to 

Congress issued by the Federal 

Financial Institutions Examination 

Council (FFIEC), the Board, FDIC, and 

OCC indicated that they agreed with 

commenters that the Interagency 

Questions and Answers should be 

updated and planned to address many 

of the flood insurance issues raised by 

EGRPRA commenters.16 Accordingly, in 

issuing these 2022 Interagency 

Questions and Answers, the Agencies 

are addressing the commitment made in 

the 2017 EGRPRA Joint Report to 

Congress. 

Reorganization of Interagency 

Questions and Answers 

For ease of reference and in light of 

the increased number of subjects 

covered that address complex issues, 

the Agencies proposed to reorganize the 

Interagency Questions and Answers to 

provide a more logical flow of questions 

through the flood insurance process for 

lenders, servicers, regulators, and 

policyholders. Moreover, the Agencies 

also proposed a new system of 

designation for the Q&As. Rather than 

numbering the Q&As successively 


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17 12 CFR part 22 (OCC); 12 CFR 208.25 (Board); 

12 CFR part 339 (FDIC); 12 CFR part 614, subpart 

S (FCA); and 12 CFR part 760 (NCUA). 

through all the categories, each Q&A 

would be designated by the category to 

which it belongs and then designated in 

numerical order for that particular 

category. This numbering system 

enables the Agencies to add or delete 

Q&As in the future without needing to 

significantly renumber or reorganize all 

of the Q&As. Furthermore, the Agencies 

have added three new Q&As 

(Applicability 13, Amount 10, and 

Condo and Co-op 9) to better address 

commenters’ questions and for 

organizational purposes, rather than 

adding information into existing Q&As. 

As discussed below, commenters 

supported the proposed reorganization. 

Therefore, the Agencies are adopting 

this reorganization with the inclusion of 

three new categories related to the 

private flood insurance requirements, 

proposed in the March 2021 Proposed 

Questions and Answers. The table 

below sets forth the current categories 

and the corresponding new, reorganized 

categories for purposes of comparison: 

TABLE OF CONTENTS

Category from 

2009 interagency questions and answers 

Reorganized category in 2022 interagency questions and 

answers 

I. ....................... Determining When Certain Loans Are Designated Loans for 

Which Flood Insurance Is Required Under the Act and 

Regulation.

Determining the Applicability of Flood Insurance Requirements for Certain Loans [Applicability]. 

II. ...................... Determining the Appropriate Amount of Flood Insurance Required Under the Act and Regulation.Exemptions From the Mandatory Flood Insurance Purchase 

Requirements [Exemptions]. 

III. ..................... Exemptions From the Mandatory Flood Insurance Requirements.Private Flood Insurance—Mandatory Acceptance [Mandatory]. 

IV. ..................... Flood Insurance Requirements for Construction Loans ........... Private Flood Insurance—Discretionary Acceptance [Discretionary]. 

V. ...................... Flood Insurance Requirements for Non-residential Buildings .. Private Flood Insurance—General Compliance [Private Flood 

Compliance]. 

VI. ..................... Flood Insurance Requirements for Residential Condominiums Required Use of Standard Flood Hazard Determination Form 

[SFHDF]. 

VII. .................... Flood Insurance Requirements for Home Equity Loans, Lines 

of Credit, Subordinate Liens, and Other Security Interests 

in Collateral Located in an SHFA.

Flood Insurance Determination Fees [Fees]. 

VIII. ................... Flood Insurance Requirements in the Event of the Sale or 

Transfer of a Designated Loan and/or Its Servicing Rights.

Flood Zone Discrepancies [Zone]. 

IX. ..................... Escrow Requirements ............................................................... Notice of Special Flood Hazards and Availability of Federal 

Disaster Relief [Notice]. 

X. ...................... Force Placement ....................................................................... Determining the Appropriate Amount of Flood Insurance Required [Amount]. 

XI. ..................... Private Flood Insurance ............................................................ Flood Insurance Requirements for Construction Loans [Construction]. 

XII. .................... Required Use of Standard Flood Hazard Determination Form 

(SFHDF).

Flood Insurance Requirements for Residential Condominiums 

and Co-Ops [Condo and Co-Op]. 

XIII. ................... Flood Determination Fees ......................................................... Flood Insurance Requirements for Home Equity Loans, Lines 

of Credit, Subordinate Liens, and Other Security Interests 

in Collateral Located in an SFHA [Other Security Interests]. 

XIV. ................... Flood Zone Discrepancies ........................................................ Requirement to Escrow Flood Insurance Premiums and 

Fees—General [Escrow]. 

XV. .................... Notice of Special Flood Hazards and Availability of Federal 

Disaster Relief.

Requirement to Escrow Flood Insurance Premiums and 

Fees—Small Lender Exception [Escrow Small Lender Exception]. 

XVI. ................... Mandatory Civil Money Penalties ............................................. Requirement to Escrow Flood Insurance Premiums and 

Fees—Loan Exceptions [Escrow Loan Exceptions]. 

XVII. .................. .................................................................................................... Force Placement of Flood Insurance [Force Placement]. 

XVIII. ................. .................................................................................................... Flood Insurance Requirements in the Event of the Sale or 

Transfer of a Designated Loan and/or Its Servicing Rights 

[Servicing]. 

XIX. ................... .................................................................................................... Mandatory Civil Money Penalties [Penalty]. 

For ease of reference, the following 

terms are used throughout this 

document: ‘‘Act’’ refers to the National 

Flood Insurance Act of 1968 and the 

Flood Disaster Protection Act of 1973, as 

revised by the National Flood Insurance 

Reform Act of 1994, Biggert-Waters 

Flood Insurance Reform Act of 2012, 

and Homeowner Flood Insurance 

Affordability Act of 2014 (codified at 42 

U.S.C. 4001 et seq). ‘‘Regulation’’ refers 

to each Agency’s current final rule.17

References to the NFIP Flood Insurance 

Manual refer to the version published in 

April 2021. 

Public Comments 

The Agencies solicited comment on 

all aspects of the proposed Q&As and 

received a total of 22 substantive 

comment letters on the July 2020 

Proposed Questions and Answers and 

11 substantive comment letters on the 

March 2021 Proposed Questions and 

Answers. Many of the commenters 

supported the proposed organizational 

changes to the Interagency Questions 

and Answers and believed the new 

organization provided clarity, increased 

understanding, and was user-friendly. 

In addition, some commenters 

specifically found the grouping by topic 

to be very useful, noting this would 

improve accessibility and allow the 

Agencies to easily revise the Interagency 

Questions and Answers in the future. 


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18The OCC, Board, FDIC, and NCUA 

subsequently codified this statement. See 12 CFR 

part 4, appendix A to subpart F (OCC); 12 CFR part 

262, appendix A (Board); 12 CFR part 302, 

appendix A (FDIC); and 12 CFR part 791, appendix 

A to subpart D (NCUA). 

One commenter found the addition of 

references to the Regulation to be 

beneficial. Another commenter 

requested that the Agencies combine 

both sets of questions and answers into 

one set of final questions and answers. 

As indicated above, the Agencies are 

adopting the proposed reorganization of 

the Interagency Questions and Answers 

and combining both the July 2020 

Proposed Questions and Answers and 

the March 2021 Proposed Questions and 

Answers into one document. 

One commenter requested that these 

Interagency Questions and Answers be 

made available to insurance agents, 

which would be helpful for lenders and 

make the process easier for borrowers. A 

few commenters also suggested that the 

NCUA add the finalized Interagency 

Questions and Answers to the 

Regulation as an Appendix. The 

commenters felt that this would ensure 

the Interagency Questions and Answers 

are easily located and used by credit 

union staff in years to come. 

The Agencies note that the 

Interagency Questions and Answers are 

already publicly available, including to 

insurance agents, as the Interagency 

Questions and Answers are published in 

the Federal Register and readily 

accessible on the Agencies’ websites. At 

this time, the Agencies decline to add 

the Interagency Questions and Answers 

to the Regulation as an Appendix. 

Furthermore, the NCUA is committed to 

assisting credit unions comply with the 

flood insurance requirements. 

In addition, the Agencies received 

several comments that urged the 

Agencies to provide periodic updates 

and review the Interagency Questions 

and Answers on a regular basis, as well 

as to allow the industry an adequate 

notice and comment period. 

Commenters stated that this would 

provide industry and other stakeholders 

predictable opportunities to provide 

feedback on compliance issues and 

questions as they arise. Commenters 

also felt this type of review would 

maintain the Interagency Questions and 

Answers in a more organized manner 

and would ensure the guidance keeps 

pace with the marketplace and the 

issues that arise with respect to 

compliance. One commenter 

emphasized that this review should take 

place more frequently than the 10-year 

EGRPRA cycle and recommended a 

formal review of the Interagency 

Questions and Answers every three to 

five years. Other commenters stated that 

additional issues may arise for credit 

unions, who planned to share these 

issues with the NCUA, and asked that 

the Interagency Questions and Answers 

be updated in the future to provide 

additional clarity. 

The Agencies understand the value of 

the Interagency Questions and Answers 

to the industry and other stakeholders 

and will continue to review the 

Interagency Questions and Answers and 

update the guidance as necessary. The 

Agencies agree that the reorganization of 

the Interagency Questions and Answers 

will facilitate future updates. The 

Agencies expect to update the 

Interagency Questions and Answers as 

needed and will provide interested 

parties a sufficient notice and comment 

period. 

Other commenters encouraged the 

Agencies to include in the final version 

of the Interagency Questions and 

Answers an explicit statement 

referencing the Interagency Statement 

Clarifying the Role of Supervisory 

Guidance (Interagency Statement).18

The commenters stated the Agencies 

should confirm that the Interagency 

Questions and Answers are guidance 

and failure to comply with the 

Interagency Questions and Answers are 

not grounds for matters requiring 

attention (MRAs), matters requiring 

immediate attention (MRIA), or any 

other adverse supervisory action. The 

Agencies confirm that the Agencies are 

providing the Interagency Questions 

and Answers as guidance only. The 

Agencies are not adding a reference to 

the Interagency Statement in the 

Interagency Questions and Answers 

because doing so is unnecessary. 

One commenter asked the Agencies to 

specifically reference which Q&As 

apply only to an NFIP policy and which 

Q&As apply to a flood insurance policy 

issued by a private insurance company 

or both. In response to this comment, 

the Agencies note that all the Q&As 

apply to all policies, whether NFIP or a 

flood insurance policy issued by a 

private insurance company, unless 

otherwise noted in the Q&A. 

The Agencies also received a general 

comment regarding climate change. The 

commenter noted that the Interagency 

Questions and Answers failed to discuss 

climate change risks. According to the 

commenter, climate change risks should 

serve as a ‘‘safe-harbor’’ for insurers to 

deny flood coverage. Further, the 

commenter suggested that the Agencies 

should explicitly require the insurers to 

consider climate risks and that flood 

insurance should be mandatory in high 

risk zones as a result of climate change. 

Climate change risk is outside the scope 

of the Agencies’ Interagency Questions 

and Answers. The Agencies note that 

they are working individually and on an 

interagency basis to address financial 

risks associated with climate change 

consistent with the Agencies’ regulatory 

and supervisory authorities. Therefore, 

the Agencies decline to make changes to 

any of the Q&As in response to this 

comment. 

Comments on specific Q&As are 

discussed below in the Section-bySection Analysis. 

Section-by-Section Analysis 

Section I. Determining the Applicability 

of Flood Insurance Requirements for 

Certain Loans (Applicability) 

Section I includes questions and 

answers related to the applicability of 

the Regulation’s flood insurance 

requirements to certain loans. This 

proposed general applicability section 

included existing Q&As 1 through 7 

relating to residential buildings and, for 

organizational purposes, incorporated 

existing section V’s Q&As 24 and 25, 

which address flood insurance 

requirements for non-residential 

buildings. The Agencies also proposed a 

streamlined heading for this section to 

provide greater clarity with no intended 

change in substance or meaning. The 

Agencies proposed changes to the Q&As 

in this section in the July 2020 Proposed 

Questions and Answers. 

Applicability 1. The Agencies 

proposed to redesignate existing Q&A 1 

as Q&A Applicability 1 with only minor 

language modifications, and no 

intended change in substance or 

meaning. This Q&A discusses whether 

the Regulation applies to a loan where 

the building or mobile home securing 

the loan is located in a community that 

does not participate in the NFIP. The 

Agencies received no specific comments 

on this Q&A and are adopting Q&A 

Applicability 1 as proposed with minor 

non-substantive edits. 

Applicability 2. The Agencies 

proposed to redesignate existing Q&A 

24 as Q&A Applicability 2. This Q&A 

discusses whether a lender is required 

to mandate flood insurance for 

buildings with limited utility or value. 

The Agencies proposed to update this 

Q&A to indicate that the answer 

depends on whether buildings with 

limited utility meet the detached 

structure exemption, which provides an 

exemption from the mandatory 

purchase requirements for certain 

detached structures. This exemption 

was added by HFIAA. The proposal also 

removed the existing language 

indicating that the lender should 


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19Public Law 93–234, 87 Stat. 975 (1973), 

codified at 42 U.S.C. 4012a. 

20See https://www.fema.gov/flood-insurance/ 

risk-rating. 

consider any local zoning issues or 

other issues that would affect its 

collateral. In addition, the Agencies 

made minor wording changes. 

The Agencies received one comment 

on this Q&A. The commenter suggested 

an alternative ‘‘carve-out’’ approach that 

would permit a lender to include all 

buildings in the security instrument as 

a matter of convenience in closing the 

loan and in marketing the parcel of land 

if necessary, even if a structure could 

have been ‘‘carved out’’ as not necessary 

for collateral. The commenter suggested 

that buildings that are included as 

security for a loan as a matter of 

convenience, and not to protect the 

lender by providing material credit 

support for the loan, would not be 

considered to be buildings ‘‘securing the 

loan’’ that need to be covered by flood 

insurance. However, the approach 

suggested by this commenter is not 

legally possible because the Act 19

requires flood insurance on all 

improved property that secures a 

designated loan. The Agencies therefore 

are adopting Q&A Applicability 2 as 

proposed with an added cross-reference 

to Q&A Exemptions 1, which discusses 

the exemptions from the mandatory 

purchase requirement, for reader 

reference. 

Applicability 3. The Agencies 

proposed to redesignate existing Q&A 

25 as proposed Q&A Applicability 3. 

This Q&A discusses a lender’s 

requirements under the Regulation for a 

loan secured by multiple buildings if 

only some of the buildings are located 

in an SFHA, or if some of the buildings 

are located in different communities 

and only some of the communities 

participate in the NFIP. The Agencies 

proposed to change the answer to 

emphasize when flood insurance is 

required as opposed to when it is not 

required as in the existing Q&A. 

Further, the Agencies proposed to 

include an example in the answer. The 

Agencies proposed these changes to 

provide greater clarity and to improve 

readability and did not intend any 

change in substance or meaning. 

The Agencies received two comments 

on this proposed Q&A. One commenter 

requested that the Agencies add a 

statement that the mandatory purchase 

requirement is only applicable to 

buildings with a physical footprint at 

least partially within the boundaries of 

an SFHA. This commenter stated that 

the extension of a plat or lot into the 

SFHA does not automatically trigger the 

mandatory purchase of flood insurance 

for buildings located on that plat or lot. 

The other commenter requested that the 

Agencies address situations when a 

portion of a property securing a loan is 

located in an SFHA but the 

improvements located on that same 

property are not located in the SFHA. 

The commenter recommends that if the 

structure is not located within an SFHA, 

then insurance should not be required. 

The Agencies confirm that land itself 

is not subject to the mandatory flood 

insurance purchase requirement. To 

address these comments, the Agencies 

are clarifying in the final answer to this 

Q&A that if any portion of a building is 

located in an SFHA in which flood 

insurance is available under the Act, the 

flood insurance requirement applies 

even if the entire structure is not located 

in the SFHA. Further, the Agencies are 

revising the final answer to state that a 

building located on a portion of a plat 

or lot that is not in an SFHA is not 

subject to the mandatory flood 

insurance purchase requirement even if 

a portion of the plat or lot not 

containing a building extends into an 

SFHA. With these amendments and 

some minor non-substantive edits, the 

Agencies are adopting Q&A 

Applicability 3. 

Applicability 4. The Agencies 

proposed to redesignate existing Q&A 2 

as Q&A Applicability 4. This Q&A 

discusses a lender’s responsibility if a 

particular building or mobile home that 

secures a loan is no longer located 

within an SFHA due to a map change. 

The Agencies proposed to broaden this 

Q&A to also address a lender’s 

responsibility if a building or mobile 

home that secures a loan is not located 

within an SFHA, even if not due to a 

map change. In addition, the Agencies 

proposed to reword for clarity the 

sentence in the answer indicating that a 

lender, by contract, may still require 

flood insurance on such buildings or 

mobile homes for safety and soundness 

purposes. The proposed sentence states 

that a lender may, at its discretion and 

taking into consideration appropriate 

State law, require flood insurance for 

property outside of SFHAs for safety 

and soundness purposes as a condition 

of a loan being made. Further, the 

Agencies proposed to add language to 

the answer to specifically note that each 

lender should tailor its own flood 

insurance policies and procedures to 

suit its business needs and protect its 

ongoing interest in the collateral. The 

Agencies intended no substantive 

changes with these revisions. The 

Agencies received no specific comment 

on this proposed Q&A and are adopting 

it as proposed with one technical 

change. The Agencies are removing the 

discussion of the NFIP Preferred Risk 

Policy because of changes made by 

FEMA in Risk Rating 2.0—Equity in 

Action (Risk Rating 2.0).20

Applicability 5. The Agencies 

proposed to redesignate existing Q&A 3 

as Q&A Applicability 5 and to revise it 

by making minor language 

modifications for greater clarity, with no 

intended change in substance or 

meaning. This Q&A discusses whether a 

lender’s purchase of a designated loan 

triggers any requirements under the 

Regulation. The Agencies received 

positive comment on this Q&A and are 

adopting it as proposed. 

Applicability 6. The Agencies 

proposed to redesignate existing Q&A 5, 

which addresses whether the Regulation 

applies to loans that are being 

restructured or modified, as proposed 

Q&A Applicability 6 with no changes. 

One commenter specifically stated that 

the clarification provided by Q&A 

Applicability 6 may be very helpful in 

light of the COVID–19 pandemic as 

more consumers may need to modify 

their mortgages. A few commenters 

requested that Q&A Applicability 6 

include additional examples to clarify 

when flood compliance requirements 

are triggered in loan restructurings and 

modifications, and they provided 

specific language. As in the existing 

Q&A, proposed Q&A Applicability 6 

states that if the loan otherwise meets 

the definition of a designated loan and 

if the lender increases the amount of the 

loan, or extends or renews the terms of 

the original loan, then the Regulation 

applies. However, the Agencies agree 

that additional clarification on when 

loan restructurings and modifications 

trigger the Regulation’s requirements 

would be helpful. Furthermore, the 

Agencies believe that rewording the 

question also would provide additional 

clarity. Therefore, the Agencies are 

revising the question in the final Q&A 

to ask whether a loan that is being 

restructured or modified constitutes a 

triggering event (making, increasing, 

renewing, or extending a loan) under 

the Regulation. In addition, the 

Agencies are revising the answer in the 

final Q&A to provide that if a loan 

modification or restructuring involves 

recapitalizing delinquent payments and 

other amounts due under the loan, or 

amounts that were otherwise originally 

contemplated to be part of the loan 

pursuant to the contract with the 

borrower, into the loan’s outstanding 

principal balance and the maturity date 

of the loan otherwise stays the same, the 

Regulation would not apply because the 

modification or restructuring would not 


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increase, extend, or renew the terms of 

the loan. The revisions to the final 

answer also provide that, conversely, if 

the loan modification or restructuring 

changes terms of the loan such as by 

increasing the outstanding principal 

balance beyond what was contemplated 

as part of the loan under the contract 

with the borrower, or by extending the 

maturity date of the loan, the Regulation 

would apply because the lender 

increased or extended the terms of the 

loan beyond what was originally 

contemplated to be part of the loan. 

With these amendments, the Agencies 

are adopting Q&A Applicability 6. 

Applicability 7. The Agencies 

proposed to redesignate existing Q&A 6, 

which addresses whether table funded 

loans are treated as new loan 

originations, as Q&A Applicability 7. 

The Agencies proposed to update the 

answer to refer to the definition of 

‘‘table funding’’ in the Regulation 

instead of to the obsolete definition of 

this term in the Department of Housing 

and Urban Development’s (HUD) former 

Real Estate Settlement Procedures Act 

(RESPA) rule. The Agencies received no 

specific comment on this Q&A and are 

adopting it as proposed. 

Applicability 8. The Agencies 

proposed to redesignate existing Q&A 7 

as Q&A Applicability 8 and proposed 

only one minor wording change, with 

no intended change in substance or 

meaning. This Q&A addresses whether 

a lender is required to perform a review 

of its, or of its servicers’, existing loan 

portfolio for compliance with the flood 

insurance requirements under the Act 

and Regulation. The Agencies received 

positive comment on this Q&A and are 

adopting it as proposed. 

Applicability 9. The Agencies 

proposed to redesignate existing Q&A 4 

as Q&A Applicability 9 and to make 

only minor language modifications for 

greater clarity, with no intended change 

in substance or meaning. This proposed 

Q&A addressed whether the mandatory 

purchase requirements apply to loan 

syndications or participations. The 

proposed answer provided that the 

acquisition by a lender of an interest in 

a loan either by participation or 

syndication after that loan has been 

made does not trigger the requirements 

of the Act or the Regulation but that, as 

with purchased loans, depending upon 

the circumstances, the lender may 

undertake due diligence for safety and 

soundness purposes to protect itself 

against the risk of flood or other types 

of loss. The proposed answer also stated 

that lenders who pool or contribute 

funds that will be simultaneously 

advanced to a borrower or borrowers as 

a loan secured by improved real estate 

would be making a loan that triggers the 

requirements of the Act and Regulation, 

and that Federal flood insurance 

requirements also would apply when a 

group of lenders refinances, extends, 

renews or increases a loan. Further, the 

proposed answer provided that although 

the agreement among the lenders may 

assign compliance duties to a lead 

lender or agent, and may include 

clauses in which the lead lender or 

agent indemnifies participating lenders 

against flood losses, each participating 

lender remains individually responsible 

for compliance with the Act and 

Regulation. Therefore, under the 

proposed answer, the Agencies would 

examine whether the regulated 

institution/participating lender has 

performed upfront due diligence to 

determine whether the lead lender or 

agent has undertaken the necessary 

activities to ensure that the borrower 

obtains appropriate flood insurance and 

that the lead lender or agent has 

adequate controls to monitor the loan(s) 

on an ongoing basis for compliance with 

the flood insurance requirements. 

Lastly, the proposed answer stated that 

the Agencies expect the participating 

lender to have adequate controls to 

monitor the activities of the lead lender 

or agent for compliance with flood 

insurance requirements over the term of 

the loan. 

The Agencies received a number of 

comments on this Q&A. Some 

commenters requested that the Agencies 

offer further clarity on what constitutes 

sufficient ‘‘upfront due diligence’’ and 

‘‘adequate controls to monitor the 

activities of the lead lender or agent for 

compliance with flood insurance 

requirements over the term of the loan.’’ 

These commenters also stated that 

problems arise when lead lenders have 

different regulators employing different 

approaches for upfront due diligence as 

well as monitoring for flood 

compliance. One commenter 

recommended the inclusion of an 

explicit statement in the Q&A that if a 

lead lender on a facility is not federally 

regulated, and thus not subject to flood 

compliance requirements, any 

participating lenders on that facility also 

do not have flood compliance 

obligations with respect to that facility. 

Another commenter requested that the 

Agencies indicate in the Q&A that as 

long as a participating non-lead lender 

has adopted written policies, 

procedures, and processes for managing 

the risks of flood compliance that are 

reasonably within that participating 

lender’s control, that lender generally 

would be viewed as having satisfied its 

flood compliance obligations. A third 

commenter stated that the answer was 

confusing since it appears to state that 

flood compliance requirements can be 

assigned to the lead lender but 

subsequently states that each individual 

lender remains responsible for 

compliance. The commenter suggested 

that, in instances where a lead lender is 

in charge of ensuring flood insurance 

requirements are met, participating 

lenders be allowed to rely on, as a safe 

harbor, documentation from the lead 

lender to limit their individual 

exposure. 

The Agencies understand the 

compliance complications that may 

arise with loan syndications and 

participations. However, the 

requirements under the Act and the 

Regulation apply to each lender 

individually, even if they are part of a 

loan syndication or participation. The 

Agencies may not remove these 

requirements as suggested if the lead 

lender is not federally-regulated nor 

create a safe harbor that allows a lender 

to rely on the lead lender’s policies or 

procedures or on others’ policies and 

procedures for compliance. Further, the 

Agencies believe it is more appropriate 

for lenders to determine specific due 

diligence procedures and controls to 

ensure compliance with the Act and 

Regulation based on the particular facts 

of each transaction. Therefore, the 

Agencies decline to include examples of 

such procedures and controls in the 

Q&A. However, to emphasize the 

particular concerns that may arise with 

lead lenders who are not federallyregulated, the Agencies are adding a 

statement in the final answer indicating 

that a non-lead lender’s due diligence 

and monitoring of the lead lender is 

especially important when the lead 

lender itself is not subject to Federal 

flood insurance requirements. With this 

amendment, the Agencies are adopting 

Q&A Applicability 9. 

Applicability 10. The Agencies 

proposed new Q&A Applicability 10 to 

address a lender’s obligations when 

participating in a multi-tranche credit 

facility, specifically whether a lender is 

expected to consider any triggering 

event and any cashless roll of which it 

becomes aware in any tranche. The 

proposed answer provided that a multitranche credit facility is analogous to a 

loan syndication or participation and 

that the Agencies do not expect a lender 

participating in one tranche in a multitranche credit facility to be responsible 

for taking action to comply with flood 

insurance requirements in connection 

with a triggering event or cashless roll 

that occurs in a tranche in which the 

lender does not participate. 

Furthermore, the proposed answer 


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32832 Federal Register / Vol. 87, No. 104 / Tuesday, May 31, 2022 / Rules and Regulations 

21See Guidance Regarding Lapse and Extension 

of FEMA’s Authority to Issue Flood Insurance 

Contracts, OCC Bulletin 2010–20 (OCC); Informal 

Guidance on the Lapse of FEMA’s Authority to 

Issue Flood Insurance Contracts, CA Letter 10–3 

(Board); Lapse of FEMA Authority to Issue Flood 

Insurance Policies, FIL–23–2010 (FDIC); Lapse and 

Extension of FEMA’s Authority to Issue Flood 

Insurance Contracts, Informational Memorandum 

June 3, 2010 (FCA), and Guidance on the Lapse of 

FEMA’s Authority to Issue Flood Insurance 

Contracts, Letter No. 10–CU–08 (NCUA). 

clarified that the Agencies expect a 

lender participating in a multi-tranche 

credit facility to perform upfront due 

diligence to determine whether the lead 

lender has adequate controls to monitor 

the loan on an ongoing basis for 

compliance with flood insurance 

requirements. One commenter requested 

the same changes it suggested for 

proposed Q&A Applicability 9 regarding 

further clarification on what constitutes 

sufficient upfront due diligence and 

adequate controls and removal of flood 

compliance requirements if the lead 

lender is not federally-regulated. For the 

reasons stated in the discussion of Q&A 

Applicability 9, the Agencies decline to 

accept these changes and are adopting 

Q&A Applicability 10 as proposed with 

the addition of a similar statement 

added to Q&A Applicability 9 regarding 

due diligence and non-Federal lead 

lenders. 

Applicability 11. The Agencies 

proposed new Q&A Applicability 11 to 

clarify that an automatic extension of a 

credit facility agreed upon by the 

borrower and lender in the original loan 

agreement would not constitute a 

triggering event for purposes of the 

Federal flood insurance requirements. 

The Agencies received no specific 

comment on this Q&A and are adopting 

it as proposed. 

Applicability 12. The Agencies 

proposed new Q&A Applicability 12, 

based on guidance previously issued by 

the Agencies,21 to address the 

applicability of the mandatory purchase 

requirement during a period of time 

when coverage under the NFIP is 

unavailable, such as due to a lapse in 

authorization or in appropriations. The 

proposed answer clarified that during a 

period when NFIP coverage is not 

available, lenders may continue to make 

loans subject to the Regulation without 

flood insurance coverage but must 

continue to make flood determinations, 

provide timely, complete and accurate 

notices to borrowers, and comply with 

other aspects of the Regulation. The 

proposed answer also indicated that 

lenders should evaluate the safety and 

soundness and legal risks, and 

prudently manage those risks, during 

such periods when the NFIP is 

unavailable. One commenter 

specifically commented on this 

proposed Q&A, stating that it provides 

helpful and appreciated clarity on how 

credit unions should proceed in the 

event of a lapse in authorization or 

appropriations. The Agencies are 

adopting this Q&A as proposed. 

New Q&A Applicability 13. To 

address a number of comments 

regarding what is and is not a triggering 

event under the Regulation, and to 

further clarify the Interagency Questions 

and Answers Regarding Flood 

Insurance, the Agencies are adding a 

new Q&A Applicability 13 to the 2022 

Interagency Questions and Answers to 

specifically address triggering events. 

This new Q&A provides lenders with a 

quick reference of what constitutes a 

triggering event under the Regulation. 

Specifically, Q&A Applicability 13 

states that under the Regulation, a 

triggering event occurs when a 

designated loan is made, increased, 

extended, or renewed. If a triggering 

event occurs with respect to a 

designated loan, the lender is required 

to comply with certain requirements of 

the Regulation, including the mandatory 

flood insurance purchase requirement, 

the requirement to provide the Notice of 

Special Flood Hazards to the borrower, 

the requirement to notify the 

Administrator of FEMA or the 

Administrator’s designee (the insurance 

provider) in writing of the identity of 

the servicer of the loan, and the 

requirement to escrow for a loan 

secured by residential property, unless 

either the lender or the loan qualifies for 

an exception. This Q&A also includes 

examples of events that are not 

considered triggering events for 

purposes of the Regulation, including 

the purchase of a loan from another 

lender (see Q&A Applicability 5); a loan 

modification that does not increase the 

amount of the loan nor extend or renew 

the terms of the loan (see Q&A 

Applicability 6); the assumption of the 

loan by another borrower; the 

remapping of a building securing the 

loan into an SFHA; the acquisition by a 

lender of an interest in a loan either by 

participation or syndication (see Q&A 

Applicability 9); a cashless roll (see 

Q&A Applicability 10); certain 

automatic extensions of credit (see Q&A 

Applicability 11); and certain treatments 

of force placement premiums and fees 

(see Q&A Force Placement 10). 

Applicability 14 (Proposed as Q&A 

Coverage 2). The Agencies proposed to 

redesignate existing Q&A 64 as Q&A 

Coverage 2. As noted below, the 

Agencies are renumbering this Q&A as 

Q&A Applicability 14. This Q&A 

addresses when a lender may rely on an 

insurance policy providing portfoliowide coverage, removes the reference to 

criteria set forth by FEMA, and includes 

language addressing a lender’s reliance 

on a policy that provides portfolio-wide 

coverage. 

Several commenters suggested that 

the Agencies clarify the term ‘‘portfoliowide’’ coverage to explain that the 

typical ‘‘master policy’’ that lenders 

obtain and use to force place flood 

insurance on individual loans is 

different than portfolio-wide coverage. 

The Agencies agree with the 

commenters and are clarifying that a 

lender may not rely on an insurance 

policy providing portfolio-wide 

coverage to meet the flood insurance 

purchase or force placement 

requirements if the policy only provides 

coverage to the lender (‘‘single 

interest’’). As stated in the Regulation, 

flood insurance coverage under the 

discretionary acceptance provision must 

cover both the mortgagor and mortgagee 

(i.e., lender and the borrower) as loss 

payees, except in the case of a policy 

that is provided by a condominium 

association, cooperative, homeowners 

association, or other applicable group 

and for which the premium is paid by 

the respective organization. However, 

the Agencies are adding language to the 

answer indicating that lenders may 

purchase a master flood insurance 

policy that provides coverage for its 

entire portfolio and covers both the 

lender and the borrower (‘‘dual 

interest’’) because these policies provide 

coverage for the entire portfolio as well 

as individual coverage, and include the 

issuance of an individual policy or 

certificate. 

A few commenters suggested that the 

answer be clarified to state that a 

portfolio-wide gap policy may be useful 

in some circumstances, such as when a 

property is newly mapped into an 

SFHA. Additionally, a few commenters 

suggested that lenders be allowed to rely 

on master policies for compliance 

purposes. The Agencies decline to make 

these revisions. As noted in the existing 

and proposed Q&A, master policies 

providing portfolio-wide coverage may 

be useful protection for the lender for a 

gap in coverage in the period of time 

before a force-placed policy takes effect; 

however, such policies do not provide 

coverage for the borrower and cannot be 

used to satisfy the force placement 

requirement. 

One commenter stated that using the 

term ‘‘private insurance policy’’ may be 

confused with a borrower-procured 

flood insurance policy issued by a 

private insurer. The Agencies agree and 

are making technical changes to remove 

the term ‘‘private’’ when referring to 


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22https://www.ffiec.gov/pdf/2017_FFIEC_

EGRPRA_Joint-Report_to_Congress.pdf. 

lender procured flood insurance 

policies in the Q&A. 

The Agencies are adopting this Q&A 

as proposed with the amendments 

discussed above and an additional 

minor non-substantive change. 

Applicability 15 (Proposed as Q&A 

Coverage 3). The Agencies proposed 

new Q&A Coverage 3 to address when 

mandatory flood insurance on a 

designated loan is required to be in 

place during the closing process. As 

noted below, the Agencies are 

renumbering this Q&A as Q&A 

Applicability 15. This proposed Q&A 

clarified that a lender should use the 

loan ‘‘closing date’’ to determine the 

date by which flood insurance should 

be in place for a designated loan, and 

that FEMA deems the ‘‘closing date’’ as 

the date the ownership of the property 

transfers to the new owner based on 

State law. The proposed answer further 

explained the difference between ‘‘wet 

funding’’ and ‘‘dry funding’’ States and 

how it impacts the ‘‘closing date’’ for 

purposes of flood insurance. 

A few commenters suggested 

expanding the Q&A to clarify the 

‘‘closing date’’ for refinances subject to 

rescission. One lender suggested that it 

would be helpful to add examples to 

illustrate when mandatory flood 

insurance needs to be in place on a 

designated loan. The Agencies agree and 

are expanding the answer to address 

transactions where there is no transfer 

of property ownership, such as a 

refinance, and the borrower is 

purchasing a new flood insurance 

policy or is required to increase flood 

insurance coverage. In these cases, the 

lender should use the loan’s 

consummation date, which is the date 

the borrower becomes contractually 

obligated on the loan, as the effective 

date for the flood insurance policy. As 

a result of this clarification, the 

Agencies do not believe adding 

examples is necessary. The Agencies are 

adopting this Q&A with the changes 

discussed above. 

Section II. Exemptions From the 

Mandatory Flood Insurance Purchase 

Requirements (Exemptions) 

Existing section III includes one Q&A 

related to the exemptions from the 

mandatory flood insurance purchase 

requirements. The Agencies proposed to 

redesignate existing section III as 

section II and proposed a streamlined 

heading for this section to provide 

greater clarity with no intended change 

in substance or meaning. As proposed, 

section II includes existing Q&A 18 and 

six new Q&As, Exemptions 2 through 7, 

pertaining to the exemption from the 

mandatory flood insurance purchase 

requirements for certain detached 

structures created by HFIAA. The 

Agencies proposed changes to the Q&As 

in this section in the July 2020 Proposed 

Questions and Answers. As noted in the 

proposal, this set of Q&As on the 

detached structure exemption responds 

to a request for more guidance related to 

this exemption, as documented in the 

EGRPRA report.22

Exemptions 1. The Agencies proposed 

to redesignate existing Q&A 18 as Q&A 

Exemptions 1. This Q&A discusses the 

exemptions from the mandatory flood 

insurance purchase requirement. The 

Agencies proposed to revise the Q&A to 

include the detached structure 

exemption in addition to the existing 

exemptions for State-owned property 

and loans with an original principal 

balance of $5,000 or less and an original 

repayment term of one year or less. The 

proposed Q&A also noted that although 

an exemption may apply, a borrower 

may still elect to purchase flood 

insurance or a lender may still require 

flood insurance as a condition of 

making the loan for purposes of safety 

and soundness, depending on its risk 

analysis. One commenter requested 

further clarity and examples on what 

constitutes a detached structure. 

Another commenter requested 

clarification on ‘‘mixed use’’ property 

where detached buildings that may have 

been used for commercial purposes but 

no longer have a commercial use could 

fall under the residential exemption if 

the residence is using the structure for 

storage. The Agencies note that what 

constitutes a detached structure is a 

fact-based determination and that the 

lender, who is in the best position to 

consider all the facts and circumstances 

and with input from the borrower, has 

the responsibility to determine what 

constitutes a detached structure and its 

purpose or the primary use of a mixed 

use structure. The Agencies are not in 

a position to provide examples for all 

possible scenarios. The Agencies also 

are including a cross reference to Q&A 

Exemptions 2 to provide further 

guidance and therefore are adopting the 

Q&A with this addition. 

Exemptions 2. The Agencies proposed 

new Q&A Exemptions 2 to address 

whether a lender must take a security 

interest in the primary residential 

structure for a detached structure to be 

eligible for the detached structure 

exemption. The proposed answer 

provided that although a lender does 

not have to take a security interest in the 

primary residential structure, it would 

need to evaluate the uses of the 

detached structures to confirm each is 

eligible for the exemption. One 

commenter suggested that the Agencies 

provide more examples of a primary 

residential structure. The Agencies 

decline to provide examples as the 

Agencies have indicated in the 

preamble to the 2015 Final Rule that 

whether a structure is defined as a 

primary residential structure is fact 

specific and that lenders would need to 

conduct good faith due diligence to 

make this determination. Another 

commenter suggested the Agencies 

separate this Q&A into two discrete 

questions to highlight different aspects 

of the answer. The Agencies decline to 

adopt this suggestion because the 

example is intertwined with the 

principles being discussed in the 

answer. Accordingly, the Agencies are 

adopting the Q&A as proposed. 

Exemptions 3. The Agencies proposed 

new Q&A Exemptions 3 to clarify that 

a flood hazard determination is required 

for a detached structure even though 

flood insurance coverage is not required 

on such a structure because the 

determination is used to identify the 

number and type of structures present 

on the property. One commenter noted 

that in practice, lenders first obtain a 

flood hazard determination as to the 

entire parcel of property to determine if 

any structures are located in an SFHA 

and then determine whether any 

detached structures on the property may 

be exempt under the Regulation, and 

therefore the proposed Q&A may imply 

that the presence or absence of exempt 

structures may affect whether a flood 

hazard determination is required. The 

Agencies agree that this Q&A may be 

confusing as proposed. As a result, the 

Agencies are revising the Q&A to clarify 

that a flood hazard determination is 

required even where detached 

structures are present. The revised 

answer provides that a flood hazard 

determination is needed to determine 

whether a building or mobile home 

securing a loan is or will be located in 

an SFHA where flood insurance is 

available under the Act. The answer 

further provides that in order to 

determine whether the exemption for 

non-residential detached structures on 

residential property may apply, a flood 

hazard determination must be 

conducted first, without regard to 

whether there may be any detached 

structures that could be exempt. With 

these amendments, the Agencies are 

adopting Q&A Exemptions 3. 

Exemptions 4. The Agencies proposed 

new Q&A Exemptions 4 to provide that 

a lender or its servicer may cancel its 

flood insurance requirement on an 

eligible detached structure that is 


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32834 Federal Register / Vol. 87, No. 104 / Tuesday, May 31, 2022 / Rules and Regulations 

23 84 FR 4953 (Feb. 20, 2019). 

currently insured, but that a lender 

alternatively may want to continue to 

require flood insurance coverage for 

detached structures of relatively high 

value if such coverage would be 

beneficial to the borrower and the 

lender. The Agencies received no 

specific comments on this Q&A and are 

adopting the Q&A as proposed. 

Exemptions 5. The Agencies proposed 

new Q&A Exemptions 5 to address 

whether a property being remapped into 

an SFHA triggers a review of the 

intended use of each detached structure. 

Specifically, the proposed answer stated 

that a lender must examine the status of 

a detached structure upon a qualifying 

triggering event and that a remapping is 

not a triggering event. The proposed 

answer also stated that although there is 

no duty to monitor the status of a 

detached structure following the 

lender’s initial determination, sound 

risk management practices may lead a 

lender to conduct scheduled periodic 

reviews that track the need for flood 

insurance on properties securing loans 

in its portfolio. Further, the proposed 

answer notes that, consistent with 

existing obligations under the 

Regulation, if a lender determines at any 

time that a property, including a 

detached structure, has become subject 

to the mandatory flood insurance 

purchase requirement and, as a result, 

the collateral is uninsured or 

underinsured, the lender has a duty to 

inform the borrower of the obligation to 

obtain or increase insurance coverage 

and to purchase flood insurance on the 

borrower’s behalf, as necessary. 

One commenter asked whether 

notification of a map change constitutes 

notice that the property may be subject 

to the mandatory flood insurance 

purchase requirement. Another 

commenter inquired whether this Q&A 

allows a lender to rely on the initial 

appraisal as to what the detached 

structure is being used for or whether 

the lender is responsible for 

determining the current use. One 

commenter noted that the answer 

reiterates the requirements for force 

placement which do not seem relevant 

to the answer. Based on the comments 

received, the Agencies are revising the 

question to focus instead on whether a 

triggering event requires a lender to 

review the intended use of the detached 

structure. The answer remains 

unchanged, except for removing the 

language regarding remapping and force 

placement and non-substantive wording 

changes for clarification. In addition, 

the Agencies are including a reference 

to new Q&A Applicability 13, which 

explains what constitutes a triggering 

event. With these changes, the Agencies 

are adopting Q&A Exemptions 5. 

Exemptions 6. The Agencies proposed 

new Q&A Exemptions 6 to discuss 

whether a lender, following a review of 

its loan portfolio, may determine to no 

longer require flood insurance on a 

detached structure in an SFHA if the 

structure does not provide contributory 

value. The Agencies proposed to clarify 

that, while a lender or servicer could 

initiate such a review, the Regulation 

does not permit the exemption of 

structures from the mandatory flood 

insurance purchase requirement based 

solely on their contributory value. 

Instead, a specific exemption must 

apply. The Agencies received no 

specific comments on this Q&A and are 

adopting the Q&A as proposed. 

Exemptions 7. The Agencies proposed 

new Q&A Exemptions 7 to address 

whether a building would qualify as a 

detached structure if it is joined to 

another building by a stairway or 

covered walkway. The proposed answer 

provided that for purposes of the 

detached structure exemption, a 

structure is ‘‘detached’’ from the 

primary residential structure if it is not 

joined by any structural connection to 

that structure, and ‘‘stands alone.’’ One 

commenter suggested that the Agencies 

allow lenders to defer to an insurer’s 

definition for a structural connection as 

this term is not defined in the 

Regulation or statute, or that the 

Agencies define this term. As indicated 

in the proposed Q&A, the Agencies have 

interpreted this term to mean a structure 

is ‘‘detached’’ if it stands alone and that 

this interpretation is consistent with the 

coverage provision of the NFIP’s 

Standard Flood Insurance Policy (SFIP) 

for additions and extensions to a 

dwelling unit. The proposed answer 

also included a reference to the NFIP 

Flood Insurance Manual for additional 

information. However, the Agencies are 

amending the Q&A to track the language 

of the Regulation and are removing the 

FEMA example as it is unnecessary. 

Therefore, the Agencies are adopting the 

Q&A with these changes. 

Proposed Section III. Coverage (NFIP/ 

Private Flood Insurance) 

The Agencies proposed in the July 

2020 Questions and Answers to move 

existing section XI to section III. This 

section included two new Q&As 

(Coverage 1 and 3), and existing Q&A 64 

redesignated as Coverage 2. Because the 

Agencies are consolidating the July 2020 

Proposed Questions and Answers and 

the March 2021 Proposed Questions and 

Answers, for organizational purposes, in 

the 2022 Interagency Questions and 

Answers the Agencies are moving the 

three Q&As under Section III Coverage 

to other sections as noted below and 

reassigning section III. 

The Agencies proposed new Q&A 

Coverage 1 in the July 2020 Proposed 

Questions and Answers to assist lenders 

in complying with the discretionary 

acceptance provision and mutual aid 

societies provision in the Agencies’ 

2019 Final Rule. The Agencies are 

redesignating this Q&A as Q&A 

Discretionary 4. Please refer to Section 

IV, Q&A Discretionary 4 for the 

Agencies response to comments. 

The Agencies proposed to redesignate 

existing Q&A 64 as Coverage 2. This 

Q&A addresses when a lender may rely 

on an insurance policy providing 

portfolio-wide coverage, removes the 

reference to criteria set forth by FEMA, 

and includes language addressing a 

lender’s reliance on a policy that 

provides portfolio-wide coverage. The 

Agencies are re-designating this Q&A as 

Q&A Applicability 14. Please refer to 

Section I, Q&A Applicability 14 for the 

Agencies response to comments. 

The Agencies proposed new Q&A 

Coverage 3 in the July 2020 Proposed 

Questions and Answers to address when 

mandatory flood insurance on a 

designated loan is required to be in 

place during the closing process. The 

Agencies redesignated Q&A Coverage 3 

as Q&A Applicability 15. Please refer to 

Section I, Q&A Applicability 15 for the 

Agencies response to comments. 

Additionally, the Agencies proposed 

in the July 2020 Proposed Questions 

and Answers to delete existing Q&A 63 

because it was inconsistent with the 

Agencies’ final rule implementing the 

private flood insurance provision of the 

Biggert-Waters Act.23 The Agencies 

received no specific comment on this 

proposed change and are deleting this 

Q&A as proposed. 

Section III. Private Flood Insurance— 

Mandatory Acceptance (Mandatory) 

The 2019 Final Rule requires lenders 

to accept ‘‘private flood insurance,’’ as 

defined in the Biggert-Waters Act 

(mandatory acceptance). In order to 

assist lenders in evaluating whether a 

flood insurance policy meets the 

definition of ‘‘private flood insurance,’’ 

the 2019 Final Rule also includes a 

compliance aid provision. Under the 

compliance aid provision, a lender may 

conclude that a policy meets the 

definition of ‘‘private flood insurance’’ 

without further review if the policy, or 

an endorsement to the policy, contains 

the compliance aid statement set forth 

in the rule. 


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24 42 U.S.C. 4012a(b)(1). 

The Agencies proposed a number of 

Q&As regarding mandatory acceptance 

and the compliance aid provision in the 

March 2021 Proposed Questions and 

Answers. As discussed in further detail 

below, the Agencies are combining 

proposed Q&A Mandatory 2 with 

proposed Q&A Discretionary 4 and 

renumbering the Q&A as Q&A Private 

Flood Compliance 11. The Agencies 

also are renumbering the other Q&As in 

this section accordingly. 

General Comments. The Agencies 

received some general comments 

regarding the Q&As related to the 

mandatory acceptance of private flood 

insurance policies. One commenter was 

supportive of the proposed Q&As, 

stating that the Agencies’ 

implementation of the mandatory 

acceptance provisions and widespread 

use of a compliance aid assurance 

clause have allowed the private flood 

insurance market to thrive. This 

commenter believed the mandatory 

acceptance provisions facilitate private 

policy placements, ensure that 

consumers have access to affordable 

flood coverage, and provide security to 

lenders seeking to fulfill their 

compliance obligation. 

Another commenter suggested the 

Q&As could incorporate language that 

clarifies digital transmission of relevant 

flood coverage documents, as well as 

physical transmission or use of paper 

documents, is permissible. As explained 

under Q&A Discretionary 2, the 

Regulation does not address the 

acceptability of electronic records, but 

lenders may accept electronic and 

digital records for recordkeeping 

purposes. 

One commenter noted that a number 

of the mandatory acceptance Q&As refer 

to ‘‘reviews’’ of private flood insurance 

policies. This commenter stated that it 

would be helpful to clarify that a flood 

insurance policy issued by a private 

insurer is subject to two different 

reviews. According to the commenter, 

as with any flood insurance policy, 

including NFIP policies, the lender or 

servicer must conduct the mandatory 

purchase requirement review in 

connection with a triggering event. The 

commenter stated that this review 

would include, among other things, 

determining whether the policy 

contains the appropriate coverage 

limits, deductible, term of coverage, and 

mortgagee clause. In addition, the 

commenter stated that, the lender or 

servicer must determine whether a 

private flood insurance policy satisfies 

the definition of ‘‘private flood 

insurance’’ or could otherwise be 

accepted by a lender under the 

discretionary acceptance criteria. The 

commenter requested this clarification 

throughout the Interagency Questions 

and Answers. 

The Agencies understand the 

commenter’s confusion regarding the 

term ‘‘review’’ as used in some of the 

Q&As in the mandatory acceptance 

section. The Agencies have generally 

clarified the type of review involved for 

relevant mandatory acceptance Q&As, 

either in the text of the Q&A or the 

preamble. 

Mandatory 1. Proposed new Q&A 

Mandatory 1 addressed whether a 

lender may decide to only accept 

private flood insurance policies under 

the mandatory acceptance provision of 

the Regulation. The proposed answer 

confirmed that a lender may decide to 

only accept private flood insurance 

policies that the lender is required to 

accept under the mandatory acceptance 

provision because the policies meet the 

definition of ‘‘private flood insurance’’ 

under the Regulation. The proposed 

answer also clarified that a lender is not 

required to accept flood insurance 

policies that only meet the criteria set 

forth in the discretionary acceptance or 

mutual aid provision in the Regulation. 

The Agencies received no specific 

comments on this Q&A and are adopting 

it as proposed with minor nonsubstantive edits. 

Mandatory 2 (Proposed as Q&A 

Mandatory 3). Proposed new Q&A 

Mandatory 3 addressed whether the 

private flood insurance requirements 

under the Regulation require a lender to 

change its policy of not originating a 

mortgage in non-participating 

communities or coastal barrier regions 

where the NFIP is not available. The 

proposed answer explained that the 

Regulation does not require a lender to 

originate a loan that does not meet the 

lender’s underwriting criteria. Further, 

the proposed answer noted that the 

flood insurance purchase requirement 

only applies to loans secured by 

structures located or to be located in an 

SFHA in which flood insurance is 

available under the Act. As stated in 

Q&A Applicability 1, as proposed and 

as adopted by the Agencies, the 

mandatory flood insurance purchase 

requirement does not apply within nonparticipating communities where NFIP 

insurance is not available under the Act. 

Therefore, the proposed answer states 

that the lender does not need to change 

its policy of not originating mortgages in 

areas where NFIP insurance is 

unavailable solely because of the private 

flood insurance requirements under the 

Regulation. The Agencies received no 

specific comments on this Q&A and are 

adopting it as proposed, with minor 

changes for clarity, and renumbered as 

Q&A Mandatory 2. 

Mandatory 3 (Proposed as Q&A 

Mandatory 4). Proposed new Q&A 

Mandatory 4 addressed whether the 

compliance aid assurance clause could 

act as a conformity clause that would 

make a flood insurance policy issued by 

a private insurer conform to the 

definition of ‘‘private flood insurance’’ 

under the Regulation. The proposed 

answer clarified that the compliance aid 

assurance clause is not intended to act 

as a conformity clause but rather to 

facilitate the ability of lenders and 

borrowers to recognize policies that 

meet the definition of ‘‘private flood 

insurance’’ and promote the consistent 

acceptance of policies that meet this 

definition. 

The Agencies received a few 

comments on this proposed Q&A. One 

commenter agreed in principle that the 

compliance aid language should not, 

and cannot, act as a conformity clause, 

due mainly to the unique legal status 

that the term ‘‘conformity clause’’ has in 

State insurance regulation and contract 

law. Another commenter noted that 

whether the compliance aid assurance 

clause acts as a conformity clause is best 

interpreted by State insurance 

regulation and contract law. The third 

commenter explained that interpretation 

of insurance contracts, including 

whether the compliance aid assurance 

clause acts as a conformity clause, 

should be a matter of State law. This 

commenter further stated that this Q&A 

is outside the scope of the Federal flood 

insurance statutes and regulations, and 

is outside the Agencies’ authority to 

interpret and apply those Federal 

statutes and regulations. The commenter 

recommended instead that the Agencies 

address this question by providing 

guidance that this is a matter of State 

insurance contract law. The Agencies 

disagree with this commenter’s 

statement regarding the scope of the Act 

and Regulation and the Agencies’ 

authority to interpret or apply the Act 

and Regulation. The Agencies adopted 

the compliance aid provision in the 

Regulation pursuant to the authority 

granted to the Agencies in the Act to 

issue the Regulation.24 Therefore, the 

Agencies have the authority to interpret 

this provision in a Q&A. 

Additionally, a few of the commenters 

recommended that the Agencies delete 

references to ‘‘assurance clause’’ in this 

Q&A and revert to prior language that 

simply refers to this clause as the 

compliance aid language or statement. 

The commenters noted that the addition 

of ‘‘assurance clause’’ in the current 


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25 84 FR 4953, 4959 (Feb. 20, 2019). 

Q&A could infer a meaning beyond that 

intended by the Agencies because the 

term ‘‘assurance clause’’ has broad 

meaning under State insurance 

regulations and insurance laws. The 

Agencies agree with these comments. 

The Agencies are removing references to 

‘‘assurance clause’’ in the final Q&A, as 

well as in the other Q&As, and will refer 

to this as the ‘‘compliance aid 

statement’’ per the Regulation. With this 

change, and a minor change for clarity, 

the Agencies are adopting this Q&A as 

proposed and renumbered as Q&A 

Mandatory 3. 

Mandatory 4 (Proposed as Q&A 

Mandatory 5). Proposed new Q&A 

Mandatory 5 stated that a lender is not 

required to accept a flood insurance 

policy issued by a private insurer solely 

because the policy contains the 

compliance aid assurance clause if the 

lender chooses to conduct its own 

review and determines the flood 

insurance policy actually does not meet 

the mandatory acceptance requirements. 

The proposed answer noted that if a 

flood insurance policy issued by a 

private insurer does not include the 

compliance aid assurance clause, the 

lender must still review the policy to 

determine if it meets the requirements 

for private flood insurance as set forth 

in the Regulation before the lender may 

choose to reject the policy. 

One commenter believed that a flood 

insurance policy issued by a private 

insurer that includes the compliance aid 

statement must be accepted and did not 

support Q&A Mandatory 5. The 

Agencies have been clear that a lender 

is not required to accept a flood 

insurance policy issued by a private 

insurer solely because it contains the 

compliance aid statement. Lenders may 

still, at their discretion, review a flood 

insurance policy issued by a private 

insurer that contains the compliance aid 

statement and reject the policy if they 

do not believe it meets the definition of 

‘‘private flood insurance’’ or if it does 

not meet other requirements of the 

Regulation, such as providing the 

required amount of insurance. 

Other commenters emphasized that 

Q&A Mandatory 5 is confusing and 

unclear. For example, commenters 

pointed out that a lender does not have 

to accept a flood insurance policy 

issued by a private insurer that does not 

meet the coverage requirements and a 

review is not required if a policy does 

not meet the coverage requirements. 

Commenters were unsure if the 

‘‘required to accept’’ phrase in the 

question applies only to an assessment 

of whether the policy meets the 

definition of ‘‘private flood insurance’’ 

or if a lender could be required to accept 

the policy even if the policy is 

otherwise insufficient (such as the 

required dollar amount of coverage). 

Some commenters believed the 

Agencies make an assumption about a 

given lender’s processes by concluding 

that the lender would review a policy 

under mandatory acceptance criteria 

before the lender would review under 

discretionary acceptance criteria even 

though the Agencies make clear under 

proposed Q&A Mandatory 8 that a 

lender ‘‘may first review the policy to 

determine whether it meets the criteria 

under the discretionary acceptance 

provision.’’ One commenter emphasized 

that the Agencies go further than 

necessary in the proposed response and 

seem to dictate certain processes for the 

lender. 

In addition, commenters suggested 

the Agencies consider alternative 

language for Q&A Mandatory 5. One 

commenter was confused by the 

Agencies’ choice of language that did 

not align with the Regulation or the 

preamble discussion on the proposed 

Q&A. One commenter recommended the 

Agencies modify the answer to use plain 

language from the 2019 Final Rule and 

use consistent language to avoid 

confusion regarding key compliance 

concepts. 

As explained in the preamble to the 

2019 Final Rule, the Regulation does not 

permit lenders to reject a flood 

insurance policy issued by a private 

insurer solely because the policy is not 

accompanied by the compliance aid 

statement.25 The Agencies stress that the 

compliance aid statement is meant to be 

an aid for lenders and it is not required 

for lenders to accept a flood insurance 

policy issued by a private insurer. In 

addition, lenders should remember that 

other aspects of the Regulation must be 

met for a lender to accept a flood 

insurance policy issued by a private 

insurer, even if the policy meets the 

definition of ‘‘private flood insurance.’’ 

However, the Agencies understand 

the commenters’ concerns about Q&A 

Mandatory 5 as proposed and are 

incorporating suggested changes to 

address these issues. The final answer 

provides that if a flood insurance policy 

issued by a private insurer includes the 

compliance aid statement, the lender 

may choose to rely upon the statement 

and would not need to review the policy 

further to determine if the policy meets 

the definition of ‘‘private flood 

insurance.’’ The final answer also makes 

clear, however, that the lender is not 

required to accept this policy based 

upon inclusion of the compliance aid 

statement alone and may choose to 

make its own determination about 

whether the policy meets the definition 

of ‘‘private flood insurance’’ or whether 

the policy is acceptable under the 

discretionary acceptance or mutual aid 

criteria. In addition, if a flood insurance 

policy issued by a private insurer does 

not include the compliance aid 

statement, the final answer provides 

that the lender may not reject the policy 

solely because it does not include this 

statement. The final answer also states 

that a lender is not relieved from the 

requirement to accept a policy that 

meets the definition of ‘‘private flood 

insurance’’ and provides the required 

amount of insurance under the 

Regulation. The final answer also 

provides that the lender may determine 

the policy is acceptable under the 

discretionary acceptance or mutual aid 

criteria. 

Lastly, as mentioned in Q&A 

Mandatory 3 in this section, the 

Agencies are changing the term 

‘‘compliance aid assurance clause’’ 

throughout this Q&A to ‘‘compliance aid 

statement’’ to be consistent with the 

Regulation. 

With these changes, the Agencies are 

adopting proposed Q&A Mandatory 5 

and renumbering it as Q&A Mandatory 

4. 

Mandatory 5 (Proposed as Q&A 

Mandatory 6). Proposed new Q&A 

Mandatory 6 discussed whether a lender 

is required to conduct an additional 

review of a flood insurance policy 

issued by a private insurer under the 

mandatory acceptance provision if the 

policy includes the compliance aid 

assurance clause. The proposed answer 

stated that under the mandatory 

acceptance provision of the Regulation, 

if a policy or an endorsement to the 

policy contains the compliance aid 

assurance clause, a lender is not 

required to conduct any further review 

of the policy in order to determine that 

the policy meets the definition of 

‘‘private flood insurance.’’ The proposed 

answer also clarified that the language 

of the compliance aid assurance clause 

must be stated as set forth in the 

Regulation in order for the lender to rely 

on the protections of the compliance aid 

assurance clause. However, a lender 

need not reject a policy containing the 

compliance aid assurance clause if the 

formatting, font, punctuation, and 

similar stylistic effects that do not 

change the substantive meaning of the 

clause are different from the compliance 

aid assurance clause set forth in the 

Regulation. The proposed answer 

included a cross-reference to proposed 

new Q&A Mandatory 7. 

The Agencies received a specific 

comment on Q&A Mandatory 6 that was 


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supportive. The commenter agreed that 

if a policy or an endorsement to the 

policy contains the compliance aid 

statement, further review is not 

necessary in order for the lender to 

determine that a policy meets the 

definition of ‘‘private flood insurance.’’ 

Therefore, the Agencies are adopting 

this Q&A as proposed, other than 

amending the term ‘‘compliance aid 

assurance clause’’ throughout the Q&A 

to ‘‘compliance aid statement’’ to be 

consistent with the Regulation. The 

Agencies are also renumbering Q&A 

Mandatory 6 as proposed to Q&A 

Mandatory 5 and updating the included 

cross-reference. 

Mandatory 6 (Proposed as Q&A 

Mandatory 7). Proposed new Q&A 

Mandatory 7 described additional 

reviews a lender must conduct when a 

flood insurance policy issued by a 

private insurer includes the compliance 

aid assurance clause, as the clause only 

assists a lender in making the 

determination that a flood insurance 

policy meets the definition of ‘‘private 

flood insurance’’ in the Regulation, and 

not other requirements specified in the 

Regulation. Specifically, under the 

proposed answer, the lender also must 

ensure that the amount of insurance is 

at least equal to the lesser of the 

outstanding principal balance of the 

designated loan or the maximum limit 

of coverage available for the particular 

type of property under the Act. The 

answer also included a cross-reference 

to proposed new Q&A Mandatory 6. 

One commenter recommended that 

the Agencies revise Q&A Mandatory 7 

and include a new Q&A under the 

Private Flood Compliance section. This 

commenter understood that the 

Agencies are attempting to reassure 

lenders who may be reluctant to accept 

a flood insurance policy issued by a 

private insurer merely because the 

policy includes the compliance aid 

statement. At the same time, the 

commenter believed that the Agencies 

do not want lenders to overlook the 

fundamental ‘‘requirements for 

coverage’’ review. Thus, the commenter 

suggested the Agencies simplify Q&A 

Mandatory 7 and move the language 

regarding coverage and other applicable 

requirements to a new Q&A under the 

Private Flood Compliance section. In 

addition, this commenter further 

recommended the Agencies include 

appropriate cross-references between 

Q&A Mandatory 7 and their suggested 

new Q&A, as well as to applicable 

questions under other sections. The 

Agencies disagree with this comment. 

Under the Regulation, lenders must 

determine whether a policy issued by a 

private flood insurance company meets 

both the definition of ‘‘private flood 

insurance’’ and the required amount of 

insurance under the Regulation. The 

intent of proposed Q&A Mandatory 7 is 

to remind lenders that they must review 

the policy to ensure that it meets the 

amount of insurance required under the 

Regulation even if the policy includes 

the compliance aid statement. 

Many commenters had concerns with 

the sentence in the answer 

recommending that lenders ensure the 

accuracy of other key aspects of the 

policy, such as the borrower’s name and 

address. These commenters specifically 

found the phrase ‘‘key aspects of the 

policy’’ to be ambiguous, open-ended, 

extraneous, and potentially problematic 

and recommended either its deletion or 

amendment. Specifically, one 

commenter noted that because there are 

no statutory or regulatory requirements 

or references regarding this phrase or 

the included examples, this sentence 

could confuse lenders. Another 

commenter stated that the Agencies 

should clearly define the exact elements 

that lenders must review beyond the 

compliance aid statement. One 

commenter suggested that the Agencies 

instead instruct lenders to review the 

policy as they would review other 

insurance policies for safety and 

soundness. Further, one commenter 

explained that there are many valid 

reasons for differences between the 

named parties on a mortgage and a 

property insurance policy as well as for 

differences in the physical address of 

the property, especially if the mortgage 

system reflects the legal description for 

the property as opposed to a mailing 

address. 

The Agencies agree with the 

commenters that the phrase ‘‘other key 

aspects of the policy’’ is unclear. 

Because this sentence is not necessary 

to answer the question, the Agencies are 

deleting it in the final answer. Using 

alternative language regarding safety 

and soundness, as suggested by one 

commenter, would not eliminate 

ambiguity. However, the Agencies note 

that this deletion does not eliminate the 

need for lenders to conduct other 

reviews of a policy pursuant to their 

internal processes. 

One commenter requested that the 

Agencies use the term ‘‘limit’’ instead of 

the term ‘‘coverage’’ the first time it 

appears in the answer. The Agencies 

have considered this request and are 

changing this use of ‘‘coverage’’ to 

‘‘amount of insurance,’’ which is the 

phrase used in the Regulation. 

Additionally, the Agencies are adding 

a reference to the Regulation in the 

question in this Q&A to avoid further 

confusion. The Agencies also are 

amending the term ‘‘compliance aid 

assurance clause’’ throughout the Q&A 

to ‘‘compliance aid statement’’ to be 

consistent with the Regulation. 

With these changes, the Agencies are 

adopting this Q&A, renumbering it as 

Q&A Mandatory 6, and making a 

corresponding update to the included 

cross-reference. 

Mandatory 7 (Proposed as Q&A 

Mandatory 8). Proposed new Q&A 

Mandatory 8 addressed whether a 

lender may use the criteria under the 

discretionary acceptance provision to 

decide whether to accept a policy that 

does not contain the compliance aid 

assurance clause without first reviewing 

the policy to determine if it meets the 

mandatory acceptance provision. The 

proposed answer clarified that a lender 

may first review the policy to determine 

whether it meets the criteria under the 

discretionary acceptance provision. 

However, if the policy is not accepted 

under the discretionary acceptance 

provision, the lender still needs to 

determine whether it must accept the 

policy under the mandatory acceptance 

criteria. The proposed answer also 

reminded lenders to document that a 

policy provides sufficient protection of 

the loan if the lender accepts the policy 

under the discretionary acceptance 

provision of the Regulation. 

The Agencies did not receive any 

specific comment on Q&A Mandatory 8. 

However, the Agencies are adding a 

cross reference to Q&A Discretionary 2 

regarding the documentation of the 

sufficient protection of the loan, which 

provides that the lender may document 

this information electronically. The 

Agencies also are amending the term 

‘‘compliance aid assurance clause’’ in 

the question to ‘‘compliance aid 

statement’’ to be consistent with the 

Regulation. The Agencies are adopting 

Q&A Mandatory 8 with minor clarifying 

edits and renumbering as Q&A 

Mandatory 7. 

Mandatory 8 (Proposed as Q&A 

Mandatory 9). Proposed new Q&A 

Mandatory 9 noted that if the 

compliance aid assurance clause is 

included on the declarations page, a 

lender may accept the policy without 

further review to determine whether the 

policy meets the definition of ‘‘private 

flood insurance.’’ However, a lender 

also must ensure that the policy 

provides the amount of insurance as 

required under the Regulation. One 

commenter pointed out that many 

private flood insurance policies do not 

include this representation on the 

declarations page, but they do include it 

in the policy, and requested that the 

Agencies edit this Q&A to reflect this 

fact. The Agencies note that the 


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26The National Association of Insurance 

Commissioners (NAIC) notes, ‘‘[t]he surplus lines 

market (inclusive of U.S. and non-U.S. domiciled 

insurers) is a distinct segment of the industry 

consisting of non-admitted specialized insurers 

covering risks not available within the admitted 

market . . . Surplus lines insurers are subject to 

regulatory requirements and are overseen for 

solvency by their domiciliary [S]tate or country.’’ 

https://content.naic.org/cipr_topics/topic_surplus_

lines.htm. For specific definitions related to surplus 

lines insurers, lenders should review the State law 

in which the property is located. 

Regulation provides that a lender may 

accept a flood insurance policy issued 

by a private insurer if the compliance 

aid statement is in the policy. The 

purpose of the proposed Q&A was to 

provide guidance when a lender 

receives only the declarations page and 

not the policy. Therefore, to clarify this 

Q&A, the Agencies are changing the 

question to refer to the lender only 

receiving a declarations page without 

receiving a copy of the policy. 

Another commenter asked the 

Agencies to amend the response to make 

it clear that the lender may determine 

that the policy meets the definition of 

‘‘private flood insurance’’ without 

further review. The Agencies agree and 

have revised the answer as suggested by 

this commenter, which better reflects 

the language in the Regulation. 

One commenter stated that it would 

be helpful for the Agencies to identify 

in the answer the specific items that a 

lender must review to ensure 

compliance with the mandatory 

purchase requirement when the 

compliance aid assurance clause is 

included. The Agencies have addressed 

this issue in Q&A Mandatory 6 and 

included a cross-reference to Q&A 

Mandatory 6 in Q&A Mandatory 9. 

Therefore, the Agencies do not believe 

it is necessary to amend Q&A 

Mandatory 9 to include this 

information. 

Lastly, the Agencies are amending the 

term ‘‘compliance aid assurance clause’’ 

throughout the Q&A to ‘‘compliance aid 

statement’’ to be consistent with the 

Regulation. 

With the changes described above, the 

Agencies are adopting this Q&A, 

renumbering it as Q&A Mandatory 8, 

and making a corresponding update to 

the included cross-reference. 

Mandatory 9 (Proposed as Private 

Flood Compliance 11). The Agencies are 

renumbering proposed Q&A Private 

Flood Compliance 11 as Q&A 

Mandatory 9 in the 2022 Interagency 

Questions and Answers because it more 

appropriately fits within the Mandatory 

Acceptance Q&A section. As proposed, 

this Q&A addressed whether a lender 

may accept a private flood insurance 

policy that includes a compliance aid 

assurance clause, but that also includes 

a disclaimer that the ‘‘insurer is not 

licensed in the State or jurisdiction in 

which the property is located.’’ The 

proposed answer explained 

circumstances under which lenders may 

accept a policy issued by an insurer that 

is not licensed in the State or 

jurisdiction in which the property is 

located. The proposed answer also 

included a cross-reference to proposed 

Q&A Private Flood Compliance 10, 

which addressed whether lenders may 

accept policies issued by private 

insurers that are surplus lines insurers 26

for noncommercial residential 

properties. 

Some commenters suggested revising 

the answer to be more direct and to 

remove language that is addressed in 

Q&A Private Flood Compliance 10. The 

Agencies agree with the commenters 

that the answer can be worded more 

effectively and are adopting language 

similar to that recommended by one of 

the commenters. As revised, the answer 

provides that if the policy includes a 

statement indicating that the insurer is 

not licensed in the State or jurisdiction 

in which the property is located, 

suggesting that the policy is issued by 

a surplus lines insurer, but contains a 

compliance aid statement, lenders may 

accept the policy as long as the policy 

complies with the Regulation and 

applicable State laws. However, the 

Agencies note that the language 

removed from the proposed answer that 

provided specific circumstances under 

which lenders may accept a policy 

issued by a surplus lines insurer is still 

relevant. Specifically, a lender may 

accept a policy issued by a surplus lines 

insurer recognized or not disapproved 

by the relevant State insurance regulator 

as protection for loan collateral that is 

a commercial property. Also, a lender 

may accept a policy issued by a surplus 

lines insurer as protection for loan 

collateral that is a noncommercial 

property as a policy issued by an 

insurance company that is ‘‘otherwise 

approved to engage in the business of 

insurance by the insurance regulator of 

the State or jurisdiction in which the 

property to be insured is located.’’ 

The Agencies also are making one 

technical change to this question, 

amending the term ‘‘compliance aid 

assurance clause’’ to ‘‘compliance aid 

statement’’ to be consistent with the 

Regulation. 

With the changes described above, the 

Agencies are adopting Q&A Mandatory 

9. 

Section IV. Private Flood Insurance— 

Discretionary Acceptance 

(Discretionary) 

The 2019 Final Rule permits a lender, 

at its discretion, to accept a flood 

insurance policy issued by a private 

insurer even if the policy does not meet 

the statutory and regulatory definition 

of ‘‘private flood insurance,’’ provided 

the policy meets certain requirements in 

the rule (discretionary acceptance). The 

2019 Final Rule also permits a lender, 

at its discretion, to accept certain 

mutual aid plans that meet the 

conditions stated in the rule. 

The Agencies proposed the Q&As in 

this section, except for Q&A 

Discretionary 4, in the March 2021 

Proposed Questions and Answers. The 

Agencies originally proposed Q&A 

Discretionary 4, as adopted in these 

2022 Interagency Questions and 

Answers, as Q&A Coverage 1 in the July 

2020 Proposed Questions and Answers. 

The Agencies are combining proposed 

Q&A Discretionary 4 with proposed 

Q&A Mandatory 2 and renumbering this 

Q&A as Q&A Private Flood Compliance 

11, as discussed in more detail below. 

Discretionary 1. Proposed Q&A 

Discretionary 1 addressed whether 

lenders are required to accept flood 

insurance policies that meet the 

discretionary acceptance criteria. The 

proposed answer notes that the 

discretionary acceptance criteria in the 

Regulation set forth the minimum 

acceptable criteria that a flood insurance 

policy must have for the lender to 

accept the policy under the 

discretionary acceptance provision. The 

proposed answer clarified that it is at 

the lender’s discretion to accept a policy 

that meets the discretionary acceptance 

criteria so long as the policy does not 

meet the mandatory acceptance criteria. 

The Agencies received no specific 

comments on this Q&A and are adopting 

Q&A Discretionary 1 as proposed. 

Discretionary 2. Proposed Q&A 

Discretionary 2 addressed the 

requirements for documentation to 

demonstrate that a policy provides 

sufficient protection of a loan when a 

lender accepts that policy under the 

discretionary acceptance criteria. The 

proposed answer explained that the 

Regulation requires the lender to 

document its conclusion in writing that 

the policy provides sufficient protection 

of the loan, consistent with safety and 

soundness principles. In addition, the 

proposed answer included a crossreference to Q&A Discretionary 4 which 

discusses some factors to consider when 

determining whether a flood insurance 

policy issued by a private insurer 

provides sufficient protection of the 


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27These factors include whether: (1) A policy’s 

deductibles are reasonable based on a borrower’s 

financial condition; (2) the insurer provides 

adequate notice of cancellation to the mortgagor 

and the mortgagee; (3) the terms and conditions of 

the policy with respect to payment per occurrence 

or per loss and aggregate limits are adequate to 

protect the lending institution’s interest in the 

collateral; (4) the flood insurance policy complies 

with applicable State insurance laws; and (5) the 

private insurance company has the financial 

strength, solvency and ability to satisfy claims. See 

85 FR 40442, 40458 (July 6, 2020). 

loan, consistent with safety and 

soundness principles.27 Furthermore, 

the proposed answer noted that while 

the Regulation does not require any 

specific documentation to demonstrate 

that the policy provides sufficient 

protection of the loan, lenders may 

include any information that reasonably 

supports the lender’s conclusion 

following review of the policy. 

One commenter on this Q&A 

suggested that the Agencies clarify that 

a lender’s electronic records may serve 

as documentation that demonstrates that 

a policy provides sufficient protection 

of the loan. The Agencies note that 

specific provisions in the Regulation 

allow for the use of electronic records. 

For example, the Regulation allows for 

the use of the Standard Flood Hazard 

Determination Form in an electronic 

format. Although there are no general 

provisions in the Regulation regarding 

the acceptability of electronic records, 

the Agencies agree that electronic and 

digital records are acceptable for a 

lender’s recordkeeping purposes. In 

consideration of this comment, the 

Agencies are amending the Q&A by 

adding that a lender’s review of a policy 

under the discretionary acceptance 

provision may be performed and 

recorded electronically. 

The second commenter asked the 

Agencies to clarify whether in situations 

where a loan is secured by a building 

and land, and the value of the land 

securing a loan is greater than the loan 

amount, the lender could determine that 

flood insurance is not required or that 

the deductible may be higher than what 

the mandatory purchase criteria allows. 

The Agencies note that the Regulation 

requires that flood insurance be at least 

equal to the lesser of the outstanding 

principal balance of the designated loan 

or the maximum limit of coverage 

available for the particular type of 

property, and that land is excluded from 

this analysis. Therefore, the lender 

cannot waive the flood insurance 

requirement based on the value of the 

land. Additionally, a flood insurance 

policy issued by a private insurer must 

provide sufficient protection of the 

designated loan, consistent with general 

safety and soundness principles. When 

evaluating higher deductibles, lenders 

should ensure the deductible is 

reasonable considering the borrower’s 

financial condition. The Agencies 

believe that no change is needed in the 

Q&A to address this comment and that 

readers should refer to Q&A Private 

Flood Compliance 1. 

With the amendment described above, 

the Agencies are adopting Q&A 

Discretionary 2. 

Discretionary 3. Proposed Q&A 

Discretionary 3 addressed how a lender 

could evaluate concerns related to an 

insurer’s solvency, strength, and ability 

to pay claims in order to determine 

whether an insurance policy provides 

sufficient protection of a loan, 

consistent with general safety and 

soundness principles. The proposed 

answer provided that a lender may 

evaluate an insurer’s solvency, strength, 

and ability to satisfy claims by obtaining 

information from the State insurance 

regulator’s office of the State in which 

the property securing the loan is 

located, among other options. The 

proposed answer further indicated that 

a lender could rely on the licensing or 

other processes used by the State 

insurance regulator for such an 

evaluation. 

A number of commenters suggested 

that the Agencies provide additional 

examples for evaluating an insurer’s 

solvency, including the use of thirdparty sources of information such as 

credit rating agencies. Although lenders 

could consider many sources of 

information to evaluate an insurer, the 

Agencies decline to provide examples 

other than those included in the 

proposed Q&A. Further, including 

credit rating agencies as an example 

would be inconsistent with the 

principle in Section 939A of the DoddFrank Act, which required the Agencies 

to remove references to, or requirements 

of reliance on, credit ratings in their 

regulations with regard to assessment of 

the creditworthiness of a security or 

money market instrument using credit 

rating agencies. Although this provision 

concerns regulations, and not guidance, 

and is focused on the creditworthiness 

of a security or money market 

instrument, and not the solvency of an 

insurer, the Agencies believe it would 

be inappropriate to endorse or reference 

the use of credit rating agencies in the 

Interagency Questions and Answers in 

light of Section 939A of the Dodd-Frank 

Act. 

One commenter suggested that the 

Agencies remove the requirement for 

financial institutions to evaluate the 

solvency and strength of private flood 

insurers. The Agencies note that the 

Regulation does not require lenders to 

evaluate the solvency and strength of 

private flood insurers. Rather, it requires 

lenders to determine that the policy 

provides sufficient protection of the 

designated loan, consistent with general 

safety and soundness principles. 

Evaluating the solvency and strength of 

private flood insurers is one factor, 

among others, that lenders could 

consider in making this determination, 

as detailed in Q&A Discretionary 4 as 

adopted, discussed below. For these 

reasons, the Agencies are adopting the 

Q&A as proposed, with an update to the 

included cross-reference to reflect Q&A 

renumbering. 

Discretionary 4 (Proposed as Q&A 

Coverage 1). The Agencies proposed 

new Q&A Coverage 1 in the July 2020 

Proposed Questions and Answers to 

assist lenders in complying with the 

discretionary acceptance provision and 

mutual aid societies provision in the 

Agencies’ final rule implementing the 

private flood insurance provision of the 

Biggert-Waters Act. As noted above, the 

Agencies are renumbering this Q&A as 

Discretionary 4. The Q&A provides 

additional information on some factors 

to consider when determining whether 

a flood insurance policy issued by a 

private insurer provides sufficient 

protection of a loan. 

The Agencies received several 

comments on this Q&A. One commenter 

supported the Q&A because it is not 

overly prescriptive and will likely 

enhance the development of the private 

flood insurance market. A few 

commenters recommended that the 

Agencies clarify that the sufficient 

protection of a loan requirement only 

applies to the discretionary acceptance 

provision. The Agencies agree and are 

clarifying the question so that it 

specifically references the discretionary 

acceptance and mutual aid acceptance 

provisions. 

One commenter recommended that 

the Agencies expand the answer to 

explain that if a flood insurance policy 

issued by a private insurer or flood 

endorsement to an insurance policy 

issued by a private insurer states that 

the policy meets the definition of 

private flood insurance under 42 U.S.C. 

4012a, or includes similar alternative 

language, such as that the coverage is at 

least as broad as the NFIP, the policy is 

explicitly acceptable. Additionally, the 

commenter suggested that if the flood 

insurance policy issued by a private 

issuer is determined to be less than the 

coverage provided under an NFIP 

policy, and the policy states that 

coverage is amended to match the terms 

of an NFIP policy, that the policy is 

explicitly acceptable. The Regulation 

provides a specific compliance aid 


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28Proposed Q&A Amount 9 provided that a 

lender should determine the reasonableness of the 

deductible on a case-by-case basis, taking into 

account the risk that such a deductible would pose 

to the borrower and the lender. 

provision to assist lenders in 

determining if a policy meets the 

definition of private flood insurance. 

While lenders may consider the 

alternative language noted above when 

reviewing flood insurance policies 

issued by private insurers, making a 

policy acceptable based on such 

statements would not be consistent with 

the Regulation. Therefore, the Agencies 

are adopting proposed Q&A Coverage 1, 

renumbered as Discretionary 4, with the 

amendments discussed above. 

Section V. Private Flood Insurance— 

General Compliance (Private Flood 

Compliance) 

The Agencies proposed eleven new 

Q&As in this section in the March 2021 

Proposed Questions and Answers. As 

discussed in more detail above, the 

Agencies are renumbering proposed 

Q&A Private Flood Compliance 11 from 

the March 2021 Proposed Questions and 

Answers as Q&A Mandatory 9. Q&A 

Private Flood Compliance 11, as 

adopted in these 2022 Interagency 

Questions and Answers, is a 

combination of proposed Q&A 

Mandatory 2 and proposed Q&A 

Discretionary 4 from the March 2021 

Proposed Questions and Answers. 

Private Flood Compliance 1. Proposed 

new Q&A Private Flood Compliance 1 

addressed the maximum deductible 

permissible for a flood insurance policy 

issued by a private insurer on properties 

located in an SFHA. The proposed 

answer clarified that the analysis 

depends on whether the lender is 

accepting the flood insurance policy 

under the mandatory acceptance 

provision or the discretionary 

acceptance provision. 

For a private flood insurance policy 

that the lender is accepting under the 

mandatory acceptance provision, the 

proposed answer stated that the 

Regulation provides that the policy 

must contain a deductible that is ‘‘at 

least as broad as’’ the maximum 

deductible in the SFIP under the NFIP, 

which means that the deductible is no 

higher than the specified maximum 

under an SFIP for any total coverage 

amount up to the maximum available 

under the NFIP at the time the policy is 

provided to the lender. Further, the 

proposed answer provided that a policy 

with a coverage amount exceeding that 

available under the NFIP may have a 

deductible exceeding the specific 

maximum deductible under an SFIP. 

However, the proposed answer also 

advised that for safety and soundness 

purposes, the lender should consider 

whether the deductible is reasonable 

based on the borrower’s financial 

condition, consistent with guidance the 

Agencies proposed in Q&A Amount 9 28

and with how deductibles may be 

evaluated under the discretionary 

acceptance provision. The proposed 

answer also set forth examples to aid in 

compliance. 

Further, the proposed answer 

provided that for purposes of 

compliance with the discretionary 

acceptance provision, the Regulation 

requires that the policy provide 

sufficient protection of the loan, 

consistent with general safety and 

soundness principles. The proposed 

answer stated that among other factors 

a lender could consider in determining 

whether the policy provides sufficient 

protection of the loan is whether the 

deductible is reasonable based on the 

borrower’s financial condition. The 

proposed answer further provided that 

unlike the limitation on deductibles for 

policies accepted under the mandatory 

acceptance provision for any total 

coverage amount up to the maximum 

available under the NFIP, a lender can 

accept a flood insurance policy issued 

by a private insurer under the 

discretionary acceptance provision with 

a deductible higher than that for an SFIP 

for a similar type of property, provided 

the lender has determined the policy 

provides sufficient protection of the 

loan, consistent with general safety and 

soundness provisions. Finally, the 

proposed answer provided that whether 

a lender is evaluating the policy under 

the mandatory acceptance provision or 

the discretionary acceptance provision, 

a lender may not allow the borrower to 

use a deductible amount equal to the 

insurable value of the property to avoid 

the mandatory purchase requirement. 

The Agencies received several 

comments on this Q&A. One commenter 

asked for clarification of the flood 

insurance requirements for nonresidential detached structures that are 

part of a commercial property and 

requested that the Agencies not limit the 

applicability of the detached structure 

exemption only to residential 

properties. The Agencies note that 

Congress established the detached 

structure exemption in HFIAA. This 

exemption provides that any structure 

that is part of a residential property but 

detached from the primary residential 

structure and does not serve as a 

residence is not required to be covered 

by flood insurance. As this statutory 

exemption only applies to a detached 

structure that is part of a residential 

property, the Agencies cannot create an 

exemption for detached structures that 

are part of a commercial property. 

Therefore, the Agencies do not have 

authority to revise the answer as 

requested. 

One commenter requested 

clarification regarding the deductible 

when multiple buildings are insured on 

a single insurance policy. Some other 

commenters requested clarification on 

how the statement in Q&A Amount 9 

referenced in the final paragraph of the 

proposed Q&A applies differently to a 

flood insurance policy issued by a 

private insurer covering multiple 

individual buildings versus an NFIP 

policy, which is limited to covering a 

single building. In response to these 

comments, the Agencies are amending 

the answer to add language that 

provides that a lender may accept a 

private flood insurance policy covering 

multiple buildings regardless of whether 

any single building covered by the 

policy has an insurable value lower than 

the amount of the per occurrence 

deductible. The Agencies also are 

adding cross-references to new Q&A 

Amount 10 and Q&A Private Flood 

Compliance 2, which address related 

deductible issues, to assist the reader. 

One commenter indicated that the 

Q&A should include guidance that 

directs private insurers to consider 

climate change risk when setting flood 

insurance deductibles. As discussed 

above, climate change risk is outside the 

scope of the Agencies’ Interagency 

Questions and Answers. As indicated 

previously, the Agencies are working 

individually and on an interagency 

basis to address financial risks 

associated with climate change 

consistent with the Agencies’ regulatory 

and supervisory authorities. Therefore, 

the Agencies decline to make any 

change to the Q&A in response to this 

comment. For clarity, the Agencies are 

rewording the reference to the 

deductible requirement in the 

Regulation. With this clarifying edit and 

the amendment as noted, the Agencies 

are adopting Q&A Private Flood 

Compliance 1. 

Private Flood Compliance 2. Proposed 

new Q&A Private Flood Compliance 2 

clarified that a lender may require that 

the deductible of any flood insurance 

policy issued by a private insurer be 

lower than the maximum deductible for 

an NFIP policy, under both the 

mandatory acceptance provision and the 

discretionary acceptance provision. The 

proposed answer further stated that for 

the mandatory acceptance provision, the 

Regulation requires that the private 

flood insurance policy be at least as 

broad as an NFIP policy, which includes 

a requirement that the private flood 


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29New Q&A Fees 1, which is adapted from 

current Q&A 69, lists the four instances in the Act 

and Regulation when a lender or servicer can 

charge the borrower a fee for making a flood 

determination. New Q&A Fees 2, adapted from 

current Q&A 70, provides that charges made for lifeof-loan reviews by determination firms may be 

passed to the borrower under certain conditions. 

insurance policy contain a deductible 

no higher than the specified maximum 

deductible for an SFIP. Therefore, the 

proposed answer clarified that a lender 

may require a borrower’s private flood 

insurance policy deductible to be lower 

than the maximum deductible for an 

NFIP policy in connection with a policy 

that the lender accepts under the 

mandatory acceptance provision 

consistent with general safety and 

soundness principles and based on a 

borrower’s financial condition, among 

other factors. With respect to the 

discretionary acceptance provision, the 

proposed answer noted that the lender 

need only consider whether the policy, 

including the stated deductible, 

provides sufficient protection of the 

loan, consistent with general safety and 

soundness principles. The proposed 

answer also included a reference to 

proposed Q&A Private Flood 

Compliance 1, which also addresses 

deductibles. 

A commenter requested that the 

Agencies include in the answer an 

example of when a lender is not 

required to accept a policy for safety 

and soundness reasons related to the 

deductible, such as when a deductible 

is too high based on the borrower’s 

financial condition. The Agencies 

decline to include an example in the 

answer because the answer already 

makes clear that a lender can require, as 

a condition of accepting the policy, a 

lower deductible for safety and 

soundness reasons. The Agencies note 

that the issues of deductibles as they 

relate to flood insurance policies issued 

by private insurers are already 

discussed in Q&A Private Flood 

Compliance 1. Therefore, the Agencies 

are adopting this Q&A as proposed with 

some minor non-substantive edits. 

Private Flood Compliance 3. Proposed 

Q&A Private Flood Compliance 3 

provided guidance regarding whether a 

lender may charge fees to the borrower 

for the lender’s use of a third party to 

review flood insurance policies. The 

proposed answer provided that the Act 

and the Regulation do not prohibit 

lenders from charging fees to borrowers 

for contracting with a third party to 

review flood insurance policies, 

including a policy issued by a private 

insurer, and, as provided in Q&A Fees 

1 and Q&A Fees 2, lenders may charge 

limited, reasonable fees for flood 

determinations and life-of-loan 

monitoring.29 The proposed answer 

reminded lenders that they should be 

aware of any other applicable 

requirements regarding fees and 

disclosures of fees. 

A commenter suggested that the Q&A 

should be expanded to specifically 

speak to the lender’s ability to condition 

its acceptance of a flood insurance 

policy issued by a private insurer on 

payment of a fee. The Agencies disagree. 

As provided in the Act and the 

Regulation, a lender is required to 

accept a flood insurance policy issued 

by a private insurer that meets the 

definition of ‘‘private flood insurance,’’ 

as long as the policy meets the amount 

of insurance required under the 

Regulation. Therefore, a lender cannot 

condition the acceptance of such a 

policy on the payment of a fee by the 

borrower. Further, as stated above 

lenders should be aware of any other 

applicable requirements regarding fees 

and disclosures of fees. Therefore, the 

Agencies are adopting this Q&A as 

proposed with minor non-substantive 

edits. 

Private Flood Compliance 4. Proposed 

new Q&A Private Flood Compliance 4 

addressed the lender’s responsibility to 

ensure a policy issued by a private 

insurer meets the private flood 

insurance requirements of the 

Regulation if the policy is not available 

prior to loan closing. The proposed 

answer stated that the Act and 

Regulation do not specify the acceptable 

types of documentation for a lender to 

rely on when reviewing a flood 

insurance policy issued by a private 

insurer. The proposed answer also 

advised lenders to determine whether 

they have sufficient evidence to show 

the policy meets requirements under the 

Regulation and that if the lender does 

not have enough information to make 

this determination, then the lender 

should timely request additional 

information as necessary to complete its 

review. The proposed answer also 

suggested some optional steps that a 

lender could take to mitigate against 

closing delays. 

The Agencies received a number of 

comments on this Q&A. Commenters 

asserted that lenders may not be able to 

obtain, before closing, a full policy or 

other information sufficient to 

determine whether a policy complies 

with the private flood insurance 

requirements of the Regulation. The 

commenters suggested revising the 

answer to provide that a lender may 

close a loan without determining 

whether the policy satisfies these 

requirements and, if the lender later 

determines that the policy does not 

satisfy these requirements, the lender 

would then comply with the Act’s forceplaced insurance requirements. The 

commenters also noted that with NFIP 

policies, lenders often rely on paid 

applications as evidence of coverage 

and receive a declarations page only 

after loan closing. 

The Agencies decline to make the 

changes the commenters request. If a 

borrower is obtaining a flood insurance 

policy issued by a private insurer, the 

lender must determine whether the 

policy meets the requirements under the 

Regulation. If the lender cannot make 

this determination before closing on the 

loan, it may need to delay the closing. 

As discussed in Q&A Private Flood 

Compliance 5, the declarations page, if 

available to the lender before closing, 

may provide enough information for the 

lender to determine whether the policy 

meets the mandatory acceptance 

provision or discretionary acceptance 

provision of the Regulation or may 

contain the compliance aid statement, 

in which case the lender may rely solely 

on the declarations page. Otherwise, the 

lender may choose to ask the borrower 

to obtain the necessary information from 

the private insurer to provide to the 

lender. 

Further, with respect to the 

commenter’s statement that with NFIP 

policies, lenders often rely before 

closing on paid applications for 

coverage and do not receive a 

declarations page until after closing, the 

Agencies note that an NFIP policy does 

not need to be evaluated to determine if 

it complies with the private flood 

insurance requirements of the 

Regulation. In contrast, flood insurance 

policies issued by private insurers may 

not necessarily satisfy the private flood 

insurance requirements of the 

Regulation. As indicated above, a lender 

must review such a policy to determine 

if it satisfies these requirements. 

Finally, commenters also requested 

that the answer distinguish its 

applicability to the two forms of review: 

The review of sufficiency for 

compliance with the mandatory 

purchase requirement and the review of 

acceptability under the private flood 

insurance requirements of the 

Regulation. The intent of this Q&A is to 

remind lenders of their responsibility to 

ensure that a policy meets the private 

flood insurance requirements of the 

Regulation if the policy is not available 

prior to loan closing. It is not to address 

any of the other requirements in the 

Regulation. To clarify this, the Agencies 

are amending the Q&A so that it 

addresses only the private flood 

insurance requirements under the 


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Regulation and does not address any 

other flood requirements that the 

Regulation imposes. The Agencies also 

are adding in this Q&A a reference to 

Q&A Private Flood Compliance 5, to 

direct readers to guidance on whether a 

declarations page provides sufficient 

information for a lender to determine 

whether the policy complies with the 

private flood insurance requirements of 

the Regulation. 

With the exception of the changes 

discussed above, the Agencies are 

adopting this Q&A as proposed. 

Private Flood Compliance 5. Proposed 

new Q&A Private Flood Compliance 5 

addressed whether a declarations page 

provides sufficient information for a 

lender to determine whether a policy 

complies with the private flood 

insurance requirements of the 

Regulation. Under the proposed answer, 

the lender may rely on the declarations 

page if it provides sufficient information 

for the lender to determine whether the 

policy meets the mandatory acceptance 

provision or the discretionary 

acceptance provision of the Regulation 

or if the declarations page contains the 

compliance aid assurance clause. 

However, if the declarations page does 

not provide sufficient information, the 

proposed answer suggested that the 

lender should request additional 

information about the policy to aid its 

determination. 

The Agencies received a number of 

comments on this Q&A. Similar to Q&A 

Private Flood Compliance 4, the 

commenters asserted that the 

information lenders receive before 

closing may not be sufficient to 

determine whether the policy complies 

with the private flood insurance 

requirements of the Regulation, even 

though it is sufficient to determine that 

the policy satisfies the mandatory 

purchase requirement, and they 

suggested revising the answer to provide 

that a lender may close a loan without 

determining whether the policy satisfies 

the private flood insurance 

requirements. If the lender later 

determined that the policy does not 

satisfy these requirements, the lender 

would then comply with the Act’s forceplaced insurance requirements. For the 

reasons discussed in Private Flood 

Compliance 4, the Agencies decline to 

make the requested changes. 

Commenters further requested that 

the answer distinguish its applicability 

to the two forms of review: The review 

of sufficiency for compliance with the 

mandatory purchase requirement and 

the review of acceptability under the 

private flood insurance requirements of 

the Regulation. The Agencies note that 

the focus of this Q&A is on the private 

flood insurance requirements of the 

Regulation and not any other flood 

requirements imposed by the 

Regulation. To clarify this, the Agencies 

are revising the question to specifically 

refer only to the private flood insurance 

requirements under the Regulation. 

Several of the commenters requested 

guidance about a lender’s authority to 

request necessary information from the 

borrower or insurer. The Agencies 

affirm that lenders may seek necessary 

information from borrowers and 

insurers. As discussed above, if a lender 

is unable to obtain the necessary 

information about a policy issued by a 

private insurer before closing, it may 

need to delay the closing. Another 

commenter suggested that the Q&A is 

unnecessarily limited by references to 

the declarations page and that that the 

Agencies should revise the Q&A to 

focus on the various forms of, and 

purposes for examining, evidence of 

coverage rather than emphasizing the 

declarations page. The Agencies note 

that this Q&A focuses on the 

declarations page because, prior to 

proposing this Q&A, the Agencies had 

received many questions requesting 

guidance on whether a declarations 

page provides sufficient information for 

a lender to determine whether a policy 

complies with the private flood 

insurance requirements of the 

Regulation. Q&A Private Flood 

Compliance 4 makes clear that the Act 

and Regulation do not specify the 

acceptable types of documentation on 

which a lender must rely when 

reviewing a flood insurance policy 

issued by a private insurer. If the 

necessary information is contained in 

other appropriate documentation, the 

lender need not rely on the declarations 

page. 

The Agencies are adopting this Q&A 

as proposed, with the change to the 

question discussed above, and with one 

technical change to the answer that 

amends the term ‘‘compliance aid 

assurance clause’’ to ‘‘compliance aid 

statement’’ to be consistent with the 

Regulation. 

Private Flood Compliance 6. The 

Agencies proposed new Q&A Private 

Flood Compliance 6 to provide 

guidance on a lender’s ability to accept 

multiple-peril policies. Specifically, the 

proposed answer clarified that a lender 

may accept multiple-peril policies that 

cover the hazard of flood under the 

private flood insurance provisions of the 

Regulation, provided they meet the 

requirements of the Regulation. 

A commenter requested that the Q&A 

clarify that lenders are permitted to 

accept both standalone multiple-peril 

policies that address flood risks and 

policies that insure against other risks 

and that have a flood-related 

endorsement, as long as the mandatory 

or discretionary provisions of the 

Regulation are otherwise satisfied. The 

Agencies agree that lenders may accept 

multiple-peril policies that either 

address flood risks in the policy itself or 

address flood risks as an endorsement to 

the policy, and have amended to answer 

to clarify this. 

The Agencies are also making a 

technical correction to this Q&A by 

removing the phrase ‘‘provided the 

policy meets the requirements under the 

Regulation.’’ This phrase is redundant 

because the private flood insurance 

provisions of the Regulation already 

require the policy to meet the 

Regulation’s requirements. 

The Agencies are adopting this Q&A 

with this amendment. 

Private Flood Compliance 7. Proposed 

new Q&A Private Flood Compliance 7 

addressed the question of how the 

private flood insurance requirements of 

the Regulation work in conjunction with 

requirements of secondary market 

investors, such as the Federal National 

Mortgage Association (Fannie Mae) and 

the Federal Home Loan Mortgage 

Corporation (Freddie Mac). The 

proposed answer first reminded lenders 

that they must comply with the Federal 

flood insurance requirements. The 

proposed answer then noted that 

secondary market investor requirements 

are separate from the requirements of 

the Regulation, and that, if a lender 

plans to sell loans to such an investor, 

the lender should carefully review the 

investor’s requirements and direct 

questions regarding these requirements 

to the appropriate entities. The Agencies 

did not receive any specific comment on 

proposed Q&A Private Flood 

Compliance 7. Therefore, the Agencies 

are adopting Q&A Private Flood 

Compliance 7 as proposed, with one 

technical change to the question. 

Specifically, the Agencies are amending 

the term ‘‘compliance aid assurance 

clause’’ to ‘‘compliance aid statement’’ 

to be consistent with the Regulation. 

Private Flood Compliance 8. Proposed 

new Q&A Private Flood Compliance 8 

provided guidance to servicers for loans 

covered by flood insurance mandated by 

the Act. Specifically, the proposed 

answer clarified that for loans serviced 

on behalf of lenders supervised by the 

Agencies, the servicer must comply 

with the Regulation in determining 

whether a flood insurance policy issued 

by a private insurer must be accepted 

under the mandatory acceptance 

provision or may be accepted under the 

discretionary acceptance or mutual aid 

provisions. However, for loans serviced 


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30The NAIC notes that ‘‘[w]hereas [S]tates 

monitor the eligibility of U.S. domiciled surplus 

lines insurers, alien insurers eligible to write 

surplus lines premium are listed on the NAIC 

Quarterly Listing of Alien Insurers [https://

www.naic.org/prod_serv_alpha_

listing.htm#quarterly_alien] . . . [Alien insurers] 

are prohibited from establishing a U.S. branch 

office.’’ https://content.naic.org/cipr_topics/topic_

surplus_lines.htm. 

31See https://content.naic.org/cis_consumer_

information.htm. 

32See https://www.naic.org/prod_serv_alpha_

listing.htm#quarterly_alien. 

33 During discussion of the Biggert-Waters Act on 

the Senate floor, Sen. Crapo noted that surplus lines 

insurers can provide flood insurance coverage for 

residential properties and asked for clarification 

regarding the inclusion of surplus lines coverage in 

the definition of ‘‘private flood insurance.’’ In his 

response, Sen. Johnson stated, ‘‘[T]he definition of 

‘private flood insurance’ includes private flood 

insurance provided by a surplus lines insurer and 

is not intended to limit surplus lines eligibility to 

nonresidential properties. While the Senator is 

correct that surplus lines insurance is specifically 

mentioned in that context, overall the definition 

accommodates private flood insurance from 

insurers who are ‘licensed, admitted, or otherwise 

approved’ in the State where the property is 

located.’’ 158 Cong. Rec. S6051 (daily ed. Sept. 10, 

2012). 

34Cal. Ins. Code Section 1776. 

on behalf of other entities not 

supervised by the Agencies, the 

proposed answer stated that the servicer 

should comply with the terms of its 

contract with such an entity. The 

proposed answer suggested that when 

servicing loans on behalf of Fannie Mae 

or Freddie Mac, where there are insurer 

rating requirements specified within 

those entities’ servicing guidance or 

other relevant authorities that are not 

included in the Regulation, the servicer 

should adhere to those servicing 

requirements. The Agencies did not 

receive any specific comment on 

proposed Q&A Private Flood 

Compliance 8. Therefore, the Agencies 

are adopting Q&A Private Flood 

Compliance 8 as proposed. 

Private Flood Compliance 9. Proposed 

new Q&A Private Flood Compliance 9 

provided guidance regarding optional 

methods lenders can use to address 

questions on whether an insurer is 

licensed, admitted, or otherwise 

approved to do business in a particular 

State, which is one of the factors lenders 

must evaluate under both the mandatory 

acceptance and discretionary 

acceptance provisions. Specifically, 

proposed new Q&A Private Flood 

Compliance 9 explained that a lender 

could determine whether an insurer is 

licensed, admitted, or otherwise 

approved in a particular State, or 

whether a surplus lines or nonadmitted 

alien insurer 30 is permitted to issue an 

insurance policy in a particular State, by 

reviewing the website of the State 

insurance regulator where the collateral 

property is located or by contacting the 

State insurance regulator directly. 

Further, the proposed answer noted that 

the information with respect to surplus 

lines insurer eligibility may be available 

in the Consumer Insurance Search (CIS) 

tool available on the National 

Association of Insurance Commissioners 

(NAIC) website.31 The proposed answer 

stated that lenders also may consult 

commercial service providers regarding 

the eligibility of surplus lines insurers 

in particular States as long as the 

lenders have a reasonable basis to 

believe that these service providers have 

reliable information. With regard to 

nonadmitted alien insurers in 

particular, the proposed answer 

suggested that lenders could review the 

NAIC’s Quarterly Listing of Alien 

Insurers.32

The Agencies received one comment 

requesting that the Agencies allow 

financial institutions to rely on the 

regulated insurance companies to 

comply with the lender’s regulatory 

requirement to use a licensed insurance 

company because it is difficult to 

identify the insurer that is behind a 

specific flood insurance policy when 

the policy is issued by a syndicate of an 

alien insurer. As indicated above, if 

there is a compliance aid statement, and 

the lender is accepting the policy under 

mandatory acceptance, no further 

review is required to determine the 

status of the insurer. See Q&A 

Mandatory 6. However, the Agencies do 

not agree that the lender can waive its 

duty to verify whether an insurer is 

licensed, admitted, or otherwise 

approved in a particular State, or 

whether a surplus lines or nonadmitted 

alien insurer is permitted to issue an 

insurance policy in a particular State, if 

there is no compliance aid statement or 

if the lender is choosing to conduct its 

own review of whether the policy must 

be accepted under the mandatory 

acceptance provision or may be 

accepted under the discretionary 

acceptance provision. The Agencies are 

adopting Q&A Private Flood 

Compliance 9 as proposed. 

Private Flood Compliance 10. 

Proposed new Q&A Private Flood 

Compliance 10 addressed whether 

lenders may accept policies issued by 

private insurers that are surplus lines 

insurers for noncommercial residential 

properties. The proposed answer 

explained that if the surplus lines 

insurer is eligible or not disapproved to 

place insurance in the State or 

jurisdiction in which the property to be 

insured is located, lenders may accept 

policies issued by surplus lines insurers 

as coverage for noncommercial (i.e., 

residential) properties. In addition, the 

proposed answer confirmed that 

policies issued by surplus lines insurers 

for noncommercial properties are 

covered in the definition of ‘‘private 

flood insurance’’ and in the 

discretionary acceptance provision, 

which the Agencies noted in the 

preamble to the March 2021 Proposed 

Questions and Answers and in the 

proposed answer is consistent with the 

Act and the Regulation.33 Specifically, 

the Agencies explained that in the 

definition of ‘‘private flood insurance,’’ 

surplus lines policies for 

noncommercial properties are covered 

as policies that are issued by insurance 

companies that are ‘‘otherwise approved 

to engage in the business of insurance 

by the insurance regulator of the State 

or jurisdiction in which the property to 

be insured is located.’’ The proposed 

answer also noted that within the 

discretionary acceptance provision, 

noncommercial residential policies 

issued by surplus lines carriers are 

covered as policies that are issued by 

private insurance companies that are 

‘‘otherwise approved to engage in the 

business of insurance by the insurance 

regulator of the State or jurisdiction in 

which the property to be insured is 

located.’’ 

As the Agencies discussed in the 

preamble to the March 2021 Proposed 

Questions and Answers, if the surplus 

lines insurer is eligible or not 

disapproved to place insurance in the 

State or jurisdiction in which a property 

to be insured is located, the surplus 

lines insurer is deemed to be ‘‘otherwise 

approved to engage in the business of 

insurance by the insurance regulator of 

the State or jurisdiction in which the 

property to be insured is located’’ for 

purposes of the Act and Regulation. 

Therefore, the proposed answer noted 

that even if the surplus lines insurer is 

not considered to be engaged in the 

business of insurance under applicable 

State law, the surplus lines insurer 

nevertheless would meet the criteria 

only for purposes of this provision of 

the Regulation if the insurer is eligible 

or not disapproved to place insurance in 

the State or jurisdiction in which a 

property to be insured is located. 

In the preamble to the March 2021 

Proposed Questions and Answers, the 

Agencies provided an example to 

illustrate this concept, noting that under 

section 1776 of the California Insurance 

Code, the permission granted to allow 

an insurance policy issued by a 

nonadmitted insurer to be placed in 

California, ‘‘shall not be deemed or 

construed to authorize any insurer to do 

business in [California].’’ 34 In addition, 


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35 Id. 

section 1776 of the California Insurance 

Code states that ‘‘[p]lacement activities 

of a licensed surplus line broker in 

accordance with [California law], 

including, but not limited to, policy 

issuance, shall not be deemed or 

construed to be business done by the 

insurer in [California].’’ 35 However, as 

discussed in the March 2021 Proposed 

Questions and Answers, it is the 

Agencies’ understanding that these 

provisions of California law do not 

make ineligible or disapprove any 

individual surplus lines insurer from 

placing insurance in California if they 

meet all other applicable requirements 

in California law. Consequently, a 

surplus lines insurer that is eligible or 

not disapproved to place insurance in 

California is ‘‘otherwise approved’’ for 

purposes of the Regulation even though 

the surplus lines insurer is not 

authorized to do business in California 

for purposes of Section 1776 of the 

California Insurance Code. 

Some commentors suggested that the 

Agencies consider removing or 

redrafting the Q&A because it suggests 

that lenders have an independent 

obligation to verify the eligibility of 

surplus lines insurers seeking to write 

flood coverage. The Agencies decline to 

make the suggested changes noting that, 

absent a compliance aid statement 

under the mandatory acceptance 

provision, the lender is required under 

the Regulation to verify the insurer’s 

eligibility, as discussed above in 

connection with Q&A Private Flood 

Compliance 9. One commenter also 

suggested shortening the answer to only 

include the first sentence. The Agencies 

intentionally included the more detailed 

answer based on questions the Agencies 

have received and do not elect to 

shorten it. Therefore, the Agencies are 

adopting Q&A Private Flood 

Compliance 10 as proposed with one 

minor non-substantive edit to the 

question. 

Private Flood Compliance 11 (Proposed 

as Q&As Mandatory 2 and Discretionary 

4). 

Proposed Q&A Mandatory 2 and 

proposed Q&A Discretionary 4 

addressed lender requirements for 

reviewing flood insurance policies 

issued by private insurers. Because both 

proposed Q&As discussed similar 

issues, the Agencies are combining 

these two Q&As and renumbering them 

as Q&A Private Flood Compliance 11. 

Proposed new Q&A Mandatory 2 

addressed when a lender must review a 

flood insurance policy issued by a 

private insurer to make sure the policy 

meets the mandatory acceptance 

criteria, other than at loan origination. 

The proposed answer provided that 

other than at loan origination, a lender 

must review a flood insurance policy 

issued by a private insurer to determine 

whether it meets the mandatory 

acceptance criteria when the policy 

comes up for renewal, or any time the 

borrower presents the lender with any 

new flood insurance policy issued by a 

private insurer. The proposed answer 

clarified that a lender must review the 

policy in these instances regardless of 

whether a triggering event occurred 

(making, increasing, extending or 

renewing a loan). 

The proposed answer further 

explained that a lender may determine 

that the policy meets the mandatory 

acceptance criteria without further 

review if the policy or an endorsement 

to the policy includes the compliance 

aid assurance clause and clarified that if 

the policy does not meet the mandatory 

acceptance criteria, the lender may still 

accept the policy if it meets the 

discretionary acceptance criteria, or, if 

applicable, the mutual aid plan criteria. 

The proposed answer indicated that if 

the policy does not meet the mandatory 

acceptance, discretionary acceptance, or 

mutual aid plan criteria, the lender must 

notify the borrower in accordance with 

the force placement provisions of the 

Regulation and further indicated that if 

the borrower does not purchase flood 

insurance that complies with the 

Regulation, the lender must purchase 

insurance on the borrower’s behalf. 

The proposed answer also clarified 

that if a lender previously reviewed the 

flood insurance policy under the 

discretionary acceptance provision to 

ensure that the policy meets the private 

flood insurance requirements of the 

Regulation, the lender may rely on its 

previous review, provided there are no 

changes to the terms of the policy. 

However, as required by the Regulation, 

the proposed answer indicated that the 

lender must document its conclusion 

regarding sufficiency of protection of 

the loan in writing. 

Proposed Q&A Discretionary 4 

addressed whether a lender is required 

to review a flood insurance policy upon 

renewal if that policy was issued by a 

private insurer and was originally 

accepted in accordance with the 

discretionary acceptance provision. The 

proposed answer provided that if a 

lender had accepted a flood insurance 

policy issued by a private insurer in 

accordance with the discretionary 

acceptance requirements and the policy 

is renewed, the lender must review the 

policy upon renewal to ensure that it 

continues to meet the discretionary 

acceptance requirements. The proposed 

answer also stated that a lender would 

need to document its conclusion 

regarding sufficiency of the protection 

of the loan in writing upon each 

renewal to indicate that the policy 

continues to provide sufficient 

protection of the loan. 

One commenter to proposed Q&A 

Mandatory 2 stated its belief that a 

private policy should be reviewed either 

at every policy renewal or when 

making, increasing, extending or 

renewing a loan but believes it would be 

best if the policy is reviewed when 

making, increasing, extending or 

renewing a loan. This commenter also 

stated that in connection with a renewal 

of a policy, a lender should be able to 

rely on its prior review in connection 

with mandatory acceptance to be 

consistent with the proposed answer to 

Q&A Mandatory 2 that allows a lender 

to rely on its prior review in connection 

with discretionary acceptance. Some 

commenters indicated that proposed 

Q&As Mandatory 2 and Discretionary 4 

suggest that there is a distinction 

between the level of review required in 

connection with making, increasing, 

extending or renewing a loan (triggering 

event) and the level of review required 

to accept a new policy during the loan 

term or renewal of the policy that had 

initially been accepted, and 

recommended that the Agencies revise 

the answers to clarify the level of review 

required in connection with a triggering 

event and the renewal of coverage. 

Some commenters noted that in 

connection with private flood 

insurance, a private flood insurance 

policy must be reviewed for both the 

acceptability of the policy (i.e., whether 

the policy meets the definition of 

‘‘private flood insurance’’) and 

sufficiency (i.e., the amount and term of 

coverage), and they requested guidance 

on whether there is a distinction 

between the review required in 

connection with a triggering event and 

upon renewal of the policy. One 

commenter appreciated the statement in 

proposed Q&A Mandatory 2 that ‘‘the 

lender may rely on its previous review, 

provided there are no changes to the 

terms of the policy’’ and recommended 

that the Agencies provide additional 

detail as to what elements of the prior 

review may be relied on during review 

of the same policy at renewal. Other 

commenters stated that proposed Q&A 

Mandatory 2 conflicts with proposed 

Q&A Applicability 8, which stated that 

‘‘[a]part from the requirements 

mandated when a loan is made, 

increased, extended or renewed, a 

lender need only review and take action 


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on any part of its existing portfolio for 

safety and soundness purposes, or if it 

knows or has reason to know of the 

need for NFIP coverage.’’ These 

commenters recommended that the 

Agencies clarify that a private policy 

must be reviewed upon the making, 

increasing, extending or renewing of a 

loan, and otherwise may be reviewed 

periodically consistent with safety and 

soundness principles. These 

commenters also suggested that the 

Q&A refer to acceptance ‘‘criteria’’ 

rather than ‘‘requirements’’ unless 

referring to a specific required action. 

The commenters noted that proposed 

Q&A Discretionary 4 draws a distinction 

between origination and renewal, yet 

there is no statutory requirement to 

review policies at renewal. The 

commenters suggested the Agencies 

remove the requirement that the lender 

must review the policy upon renewal, 

and instead state that the lender should 

have procedures to ensure that the 

policy continues to meet the 

discretionary acceptance criteria. 

Based on the comments, the Agencies 

agree that a lender should be able to rely 

at renewal on a prior review of a private 

policy in connection with mandatory 

acceptance and discretionary 

acceptance. Accordingly, the Agencies 

are combining the guidance contained 

in proposed Q&A Mandatory 2 with 

proposed Q&A Discretionary 4 and are 

removing the language in the first 

paragraph of the proposed answer to 

Q&A Mandatory 2 that would have 

required a lender to review a private 

policy to determine whether it meets the 

mandatory acceptance criteria when the 

policy comes up for renewal. To 

improve readability, the Agencies are 

removing the reference in proposed 

Q&A Mandatory 2 to ‘‘making, 

increasing, extending or renewing a 

loan’’ after the term ‘‘triggering event’’ 

in the first paragraph. Additionally, the 

Agencies are amending the term 

‘‘compliance aid assurance clause’’ in 

the first paragraph of proposed Q&A 

Mandatory 2 to ‘‘compliance aid 

statement’’ to be consistent with the 

Regulation. 

The Agencies also are revising and 

broadening the second paragraph of the 

answer to proposed Q&A Mandatory 2 

to provide that if a lender has 

previously reviewed the flood insurance 

policy under any of the private flood 

provisions of the Regulation—the 

mandatory acceptance provision, the 

discretionary acceptance provision, or 

the mutual aid plan provision, the 

lender may rely on its prior review, 

provided there are no changes to the 

terms of the policy that would affect 

acceptance under the Regulation. The 

Agencies also are removing the phrase 

‘‘to ensure that the policy meets the 

private flood insurance requirements of 

the Regulation’’ in this paragraph of 

proposed Q&A Mandatory 2 because it 

is redundant. The answer for Q&A 

Private Flood Compliance 11 provides 

that the lender should have effective 

internal controls in place through 

appropriate policies, procedures, 

training and monitoring to ensure 

compliance with the requirements of the 

Regulation. The Agencies interpret the 

Regulation to provide that when there 

are no changes to the terms of the policy 

that would affect acceptance under the 

Regulation, the lender’s previous 

written documentation will constitute 

the documentation required under the 

Regulation each time the policy comes 

up for renewal and are amending the 

answer to address this issue. The 

Agencies believe that the answer 

properly distinguishes ‘‘criteria’’ from 

‘‘requirements’’ under the Regulation 

and therefore decline to change this 

term as requested by the commenter. 

Finally, a few commenters to 

proposed Q&A Mandatory 2 stated that 

references to force placement in the 

proposed Q&A seemed unnecessary and 

further complicate the message as to the 

level of review needed upon the 

renewal of a private insurance policy. 

As the answer to Q&A Private Flood 

Compliance 11 provides that in 

connection with a policy renewal a 

lender may rely on a previous review of 

the policy provided that there are no 

changes to the terms of the policy that 

would affect acceptance under the 

Regulation, the Agencies are not 

including the language regarding force 

placement that was proposed in Q&A 

Mandatory 2. 

With these amendments, the Agencies 

are adopting Q&A Private Flood 

Compliance 11. 

Section VI. Standard Flood Hazard 

Determination Form (SFHDF) 

Proposed section IV included 

questions and answers related to use of 

the Standard Flood Hazard 

Determination Form (SFHDF). The 

Agencies proposed to move existing 

section XII to section IV for 

organizational purposes. Accordingly, 

this proposal redesignated existing 

Q&As 65 through 68 as Q&As SFHDF 1 

through 4, respectively. The Agencies 

proposed changes to the Q&As in this 

section in the July 2020 Proposed 

Questions and Answers. Because the 

Agencies are combining the July 2020 

Proposed Questions and Answers and 

the March 2021 Proposed Questions and 

Answers into one Interagency Questions 

and Answers document, the Agencies 

are renumbering this SFHDF section as 

Section VI in the 2022 Interagency 

Questions and Answers and 

streamlining the title. 

SFHDF 1. The Agencies proposed to 

redesignate existing Q&A 65 as Q&A 

SFHDF 1 with only minor language 

modifications and no intended change 

in substance or meaning. This Q&A 

addresses whether the SFHDF replaces 

the borrower notification form. The 

Agencies received no specific comments 

on this Q&A and are adopting Q&A 

SFHDF 1 as proposed. 

SFHDF 2. The Agencies proposed to 

redesignate existing Q&A 66 as Q&A 

SFHDF 2 with only minor language 

modifications and no intended change 

in substance or meaning. This Q&A 

addresses whether a lender may provide 

a copy of the SFHDF to the borrower. 

The Agencies received two comments 

on this proposed Q&A. Both 

commenters suggested removing the 

phrase ‘‘so they can better understand 

their flood risk’’ from the answer as the 

lender need not contemplate a 

borrower’s intended use of a flood 

determination and there may be other 

reasons for providing a flood 

determination to a borrower. One 

commenter suggested that references to 

FEMA’s Letter of Determination Review 

(LODR) process be removed from the 

answer as it falls outside the scope of 

the question. In consideration of the 

comments received, the Agencies are 

removing the language regarding the 

borrower’s understanding of their flood 

risk and limiting references to the LODR 

to note only that a lender would need 

to make a flood determination available 

to a borrower under this FEMA process. 

With these amendments and some 

minor non-substantive edits, the 

Agencies are adopting Q&A SFHDF 2. 

SFHDF 3. The Agencies proposed to 

redesignate existing Q&A 67 as Q&A 

SFHDF 3 with only minor language 

modifications and no intended change 

in substance or meaning. This Q&A 

addresses the use of an SFHDF in 

electronic format. The Agencies 

received no specific comments on this 

Q&A and are adopting Q&A SFHDF 3 as 

proposed. 

SFHDF 4. The Agencies proposed to 

redesignate existing Q&A 68 as Q&A 

SFHDF 4 with only minor language 

modifications and no intended change 

in substance or meaning. This Q&A 

addresses the circumstances when a 

lender may rely on a previous SFHDF. 

The Agencies received one specific 

comment on this proposed Q&A. The 

commenter suggested clarifying the 

Q&A to note that an SFHDF may be 

reused for the same collateral on a 

subsequent loan secured by the same 


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36See https://www.fema.gov/flood-insurance/ 

risk-rating. 

37FEMA letter W–08021, dated April 16, 2008, 

set forth procedures for insurance companies 

relating to flood zone discrepancies. FEMA’s letter 

attached a Financial Institution Letter, FIL–114– 

2007, issued by the FDIC and dated December 21, 

2007, regarding managing risks associated with 

lapses in flood insurance coverage. FEMA letter W– 

08021 was archived in April 2018, and FIL–114– 

2007 was deactivated on December 1, 2018. 

collateral. The Agencies note that the 

existing Q&A states ‘‘if the same lender 

makes multiple loans to the same 

borrower secured by the same secured 

real estate, the lender may rely on its 

previous determination’’ if the other 

requirements referenced in the answer 

are satisfied. Therefore, no changes to 

the Q&A are needed to address this 

comment and the Agencies are adopting 

Q&A SFHDF 4 as proposed. 

Section VII. Flood Insurance 

Determination Fees (Fees) 

The Agencies proposed in the July 

2020 Proposed Questions and Answers 

to move existing section XIII, which 

contains questions and answers related 

to flood insurance determination fees, to 

proposed section V for organizational 

purposes. Because the Agencies are 

combining the July 2020 Proposed 

Questions and Answers and the March 

2021 Proposed Questions and Answers 

into one document, the Agencies are 

renumbering this Fees section as 

Section VII in the 2022 Interagency 

Questions and Answers. 

Fees 1. The Agencies proposed to 

redesignate existing Q&A 69 as Q&A 

Fees 1 with only minor changes and no 

intended change in substance or 

meaning. This Q&A addresses when a 

lender or servicer can charge a borrower 

a fee for making a flood determination. 

The Agencies did not receive any 

specific comment on proposed Q&A 

Fees 1, and are adopting it as proposed. 

Fees 2. The Agencies proposed to 

redesignate existing Q&A 70 as Q&A 

Fees 2 with only minor changes and no 

intended change in substance or 

meaning. This Q&A addresses whether 

charges made for life-of-loan reviews by 

flood determination firms may be 

passed along to the borrower. The 

Agencies did not receive any specific 

comment on proposed Q&A Fees 2 and 

are adopting it as proposed. 

Section VIII. Flood Zone Discrepancies 

(Zone) 

The Agencies proposed to redesignate 

the Q&As in existing section XIV, which 

addresses flood zone discrepancies, as 

section VI, and to redesignate current 

Q&As 71 and 72 as Q&As Zone 1 and 

2. The Agencies also proposed to add 

new Q&A Zone 3 to address borrower 

disputes of a lender’s flood zone 

determination. The Agencies proposed 

these changes in the July 2020 Proposed 

Questions and Answers. Because the 

Agencies are combining the July 2020 

Proposed Questions and Answers and 

the March 2021 Proposed Questions and 

Answers into one document, the 

Agencies are renumbering this Zone 

section as Section VIII in the 2022 

Interagency Questions and Answers. 

One commenter said that it supported 

the changes to this section because it is 

frustrating for agents when lenders 

demand that specific flood zones appear 

on a declarations page; the commenter 

believes that lenders should be 

concerned only with whether the 

structure is in an SFHA and the limit on 

the policy. Another commenter stated 

that all three Q&As in this section 

provide consistent clarification that the 

SFHDF is the dominant form when 

discrepancies arise. 

Zone 1. The Agencies proposed to 

redesignate existing Q&A 71 as Q&A 

Zone 1. Q&A 71 addresses what a lender 

should do when there is a discrepancy 

between the flood hazard zone 

designation on the flood determination 

form and the flood insurance policy 

declarations page. The Agencies 

proposed to revise the answer to Q&A 

71 to reflect a change in the Agencies’ 

expectations regarding a lender’s 

obligation in the event of such a 

discrepancy. The proposal stated that a 

lender is no longer required to attempt 

to resolve the discrepancy but that the 

lender should consider documenting the 

discrepancy in the loan file. The 

proposal further stated that if the flood 

determination form indicates that the 

building securing the loan is in an 

SFHA, the lender must require the 

appropriate amount of insurance 

coverage and is not otherwise required 

to attempt to resolve the discrepancy as 

previously indicated in current Q&A 71. 

Since the Agencies proposed Q&A 

Zone 1 in July 2020, FEMA has begun 

to implement Risk Rating 2.0 effective 

October 1, 2021.36 Under Risk Rating 

2.0, the determination of insurance 

premiums for NFIP policies no longer 

relies on the flood zone. As such, the 

flood zone is no longer included on the 

declarations page for NFIP policies 

issued under Risk Rating 2.0. Consistent 

with changes brought on by Risk Rating 

2.0, and after additional review, the 

Agencies are further revising this 

question and answer. Specifically, the 

Agencies are removing references to the 

declarations page and simplifying the 

answer to state that a lender need not 

reconcile or otherwise be concerned 

with a flood zone discrepancy to be in 

compliance with the Act and the 

Regulation. Finally, the Agencies are 

replacing references to the flood zone 

‘‘on the flood insurance policy 

declarations page’’ with the flood zone 

‘‘associated with a flood insurance 

policy’’ as a clarifying change. 

Several commenters stated that they 

appreciate the Agencies’ change in 

position that a lender is no longer 

required to reconcile discrepancies 

between the SFHDF and the 

declarations page. 

Some commenters sought clarification 

of this proposed Q&A; they believed its 

language erroneously suggested that 

force placement is appropriate to cover 

a loss that has already occurred when a 

premium deficiency is discovered 

during the claim handling process. One 

commenter stated that the force 

placement requirement should apply 

during the life of the loan, whenever a 

discrepancy arises (such as with a 

policy renewal or replacement or a 

remapping event), not just if a 

discrepancy arises in connection with 

the making, increasing, refinancing, or 

extending of a loan (a triggering event). 

Another commenter stated that if 

permitted by the security instrument, a 

lender could satisfy its statutory and 

regulatory obligations by advancing the 

funds necessary to pay the additional 

premium. This commenter suggested 

adding language to the Q&A that would 

expressly permit this alternative. The 

Agencies note that lenders no longer 

need to be concerned with potential 

misratings resulting from an incorrect 

flood zone for NFIP policies due to 

changes made by FEMA in Risk Rating 

2.0; therefore, the Agencies are revising 

the final Q&A to reflect this change. 

A commenter asked if this Q&A 

should be understood to mean the 

lender is no longer required to send to 

the insurance agent and/or the 

underwriter a reminder of FEMA’s letter 

of April 18, 2008 (W–08021).37 Another 

commenter asked if the lender is 

allowed to continue the existing 

practice with respect to discrepancies, 

including providing notification to the 

insurance agent or company. A third 

commenter asked whether the guidance 

should speak to the lender addressing a 

discrepancy at the time it is discovered 

rather than at the time of a potential 

loss, which could benefit both the 

lender and the borrower. In response, 

the Agencies affirm that there is no 

expectation that lenders will continue 

the existing practice, or take any other 

action, with respect to discrepancies 


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38See https://www.fema.gov/flood-insurance/ 

risk-rating. 

beyond what is described in this Q&A. 

The Agencies believe that Q&A 71, 

which sets forth expectations for 

resolving discrepancies, is 

unnecessarily burdensome. However, a 

lender is not prohibited from continuing 

the existing practice or otherwise 

attempting to resolve a discrepancy at 

any time. The Agencies are making no 

changes to the Q&A in response to these 

comments. 

A few commenters asked the Agencies 

to clarify that before it initiates the force 

placement process, the lender or 

servicer must first receive notice that 

the borrower is not paying the 

additional premium and must 

determine that the coverage is 

inadequate. As noted above, for NFIP 

policies, lenders no longer need to be 

concerned with potential misratings 

resulting from an incorrect flood zone 

due to changes made by FEMA in Risk 

Rating 2.0; therefore, the Agencies are 

revising Q&A Zone 1 accordingly. In 

light of these revisions, there is no 

longer a need to address these 

comments regarding force placement in 

this context. 

One commenter requested that the 

Agencies clarify that the reference to the 

‘‘appropriate amount of insurance 

coverage’’ refers to the dollar limit of 

flood insurance required. The Agencies 

confirm that this language refers to the 

dollar amount of the required insurance 

coverage. The Agencies are making no 

changes to the Q&A in response to this 

comment. 

One commenter sought clarification 

on how to handle zone discrepancies 

arising from flood insurance policies 

issued by private insurers, and another 

commenter stated that providing 

flexibility on how discrepancies are 

resolved with regard to flood insurance 

policies issued by private insurers is 

important. The Agencies note that 

companies that issue private flood 

insurance policies have discretion in 

how they may require lenders to handle 

flood insurance discrepancies. 

Accordingly, the Agencies are unable to 

provide clarification or guidance on this 

matter. Lenders may want to contact the 

insurers for information. The Agencies 

are making no changes to the Q&A in 

response to this comment. 

One commenter asked the Agencies to 

add a statement regarding the 

acceptability of Newly Mapped rated 

policies that show a non-SFHA zone as 

the ‘‘rated’’ flood zone. The statement 

would provide that as long as the 

‘‘current’’ flood zone matches the 

lender’s determined zone, the policy 

satisfies the mandatory purchase 

requirement. The Agencies note that 

this request concerns FEMA policy, not 

Agency policy, and an Agency response 

to the request is beyond the scope of 

this Q&A. 

The Agencies are adopting Q&A Zone 

1 with the revisions discussed above. 

Zone 2. The Agencies proposed to 

redesignate existing Q&A 72 as Q&A 

Zone 2. This Q&A addresses whether a 

lender is in violation of the Regulation 

if there is a discrepancy between the 

flood zone on the flood determination 

form and the policy declarations page. 

The Agencies proposed to revise this 

answer to reflect a change in the 

Agencies’ views on this question. The 

proposed Q&A clarified that a lender is 

not in violation of the Regulation if 

there is a discrepancy between the flood 

zone on the flood determination form 

and the flood zone on the policy 

declarations page. This proposed change 

is consistent with the change in the 

Agencies’ expectations regarding a 

lender’s obligation when there is a 

discrepancy between the flood 

determination form and the flood 

insurance policy, discussed in 

connection with Q&A Zone 1, above. 

The Agencies received no specific 

comments on proposed Q&A Zone 2 and 

are adopting it as proposed with two 

changes. First, as in Q&A Zone 1, the 

Agencies are replacing references to the 

flood zone ‘‘on the flood insurance 

policy declarations page’’ with the flood 

zone ‘‘associated with a flood insurance 

policy’’ to conform with changes made 

by FEMA in Risk Rating 2.0.38 Second, 

the Agencies are removing the language 

on documentation to reflect the changes 

made to Q&A Zone 1. 

Zone 3. The Agencies proposed new 

Q&A Zone 3 to explain what a lender 

should do when a borrower disputes the 

lender’s flood zone determination that a 

building securing the loan is located in 

an SFHA requiring mandatory flood 

insurance coverage. One commenter 

was strongly in favor of this Q&A. 

Another commenter appreciated the 

guidance and suggested adding 

emphasis in the first paragraph to the 

possible role of the flood determination 

vendor in resolving a dispute so that the 

dispute does not need to be elevated to 

FEMA. The Agencies encourage the 

parties to take appropriate actions to try 

to resolve disputes, and in some 

situations the appropriate actions could 

include seeking assistance from the 

vendor. However, the Agencies do not 

endorse particular actions, as 

appropriate actions are specific to 

particular situations. Accordingly, the 

Agencies are making no changes to this 

Q&A in response to this comment. 

Another commenter said that 

although the Q&A is helpful, the 

statement that ‘‘sufficient coverage must 

be in place . . . until FEMA has 

determined that the building is not in an 

SFHA,’’ may result in significant closing 

delays. The commenter requested that 

the Agencies carefully consider this 

potential delay and evaluate potential 

opportunities to mitigate these negative 

effects. As the Regulation requires and 

the proposed Q&A states, if the lender’s 

flood determination specifies that a 

building securing the loan is located in 

an SFHA and requires mandatory flood 

insurance coverage, sufficient coverage 

must be in place until FEMA has 

determined that the building is not in an 

SFHA. The Agencies are unable to 

mitigate the effects of any delays in the 

FEMA review process and are making 

no changes to the Q&A in response to 

this comment. 

For the reasons discussed above, the 

Agencies are adopting Q&A Zone 3 as 

proposed, with one minor edit to 

remove the reference to Q&A Zone 1. 

Section IX. Notice of Special Flood 

Hazards and Availability of Federal 

Disaster Relief (Notice) 

The Agencies proposed moving 

existing section XV to the proposed new 

section VII. This proposed new section 

includes existing Q&As 73 through 75 

and 78 through 80, which were 

redesignated as proposed Q&As Notice 

1 through 3 and Notice 5 through 7, 

respectively. Existing Q&As 76 and 77 

were combined into Q&A Notice 4. The 

Agencies proposed changes to the Q&As 

in this section in the July 2020 Proposed 

Questions and Answers. Because the 

Agencies are combining the July 2020 

Proposed Questions and Answers and 

the March 2021 Proposed Questions and 

Answers into one document, the 

Agencies are renumbering this Notice 

section as Section IX in the 2022 

Interagency Questions and Answers. 

Notice 1. The Agencies proposed to 

redesignate existing Q&A 73 as Q&A 

Notice 1, with minor language 

modifications for purposes of clarity 

with no change in meaning or 

substance. This Q&A explains that the 

Notice of Special Flood Hazards does 

not have to be provided to each 

borrower for a real estate related loan. 

In a transaction involving multiple 

borrowers, the lender need only provide 

the notice to any one of the borrowers 

in the transaction. The Agencies 

received one comment on this Q&A. The 

commenter asked the Agencies to clarify 

whether an electronic notice must meet 

the requirements of the Electronic 

Signatures in Global and National 

Commerce Act (E-Sign Act). The 


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39The Task Force on Consumer Compliance of 

the FFIEC adopted revised interagency examination 

procedures for the Flood Disaster Protection Act in 

2019. All of the Agencies, except the FCA, are 

members of the FFIEC. 

Agencies find that the requirements of 

the E-Sign Act are outside the scope of 

the Q&As and are adopting Q&A Notice 

1 as proposed. 

Notice 2. The Agencies proposed to 

redesignate existing Q&A 74 as Q&A 

Notice 2. This Q&A discusses the notice 

requirement for lenders making loans on 

mobile homes. In the proposal, the 

Agencies proposed to amend the Q&A to 

conform more closely to the Regulation. 

Proposed Q&A Notice 2 states that a 

lender must provide the Notice of 

Special Flood Hazards to the borrower 

within a reasonable time before the 

completion of the transaction, even if 

the lender only learns where the mobile 

home will be located just prior to 

closing and delivery of the Notice of 

Special Flood Hazards would delay 

closing. 

The Agencies received a number of 

comments for this Q&A. The majority of 

commenters to this Q&A asked the 

Agencies to further define ‘‘reasonable 

time.’’ One commenter stated that 

proper compliance with the Regulation 

should not be dependent on an 

inconsistent interpretation of 

‘‘reasonable time’’ from each of the 

Agencies. Another commenter believed 

lenders were frequently cited for not 

timely providing the Notice of Special 

Flood Hazards, even though no specific 

time frame is included in the Act or 

Regulation. This commenter cautioned 

the Agencies against using a time frame 

that would be unreasonable in certain 

situations, such as a refinance. A third 

commenter stated that it is common for 

a lender to receive an updated flood 

determination less than 10 days before 

closing. In such a case, the commenter 

suggested that ‘‘reasonable’’ would be 

the time between the revised finding 

and closing. 

The Agencies also received two 

comments requesting the addition of a 

new Q&A to address the timing of when 

a lender must provide the Notice of 

Special Flood Hazards to the borrower. 

One commenter pointed out that the 

same comment was made in 2009 and 

stated that there should be an explicit 

reference to the fact that a notice period 

of fewer or greater than 10 days may 

also be ‘‘reasonable’’ according to 

circumstances. Another commenter 

noted that while a ten-day notice period 

is not a requirement of the Regulation, 

the ten-day period appears to be a wellestablished and generally accepted time 

period. Therefore, this commenter 

recommended the Agencies incorporate 

a new Q&A and provided sample 

language. 

The Agencies acknowledge the 

difficulties lenders face with no defined 

period in the Act or the Regulation and 

have decided to modify the final Q&A 

Notice 2 to further define ‘‘reasonable 

time.’’ Therefore, in the final Q&A, the 

Agencies are incorporating language 

from the Interagency Examination 

Procedures for the Flood Disaster 

Protection Act 39 and the preamble to 

the 2009 Interagency Questions and 

Answers, both of which provided 

guidance on what constitutes a 

‘‘reasonable’’ notice. This language is 

similar to the commenter’s suggested 

language for a new Q&A. 

Specifically, the Agencies are making 

three changes to the final Q&A Notice 2. 

First, the Agencies are revising the 

question to ask when a lender should 

provide the Notice of Special Flood 

Hazards to the borrower, and how this 

requirement applies in situations 

regarding mobile homes where the 

lender may not know where the home 

is to be located until just prior to, or 

sometimes after, the time of loan 

closing. Second, the Agencies are 

amending the answer to state that what 

constitutes ‘‘reasonable’’ notice will 

necessarily vary according to the 

circumstances of particular transactions. 

A lender should bear in mind, however, 

that a borrower should receive a timely 

notice to ensure that (1) the borrower 

has the opportunity to become aware of 

the borrower’s responsibilities under the 

Act; and (2) where applicable, the 

borrower can purchase flood insurance 

before completion of the loan 

transaction. Lastly, the Agencies are 

revising the answer to state that the 

Agencies generally regard 10 calendar 

days before loan closing as a 

‘‘reasonable’’ time interval. 

In addition to comments regarding 

‘‘reasonable time,’’ one commenter 

asked the Agencies to amend their 

examination manuals to reflect how 

lenders and/or their servicers are 

frequently unaware of mobile home 

movement(s) and may only learn of 

changes afterwards. The commenter 

wanted the examination manuals to 

align examiner methods with the 

realities of the business processes. The 

commenter explained that ‘‘home only’’ 

transactions, where loans are secured by 

mobile homes not located on a 

permanent foundation, raise safety and 

soundness concerns for lenders. The 

Agencies do not believe this information 

is appropriate for their examination 

manuals. These types of situations are 

fact specific and cannot be addressed in 

the Interagency Questions and Answers 

or examination guidance. 

Another commenter preferred the 

existing Q&A 74 as written, rather than 

the proposed Q&A Notice 2. This 

commenter believed that existing Q&A 

74 gives the lender flexibility to provide 

the Notice of Special Flood Hazards to 

the borrower ‘‘as soon as practicable 

after determination that the mobile 

home will be located in an SFHA,’’ and 

it further provided that ‘‘lenders should 

use their best efforts to provide adequate 

notice of flood hazards to borrowers’’ as 

early as possible. The commenter stated 

that the existing Q&A 74 allows lenders 

the flexibility to incorporate their flood 

insurance compliance into the realities 

experienced in their business 

operations. The commenter 

recommended the Agencies revise this 

Q&A to retain this flexibility. As stated 

in the July 2020 Proposed Questions 

and Answers, the purpose of the 

proposed changes to existing Q&A 74 is 

to conform to the Regulation. The 

proposed answer, with the changes 

explained above, is consistent with the 

Regulation, and the Agencies decline to 

make any further changes that would be 

inconsistent with the Regulation. 

Notice 3. The Agencies proposed to 

redesignate existing Q&A 75 as Q&A 

Notice 3 with no changes. This Q&A 

addresses when the lender is required to 

provide notice to the servicer of a loan 

that flood insurance is required. The 

Agencies received no specific comments 

on this Q&A and are adopting the Q&A 

as proposed. 

Notice 4. The Agencies proposed to 

consolidate existing Q&As 76 and 77 for 

organizational reasons into Q&A Notice 

4, with no substantive changes. This 

Q&A discusses the appropriate form of 

notice to the servicer and whether it is 

necessary to provide a notice to a 

servicer affiliated with the lender. The 

Agencies received no specific comments 

to this Q&A and are adopting the Q&A 

as proposed. 

Notice 5. The Agencies proposed to 

redesignate existing Q&A 78 as Q&A 

Notice 5. This Q&A considers how long 

a lender must maintain the record of 

receipt by the borrower of the notice. 

The Agencies proposed amending this 

Q&A to list examples of what 

constitutes an acceptable record of 

receipt. The Agencies received one 

specific comment for proposed Q&A 

Notice 5. This commenter stated this 

proposed Q&A acknowledges that 

borrowers may be provided with an 

electronic notice. Therefore, this 

commenter recommended that for 

further clarity, the Agencies add an 

electronic example to the list in the 

answer. The Agencies agree with the 

commenter and are revising the 

answer’s list of examples to include the 


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borrower’s electronic signature that 

acknowledges receipt. 

Notice 6. The Agencies proposed to 

redesignate existing Q&A 79 as Q&A 

Notice 6, with non-substantive edits to 

provide additional clarity. This Q&A 

addresses whether a lender can rely on 

a previous notice if it is less than seven 

years old and it is the same property, 

same borrower, and same lender. The 

Agencies received no specific comments 

on this Q&A and are adopting it as 

proposed with one minor nonsubstantive edit. 

Notice 7. The Agencies proposed to 

redesignate existing Q&A 80 as Q&A 

Notice 7 with non-substantive edits to 

provide additional clarity. This Q&A 

discusses whether the use of the sample 

form notice is mandatory. The Agencies 

received no specific comments on this 

Q&A and are adopting it as proposed. 

Section X. Determining the Appropriate 

Amount of Flood Insurance Required 

(Amount) 

The Agencies proposed moving 

existing section II to a new section VIII 

and amending the section heading for 

streamlining purposes. The Agencies 

also proposed to redesignate existing 

Q&As 8, 9 and 11 through 17 as Amount 

1, Amount 2, and Amount 3 through 9 

respectively. The Agencies proposed 

changes to the Q&As in this section in 

the July 2020 Proposed Questions and 

Answers. Because the Agencies are 

combining the July 2020 Proposed 

Questions and Answers and the March 

2021 Proposed Questions and Answers 

into one document, the Agencies are 

renumbering this Amount section as 

Section X in the 2022 Interagency 

Questions and Answers. 

Amount 1. The Agencies proposed to 

redesignate existing Q&A 8 as Q&A 

Amount 1. This Q&A addresses the 

maximum limit of coverage available for 

the particular type of property under the 

Act. The Agencies proposed to revise 

this Q&A to discuss NFIP coverage 

limits more fully and to include 

coverage for condominiums and 

contents coverage. One commenter 

suggested that the Agencies address 

commercial condominiums in the listed 

examples of coverage amount 

calculations to clarify that the NFIP 

does not provide coverage for such units 

other than contents coverage. The 

Agencies agree that clarification is 

needed with respect to non-residential 

condominiums and have added a new 

Q&A in Section XII, Q&A Condo and 

Co-Op 9, to clarify that there is no 

mandatory purchase requirement for a 

loan secured by an individual nonresidential condominium unit. The 

Agencies are adopting Q&A Amount 1 

as proposed, with minor nonsubstantive edits. 

Amount 2. The Agencies proposed to 

redesignate existing Q&A 9, which 

defines ‘‘insurable value,’’ to Q&A 

Amount 2. The Agencies proposed to 

remove references in this Q&A to the 

rescinded FEMA Mandatory Purchase of 

Flood Insurance Guidelines and to 

provide greater clarity with no intended 

change in substance or meaning. One 

commenter requested clarification as to 

whether a lender or servicer may rely on 

the replacement cost value listed on the 

flood insurance policy declarations page 

to establish ‘‘insurable value.’’ The 

Agencies are revising the final answer to 

clarify that a lender may rely on the 

replacement cost value stated on the 

declarations page if the declarations 

page includes such information. As 

noted in the proposed Q&A, the 

Agencies recognize that the ‘‘insurable 

value’’ of a building may be established 

by any reasonable approach, as long as 

such approach can be supported. 

Several commenters noted that since 

most home hazard insurance policies do 

cover foundations, the insurable value 

on a home hazard insurance policy may 

align with a flood insurance policy 

without the need for an adjustment. 

Based on the comment received, the 

Agencies have revisited the proposed 

answer and are removing the language 

that stated that hazard policies do not 

cover foundations in the final answer. 

Some commenters raised concerns 

about language in the second paragraph 

in this Q&A that indicated that it would 

be reasonable for lenders, in 

determining the amount of flood 

insurance required, to consider the 

extent of recovery allowed under the 

NFIP or a flood insurance policy issued 

by a private insurer for the type of 

property being insured. These 

commenters noted that the settlement 

basis for an insurance policy is a 

separate and distinct concept from the 

insurable value of a building and has no 

impact on insurable value. While the 

Agencies had included such language in 

the answer to provide further 

background, the Agencies believe 

information on the extent of recovery 

allowed under the NFIP or a flood 

insurance policy issued by a private 

insurer is not necessary to answer the 

question. Accordingly, the Agencies are 

deleting this language in the final Q&A. 

The Agencies are adopting proposed 

Q&A Amount 2 with the revisions 

discussed above. 

Amount 3. The Agencies proposed to 

redesignate existing Q&A 11, which 

provides examples of residential 

buildings, as Q&A Amount 3. The 

Agencies proposed to revise this Q&A to 

include more detailed definitions from 

the NFIP Flood Insurance Manual of the 

terms: single family dwelling, 2–4 

family residential building, and other 

residential building. The Agencies did 

not receive any specific comment on 

proposed Q&A Amount 3. Additionally, 

the Agencies note that the proposed 

answer was based on language included 

in an earlier version of the NFIP Flood 

Insurance Manual and that the manual 

has since been revised. Accordingly, the 

Agencies are making some nonsubstantive edits to the final answer to 

be consistent with the terminology used 

in the most recent version of the NFIP 

Flood Insurance Manual. The Agencies 

are adopting this Q&A as proposed, 

subject to edits noted above. 

Amount 4. The Agencies proposed to 

redesignate existing Q&A 12, which 

provides examples of non-residential 

buildings, as Q&A Amount 4. The 

Agencies proposed to revise this Q&A to 

provide a more detailed definition of 

non-residential building based on the 

NFIP Flood Insurance Manual. A few 

commenters requested that the Agencies 

revise the answer to remove the 

language stating that a non-residential 

building is one in which the named 

insured is a commercial enterprise. To 

address this comment, the Agencies are 

adding language in the answer to clarify 

that the description of a non-residential 

building is based on language in the 

NFIP Flood Insurance Manual and are 

revising the answer to more clearly 

indicate that the building need not be 

one in which the named insured is a 

commercial enterprise. Another 

commenter requested that the Agencies 

clarify that the lender may rely on 

borrower or agent assertions as to 

percentage of residential and 

commercial usage of a given property. 

The Agencies note that although a 

lender may rely on borrower or agent 

assertions as to percentage of residential 

and commercial usage of a given 

property, such language is not included 

in the NFIP Flood Insurance Manual. 

Therefore, the Agencies do not believe 

it would be appropriate to add such 

language to the answer. 

Additionally, the Agencies note that 

the language in the proposed answer 

was based on language included in an 

earlier version of the NFIP Flood 

Insurance Manual and that the manual 

has since been revised. Accordingly, the 

Agencies are revising the final answer to 

be consistent with the most recent 

version of the NFIP Flood Insurance 

Manual. The Agencies are adopting the 

Q&A as proposed, subject to the edits 

discussed above and minor nonsubstantive edits. 


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Amount 5. The Agencies proposed to 

redesignate existing Q&A 13 as Q&A 

Amount 5 and to revise it to provide 

greater clarity with no intended change 

in substance or meaning. This Q&A 

addresses how much insurance is 

required on a building located in an 

SFHA in a participating community. 

The Agencies received no specific 

comment on this Q&A and are adopting 

it as proposed, with a minor nonsubstantive edit. 

Amount 6. The Agencies proposed to 

redesignate existing Q&A 14 as Q&A 

Amount 6 and to revise it to provide 

greater clarity with no intended change 

in substance or meaning. This Q&A 

addresses flood insurance requirements 

when the real estate security contains 

more than one building located in an 

SFHA in a participating community. 

The Agencies received no specific 

comment on this Q&A and are adopting 

it as proposed, with a minor nonsubstantive edit. 

Amount 7. The Agencies proposed to 

redesignate existing Q&A 15 as Q&A 

Amount 7 and to revise it by making 

minor language modifications, with no 

intended change in substance or 

meaning. This Q&A addresses the flood 

insurance requirements where the 

insurable value of a building or mobile 

home securing a designated loan is less 

than the outstanding principal balance 

of the loan. The last sentence in this 

Q&A states that since the NFIP policy 

does not cover land value, lenders 

determine the amount of insurance 

necessary based on the insurable value 

of the improvements. One commenter 

suggested that the Agencies change 

‘‘improvements’’ to ‘‘building’’ because 

‘‘improvements’’ would include items 

that, like land itself, are not insurable 

under the NFIP for flood loss, such as 

fencing or paving. The Agencies agree 

with the commenter and are revising the 

final answer accordingly. The Agencies 

otherwise are adopting Q&A Amount 7 

as proposed. 

Amount 8. The Agencies proposed to 

redesignate existing Q&A 16 as Q&A 

Amount 8 and to revise it to provide 

greater clarity with no intended change 

in substance or meaning. This Q&A 

addresses whether a lender may require 

more flood insurance than the minimum 

required by the Regulation. The 

Agencies received no specific comment 

on this Q&A and are adopting it as 

proposed. 

Amount 9. The Agencies proposed to 

redesignate existing Q&A 17 as Q&A 

Amount 9 and to revise it by making 

minor language modifications, with no 

intended change in substance or 

meaning. This Q&A addresses lender 

considerations regarding the amount of 

the deductible on a flood insurance 

policy purchased by a borrower. One 

commenter recommended that the 

Agencies add language to Q&A Amount 

9 to clarify that the answer refers to the 

maximum deductible offered by the 

NFIP as some private insurers offer 

higher deductibles than are offered 

under the NFIP. The Agencies decline to 

make this change as Q&A Amount 9 is 

not limited to policies issued by the 

NFIP. 

Related to the topic addressed in Q&A 

Amount 9, one commenter 

recommended that the Agencies include 

a new Q&A that describes the function 

of a deductible and explains the role of 

the deductible in a safety and soundness 

consideration rather than discussing the 

deductible as related to the adequacy of 

coverage in satisfaction of the 

mandatory purchase requirement. The 

Agencies decline to add a new Q&A to 

address this topic as the topic is outside 

the scope of these Interagency Questions 

and Answers. Another commenter 

raised an issue that is related to, but 

distinct from the issue addressed in 

Q&A Amount 9. To address the issue 

raised by this commenter, the Agencies 

have added new Q&A Amount 10, 

discussed below. The Agencies 

therefore are adopting Q&A Amount 9 

as proposed. 

New Amount 10. In response to a 

comment raised on proposed Q&A 

Amount 9 that is related to, but distinct 

from the issue addressed in Q&A 

Amount 9, the Agencies have added 

new Q&A Amount 10. This commenter 

noted that the Agencies originally based 

the answer included in Q&A Amount 9 

on guidance which assumed that the 

property is a single building covered by 

a single flood insurance policy. 

However, this commenter noted that it 

is common for flood insurance policies 

issued by private insurers to include 

multiple buildings of varying value. The 

commenter recommended that the Q&A 

clarify that it is acceptable to have 

buildings or structures included on the 

policy that have a value lower than the 

deductible amount of the policy. The 

commenter also recommended that the 

Agencies provide that the lender may 

not allow the borrower to use a 

deductible amount equal to the 

aggregate insurable value of the property 

to avoid the mandatory purchase 

requirement for flood insurance. The 

Agencies recognize that many flood 

insurance policies issued by private 

insurers, such as blanket insurance 

policies purchased by some commercial 

borrowers, are single policies that 

provide coverage for: (i) Two or more 

kinds of properties in the same location; 

(ii) the same kind of property in two or 

more locations; or (iii) two or more 

different kinds of properties in two or 

more locations. Blanket policies often 

cover multiple perils such as flood, 

earthquake, fire, etc. and are often used 

to insure commercial real estate such as 

multifamily housing, office buildings, 

hotels, or resorts. Such blanket multiperil policies may also be used to insure 

a company’s chain of locations or 

franchised properties. 

The Agencies understand that 

generally, the deductible for a blanket 

flood insurance policy or multi-peril 

policy is in the form of a per-occurrence 

deductible that is applied to the covered 

loss arising from that occurrence. For 

example, a flood event that damages 

multiple buildings covered by this type 

of blanket flood insurance or multi-peril 

policy would incur the deductible once, 

not per building, and buildings covered 

under the terms of this type of policy 

are insured by the policy regardless of 

the policy deductible amount. The 

Agencies further understand that these 

types of private blanket flood insurance 

policies and blanket multi-peril policies 

provide coverage for each building 

covered by such a policy, without 

regard to the deductible and regardless 

of whether any individual building 

covered under the policy has a value 

that may be lower than the amount of 

the deductible. 

Accordingly, the Agencies have 

included new Q&A Amount 10 to 

address the acceptability of a blanket 

flood insurance policy or blanket multiperil policy that includes a deductible 

that may be higher than the insurable 

value of any individual building 

covered by the policy. The Q&A 

provides that a lender may accept a 

blanket flood insurance policy or 

blanket multi-peril policy that includes 

a per-occurrence deductible, regardless 

of whether any building covered by the 

policy has an insurable value lower than 

the amount of the deductible. The 

answer also provides that a lender may 

not allow the borrower to use a 

deductible amount equal to the 

aggregate insurable value of the property 

to avoid the mandatory purchase 

requirement. In addition, the answer 

provides that a lender should determine 

the reasonableness of the deductible on 

a case-by-case basis, taking into account 

the risk that such deductible would 

pose to the borrower and the lender. 

Section XI. Flood Insurance 

Requirements for Construction Loans 

(Construction) 

The Agencies proposed to move the 

prior section IV to the new section IX 

and redesignated prior Q&As 19 through 

23 as Q&As Construction 1 through 5, 


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respectively, and added a new 

construction-related Q&A, as Q&A 

Construction 6. The Agencies proposed 

changes to the Q&As in this section in 

the July 2020 Proposed Questions and 

Answers. Because the Agencies are 

combining the July 2020 Proposed 

Questions and Answers and the March 

2021 Proposed Questions and Answers 

into one document, the Agencies are 

renumbering this Construction section 

as Section XI in the 2022 Interagency 

Questions and Answers. 

Construction 1. The Agencies 

proposed to redesignate existing Q&A 

19 as Q&A Construction 1 and to make 

minor non-substantive wording changes 

for clarity. This Q&A addresses the 

applicability of the flood insurance 

requirements to a loan secured only by 

land that will be developed into 

buildable lot(s). The Agencies did not 

receive any specific comment on Q&A 

Construction 1 and are adopting it as 

proposed. 

Construction 2. The Agencies 

proposed to redesignate existing Q&A 

20 as Q&A Construction 2 and to make 

minor wording changes for clarity. This 

Q&A addresses whether a loan secured 

or to be secured by a building in the 

course of construction that is located or 

to be located in an SFHA in which flood 

insurance is available under the Act is 

a designated loan. The Agencies did not 

receive any specific comment on Q&A 

Construction 2 and are adopting it as 

proposed. 

Construction 3. The Agencies 

proposed to redesignate existing Q&A 

21 as Q&A Construction 3 and to the 

revise the language by removing direct 

reference to the NFIP Flood Insurance 

Manual with no intended change in 

substance or meaning. This Q&A 

addresses whether a building in the 

course of construction that is located in 

an SFHA in which flood insurance is 

available under the Act is eligible for 

coverage under an NFIP policy. The 

Agencies received two comments on 

this Q&A. One commenter suggested 

that the Agencies edit the question to 

clarify that it is describing when 

construction is covered against loss by 

an NFIP policy. The commenter 

explained that the word ‘‘eligible’’ as 

used in the question could refer to the 

obligation to obtain insurance under the 

rule or coverage being effective under 

the policy. The Agencies clarify that 

proposed Q&A Construction 3 is 

addressing eligibility for coverage and 

not the obligation to obtain coverage nor 

the effectiveness of the coverage. The 

Agencies are revising the answer in final 

Q&A Construction 3 to explain when 

the NFIP will insure a building in the 

course of construction based on when 

the building is walled and roofed as 

well as when materials or supplies are 

eligible for coverage. 

A commenter suggested that the 

answer to this Q&A, which states that 

‘‘buildings in the course of construction 

that have yet to be walled and roofed are 

eligible for coverage except when 

construction has been halted for more 

than 90 days,’’ does not accurately 

describe what happens to NFIP coverage 

when construction is halted. 

Specifically, this commenter requested 

that the Agencies clarify that NFIP 

coverage ceases on day 91 of halted 

construction, as provided in the NFIP 

Flood Insurance Manual, and not on the 

day construction is halted for a period 

exceeding 90 days. In response to this 

comment, the Agencies are revising the 

answer in final Q&A Construction 3 to 

include the specific language from the 

NFIP Flood Insurance Manual that 

details the effect of a halt in 

construction on NFIP coverage. 

Specifically, buildings in the course of 

construction that are not walled and 

roofed are not eligible for coverage 

when construction stops for more than 

90 days and/or if the lowest floor for 

rating purposes is below the Base Flood 

Elevation. 

With these changes, the Agencies are 

adopting Q&A Construction 3. 

Construction 4. The Agencies 

proposed to redesignate existing Q&A 

22 as Q&A Construction 4. This Q&A 

addresses when a lender must require 

the purchase of flood insurance for a 

loan secured by a building in the course 

of construction that is located in an 

SFHA in which flood insurance is 

available. As in existing Q&A 22, the 

proposed answer provides that a lender 

may either require borrowers to have a 

flood insurance policy in place at the 

time of loan origination or allow a 

borrower to defer the purchase of flood 

insurance until either after a foundation 

slab has been poured and/or an 

Elevation Certificate has been issued or, 

if the building to be constructed will 

have its lowest floor below the Base 

Flood Elevation, when the building is 

walled and roofed. However, when 

flood insurance is deferred, the lender 

must require the borrower to have flood 

insurance in place before the lender 

disburses funds to pay for building 

construction (except as necessary to 

pour the slab or perform preliminary 

site work, such as laying utilities, 

clearing brush, or the purchase and/or 

delivery of building materials). 

The Agencies proposed to revise the 

answer to incorporate the NFIP’s 

removal of the waiver of the 30-day 

waiting period and to provide other 

clarifications. In particular, the 

Agencies proposed that if a lender 

requires a borrower to have flood 

insurance in place at the time of loan 

origination, a borrower should obtain a 

provisional rating based on the 

construction designs and intended use 

of the building to enable the placement 

of coverage prior to receipt of the 

Elevation Certificate (EC), based on 

FEMA guidance. The proposed Q&A 

further stated that in accordance with 

the NFIP requirement, it is expected that 

an EC will be secured and a full-risk 

rating completed within 60 days of the 

policy effective date. Under the 

proposed Q&A, failure to obtain the EC 

could result in reduced coverage limits 

at the time of loss. If the lender allows 

the borrower to defer the purchase of 

flood insurance, the lender should have 

adequate controls in place to ensure the 

borrower obtains flood insurance no 

later than 30 days prior to disbursement 

of funds to the borrower in light of the 

NFIP 30-day waiting period 

requirement, instead of no later than 

when the foundation slab has been 

poured and/or an EC has been issued as 

under existing Q&A 22. 

One commenter asked the Agencies to 

clarify at exactly what point in time 

insurance is required if the lender 

chooses to defer the purchase of flood 

insurance, or whether the timing of this 

purchase is in the lender’s discretion. 

This commenter also stated that the 

proposed answer contradicts itself by 

stating that, in order to comply with the 

Regulation, the lender must require the 

borrower to have flood insurance for the 

security property in place before the 

lender disburses funds to pay for 

building construction, such as 

foundations, walls and roofs. Another 

commenter suggested that the Agencies 

clarify the phrase ‘‘as necessary’’ in the 

statement in the proposed answer 

regarding exceptions to fund 

disbursement. The Agencies note that 

under both the existing and the 

proposed answer, a lender has the 

option to defer the requirement to 

purchase flood insurance until either 

one of the following events occur: a 

foundation slab has been poured and/or 

an elevation certificate has been issued, 

or if the building to be constructed will 

have its lowest floor below the Base 

Flood Elevation, when the building is 

walled and roofed. Further, the answer 

provides that pouring the slab or 

performing preliminary site work, such 

as laying utilities, clearing brush, or the 

purchase and/or delivery of building 

materials is exempted from the 

requirement to have flood insurance in 

place before the disbursement of funds. 

To address the commenter’s concern 


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regarding the phrase ‘‘as necessary,’’ the 

Agencies are replacing this phrase with 

‘‘for funds to be used’’ in the final Q&A. 

The Agencies also are revising the 

answer to specifically reference the 

NFIP 30-day waiting period to provide 

further explanation and are making 

minor wording changes for clarity. 

With the changes described above, the 

Agencies are adopting Q&A 

Construction 4. 

Construction 5. The Agencies 

proposed to redesignate existing Q&A 

23 as Q&A Construction 5. This Q&A 

addresses the application of FEMA’s 30- 

day waiting period when deferring the 

purchase of the flood insurance policy 

in connection with a construction loan. 

The Agencies proposed to revise this 

Q&A to reflect the NFIP’s change in 

policy regarding the 30-day waiting 

period. Specifically, the proposed 

answer indicated that the 30-day 

waiting period will apply if a lender 

allows a borrower to delay the purchase 

of flood insurance in connection with a 

construction loan. One commenter 

suggested that language should be 

added to allow lenders to rely on agent 

representations regarding the 

application of a waiting period, 

referencing the NFIP Flood Insurance 

Manual. The Agencies note that the 

NFIP Flood Insurance Manual permits 

insurers to rely on an insurance agent’s 

representation that there is no waiting 

period in connection with the insured’s 

application for flood insurance on or 

before the closing date of the loan 

transaction. Therefore, reliance on an 

agent’s representation would not apply 

in the context of a construction loan 

where the lender allows the borrower to 

defer the purchase of flood insurance 

after the closing date. Accordingly, the 

Agencies believe that permitting agent 

reliance in this Q&A is not appropriate 

and are not adding language to the Q&A 

to address this comment. 

The Agencies also proposed to state in 

the answer that under the NFIP, a 30- 

day waiting period applies anytime a 

lender requires flood insurance not in 

connection with the making, increasing, 

renewing or extending of a designated 

loan. After further review, the Agencies 

have decided to amend this statement so 

that it more clearly answers the question 

being asked, specifically, the 

application of the NFIP waiting period 

when the purchase of the flood 

insurance policy is delayed. The final 

answer states that a 30-day waiting 

period will apply if a lender allows a 

borrower to delay the purchase of flood 

insurance in connection with a 

construction loan after making, 

increasing, renewing or extending the 

loan. Further, as noted in the NFIP 

Flood Insurance Manual, the answer 

states that a borrower must apply for 

flood insurance on or before the closing 

date of a loan transaction for the NFIP 

30-day waiting period to be waived. 

With these changes, the Agencies are 

adopting Q&A Construction 5. 

Construction 6. The Agencies 

proposed new Q&A Construction 6 to 

explain when a lender must begin 

escrowing flood insurance premiums 

and fees if the borrower defers the 

purchase of flood insurance in 

connection with a construction loan. 

Specifically, this Q&A provides that if a 

lender allows a borrower to defer the 

purchase of flood insurance until either 

the foundation slab has been poured 

and/or an EC has been issued, or if the 

building to be constructed will have its 

lowest floor below Base Flood Elevation 

when the building is walled and roofed, 

the lender will need to begin escrowing 

flood insurance premiums and fees at 

the time of purchase of the flood 

insurance, unless one of the escrow 

exceptions applies. The Agencies 

received one comment requesting that 

the Agencies clarify that the question 

only applies to designated loans that do 

not otherwise qualify for an exception to 

the mandatory escrow requirement. The 

Agencies do not believe that further 

elaboration is necessary because the 

answer as proposed references the 

escrow exceptions. Accordingly, the 

Agencies are adopting Q&A 

Construction 6 as proposed with minor 

non-substantive clarifications. 

Section XII. Flood Insurance 

Requirements for Residential 

Condominiums and Co-Ops (Condo and 

Co-Op) 

The Agencies proposed moving 

existing section VI to the new section X 

and expanding the heading to section X 

to include other multi-family dwellings 

such as cooperatives. Proposed section 

X included existing Q&As 26 through 

33, redesignated as proposed Q&As 

Condo and Co-Op 1 through 8, 

respectively and also one new Q&A. The 

Agencies proposed changes to the Q&As 

in this section in the July 2020 Proposed 

Questions and Answers. Because the 

Agencies are combining the July 2020 

Proposed Questions and Answers and 

the March 2021 Proposed Questions and 

Answers into one document, the 

Agencies are renumbering this Condo 

and Co-Op section as Section XII in the 

2022 Interagency Questions and 

Answers. 

Condo and Co-Op 1. The Agencies 

proposed to redesignate existing Q&A 

26 as Q&A Condo and Co-Op 1, with 

minor revisions to provide greater 

clarity and accurate references with no 

intended change in substance or 

meaning. This Q&A discusses whether 

residential condominiums, including 

multi-story condominium complexes, 

are subject to the statutory and 

regulatory requirements for flood 

insurance. The Agencies received no 

specific comment on Q&A Condo and 

Co-Op 1 and are adopting it as 

proposed. 

Condo and Co-Op 2. The Agencies 

proposed to redesignate existing Q&A 

27, which describes an NFIP Residential 

Condominium Building Association 

Policy (RCBAP), as Q&A Condo and CoOp 2 with no changes. The Agencies 

received no specific comment on Q&A 

Condo and Co-Op 2 and are adopting it 

as proposed. 

Condo and Co-Op 3. The Agencies 

proposed to redesignate existing Q&A 

28 as Q&A Condo and Co-Op 3, with 

minor revisions to provide greater 

clarity and accurate references with no 

intended change in substance or 

meaning. This Q&A addresses the 

amount of flood insurance coverage that 

a lender must require with respect to 

residential condominium units, 

including those located in multi-story 

condominium complexes, to comply 

with the mandatory purchase 

requirements under the Act and 

Regulation. The Agencies received no 

specific comment on Q&A Condo and 

Co-Op 3 and are adopting it as proposed 

with minor non-substantive edits. 

Condo and Co-Op 4. The Agencies 

proposed to redesignate existing Q&A 

29, which discusses the action a lender 

must take if there is no RCBAP 

coverage, as Q&A Condo and Co-Op 4. 

The Agencies proposed minor revisions 

to provide greater clarity and accurate 

references, with no intended change in 

substance or meaning. Two commenters 

addressed this Q&A. The first 

commenter requested that the Agencies 

address commercial condominiums and 

clarify that there is no mandatory 

purchase requirement for loans secured 

by individual commercial condominium 

units since the NFIP does not provide 

coverage for such units other than 

contents coverage. The Agencies agree 

with this commenter and are adding a 

new Q&A, Condo and Co-Op 9 that 

addresses the flood insurance 

requirements for loans secured by nonresidential condominium units, 

described below. 

The second commenter recommended 

that the Agencies clearly state that the 

mandatory purchase requirement only 

applies to non-residential condominium 

unit owners where the loan is also 

secured by condominium contents since 

contents coverage is the only coverage 

available from the NFIP. The Agencies 


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disagree with this commenter. Flood 

insurance on condominium contents is 

only required when the loan is secured 

by a building in an SFHA in which 

flood insurance is available under the 

Act and the loan also takes a security 

interest in the contents. As indicated 

above, the NFIP does not provide 

coverage for non-residential 

condominium units located in either a 

residential or non-residential 

condominium building. Therefore, the 

mandatory purchase requirement does 

not apply. 

However, in reviewing this Q&A, and 

in light of new Condo and Co-Op 9, the 

Agencies believe that rewording the 

question would provide additional 

clarity. Therefore, the Agencies are 

revising the question in the final Q&A 

to ask what action must a lender take for 

an individual residential unit owner in 

a residential condominium building 

with no RCBAP coverage. The Agencies 

also are replacing the term ‘‘individual 

unit owner/borrower’’ with ‘‘individual 

unit owner,’’ for clarity. The Agencies 

are adopting Q&A Condo and Co-Op 4 

as revised. 

Condo and Co-Op 5. The Agencies 

proposed to redesignate Q&A 30 as Q&A 

Condo and Co-Op 5 with minor 

revisions to provide greater clarity and 

accurate references, with no intended 

change in substance or meaning. This 

Q&A discusses the action a lender must 

take if the RCBAP coverage is 

insufficient to meet the Regulation’s 

mandatory purchase requirements for a 

loan secured by an individual 

residential condominium unit. The 

Agencies received one comment on this 

Q&A. The commenter expressed 

concern with the part of the answer that 

encourages lenders to apprise borrowers 

of an additional risk of loss that may 

arise when the unit owner purchases a 

separate policy because the RCBAP 

coverage is insufficient. The commenter 

believes this adds a new expectation 

that is not required by the Act or 

Regulation. The commenter also stated 

that lenders are not in the best position, 

nor do they have the level of insurance 

knowledge, to communicate the risk of 

loss to the borrower and therefore 

suggested the Agencies remove this 

expectation from the Q&A. The 

Agencies disagree with this commenter. 

The Agencies are only encouraging 

lenders to provide this information, not 

requiring that they do so. The Agencies 

therefore are adopting this Q&A as 

proposed with minor non-substantive 

edits. 

Condo and Co-Op 6. The Agencies 

proposed to redesignate existing Q&A 

31 as Q&A Condo and Co-Op 6 with 

minor revisions to provide greater 

clarity and no intended change in 

substance or meaning. This Q&A 

addresses what a lender must do when 

a loan secured by a residential 

condominium unit is in a complex 

whose condominium association allows 

its existing RCBAP to lapse. The 

Agencies received no specific comment 

on proposed Q&A Condo and Co-Op 6 

and are adopting it as proposed with 

minor non-substantive edits. 

Condo and Co-Op 7. The Agencies 

proposed to redesignate existing Q&A 

32 as Q&A Condo and Co-Op 7 with 

minor revisions to provide greater 

clarity and no intended change in 

substance or meaning. This Q&A 

addresses how the RCBAP’s coinsurance penalty applies in the case of 

residential condominiums, including 

those located in multi-story 

condominium complexes. The Agencies 

received no specific comment on Condo 

and Co-Op 7 and are adopting it as 

proposed. 

Condo and Co-Op 8. The Agencies 

proposed to redesignate existing Q&A 

33 as Q&A Condo and Co-Op 8 with 

minor revisions to provide greater 

clarity and no intended change in 

substance or meaning. This Q&A 

addresses the major factors that are 

involved with coverage limitations of 

the individual unit owner’s dwelling 

policy with respect to the condominium 

association’s RCBAP coverage. The 

Agencies received no specific comment 

on proposed Q&A Condo and Co-Op 8 

and are adopting it as proposed. 

New Condo and Co-Op 9. In response 

to public comment, as described above, 

the Agencies are adopting new Q&A 

Condo and Co-Op 9 to clarify the flood 

insurance requirements for nonresidential condominium units as well 

as residential condominium units 

located in a non-residential 

condominium building. The answer 

provides that coverage is not available 

under the NFIP for an individual 

residential condominium unit or a nonresidential condominium unit located in 

a non-residential condominium 

building. The answer further provides 

that NFIP coverage also is not available 

for a non-residential condominium unit 

located in a residential condominium 

building. Therefore, a loan secured by 

one of these types of units is not a 

designated loan under the Regulation, 

and the mandatory flood insurance 

requirement does not apply. 

Condo and Co-Op 10 (Proposed 

Condo and Co-Op 9). The Agencies 

proposed a new Q&A, designated as 

Q&A Condo and Co-Op 9 in the 

proposal, to address flood insurance 

requirements for loans secured by a unit 

in a cooperative building located in an 

SFHA. The proposed answer provided 

that a loan to a cooperative unit owner 

is not a designated loan subject to the 

Act or Regulation because the unit 

owner does not own a title to the 

building but simply the right to occupy 

a particular unit based on the 

cooperative ownership structure. One 

commenter asked the Agencies to clarify 

that since loans to cooperative unit 

owners secured by the owner’s share in 

the cooperative are not designated 

loans, lenders do not need to verify 

building-level coverage. The Agencies 

agree that lenders do not need to verify 

coverage on a cooperative building 

when a loan is secured by a share in a 

cooperative because this is not a 

designated loan subject to the Act or 

Regulation. However, the Agencies do 

not believe it is necessary to include 

this in the answer. The Agencies 

therefore are adopting this Q&A as 

proposed but renumbered as Q&A 

Condo and Co-Op 10 in the 2022 

Interagency Questions and Answers and 

with a minor non-substantive change. 

Section XIII. Flood Insurance 

Requirements for Home Equity Loans, 

Lines of Credit, Subordinate Liens, and 

Other Security Interests in Collateral 

(Contents) Located in an SFHA (Other 

Security Interests) 

The Agencies proposed to amend the 

heading to this section for clarity. The 

Agencies also proposed to redesignate 

existing section VII, which addresses 

Flood Insurance Requirements for Home 

Equity Loans, Lines of Credit, 

Subordinate Liens, and Other Security 

Interests in Collateral, as section XI. 

This proposed section included current 

Q&As 34, 35 and 36–43, which were 

redesignated as Q&As Other Security 

Interests 1, Other Security Interests 2, 

and Other Security Interests 4 through 

9 and 11 through 12, respectively. The 

Agencies also proposed to amend the 

heading to this section for clarity. The 

Agencies proposed changes to the Q&As 

in this section in the July 2020 Proposed 

Questions and Answers. Because the 

Agencies are combining the July 2020 

Proposed Questions and Answers and 

the March 2021 Proposed Questions and 

Answers into one document, the 

Agencies are renumbering this Other 

Security Interests section as Section XIII 

in the 2022 Interagency Questions and 

Answers. 

Other Security Interests 1. The 

Agencies proposed to redesignate 

existing Q&A 34 as Q&A Other Security 

Interests 1 with no substantive changes. 

This Q&A addresses whether a home 

equity loan is considered a designated 

loan that requires flood insurance. The 

Agencies received one supportive 


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40 74 FR 35913, 35923–35924 (July 21, 2009). 41 74 FR 35913, 35924 (July 21, 2009). 42 12 CFR 22.5(a)(2)(ii) (OCC); 12 CFR 

208.25(e)(1)(ii)(B) (Board); 12 CFR 339.5(a)(2) 

(FDIC); 12 CFR 614.4935(a)(2) (FCA); and 12 CFR 

760.5(a)(2) (NCUA). 

comment for this Q&A and are adopting 

it as proposed. 

Other Security Interests 2. The 

Agencies proposed to redesignate 

existing Q&A 35 as Q&A Other Security 

Interests 2, with no substantive changes. 

This Q&A addresses if a draw against an 

approved line of credit secured by a 

building or mobile home, which is 

located in an SFHA in which flood 

insurance is available under the Act, 

requires a flood determination under the 

Regulation. The Agencies received one 

supportive comment for this Q&A and 

are adopting it as proposed. 

Other Security Interests 3. The 

Agencies proposed new Q&A Other 

Security Interests 3, which addresses 

flood insurance coverage requirements 

for a line of credit secured by improved 

real property located in an SFHA. The 

proposed answer provided alternative 

approaches depending on when the 

lender requires flood insurance to be in 

place. The Agencies received two 

specific comments for this proposed 

Q&A. 

One commenter raised concerns about 

the language in the Q&A that indicated 

a lender may ‘‘actively review’’ its 

records ‘‘throughout the year’’ to 

determine if the appropriate amount of 

insurance is in place, and strongly 

recommended the Agencies define these 

terms for clarity. The commenter stated 

that while this review provides the 

lender flexibility, it could result in a 

different coverage requirement 

(assuming the loan balance is the lesser 

of the three components) and could 

result in force placement several times 

throughout the life of the loan. This 

commenter also stated that the Agencies 

should remove the Q&A’s language 

about informing the borrower of 

insurance risks because it is a new 

expectation from the Agencies and 

because monitoring for insurance risks 

is not the lender’s area of specialty. If 

such notice expectation is retained, the 

commenter requested more detail 

regarding the timing and content of such 

notice. 

The Agencies emphasize that the 

answer lists alternative approaches. 

Lenders may choose the option that 

works best for them and are not 

obligated to choose the second option 

where the lender actively reviews its 

records throughout the year. The 

Agencies anticipate that most lenders 

will choose the first option and believe 

that the answer provides enough 

guidance as proposed. 

Another commenter recommended 

that the Agencies clarify that the active 

review applies only to the amount of 

coverage and does not trigger a new 

determination. The commenter 

explained that there are continuing 

concerns regarding the burdens the 

Regulation places on junior lienholders 

to obtain information and concessions 

from senior lienholders regarding flood 

insurance. The Agencies believe that the 

proposed answer clearly provides that 

the review is about the amount of 

coverage and is not a triggering event 

requiring a new determination. 

Therefore, the Agencies have decided 

not to make any changes in response to 

these comments and are adopting Q&A 

Other Security Interests 3 as proposed. 

Other Security Interests 4. The 

Agencies proposed to redesignate Q&A 

36 as Q&A Other Security Interests 4, 

with only minor changes and no 

intended change in substance or 

meaning. This Q&A considers how 

much flood insurance is required when 

a lender makes, increases, extends or 

renews a second mortgage secured by a 

building or mobile home located in an 

SFHA. 

The Agencies received two specific 

comments for proposed Q&A Other 

Security Interests 4. One commenter 

recommended that the Agencies 

reconsider their approach to this 

question. The commenter believed that 

the Q&A continues to create practical 

challenges for the flood insurance 

operating model. For instance, the 

commenter explained that flood 

insurance administrators handling the 

junior lien are also required to monitor 

senior liens and corresponding coverage 

shortcomings to establish the proper 

amount of necessary coverage, even 

though the senior lien entity may not 

have a contractual relationship with the 

junior lien administrator. The 

commenter also explained that junior 

lien flood insurance administrators and/ 

or insurers direct claim payments to 

their insured policyholders, not senior 

lienholders with which they have no 

contractual arrangement. Therefore, the 

commenter recommended an approach 

that requires each lienholder (and any 

servicer or administrator) to assure 

sufficient flood insurance coverage for 

their respective exposure in their lien 

position. 

The Agencies acknowledge that 

although following the guidance in Q&A 

Other Security Interests 4 may be 

difficult for the junior lienholder, the 

junior lienholder is responsible for 

making sure the collateral is covered by 

the proper amount of flood insurance. 

As previously stated in the preamble to 

the 2009 Interagency Questions and 

Answers, the Agencies believe that, 

given the provisions of an NFIP policy, 

a lender cannot comply with Federal 

flood insurance requirements when it 

makes, increases, extends, or renews a 

loan by requiring the borrower to obtain 

NFIP flood insurance solely in the 

amount of the outstanding principal 

balance of the lender’s junior lien 

without regard to the flood insurance 

coverage on any liens senior to that of 

the lender.40 A junior lienholder’s 

failure to take such a step can leave that 

lienholder partially or even fully 

unprotected by the borrower’s NFIP 

policy in the event of a flood loss.41 As 

such, the Agencies decline to include 

this commenter’s suggested changes. 

Another commenter stated that this 

proposed Q&A addresses the amount of 

coverage required when a lender makes, 

increases, extends, or renews a second 

mortgage. This commenter also stated 

that junior lienholders are not subject to 

the escrow requirements in the 

Regulation, and that the Agencies 

should not create such requirements 

through the Interagency Questions and 

Answers. As noted below in the 

discussion related to proposed Q&A 

Escrow 6, junior lienholders are 

generally not subject to the escrow 

requirements. The junior lienholder 

qualifies for the escrow requirement 

exception if there is adequate flood 

insurance coverage with respect to the 

loan issued by the primary lienholder.42

However, this Q&A Other Security 

Interests 4 explains the responsibilities 

of the junior lienholder when there is a 

triggering event under the Regulation. 

This Q&A does not create new 

requirements for junior lienholders, as 

explained above to the other 

commenter. Therefore, the Agencies are 

adopting Q&A Other Security Interests 4 

as proposed. 

Other Security Interests 5. The 

Agencies proposed to redesignate Q&A 

37 as Q&A Other Security Interests 5, 

with no substantive changes. This Q&A 

discusses whether a lender has to make 

a new determination or adjust insurance 

coverage if a borrower requesting a loan 

secured by a junior lien provides 

evidence that flood insurance coverage 

is in place. The Agencies received no 

specific comments on this Q&A and are 

adopting it as proposed. 

Other Security Interests 6. The 

Agencies proposed to redesignate Q&A 

38 as Q&A Other Security Interests 6, 

with no substantive changes. This Q&A 

addresses whether flood insurance is 

required if the loan request is to finance 

inventory stored in a building located 

within an SFHA, but the building is not 

security for the loan. The Agencies 


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Federal Register / Vol. 87, No. 104 / Tuesday, May 31, 2022 / Rules and Regulations 32855 

43 42 U.S.C. 4012a(b); 12 CFR 22.3(a); 12 CFR 

208.25(c)(1) (Board); 12 CFR 339.3(a) (FDIC); 12 

CFR 614.4930(a) (FCA); and 12 CFR 760.3(a) 

(NCUA). 

received no specific comments on this 

Q&A and are adopting it as proposed. 

Other Security Interests 7. The 

Agencies proposed to redesignate Q&A 

39 as Q&A Other Security Interests 7. 

This Q&A considers if flood insurance 

is required if a building and its contents 

both secure a loan, and the building is 

located in an SFHA in which flood 

insurance is available. The Agencies 

proposed to revise the Q&A to clarify 

the application of Federal flood 

insurance requirements when both a 

building and its contents secure a loan. 

The Agencies received no specific 

comments on this Q&A and are adopting 

it as proposed. 

Other Security Interests 8. The 

Agencies proposed to redesignate Q&A 

40 as Q&A Other Security Interests 8, 

with no substantive changes. This Q&A 

provides that flood insurance is not 

required on contents securing a loan 

when the contents are stored in a 

building that does not also secure the 

loan. One commenter asked for 

clarification, stating that proposed Q&A 

Other Security Interests 10 appears to 

contradict proposed Q&A Other 

Security Interests 8 and may cause some 

confusion on how to handle contents 

located in a building in an SFHA. Q&A 

Other Security Interests 10 provides that 

flood insurance is required if the lender 

takes a security interest in contents 

located in a building in an SFHA 

securing the loan regardless of whether 

that security interest is perfected. The 

Agencies believe that the answers in 

both Q&As clearly provide that the 

building must secure the loan in order 

for flood insurance to be required for the 

contents located in that building. In 

addition, the Agencies do not think the 

Q&As are contradictory but provide 

complementary guidance. As such, the 

Agencies are adopting Q&A Other 

Security Interests 8 as proposed, with 

minor non-substantive edits. 

Other Security Interests 9. The 

Agencies proposed to redesignate Q&A 

41 as Q&A Other Security Interests 9. 

This Q&A discusses whether the 

Regulation applies when the lender 

takes a security interest in a building or 

mobile home and contents located in an 

SFHA only as an ‘‘abundance of 

caution.’’ The Agencies proposed to 

clarify the impact of including language 

regarding contents taken as security for 

a loan in the loan agreement. One 

commenter stated that it would be 

helpful if the Q&A provided further 

clarification with regard to the 

documentation that determines whether 

contents are taken as security for the 

loan. The commenter asked the 

Agencies to include language stating 

that the loan agreement, not the 

Uniform Commercial Code-1 or Deed of 

Trust, determines whether the contents 

are taken as security for the loan. The 

Agencies note that the answer already 

states that the language in the loan 

agreement is determinative and decline 

to include references to other 

documents. 

In connection with the proposed 

applicability Q&As, one commenter 

requested a change more relevant to 

Other Security Interests 9. Specifically, 

this commenter asked the Agencies to 

address situations where a lender 

obtains a security interest in contents 

when there is a cross collateralization 

clause or in an abundance of caution, 

specifically in situations in which the 

lender may not realize that a cross 

collateralization clause is in an old deed 

of trust, such as when the loan has been 

acquired from another bank as a result 

of a merger or if the security agreement 

is within the deed of trust instead of in 

a stand-alone document. The 

commenter recommended that contents 

coverage not be required under these 

situations. This commenter also asked 

the Agencies to exempt from the 

coverage requirements contents of 

limited value that might be included in 

a deed of trust out of an abundance of 

caution, and asked for additional 

clarification on this scenario. The 

Agencies note that under the Act and 

the Regulation, if a lender takes a 

security interest in a building and its 

contents located in an SFHA in which 

flood insurance is available under the 

Act, then flood insurance coverage is 

required for both the building and the 

contents.43 Therefore, the Agencies 

cannot exempt the building and its 

contents from required coverage even if 

the lender takes a security interest in the 

contents out of an abundance of caution. 

Lenders should review loan agreements 

and security instruments to verify that 

if they include language that takes a 

security interest in building and 

contents, flood insurance is purchased 

to cover the building and contents. If the 

lender does not secure a loan with 

building and contents, the loan 

agreement or security instrument should 

not include language to this effect, and 

language regarding taking contents as 

collateral should not be included out of 

an ‘‘abundance of caution.’’ The 

Agencies decline to make amendments 

to proposed Q&A Other Security 

Interests 9 based on this comment. 

Therefore, the Agencies are adopting 

Q&A Other Security Interests 9 as 

proposed with clarifying amendments. 

To be more inclusive, the Agencies have 

added references to security instruments 

when discussing loan agreements and 

added references to improved real estate 

when discussing contents. 

Other Security Interests 10. The 

Agencies proposed new Q&A Other 

Security Interests 10, which addresses 

whether flood insurance is required if 

the lender takes a security interest in 

contents located in a building in an 

SFHA securing the loan but does not 

perfect the security interest. As noted in 

the preamble discussion of Q&A Other 

Security Interests 8, above, the Agencies 

received one comment on this Q&A 

indicating that Q&As Other Security 

Interests 8 and 10 are in conflict. As 

previously stated, the Agencies do not 

think the two Q&As are contradictory 

and are adopting Q&A Other Security 

Interests 10 as proposed with one 

clarifying amendment. To be more 

inclusive, the Agencies have added a 

reference to a security instrument when 

discussing the loan agreement. 

Other Security Interests 11. The 

Agencies proposed to redesignate Q&A 

42 as Q&A Other Security Interests 11, 

with no substantive changes. This Q&A 

addresses whether a note on a singlefamily dwelling offered by a borrower as 

collateral for a loan is a designated loan 

that requires flood insurance if the 

lender does not take a security interest 

in the dwelling itself. The Agencies 

received no specific comments on this 

Q&A and are adopting it as proposed. 

Other Security Interests 12. The 

Agencies proposed to redesignate Q&A 

43 as Q&A Other Security Interests 12, 

with no substantive changes. This Q&A 

discusses whether a loan that is not 

secured by real estate, but is made on 

the condition of a personal guarantee by 

a third party who gives the lender a 

security interest in improved real estate 

owned by the third party that is located 

in an SFHA in which flood insurance is 

available would be considered a 

designated loan requiring flood 

insurance. The Agencies received no 

specific comments on this Q&A and are 

adopting Q&A Other Security Interests 

12 as proposed. 

Section XIV. Requirement To Escrow 

Flood Insurance Premiums and Fees— 

General (Escrow) 

HFIAA significantly revised the 

escrow requirements for flood insurance 

premiums by introducing new escrow 

requirements not dependent on whether 

other insurance or taxes are escrowed, 

lender and loan-related exceptions to 

the escrow requirements, and an escrow 

notice. Accordingly, the Agencies 

proposed in the July 2020 Proposed 


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32856 Federal Register / Vol. 87, No. 104 / Tuesday, May 31, 2022 / Rules and Regulations 

44 12 U.S.C. 2601 et seq. 

45 12 CFR 1024.17(k)(1). 

46 12 CFR 1024.37(a)(2)(i). 

Questions and Answers a number of 

new escrow-related Q&As and revisions 

to the existing escrow-related Q&As. 

Further, the Agencies proposed to 

reorganize these Q&As into three 

separate sections addressing escrow 

considerations. Specifically, proposed 

section XII included Q&As covering the 

general escrow requirements for flood 

insurance premiums and fees. Proposed 

section XIII included Q&As related to 

the small lender exception to flood 

insurance escrow requirements. 

Proposed section XIV included Q&As 

related to loan-related exceptions to the 

requirement to escrow flood insurance 

premiums and fees. These three sets of 

Q&As on the escrow of flood insurance 

premiums and fees respond to a request 

for more guidance related to the escrow 

requirement, as documented in the 

EGRPRA report. 

Proposed section XII included 

existing Q&As 51 and 52 and five new 

proposed Q&As pertaining to 

requirements to escrow flood insurance 

premiums and fees. In addition, the 

Agencies removed current Q&As 53 and 

54 because they are no longer 

applicable. 

Because the Agencies are combining 

the July 2020 Proposed Questions and 

Answers and the March 2021 Proposed 

Questions and Answers into one 

document, the Agencies are 

renumbering these Escrow-related 

sections as Sections XIV, XV, and XVI 

in the 2022 Interagency Questions and 

Answers. 

Escrow 1. The Agencies proposed to 

redesignate Q&A 52 as Q&A Escrow 1. 

This Q&A addresses the general 

question of when a lender or servicer 

must establish an escrow account for 

flood insurance premiums and fees. The 

Agencies proposed to significantly 

revise the current Q&A to explain that 

the new escrow requirement applies 

only upon a triggering event that occurs 

on or after January 1, 2016 and would 

not apply if either the small lender 

exception or any of the loan-related 

exceptions apply. The proposed answer 

also addressed a lender’s escrow 

obligations if the lender no longer 

qualifies for the small lender exception. 

The Agencies received one comment on 

this Q&A. The commenter requested 

that the Agencies expand the answer to 

explain that, if there is contractual 

authority to escrow and it is otherwise 

permitted by law, the lender may 

escrow flood premiums for safety and 

soundness reasons, even if the lender is 

not required to escrow under the Act 

and Regulation. The Agencies agree 

with the commenter that lenders could 

consider taking additional steps to 

ensure safety and soundness. However, 

the Agencies do not believe it is 

necessary to include this information in 

the answer as it is not relevant to the 

question asked in this Q&A. The 

Agencies are adopting this Q&A as 

proposed. 

Escrow 2. The Agencies proposed new 

Q&A Escrow 2 to clarify that a lender 

must escrow flood insurance premium 

payments even if it does not escrow for 

taxes or homeowner’s insurance, and is 

not required by the Regulation to escrow 

for taxes or homeowner’s insurance if it 

does escrow for flood insurance. The 

Agencies received no specific comments 

on this proposed Q&A and are adopting 

Q&A Escrow 2 as proposed with minor 

non-substantive edits. 

Escrow 3. The Agencies proposed new 

Q&A Escrow 3 to clarify that a lender 

must escrow force-placed flood 

insurance premium payments because 

there is no exception for force-placed 

insurance under the Act or Regulation. 

The Agencies received several 

comments on this Q&A. The 

commenters suggested the Agencies 

revise the answer to clarify that, if a 

lender is not eligible for the small 

servicer exemption, the RESPA 

requirements still apply.44 Specifically, 

the commenter noted that under 

Regulation X, which implements 

RESPA,45 the servicer must pay the 

borrower disbursements in a timely 

manner and the lender is required to 

continue to advance the funds from the 

escrow to pay the flood policy premium 

if the loan is current, even if the 

customer is not paying their escrow 

payments. As a result, the commenter 

noted that there would be no need to 

force place a flood insurance policy for 

a loan that has an escrow account as the 

premium for the borrower’s policy 

would be paid. Another commenter 

noted that lenders that qualify for the 

small creditor exemption, in general, 

use provisions in a legal agreement or 

security document that allows the 

lender to make a protective advance to 

pay for insurance premiums to protect 

their collateral interest and therefore no 

escrow account would be required. The 

Agencies disagree with the commenters 

by noting that RESPA does not apply to 

flood insurance required under the 

Act.46 Further, under the Act and 

Regulation, the lender must escrow 

force-placed flood insurance premiums 

and fees because there is no exception 

for force-placed insurance. Finally, 

another commenter suggested that the 

force placement of flood insurance is 

not a triggering event that would trigger 

escrow requirements. The Agencies 

have addressed this comment in 

proposed Q&A Applicability 13 above 

and Q&A Force Placement 10 discussed 

below. The commenter further 

recommended that the Agencies clarify 

that when a property is mapped in an 

SFHA, such event is not a triggering 

event that would trigger the escrow 

requirements. The Agencies note that 

proposed Q&A Applicability 13 and 

Q&A Escrow 4 address this issue. The 

Agencies therefore are adopting this 

Q&A as proposed. 

Escrow 4. The Agencies proposed new 

Q&A Escrow 4 to address whether flood 

insurance premium payments must be 

escrowed when a loan has not 

experienced a triggering event but it has 

experienced a non-triggering event, such 

as a loan modification, a FEMA 

remapping, or the assumption of the 

loan by a new borrower. The Agencies 

explained in the proposed answer that, 

subject to certain exceptions, until a 

loan experiences a triggering event, the 

lender is not required to escrow flood 

insurance premiums and fees unless: (i) 

A borrower requests the escrow in 

connection with the requirement that 

the lender provide an option to escrow 

for outstanding loans; or (ii) the lender 

determines that a loan exception to the 

escrow requirement no longer applies. 

The Agencies received one comment on 

this Q&A. The commenter stated that 

the Q&A is confusing as the question 

includes references to the loan being 

remapped into an SFHA but does not 

specify that remapping and assumptions 

of the loan by a new borrower are 

merely examples of non-triggering 

events. The commenter further noted 

that the answer does not address 

assumptions or remapping. The 

Agencies agree with the commenter that 

providing examples of non-triggering 

events in the question may lead to 

confusion. Therefore, the Agencies are 

revising the question in the final Q&A 

by removing the examples of nontriggering events. 

Escrow 5. The Agencies proposed to 

redesignate Q&A 51 as Q&A Escrow 5. 

The Agencies also proposed to revise 

this Q&A to clarify that multi-family 

buildings or mixed-use properties are 

included in the definition of 

‘‘residential improved real estate’’ and, 

therefore, are subject to the escrow 

requirement unless an exception 

applies. The Agencies received no 

specific comments on this proposed 

Q&A and are adopting Q&A Escrow 5 as 

proposed, with a minor non-substantive 

edit. 

Escrow 6. The Agencies proposed new 

Q&A Escrow 6 to address the situation 

in which a junior lienholder determines 


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Federal Register / Vol. 87, No. 104 / Tuesday, May 31, 2022 / Rules and Regulations 32857 

47 12 CFR 22.5(a)(2)(ii) (OCC); 12 CFR 

208.25(e)(1)(ii)(B) (Board); 12 CFR 339.5(a)(2) 

(FDIC); 12 CFR 614.4935(a)(2) (FCA); and 12 CFR 

760.5(a)(2) (NCUA). 

48Pursuant to the Dodd-Frank Act, an HPML loan 

is one where the Annual Percentage Rate exceeds 

certain specified thresholds with the result that 

certain consumer protections must be observed, 

such as the escrow of property taxes and insurance 

premiums. See section 129D of the Truth in 

Lending Act as amended by section 1461(a) of the 

Dodd-Frank Act, 15 U.S.C. 1639D. See also HPML 

escrow rules at 12 CFR 226.35(b)(3) (Board) and 12 

CFR 1026.35(b) (Bureau of Consumer Financial 

Protection). 

that the primary lienholder does not 

have sufficient flood insurance coverage 

in place and is also not escrowing for 

flood insurance. The proposed answer 

clarified that if the primary lienholder 

has not obtained adequate flood 

insurance, the junior lienholder would 

need to ensure adequate flood insurance 

is in place and also would need to 

escrow for that flood insurance 

premium. The proposed answer also 

indicated that the escrow requirements 

would not apply to a junior lien that is 

a home equity line of credit (HELOC), 

since HELOCs have a separate escrow 

exception under the Act and Regulation. 

The Agencies received two comments 

on this Q&A. The commenters noted 

that the answer assumes the junior 

lienholder is notified regarding any 

lapse in coverage, despite the primary 

lienholder having no obligation to 

inform the junior lienholder of a lapse 

in coverage. Further, the commenters 

noted that junior lienholders are not 

given notice if or when the first lien is 

paid off or in the event of failure to 

escrow. The commenters also noted that 

there is no specific requirement in the 

Act or Regulation that requires junior 

lienholders to escrow. Therefore, the 

commenters conclude that the Agencies 

should not imply an expectation to 

escrow in the Q&A. The Agencies 

disagree with the commenters. The 

junior lienholder qualifies for the 

escrow requirement exception if there is 

adequate flood insurance coverage with 

respect to the loan issued by the 

primary lienholder.47 Therefore, to 

qualify for the exception not to escrow, 

the junior lienholder would need to 

ensure that the borrower has obtained 

an insurance coverage amount that 

meets the mandatory purchase 

requirement. The Agencies therefore are 

adopting this Q&A as proposed. 

Escrow 7. The Agencies proposed new 

Q&A Escrow 7 to address whether a 

lender or its servicer must escrow when 

real property securing the loan is not 

located in an SFHA, but the borrower 

chooses to buy flood insurance. The 

proposed answer clarified that a lender 

or its servicer is not required to escrow 

premium payments in this situation but 

may choose to do so. The Agencies 

received no specific comments on this 

proposed Q&A and are adopting it as 

proposed. 

Section XV. Requirement To Escrow 

Flood Insurance Premiums and Fees— 

Small Lender Exception (Escrow Small 

Lender Exception) 

Proposed new section XIII included 

seven new Q&As related to the small 

lender exception to the requirement to 

escrow flood insurance premiums. The 

Agencies proposed the Q&As in this 

section in the July 2020 Proposed 

Questions and Answers. As indicated 

above, the Agencies are renumbering 

this section as Section XV in the 2022 

Interagency Questions and Answers. 

Several commenters suggested that as 

this section consists of Q&As that are 

fundamentally escrow-related, the 

Agencies should combine them with the 

Escrow Q&As. One of these commenters 

said that this change would also reduce 

confusion with the Exemptions section 

of the Q&As. The Agencies decline to 

make this change because the Agencies 

believe that more specific topic 

categories make it easier for users to 

find relevant guidance. To clarify that 

this topic relates to escrows, however, 

the Agencies are changing the heading 

of this section from ‘‘Small Lender 

Exception’’ to ‘‘Escrow Small Lender 

Exception.’’ This change also affects the 

name of each individual Q&A. 

Escrow Small Lender Exception 1. 

The Agencies proposed this new Q&A to 

specify that the $1 billion threshold for 

the small lender exception is based on 

assets held at the regulated financial 

institution level and not at the holding 

company level. The Agencies received 

no specific comments on this Q&A and 

are adopting it as proposed. 

Escrow Small Lender Exception 2. 

The Agencies proposed this new Q&A to 

address whether a qualifying lender 

must escrow flood insurance premiums 

if it was previously required to escrow 

only under the Higher-Priced Mortgage 

Loan (HPML) rules 48 or under specific 

Federal housing programs prior to July 

6, 2012. The proposed answer clarified 

that the applicability of the first 

criterion of the small lender exception 

is dependent on whether the Federal or 

State law requirement to escrow was for 

the entire term of the loan. The 

Agencies received no specific comments 

on this Q&A and are adopting it as 

proposed, with minor formatting 

changes. 

Escrow Small Lender Exception 3. 

The Agencies proposed this new Q&A to 

address whether a lender is disqualified 

from the exemption if it escrowed funds 

on behalf of a third party. The Agencies’ 

proposed answer drew a distinction 

based on whether the lender established 

an individual escrow account for the 

loan. Specifically, the proposed answer 

provided that if a lender collected 

escrow funds at closing and maintained 

servicing of the loan, the lender would 

not qualify for the small lender 

exception because the lender would 

have had a policy of consistently and 

uniformly requiring the deposit of funds 

in an escrow account by establishing 

escrow accounts that the lender would 

service. The proposed answer further 

provided that if the lender collected the 

escrow funds at closing at the behest of 

a third party and then transferred those 

funds to the third party servicing that 

loan, the lender would qualify for the 

small lender exception under the 

answer, provided the lender did not 

establish an individual escrow account 

and the lender transferred the escrow 

funds to the third party as soon as 

reasonably practicable. 

A commenter asked the Agencies to 

clarify what constitutes ‘‘establishing an 

individual escrow account.’’ The 

commenter asserted that for lenders 

subject to the escrow requirements, 

RESPA requires the lender to create and 

provide an initial escrow statement and 

to collect the initial escrow deposit. The 

originating lender then holds this 

deposit until the loan is sold. If the sale 

of the loan is delayed and the first 

payment is received by the original 

lender, the lender also must hold this 

payment. The commenter asked the 

Agencies to provide direction on how 

these funds should be held so as not to 

constitute ‘‘establishing an individual 

escrow account.’’ In response, the 

Agencies state that determining what 

constitutes an individual escrow 

account is beyond the scope of these 

Interagency Questions and Answers. 

A commenter asked the Agencies to 

clarify or provide examples of the term 

‘‘as soon as reasonably practicable.’’ By 

this term, the Agencies mean that there 

were no unreasonable delays 

considering the facts and circumstances 

of the situation. Whether the lender 

transferred the funds to the third party 

‘‘as soon as reasonably practicable’’ is 

not a bright-line determination, and the 

Agencies believe there is no meaningful 

way to provide further clarification or 

examples. 

The Agencies are adopting this new 

Q&A as proposed. 


khammond on DSKJM1Z7X2PROD with RULES3
32858 Federal Register / Vol. 87, No. 104 / Tuesday, May 31, 2022 / Rules and Regulations 

Escrow Small Lender Exception 4. 

The Agency proposed this new Q&A to 

address whether a lender is eligible for 

the escrow small lender exception if it 

escrows only upon a borrower’s request. 

The proposed answer reiterated the 

explanation in the preamble to the 2015 

Final Rule that a lender maintaining 

escrow accounts only on a borrower’s 

request does not constitute a consistent 

or uniform policy of requiring escrow 

and therefore a lender could be eligible 

for the small lender exception if the 

other requirements are met. The 

proposed answer also explained that the 

small lender exception does not apply 

if, on or before July 6, 2012, the lender 

had a policy of consistently and 

uniformly requiring the deposit of taxes, 

insurance premiums, fees, or any other 

charges in an escrow account for a loan 

secured by residential improved real 

estate or a mobile home. 

The Agencies believe that the 

proposed question and the first sentence 

of the proposed answer, as described 

above, are confusing because they are 

written in the present tense, even 

though under the Regulation a lender’s 

current escrow policy—whether it is to 

escrow upon a borrower’ request or 

whether it is to consistently and 

uniformly require escrow—is not 

relevant to whether the small lender 

escrow exception applies to the lender. 

Rather, only a lender’s escrow policy on 

or before July 6, 2012, is relevant. 

Accordingly, in the final Q&A, the 

Agencies are revising the question to ask 

if a lender is eligible for the small lender 

exception if, on or before July 6, 2012, 

it offered escrow accounts only upon a 

borrower’s request. The Agencies are 

revising the first sentence of the answer 

to state that if, on or before July 6, 2012, 

a lender offered escrow accounts only 

upon the request of borrowers, that 

practice did not constitute a consistent 

or uniform policy of requiring escrow 

and the lender is eligible for the 

exception, provided all other conditions 

for the exception are met. The Agencies 

are retaining the second sentence of the 

answer as proposed. That sentence 

reiterates the Regulation, which 

provides that the small lender exception 

does not apply if, on or before July 6, 

2012, the lender had a policy of 

consistently and uniformly requiring the 

deposit of taxes, insurance premiums, 

fees, or any other charges in an escrow 

account for a loan secured by residential 

improved real estate or a mobile home. 

A commenter stated that while the 

Q&A provided helpful guidance, 

additional clarity regarding whether a 

policy ‘‘consistently and uniformly 

require[s]’’ the establishment of an 

escrow account would be helpful. The 

commenter asked for additional 

information to aid lenders in better 

understanding the intent of this 

language and suggested that the 

Agencies provide examples of policies 

that do and do not satisfy this provision. 

Consistent with the Regulation, the 

revisions to the Q&A clarify that a 

lender’s escrow policy after July 6, 2012, 

is not relevant to whether the escrow 

small lender exception applies. In 

addition, the final Q&A clearly states 

that a lender’s policy, on or before July 

6, 2012, of offering escrow accounts 

only upon the request of borrowers did 

not constitute a ‘‘consistent or uniform’’ 

policy of requiring escrow. In specific 

response to the commenter, for policies 

other than those in which a lender 

offered escrow accounts only upon the 

request of borrowers before July 6, 2012, 

the Agencies believe that whether a 

policy consistently and uniformly 

required escrow accounts is not a brightline determination, and the Agencies do 

not believe they can provide meaningful 

examples. The Agencies are adopting 

this new Q&A with the revisions 

discussed above. 

Escrow Small Lender Exception 5. 

The Agencies proposed this new Q&A to 

address whether the option to escrow 

notice is required for: (1) All 

outstanding loans not excepted from the 

escrow requirement and secured by 

residential real estate; and (2) 

outstanding loans not secured by 

buildings located in an SHFA. The 

proposed answer clarified that the 

option to escrow notice requirement 

only applies to lenders who have a 

change in status and no longer qualify 

for the small lender exception. Such 

lenders are required to provide the 

option to escrow notice by September 

30 of the first calendar year in which the 

lender has had a change in status for all 

outstanding designated loans secured by 

residential improved real estate or a 

mobile home as of July 1 of the first 

calendar year in which the lender no 

longer qualifies for the small lender 

exception. The proposed answer also 

clarified that the option to escrow notice 

requirement does not apply to loans or 

lenders that are excepted by the 

Regulation from the escrow 

requirement, nor does it apply to loans 

not subject to the mandatory flood 

insurance purchase requirement. The 

Agencies received no specific comments 

on this Q&A and are adopting it as 

proposed. 

Escrow Small Lender Exception 6. 

The Agencies proposed this new Q&A to 

explain that a lender must send to a 

borrower a notice of the option to 

escrow flood insurance premium 

payments when the borrower has 

previously waived escrow for flood 

insurance because it is possible the 

borrower’s circumstances have changed 

and, if offered another chance to escrow, 

the borrower may desire to do so. The 

Agencies received no specific comments 

on this new Q&A and are adopting it as 

proposed. 

Escrow Small Lender Exception 7. 

The Agencies proposed this new Q&A to 

clarify that lenders who qualify for the 

small lender exception are not required 

to provide borrowers with either the 

escrow notice or the option to escrow 

notice. The Agencies received no 

specific comments on this new Q&A 

and are adopting it as proposed. 

Section XVI. Requirement To Escrow 

Flood Insurance Premiums and Fees— 

Escrow Loan Exceptions (Escrow Loan 

Exceptions) 

Proposed new section XIV included 

existing Q&As 55 and 56 and three new 

Q&As, all regarding the loan-related 

exceptions to the escrow requirement. 

The Agencies proposed changes to the 

Q&As in this section in the July 2020 

Proposed Questions and Answers. The 

Agencies are changing the proposed 

heading of this section from ‘‘Loan 

Exceptions’’ to ‘‘Escrow Loan 

Exceptions’’ to provide further clarity. 

Further, in response to a comment on 

proposed Q&As Escrow Loan 

Exceptions 1 and 5, discussed below, 

the Agencies are reordering the 

questions from general to specific, so 

that proposed Escrow Loan Exceptions 

Q&As 4 and 5 become Q&As Escrow 

Loan Exceptions Q&As 3 and 2, 

respectively, with the remaining Q&As 

renumbered accordingly. This 

reordering provides a more logical flow 

of the Escrow Loan Exception questions. 

As indicated above, the Agencies are 

renumbering this section as Section XVI 

in the 2022 Interagency Questions and 

Answers. 

Escrow Loan Exceptions 1. The 

Agencies proposed to redesignate 

existing Q&A 55 as proposed Q&A Loan 

Exceptions 1. The Agencies revised this 

Q&A to address whether escrow 

accounts must be set up for commercial 

loans secured by residential buildings 

based on the new loan-related 

exceptions. Specifically, the proposed 

answer clarified that extensions of 

credit primarily for business, 

commercial, or agricultural purposes are 

not subject to the escrow requirement 

even if such loans are secured by 

residential improved real estate or a 

mobile home. The Agencies received a 

few comments on this Q&A. One 

commenter stated that this Q&A is 

helpful and appropriate. Another 

commenter noted that this proposed 


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49See FFIEC Joint EGRPRA Report to Congress, 

March 2017 at 6, 55–56, 124–25, https://

www.ffiec.gov/pdf/2017_FFIEC_EGRPRA_JointReport_to_Congress.pdf. 

Q&A mirrors proposed Escrow Loan 

Exceptions 5 and suggested that the 

Agencies reorder the questions so that 

the two Q&As would appear in close 

sequence. As indicated above, the 

Agencies agree and are moving 

proposed Q&A Loan Exceptions 5 so 

that it directly follows Q&A Escrow 

Loan Exceptions 1. Further, the 

Agencies also are removing references to 

‘‘multi-family’’ properties in Q&A 

Escrow Loan Exceptions 1 as the Q&A 

can apply to more than the ‘‘multifamily’’ context. Another commenter 

suggested providing the definition of 

‘‘residential property’’ or clarify that 

lenders may rely on assertions from the 

borrower or insurance agent regarding 

the property’s intended use. As noted in 

Q&A Exemptions 1, a structure that is 

part of a residential property is a 

structure used primarily for personal, 

family, or household purposes, and not 

used primarily for agricultural, 

commercial, industrial, or other 

business purposes. The Agencies are 

adding a cross reference to Q&A 

Exemptions 1 in this Q&A to address 

this comment. With these changes, the 

Agencies are adopting Q&A Escrow 

Loan Exceptions 1. 

Escrow Loan Exceptions 2 (Proposed 

Loan Exceptions 5). The Agencies 

proposed a new Q&A, designated as 

Q&A Loan Exceptions 5 in the proposal, 

to discuss whether there is an exception 

to the escrow requirement for loans 

secured by multi-family buildings. The 

Agencies clarified in the proposed 

answer that escrow requirements do not 

apply to a loan that is an extension of 

credit primarily for business, 

commercial, or agricultural purposes, 

even if the loan is secured by residential 

real estate such as a multi-family 

building, nor would it apply to a loan 

secured by a particular unit in a multifamily residential building if a 

condominium association, cooperative, 

homeowners association, or other 

applicable group provides an adequate 

policy and pays for the insurance as a 

common expense. Otherwise, under the 

proposed answer, the escrow 

requirements generally apply to loans 

for units in multi-family residential 

buildings. 

As discussed above, and at the request 

of a commenter, the Agencies are renumbering proposed Q&A Loan 

Exceptions 5 as Q&A Escrow Loan 

Exceptions 2 to ensure logical flow and 

clarity. The Agencies also are clarifying 

the question in this Q&A to ask whether 

escrow accounts for flood insurance 

premiums and fees are required for 

loans secured by particular units located 

in multi-family buildings by focusing 

this Q&A on escrow requirement for 

only loans secured by particular units 

located in multi-family buildings and 

removing the reference to the exception 

for commercial loans in the question. 

Q&A Escrow Loan Exceptions 1 would 

cover commercial loans secured by 

residential buildings. The Agencies are 

also adding a cross reference to Escrow 

Loan Exceptions 1 for reader reference. 

With these revisions, the Agencies are 

adopting renumbered Q&A Escrow Loan 

Exceptions 2. 

Escrow Loan Exceptions 3 (Proposed 

Loan Exceptions 4). The Agencies 

proposed to redesignate existing Q&A 

56 as proposed Q&A Loan Exceptions 4 

in the proposal. The Agencies proposed 

to revise this Q&A to address an escrow 

account for insured real property 

covered by an RCBAP. The proposed 

answer noted that while escrow is not 

required for property covered by an 

RCBAP, if the RCBAP coverage is 

inadequate and the borrower obtains a 

separate dwelling policy, escrow would 

be required for such a policy unless an 

escrow exception applies. The Agencies 

received positive comment on this Q&A 

and are adopting it as proposed, but 

renumbering as Q&A Escrow Loan 

Exceptions 3. 

Escrow Loan Exceptions 4 (Proposed 

Loan Exceptions 2). The Agencies 

proposed a new Q&A, designated as 

Q&A Loan Exceptions 2 in the proposal, 

to clarify that construction-permanent 

loans that have a construction phase 

before the loan converts into permanent 

financing do not qualify for the 12- 

month exception from escrow even if 

one phase of the loan is for 12 months 

or less. The Agencies received positive 

comment on this Q&A and are adopting 

it as proposed, but renumbered as Q&A 

Escrow Loan Exceptions 4. 

Escrow Loan Exceptions 5 (Proposed 

Loan Exceptions 3). The Agencies 

proposed a new Q&A, designated as 

Q&A Loan Exceptions 3 in the proposal, 

to clarify that a subordinate lienholder 

must begin to escrow as soon as 

reasonably practicable after it becomes 

aware that it has moved into the 

primary lien position on a designated 

loan subject to the escrow requirement. 

The Agencies received one specific 

comment on this proposed Q&A. This 

commenter stated that this Q&A 

provides important clarification 

regarding escrow obligations and loan 

documentation regarding the payoff of a 

senior lien. The Agencies are adopting 

this Q&A as proposed, but renumbered 

as Q&A Escrow Loan Exceptions 5. 

Section XVII. Force Placement of Flood 

Insurance (Force Placement) 

The Agencies proposed to move 

current section X, which includes 

current Q&As 57 through 62, to 

proposed section XV, and add 10 new 

Q&As. The Agencies proposed changes 

to the Q&As in this section in the July 

2020 Proposed Questions and Answers. 

As discussed in the preamble to the July 

2020 Proposed Questions and Answers, 

this set of Q&As would respond to a 

request for more guidance related to 

force placement of flood insurance from 

commenters through the EGRPRA 

process.49 Commenters were 

appreciative of the Agencies including 

Q&As on force placement and generally 

found these Q&As to be helpful. 

Because the Agencies are combining the 

July 2020 Proposed Questions and 

Answers and the March 2021 Proposed 

Questions and Answers into one 

document, the Agencies are 

renumbering this Force Placement 

section as Section XVII in the 2022 

Interagency Questions and Answers. 

Force Placement 1. The Agencies 

proposed to redesignate current Q&A 

57, re-proposed in 2011 but not 

finalized, as proposed Q&A Force 

Placement 1. This proposed Q&A 

discussed the requirements that must be 

fulfilled before force placement can 

occur, as well as the notice 

requirements a lender must follow prior 

to force-placing flood insurance. One 

commenter agreed with the Agencies’ 

statement in the answer that neither the 

Act nor the Regulation require lenders 

to monitor flood insurance over the life 

of the loan. The commenter, however, 

stated its belief that a lender’s safety and 

soundness is not protected by the lender 

monitoring for flood insurance but by 

contracting with lender-placed 

insurance providers to ensure that flood 

insurance is automatically and 

continuously provided on all collateral 

in the lender’s portfolio upon any lapse 

or insufficiency in flood insurance 

coverage procured by the borrower. 

Consequently, the commenter 

recommended that the Agencies add 

language discussing the safety and 

soundness benefits of lender-placed 

insurance for lenders and the benefit 

provided to borrowers in the Q&As. The 

Agencies decline to add the suggested 

language as the Agencies believe this 

statement is outside the scope of the 

force-placed flood insurance 

requirement in the Regulation. 

Another commenter noted that the 

proposed answer states that the lender 

may provide the amount of flood 

insurance needed in the force placement 

notice and that if the lender or servicer 


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is aware that the borrower has obtained 

insurance that otherwise satisfies the 

flood insurance requirements but in an 

insufficient amount, the lender or 

servicer should inform the borrower that 

an additional amount of insurance is 

needed to comply with the Regulation. 

Because the amount of the insurance is 

not required to be included in the force 

placement notice, the commenter 

requested that the Agencies remove 

from the answer all references to 

including the amount in the force 

placement notice. However, the 

Agencies note that the answer does not 

require inclusion of this information. 

The Agencies continue to believe this 

information may be helpful to borrowers 

to the extent a lender chooses to include 

it in the force placement notice. 

Therefore, the Agencies are continuing 

to include this recommendation in the 

final Q&A Force Placement 1. 

A few commenters suggested that the 

Agencies amend the last sentence of the 

proposed answer, which provided that 

if the lender or servicer is aware that a 

borrower has obtained insurance that 

otherwise satisfies the flood insurance 

requirements but in an insufficient 

amount, the lender or servicer should 

inform the borrower an additional 

amount of insurance is needed in order 

to comply with the Regulation before 

force-placing flood insurance. 

Specifically, these commenters 

expressed concern about the use of the 

phrase ‘‘is aware’’ and suggested the 

Agencies use ‘‘determines’’ instead. The 

Agencies disagree and believe that the 

use of the word ‘‘determines’’ would 

suggest that there is a new force 

placement determination necessitating a 

new force placement notice, and as 

discussed in detail below in connection 

with Q&A Force Placement 6, 

potentially could be interpreted as 

allowing lenders to ‘‘restart’’ the clock 

that would extend the time period 

beyond the 45 days permitted under the 

Regulation in which the lender or its 

servicer must force place flood 

insurance. Thus, the Agencies’ use of a 

term other than ‘‘determines’’ is 

deliberate, and the Agencies are not 

modifying the language as suggested. 

For the reasons discussed above, the 

Agencies are adopting Q&A Force 

Placement 1 as proposed. 

Force Placement 2. The Agencies 

proposed new Q&A Force Placement 2 

to clarify when a lender must provide a 

force placement notice to a borrower. 

The proposed answer provided that the 

Regulation requires the lender, or its 

servicer, to send the borrower the force 

placement notice upon making a 

determination that the building or 

mobile home and any personal property 

securing the designated loan is not 

covered by flood insurance or is covered 

by flood insurance in an amount less 

than the amount required under the 

Regulation. The proposed answer also 

stated that if there is a brief delay in 

providing the notice, the Agencies 

would expect the lender or servicer to 

provide a reasonable explanation for the 

delay and provided as an example for 

the delay the lender using batch 

processing to send the force placement 

notice to its borrowers. Several 

commenters requested that the Agencies 

amend the language from ‘‘brief delay’’ 

to ‘‘reasonable delay.’’ The Agencies 

disagree with these commenters and are 

retaining ‘‘brief delay’’ to emphasize to 

lenders that the delay should not be 

long. Another commenter also suggested 

that the Agencies provide additional 

examples of explanations for delays in 

providing the force placement notice 

other than batch processing of force 

placement notices. In response to this 

commenter, the Agencies are amending 

the proposed answer to include manual 

exception processing as another 

example. The Agencies are adopting 

Q&A Force Placement 2 with this 

change. 

Force Placement 3. The Agencies 

proposed to redesignate existing Q&A 

58 as proposed Q&A Force Placement 3 

without any change. Proposed Q&A 

Force Placement 3 discussed whether a 

servicer could force place flood 

insurance on behalf of a lender. The 

Agencies did not receive any specific 

comment on Q&A Force Placement 3, 

and are adopting it as proposed. 

Force Placement 4. The Agencies 

proposed new Q&A Force Placement 4, 

which discussed whether a lender can 

satisfy its notice requirement by sending 

the force placement notice to the 

borrower prior to the expiration of the 

flood insurance policy. Proposed Q&A 

Force Placement 4 was based on 

proposed Q&A 60 from 2011, which the 

Agencies did not finalize. The Agencies 

received one specific comment on this 

proposed Q&A, agreeing that the 

Agencies’ wording reflects the intent of 

the Act and Regulation that lenders 

ensure that notice be provided upon 

determining that the flood insurance 

policy has actually lapsed or is 

insufficient. Therefore, the Agencies are 

adopting Q&A Force Placement 4 as 

proposed. 

Force Placement 5. The Agencies 

proposed to redesignate existing Q&A 

61 as proposed Q&A Force Placement 5 

with minor revisions for clarity and no 

change in meaning or substance. This 

Q&A addresses when a lender must 

have flood insurance in place if the 

borrower has not obtained adequate 

insurance within 45 days of notification. 

A commenter recommended that the 

answer be updated to reflect 

information on the effective date of 

coverage, the timing for placing 

coverage, and the process for placing 

coverage. Given that lenders’ particular 

processes may differ in force-placing 

flood insurance, the Agencies believe 

that amending the answer to include 

details on these additional steps would 

be confusing and that it is unnecessary 

to discuss how the lender complies with 

the Regulation. Therefore, the Agencies 

are adopting Q&A Force Placement 5 as 

proposed. 

Force Placement 6. The Agencies 

proposed new Q&A Force Placement 6 

to clarify that, once a lender makes a 

determination that a designated loan has 

no or insufficient flood insurance 

coverage, the lender must notify the 

borrower and, if the borrower fails to 

obtain sufficient flood insurance 

coverage within 45 days after the 

original notice, the lender must 

purchase coverage on the borrower’s 

behalf and may not extend the period 

for obtaining force-placed coverage by 

sending another force placement notice 

during that time. Some commenters 

suggested that the Agencies reconsider 

the answer to permit subsequent 

determinations within the force 

placement process. As discussed above 

in connection with Q&A Force 

Placement 1, however, the Agencies do 

not believe that the answer should be 

amended to essentially permit lenders 

to extend the time to force place beyond 

the 45 days allowed by the Act and the 

Regulation, which would put both the 

borrower and the lender at greater risk 

of the property not being covered by 

sufficient flood insurance for longer 

periods of time. Therefore, the Agencies 

are adopting Q&A Force Placement 6 as 

proposed. 

Force Placement 7. The Agencies 

proposed new Q&A Force Placement 7, 

which addressed when a force-placed 

policy should begin to provide coverage 

after an existing policy expires. The 

proposed answer also gave an example 

of the timing for the new policy. A few 

commenters stated that the Agencies’ 

proposed example was not consistent 

with how policies expire and become 

effective in practice and that the answer 

needs to specifically include the time of 

day that the existing policy expires and 

the new policy becomes effective. One 

of these commenters noted that an 

expiring policy expires and a newly 

effective policy generally takes effect at 

12:01 a.m. on the same date. As 

recommended by these commenters, the 

Agencies are revising the answer in 

Q&A Force Placement 7 to include an 


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example that provides if a policy 

expires at 12:01 a.m. on a certain day, 

the new policy should be effective as of 

12:01 a.m. of the same day. 

Force Placement 8. The Agencies 

proposed to redesignate existing Q&A 

59 as proposed Q&A Force Placement 8. 

In the July 2020 Proposed Questions 

and Answers, the Agencies significantly 

revised this Q&A to discuss more fully 

the minimum amount of flood insurance 

coverage that is statutorily required and 

to illustrate this point through a 

hypothetical example. The proposed 

answer stated that if the outstanding 

principal balance is the basis for the 

minimum amount of required flood 

insurance, the lender must ensure that 

the force-placed policy amount covers 

the existing loan balance plus any 

additional force-placed premiums and 

fees that will be added to the loan 

balance. 

Several commenters recommended 

that the Agencies revise proposed Q&A 

Force Placement 8, as well as Q&A 

Force Placement 10, to consistently use 

the term ‘‘outstanding principal 

balance,’’ which is the term used in the 

Regulation to determine the amount of 

minimum flood insurance coverage 

required. The proposed answer used 

‘‘outstanding principal balance’’ 

interchangeably with ‘‘loan balance.’’ 

Similarly, commenters stated that the 

Agencies should amend the answer to 

use the term ‘‘capitalized’’ rather than 

‘‘added.’’ These commenters stated that, 

consistent with accounting standards, 

fees, secured advances, interest and 

other amounts authorized by a loan 

agreement are treated distinctly from the 

outstanding principal balance of the 

loan unless they are capitalized into the 

outstanding principal balance. As a 

result, these commenters contended that 

fees that have not been capitalized into 

the outstanding principal balance 

should not be taken into account when 

determining the minimum amount of 

required flood insurance. 

The Agencies agree with these 

commenters and are revising Q&A Force 

Placement 8 as suggested to consistently 

use the term ‘‘outstanding principal 

balance’’ and provide that if the 

outstanding principal balance is used as 

the basis for determining the minimum 

amount of required flood insurance, 

then the lender should take into account 

any premiums and fees that have been 

capitalized into the outstanding 

principal balance in determining the 

required minimum amount. For 

consistency, the Agencies also are 

making these changes in terminology in 

Q&A Force Placement 10, as discussed 

below. With the changes discussed 

above, the Agencies are adopting Q&A 

Force Placement 8, with a minor nonsubstantive change. 

Force Placement 9. The Agencies 

proposed to redesignate existing Q&A 

62 as proposed Q&A Force Placement 9. 

This Q&A addresses when a lender or 

its servicer may charge the borrower for 

the cost of force-placed flood insurance. 

The proposed answer clarified that a 

lender or servicer may charge a 

borrower for the cost of force-placed 

flood insurance beginning on the date of 

lapse or insufficient coverage, and 

would not need to wait 45 days after 

providing notification to force place 

insurance. As the Agencies stated in the 

preamble to the July 2020 Proposed 

Questions and Answers, lenders that 

monitor loans secured by property 

located in an SFHA for continuous 

coverage of flood insurance help ensure 

that they complete the force placement 

of flood insurance in a timely manner 

and minimize any gaps in coverage and 

any charge to the borrower for coverage 

for a timeframe prior to the lender’s or 

its servicer’s date of discovery and force 

placement. The proposed answer further 

explained that if a lender or its servicer, 

despite its monitoring efforts, discovers 

a loan with no or insufficient coverage, 

it may charge for the cost of premiums 

and fees incurred by the lender or 

servicer in purchasing the flood 

insurance on the borrower’s behalf, 

including premiums and fees incurred 

for coverage beginning on the date of 

lapse or insufficient coverage, if the 

lender has purchased a policy on the 

borrower’s behalf and that policy was 

effective as of the date of the insufficient 

coverage. 

Several commenters suggested that 

the Agencies include an example with 

specific dates in the answer to Q&A 

Force Placement 9 to illustrate when it 

may be appropriate for a lender to 

‘‘backdate’’ a force-placed flood 

insurance policy and charge the 

borrower. However, the Agencies note 

that evaluating such actions by a lender 

depends on the specific facts and 

circumstances. As a result, the Agencies 

believe that including a particular 

example in the answer that would not 

be broadly applicable would not 

provide helpful guidance. 

Although the Regulation states that a 

lender may charge a borrower for the 

cost of force-placed insurance beginning 

on the date of lapse or insufficient 

coverage, the Agencies note that 

significant ‘‘backdating’’ of flood 

insurance policies could indicate that 

there are weaknesses with the lender’s 

compliance management system. 

Therefore, rather than providing an 

example, which would be of limited 

utility, the Agencies are adding 

language stating that a lender’s or 

servicer’s frequent need to purchase 

policies on a borrower’s behalf having 

coverage that precedes the date of 

purchase may, depending upon the facts 

and circumstances, indicate that there 

are weaknesses within the lender’s or 

servicer’s compliance management 

system. The Agencies believe that the 

addition of this language to Q&A Force 

Placement 9 would provide guidance on 

the Agencies’ supervision of such 

practices and would be more helpful 

than a specific example. 

Some commenters suggested that the 

Agencies amend the last sentence of the 

proposed answer, which stated that 

when a lender or its servicer purchases 

a policy on the borrower’s behalf, the 

lender or its servicer may not charge for 

premiums and fees for coverage 

beginning on the date of lapse or 

insufficient coverage if that policy 

purchased on the borrower’s behalf did 

not provide coverage for the borrower 

prior to purchase. These commenters 

noted that a policy may provide 

coverage effective to a date that 

precedes the date purchased. The 

Agencies decline to make this change. If 

there is no coverage for the borrower 

prior to purchase of the policy, such as 

coverage that may be provided under a 

dual interest master policy, then it 

would be inappropriate for a lender to 

charge a borrower for coverage the 

borrower did not have. 

With the addition discussed above, 

the Agencies are adopting Q&A Force 

Placement 9. 

Force Placement 10. The Agencies 

proposed new Q&A Force Placement 10 

to discuss various methods of charging 

a borrower for the amount of forceplaced flood insurance policy premiums 

and fees and when such methods would 

constitute an ‘‘increase’’ that would 

trigger the applicability of certain flood 

insurance regulatory requirements. 

Proposed Q&A Force Placement 10 

described three options that the 

Agencies understand lenders may use to 

charge a borrower for force-placed flood 

insurance: adding the premium and fees 

to the ‘‘mortgage loan balance;’’ adding 

premiums and fees to an unsecured 

account; or billing the premium and fees 

directly to the borrower. 

As discussed above with respect to 

Q&A Force Placement 8, several 

commenters requested that the Agencies 

consistently use the term ‘‘outstanding 

loan balance’’ and to distinguish 

between instances when fees from forceplaced flood insurance are ‘‘capitalized’’ 

into the outstanding loan balance and 

when they are not. For the reasons 

discussed in connection with Q&A 

Force Placement 8, the Agencies are 


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revising Q&A Force Placement 10 to 

incorporate these changes in 

terminology. The Agencies also are 

revising the discussion of the second 

method to refer more generally to 

adding premiums and fees to an 

account, rather than an ‘‘unsecured’’ 

account, as the Agencies understand 

that amounts advanced to cover 

premiums and fees that have not been 

capitalized into the outstanding 

principal balance may still be secured 

by the property. 

One of these commenters also noted 

that lenders may advance funds to cover 

force-placed flood insurance premiums 

and fees through an advance of the 

borrower’s escrow account. The 

commenter further stated that such a 

method also would not cause an 

increase in the outstanding principal 

balance, and as a result, should not be 

considered an ‘‘increase’’ that would 

trigger the applicability of certain flood 

insurance regulatory requirements. The 

Agencies agree and are including this 

method as another example in Q&A 

Force Placement 10. With the changes 

discussed above, the Agencies are 

adopting Q&A Force Placement 10. 

Force Placement 11. The Agencies 

proposed new Q&A Force Placement 11, 

which addressed the sufficiency of 

evidence of flood insurance in 

connection with refunding premiums 

paid by a borrower for force-placed 

insurance during any period of overlap 

with borrower-purchased insurance. 

The proposed answer provided that, as 

stated in the Regulation, a lender is 

required to refund premiums paid by a 

borrower for force-placed flood 

insurance during any period of overlap 

with borrower-purchased flood 

insurance. The proposed answer stated 

that in that scenario, a lender must 

accept a policy declarations page that 

includes the existing flood insurance 

policy number and the identity of, and 

contact information for, the insurance 

company or its agent and that the 

Regulation does not require that the 

declarations page include any 

additional information. The proposed 

answer also discussed documentation 

with respect to situations not involving 

a lender’s refund of premiums for forceplaced insurance. 

Several commenters requested 

guidance on whether and how Q&A 

Force Placement 11 applies to reviewing 

flood insurance policies issued by 

private insurers to determine whether 

they meet the private flood insurance 

requirements of the Regulation. In 

response, the Agencies are clarifying 

that the answer in Q&A Force Placement 

11 relates to ascertaining the sufficiency 

of the policy to meet the mandatory 

flood insurance purchase requirement to 

determine whether a refund is required. 

In addition, the Agencies are including 

a cross-reference to Q&A Private Flood 

Compliance 5 for guidance relating to 

evaluating whether the policy meets the 

private flood insurance requirements of 

the Regulation. 

Another commenter suggested that 

the Agencies require that the 

declarations page also include the 

coverage amount, deductible, and term 

of the policy. However, as noted, for the 

refund provision of the force placement 

requirement, the Act and the Regulation 

state that for purposes of confirming a 

borrower’s existing flood insurance 

coverage, a lender or its servicer shall 

accept from the borrower an insurance 

policy declarations page that includes 

the existing flood insurance policy 

number and the identity of, and contact 

information for, the insurance company 

or its agent. Therefore, the Agencies 

cannot mandate that the declarations 

page include any additional 

information. 

Force Placement 12. The Agencies 

proposed new Q&A Force Placement 12 

to address whether a lender is required 

to refund any premiums to the borrower 

if the lender cannot obtain a refund 

from the insurance company because 

the borrower did not provide proof of 

coverage in a timely manner or the 

insurance company fails to provide the 

lender the refund within 30 days. The 

proposed answer clarified that the 

lender must refund any premiums and 

fees paid by the borrower for forceplaced insurance that overlaps with a 

borrower-purchased flood insurance 

policy within 30 days of receipt of a 

confirmation of a borrower’s existing 

flood insurance coverage. The lender 

must provide this refund to the 

borrower within the specified time 

period under the Regulation without 

exception, even when the lender has not 

yet received a refund from the insurance 

provider of the force-placed flood 

insurance policy. One commenter 

agreed with the proposed answer but 

thought the question proposed by the 

Agencies for Q&A Force Placement 12 

was confusing and suggested that the 

Agencies reword the question. The 

Agencies agree with the commenter and 

are revising the question in Q&A Force 

Placement 12 to be similar to the 

language suggested by the commenter. 

Thus, the question, as adopted, asks if 

a lender receives confirmation of a 

borrower’s existing flood insurance 

coverage evidencing an overlap in 

coverage with a force-placed flood 

insurance policy, but the lender does 

not receive a refund from the insurance 

provider of the force-placed flood 

insurance policy in a timely manner, is 

the lender still obligated to refund any 

premiums for overlapping coverage to 

the borrower within 30 days. The 

Agencies are adopting Q&A Force 

Placement 12 with the change to the 

question discussed above. 

Force Placement 13. The Agencies 

proposed new proposed Q&A Force 

Placement 13 to explain that a lender 

can rely on a force-placed flood 

insurance policy to satisfy the 

mandatory purchase requirement for a 

refinance or loan modification if the 

borrower does not purchase his or her 

own policy. The proposed answer also 

suggested that lenders could encourage 

the borrower to purchase his or her own 

policy, likely at a reduced cost, prior to 

the loan closing. One commenter 

specifically agreed with the Agencies’ 

proposed answer to the question. 

Another commenter suggested that the 

Agencies amend the answer to clearly 

note that the lender’s encouragement of 

the borrower to purchase his or her own 

policy is at the lender’s discretion. The 

Agencies are amending the answer in 

Q&A Force Placement 13 to include the 

phrase ‘‘at its discretion’’ to make clear 

that this suggested encouragement is 

optional. This same commenter also 

noted that stating that a borrowerpurchased flood insurance policy would 

‘‘likely’’ be at a reduced cost compared 

to the force-placed flood insurance 

policy may not always be true. In 

response, the Agencies are amending 

the language in Q&A Force Placement 

13 to state that a borrower-purchased 

flood insurance policy ‘‘may be 

available at a lower premium amount’’ 

to soften the language and also make it 

consistent with similar language in Q&A 

Force Placement 14. 

Another commenter suggested that 

the Agencies remove the term 

‘‘refinances’’ from the proposed answer 

because the commenter did not believe 

that a refinancing is always a triggering 

event. The Agencies do not agree with 

this commenter’s characterization of a 

refinancing. A refinancing is the 

termination of an old loan contract and 

the making of a new loan in its place; 

as a result, a refinancing is the 

‘‘making’’ of a loan and does trigger 

flood insurance requirements under the 

Regulation. The Agencies are adding 

language to the Q&A to make this 

position clear. In addition, based on this 

comment, the Agencies reexamined the 

references to loan modifications in Q&A 

Force Placement 13 and are making 

revisions to the answer to clarify that 

the loan modifications discussed in the 

answer are only those that would result 

in the increase, renewal, or extension of 

a loan; in other words, those loan 


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50See FFIEC Joint EGRPRA Report to Congress, 

March 2017 at 124, https://www.ffiec.gov/pdf/2017_

FFIEC_EGRPRA_Joint-Report_to_Congress.pdf. 

modifications that would constitute a 

triggering event under the Regulation. 

The Agencies are also adding cross 

references to Q&As Applicability 6 and 

Applicability 13. Finally, the Agencies 

are making a minor non-substantive 

change to the answer. 

Force Placement 14. The Agencies 

proposed new Q&A Force Placement 14 

in response to an issue raised by 

EGRPRA commenters.50 Under the 

proposed answer, a lender is not 

required to send a notice prior to forceplacing insurance at the expiration of a 

force-placed policy, but the lender or its 

servicer, at its discretion, may notify the 

borrower about its plan to renew the 

force-placed policy. Commenters to the 

July 2020 Proposed Questions and 

Answers appreciated the flexibility and 

clarity provided in the proposed answer 

and noted that lenders typically choose 

one of two methods to notify borrowers 

of renewal of a lender-placed policy: (1) 

Renewal with a pre-expiration notice; or 

(2) renewal with a post-expiration 

notice. One of these commenters 

suggested language to expand the 

answer to explain these notice cycle 

methods. However, the Agencies note 

that the proposed answer already states 

that the lender or its servicer, at its 

discretion, may notify the borrower that 

the lender is planning to renew or has 

renewed the force-placed policy. 

Therefore, the answer already 

contemplates both notice cycle 

methods, and the Agencies are adopting 

Q&A Force Placement 14 as proposed. 

Force Placement 15. The Agencies 

proposed new Q&A Force Placement 15 

to indicate that, although there is no 

explicit duty to monitor flood insurance 

coverage over the life of the loan in the 

Act or Regulation, for purposes of safety 

and soundness, many lenders obtain 

‘‘life-of-loan’’ monitoring. One 

commenter agreed with the Agencies’ 

statement that neither the Act nor the 

Regulation require lenders to monitor 

flood insurance over the life of the loans 

but recommended that the answer be 

combined into the answer for Q&A 

Force Placement 1. The commenter also 

stated that the term ‘‘life-of-loan’’ 

monitoring is generally associated only 

with monitoring changes in flood zone 

maps. The Agencies believe that it is 

important to distinguish the guidance 

provided in Q&A Force Placement 15 

from the general discussion on force 

placement in Q&A Force Placement 1. 

Consequently, the Agencies are keeping 

Q&A Force Placement 15 as a separate 

Q&A. However, to clarify that the ‘‘life 

of loan’’ monitoring referenced in Q&A 

Force Placement 15 is ‘‘life of loan’’ 

monitoring related to continuous 

coverage rather than monitoring for map 

changes, the Agencies are amending the 

question to denote that the Q&A 

concerns ‘‘life of loan’’ monitoring for 

continuous coverage of designated 

loans. With this change, the Agencies 

are adopting Q&A Force Placement 15. 

Force Placement 16. The Agencies 

proposed new Q&A Force Placement 16 

to address what a lender or its servicer 

must do if it receives a notice indicating 

that a property will be remapped into an 

SFHA as of a future effective date. Many 

commenters stated that lenders do not 

always receive advance notice of a 

remapping and requested that the 

Agencies also provide guidance to 

lenders when they receive notice that a 

property already has been remapped. In 

response to commenters’ suggestions, 

the Agencies are expanding Q&A Force 

Placement 16 to include guidance on a 

lender’s or servicer’s responsibility 

when it receives notice after a property 

securing a designated loan has been 

remapped. In those cases, lenders 

should follow the requirements outlined 

in Q&A Force Placement 1. The adopted 

answer also adds a cross-reference to 

Q&A Force Placement 9 to address 

questions regarding when the lender or 

servicer may charge the borrower for a 

force-placed flood insurance policy. 

One commenter was confused by the 

proposed answer’s statement that the 

effective date of future remap is the date 

the lender or servicer must determine 

sufficiency of flood insurance coverage, 

but also providing that the lender or 

servicer may immediately force-place 

flood insurance as of the remapping 

effective date. The commenter stated 

that as written, the proposed answer 

seemed to suggest that two different 

effective dates are possible. To clarify, 

the Agencies’ are amending the answer 

to state that as of the effective date of 

the remapping, if the lender makes a 

determination that the property securing 

a designated loan is not covered by 

sufficient flood insurance, the lender or 

servicer must begin the force placement 

process and may charge the borrower for 

the force-placed insurance policy. 

With the changes described above, the 

Agencies are adopting Q&A Force 

Placement 16. 

Other Comments. One commenter 

stated that the Q&As on force placement 

should generally reflect a consistent 

treatment of the sequence of the force 

placement process beginning with 

determination of absent or insufficient 

coverage, then notice, and finally 

placement of flood insurance 

throughout the duration of the loan. The 

Agencies have reviewed the force 

placement Q&As generally to ensure 

that they reflect this sequence. This 

commenter also requested that the 

Agencies define what lender actions 

constitute making a ‘‘determination’’ 

that flood insurance is absent or 

inadequate and whether that 

determination is conditional. The 

Agencies do not believe it is possible to 

define all instances of when a lender 

‘‘determines’’ flood insurance is absent 

or inadequate and that determination is 

not necessarily ‘‘conditioned’’ on any 

specific actions or events. 

Another commenter urged the 

Agencies to clarify when the 

insufficiency or inadequacy of a flood 

insurance policy necessitates starting 

the force placement process, such as 

when a lender receives a new flood 

insurance policy or when a flood 

insurance policy is renewed and 

coverage is determined insufficient or 

inadequate. The Agencies decline to 

limit determination of insufficiency or 

inadequacy of a flood insurance policy 

to the instances described by the 

commenter. Under the Regulation, this 

determination can occur at any point 

during the life of the loan. 

XVIII. Flood Insurance Requirements in 

the Event of the Sale or Transfer of a 

Designated Loan and/or Its Servicing 

Rights (Servicing) 

The Agencies proposed to move 

current section VIII, which provides 

guidance on flood insurance 

requirements in the event of the sale or 

transfer of a designated loan and/or its 

servicing rights, to proposed section 

XVI, and to redesignate current Q&As 44 

through 50 as Q&As Servicing 1 through 

7, respectively. The Agencies proposed 

changes to the Q&As in this section in 

the July 2020 Proposed Questions and 

Answers. The Agencies proposed to 

revise these questions and answers to 

account for the change in the title of the 

head of FEMA from ‘‘Director’’ to 

‘‘Administrator’’ and received no 

specific comment on that proposed 

revision, which is included in the final 

Interagency Questions and Answers. 

Because the Agencies are combining the 

July 2020 Proposed Questions and 

Answers and the March 2021 Proposed 

Questions and Answers into one 

document, the Agencies are 

renumbering this Servicing section as 

Section XVIII in the 2022 Interagency 

Questions and Answers. 

One commenter recommended that 

the Agencies clarify whether all Q&As 

in this section apply to flood insurance 

policies issued by private insurers. In 

response, the Agencies are revising the 

Q&As where appropriate to clarify that 


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the requirement that a regulated lender 

must provide notice of a new servicer’s 

identity to the Administrator of FEMA 

(or the Administrator’s designee) 

applies to NFIP policies. In the case of 

a flood insurance policy issued by a 

private insurer, the lender should 

provide notice of a new servicer’s 

identity to the flood insurance provider, 

as FEMA does not accept these notices 

for policies issued by private insurers. If 

the lender did not provide notice of a 

new servicer’s identity to the flood 

insurance provider, the provider would 

be unable to properly administer the 

policy, such as by providing notice to 

the servicer about the expiration of the 

flood insurance policy. The burden of 

such notification should be minor 

because exchanges of information 

between the lender and the insurance 

provider ordinarily occur as a matter of 

routine. Where appropriate, the final 

Servicing Q&As contain revisions that 

incorporate this clarification. These 

revisions are discussed below. 

Servicing 1. The Agencies proposed to 

redesignate existing Q&A 44 as 

proposed Q&A Servicing 1. This 

proposed Q&A explained how the flood 

insurance requirements under the 

Regulation apply to lenders under two 

scenarios involving loan servicing. The 

Agencies received no specific comments 

on Q&A Servicing 1. However, the 

Agencies are clarifying in the final Q&A 

the applicability of the notice 

requirements to flood insurance policies 

issued by private insurers, as discussed 

above. The Agencies are adopting 

Servicing 1 with this change and with 

other minor non-substantive revisions. 

Servicing 2. The Agencies proposed to 

redesignate existing Q&A 45 as 

proposed Q&A Servicing 2. This 

proposed Q&A addressed the question 

of when a lender must provide notice to 

FEMA or its designee when that lender 

will be the servicer of the loan. Several 

commenters recommended that the 

Agencies clarify in the answer that the 

notice requirement does not apply 

where the flood insurance policy is 

issued by a private insurer. The 

commenter stated that there appears to 

be no reason to notify FEMA or its 

designee that the lender is the servicer 

of the loan when the property securing 

the loan is not insured by an NFIP 

policy. In the alternative, a commenter 

suggested that the Agencies could add a 

new Q&A to the Private Flood 

Compliance Q&As that provides this 

clarification. This commenter also 

asserted that the Agencies should make 

a technical change to the Regulation to 

remedy the situation. Another 

commenter also identified this concern 

but did not provide specific suggestions 

or recommendations. 

In response to these comments, the 

Agencies are clarifying the answer to 

provide that in the case of a flood 

insurance policy issued by a private 

insurer, the lender should provide 

notice of a new servicer’s identity to the 

flood insurance provider. The Agencies 

also state in the revised answer that if 

the lender does not provide this notice 

to the flood insurance provider, the 

provider will be unable to properly 

administer the policy, such as by 

providing notice to the servicer about 

the expiration of the flood insurance 

policy. Revising the Regulation to 

address this point is beyond the scope 

of the Interagency Questions and 

Answers. 

One commenter interpreted the 

Regulation to indicate that the process 

of acquiring or revising a flood 

insurance policy will fulfill the initial 

notification requirement. The 

commenter noted that the Regulation 

provides no exception for the notice 

when dealing with a scenario where an 

RCBAP provides sufficient coverage 

(i.e., no additional individual flood 

insurance policy is required). The 

commenter stated that in this scenario, 

the Administrator of FEMA or the 

Administrator’s designee would not 

receive notice, since a flood insurance 

policy is not purchased or updated. The 

commenter asked for clarification of the 

Agencies’ expectation in this scenario. 

In response to this comment, the 

Agencies clarify that if a unit owner 

does not purchase or update a separate 

policy, then no notice is required. 

However, notice would be required if 

the unit owner purchases or updates a 

separate dwelling policy. The Agencies 

are not changing the Q&A in response 

to this comment. 

The Agencies are adopting this Q&A 

with the changes discussed above, along 

with minor technical, non-substantive 

changes. 

Servicing 3. The Agencies proposed to 

redesignate existing Q&A 46 as 

proposed Q&A Servicing 3. This 

proposed Q&A explained that a RESPA 

Notice of Transfer sent to the 

Administrator of FEMA (or the 

Administrator’s designee, i.e., the 

insurance provider) satisfies the 

requirements of the Act. The Agencies 

received no specific comments on Q&A 

Servicing 3 and are adopting it with a 

minor non-substantive change to the 

question but otherwise as proposed. 

Servicing 4. The Agencies proposed to 

redesignate existing Q&A 47 as 

proposed Q&A Servicing 4. This 

proposed Q&A explained that delivery 

of the notice can be delivered 

electronically, including by batch 

transmission. The Agencies received no 

specific comments on Q&A Servicing 4 

and are adopting it as proposed. 

Servicing 5. The Agencies proposed to 

redesignate existing Q&A 48 as 

proposed Q&A Servicing 5. This 

proposed Q&A addressed the question 

of whether a lender is required to 

provide notice to the Administrator or 

the Administrator’s designee (i.e., the 

insurance provider) if a loan and its 

servicing rights are sold by the lender. 

The Agencies received no specific 

comments on Q&A Servicing 5. In the 

final Q&A, the Agencies are clarifying 

the applicability of the notice 

requirement to flood insurance policies 

issued by private insurers, as discussed 

above. With this change, the Agencies 

are adopting Q&A Servicing 5 otherwise 

as proposed. 

Servicing 6. The Agencies proposed to 

redesignate existing Q&A 49 as 

proposed Q&A Servicing 6. This 

proposed Q&A addressed the question 

of whether a lender is required to 

provide notice when the servicer, not 

the lender, sells or transfers the 

servicing rights to another servicer. The 

proposed answer provided that after 

servicing rights are sold or transferred, 

the subsequent notification obligations 

applicable in connection with NFIP 

policies are the responsibility of the 

new servicer. The Agencies received no 

specific comments on Q&A Servicing 6. 

In the final Q&A, the Agencies are 

clarifying that in connection with a 

flood insurance policy issued by a 

private insurer the Agencies do not 

expect the lender to provide notice to 

the private insurance provider of any 

subsequent sale or transfer of the 

servicing rights because the new 

servicer should provide this notice. 

With this change, and a minor nonsubstantive edit, the Agencies are 

adopting Q&A Servicing 6 otherwise as 

proposed. 

Servicing 7. The Agencies proposed to 

redesignate existing Q&A 50 as 

proposed Q&A Servicing 7. This 

proposed Q&A addressed the 

responsibilities of the parties for 

notifying the Administrator’s designee 

(i.e., the insurance provider) in the 

event of a merger or acquisition of one 

lender with another. The Agencies 

received no specific comments on Q&A 

Servicing 7. In the final Q&A, the 

Agencies are clarifying the applicability 

of the notice requirement to flood 

insurance policies issued by private 

insurers, as discussed above. With this 

change, the Agencies are adopting Q&A 

Servicing 7 otherwise as proposed. 


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Federal Register / Vol. 87, No. 104 / Tuesday, May 31, 2022 / Rules and Regulations 32865 

51See 42 U.S.C. 4012a(f)(5). See also Public Law 

112–141, 126 Stat. 916 (2012). 

Section XIX. Mandatory Civil Money 

Penalties (Penalty) 

Section XVII includes questions and 

answers related to mandatory civil 

penalties. For organizational purposes, 

the Agencies proposed to move existing 

section XVI to proposed section XVII 

and redesignated existing Q&As 81 and 

82 as proposed Q&A Penalty 1 and 2, 

respectively. The Agencies proposed 

changes to the Q&As in this section in 

the July 2020 Proposed Questions and 

Answers. Because the Agencies are 

combining the July 2020 Proposed 

Questions and Answers and the March 

2021 Proposed Questions and Answers 

into one document, the Agencies are 

renumbering this Penalty section as 

Section XIX in the 2022 Interagency 

Questions and Answers. 

Penalty 1. The Agencies proposed to 

redesignate existing Q&A 81 as 

proposed Penalty 1. This Q&A discusses 

which violations of the Act can result in 

a mandatory civil money penalty. The 

Agencies proposed to update this Q&A 

to reflect, as provided in the BiggertWaters Act: (1) the increased maximum 

civil money penalty that the Agencies 

may impose per violation when there is 

a pattern or practice of flood violations; 

and (2) the elimination of the limit on 

the total amount of penalties that the 

Agencies may assess against a regulated 

lending institution during any calendar 

year.51 Specifically, proposed Q&A 

Penalty 1 provides that the civil money 

penalty amount cannot exceed $2,000 

per violation and that there is no ceiling 

on the total penalty amount that a 

Federal supervisory agency can assess 

for a pattern or practice of violations. 

This Q&A also notes that each Agency 

adjusts the limit pursuant to the Federal 

Civil Penalties Inflation Adjustment Act 

of 1990. For purposes of clarity and 

accuracy, the Agencies also proposed 

minor revisions with no intended 

change in substance or meaning. The 

Agencies received no specific comments 

on this Q&A and are adopting Q&A 

Penalty 1 as proposed, with the addition 

of more specific citations to the Federal 

Civil Penalties Inflation Adjustment Act 

of 1990. 

Penalty 2. The Agencies proposed to 

redesignate existing Q&A 82 as 

proposed Q&A Penalty 2 with only 

minor revisions, with no intended 

change in substance or meaning. This 

Q&A addresses what constitutes a 

‘‘pattern or practice’’ of violations for 

which civil money penalties must be 

imposed under the Act. The Agencies 

received no specific comments on this 

Q&A and are adopting it as proposed. 

Redesignation Table 

The following redesignation table is 

provided as an aid to assist the public. 

2009 & 2011 Interagency Q&A 2022 Interagency Q&A 

Section I. Determining When Certain Loans Are Designated Loans for 

Which Flood Insurance Is Required Under the Act and Regulation.

Section I. Determining the Applicability of Flood Insurance Requirements for Certain Loans. 

Section 1, Question 1 ............................................................................... Section I, Applicability 1 

Section 1, Question 2 ............................................................................... Section I, Applicability 4 

Section 1, Question 3 ............................................................................... Section I, Applicability 5 

Section 1, Question 4 ............................................................................... Section I, Applicability 9 

Section 1, Question 5 ............................................................................... Section I, Applicability 6 

Section 1, Question 6 ............................................................................... Section I, Applicability 7 

Section 1, Question 7 ............................................................................... Section I, Applicability 8 

Section II. Determining the Appropriate Amount of Flood Insurance Required Under the Act and Regulation.Section X. Determining the Appropriate Amount of Flood Insurance Required. 

Section II, Question 8 ............................................................................... Section X, Amount 1 

Section II, Question 9 ............................................................................... Section X, Amount 2 

Section II, Question 10 ............................................................................. Deleted 

Section II, Question 11 ............................................................................. Section X, Amount 3 

Section II, Question 12 ............................................................................. Section X, Amount 4 

Section II, Question 13 ............................................................................. Section X, Amount 5 

Section II, Question 14 ............................................................................. Section X, Amount 6 

Section II, Question 15 ............................................................................. Section X, Amount 7 

Section II, Question 16 ............................................................................. Section X, Amount 8 

Section II, Question 17 ............................................................................. Section X, Amount 9 

Section III. Exemptions from the Mandatory Flood Insurance Requirements.Section II. Exemptions from the Mandatory Flood Insurance Purchase 

Requirements. 

Section III, Question 18 ............................................................................ Section II, Exemptions 1 

Section IV. Flood Insurance Requirements for Construction Loans ........ Section XI, Flood Insurance Requirements for Construction Loans. 

Section IV, Question 19 ........................................................................... Section XI, Construction 1 

Section IV, Question 20 ........................................................................... Section XI, Construction 2 

Section IV, Question 21 ........................................................................... Section XI, Construction 3 

Section IV, Question 22 ........................................................................... Section XI, Construction 4 

Section IV, Question 23 ........................................................................... Section XI, Construction 5 

Section V. Flood Insurance Requirements for Non-Residential Buildings. 

Section V, Question 24 ............................................................................ Section I, Applicability 2 

Section V, Question 25 ............................................................................ Section I, Applicability 3 

Section VI. Flood Insurance Requirements for Residential Condominiums.Section XII. Flood Insurance Requirements for Residential Condominiums and Co-Ops. 

Section VI, Question 26 ........................................................................... Section XII, Condo and Co-Op 1 

Section VI, Question 27 ........................................................................... Section XII, Condo and Co-Op 2 

Section VI, Question 28 ........................................................................... Section XII, Condo and Co-Op 3 


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2009 & 2011 Interagency Q&A 2022 Interagency Q&A 

Section VI, Question 29 ........................................................................... Section XII, Condo and Co-Op 4 

Section VI, Question 30 ........................................................................... Section XII, Condo and Co-Op 5 

Section VI, Question 31 ........................................................................... Section XII, Condo and Co-Op 6 

Section VI, Question 32 ........................................................................... Section XII, Condo and Co-Op 7 

Section VI, Question 33 ........................................................................... Section XII, Condo and Co-Op 8 

Section VII. Flood Insurance Requirements for Home Equity Loans, 

Lines of Credit, Subordinate Liens, and Other Security Interests in 

Collateral Located in an SHFA.

Section XIII. Flood Insurance Requirements for Home Equity Loans, 

Lines of Credit, Subordinate Liens, and Other Security Interests in 

Collateral Located in an SFHA. 

Section VII, Question 34 .......................................................................... Section XIII, Other Security Interests 1 

Section VII, Question 35 .......................................................................... Section XIII, Other Security Interests 2 

Section VII, Question 36 .......................................................................... Section XIII, Other Security Interests 4 

Section VII, Question 37 .......................................................................... Section XIII, Other Security Interests 5 

Section VII, Question 38 .......................................................................... Section XIII, Other Security Interests 6 

Section VII, Question 39 .......................................................................... Section XIII, Other Security Interests 7 

Section VII, Question 40 .......................................................................... Section XIII, Other Security Interests 8 

Section VII, Question 41 .......................................................................... Section XIII, Other Security Interests 9 

Section VII, Question 42 .......................................................................... Section XIII, Other Security Interests 11 

Section VII, Question 43 .......................................................................... Section XIII, Other Security Interests 12 

Section VIII. Flood Insurance Requirements in the Event of the Sale or 

Transfer of a Designated Loan and/or Its Servicing Rights.

Section XVIII. Flood Insurance Requirements in the Event of the Sale 

or Transfer of a Designated Loan and/or Its Servicing Rights. 

Section VII, Question 44 .......................................................................... Section XVIII, Servicing 1 

Section VII, Question 45 .......................................................................... Section XVIII, Servicing 2 

Section VII, Question 46 .......................................................................... Section XVIII, Servicing 3 

Section VII, Question 47 .......................................................................... Section XVIII, Servicing 4 

Section VII, Question 48 .......................................................................... Section XVIII, Servicing 5 

Section VII, Question 49 .......................................................................... Section XVIII, Servicing 6 

Section VII, Question 50 .......................................................................... Section XVIII, Servicing 7 

Section IX. Escrow Requirements ............................................................ Section XIV–XVI. Requirement to Escrow Flood Insurance Premiums 

and Fees. 

Section IX, Question 51 ........................................................................... Section XIV, Escrow 5 

Section IX, Question 52 ........................................................................... Section XIV, Escrow 1 

Section IX, Question 53 ........................................................................... Deleted 

Section IX, Question 54 ........................................................................... Deleted 

Section IX, Question 55 ........................................................................... Section XVI, Escrow Loan Exceptions 1 

Section IX, Question 56 ........................................................................... Section XVI, Escrow Loan Exceptions 4 

Section X. Force Placement ..................................................................... Section XVII. Force Placement of Flood Insurance. 

Section X, Question 57 ............................................................................ Section XVII, Force Placement 1 

Section X, Question 58 ............................................................................ Section XVII, Force Placement 3 

Section X, Question 59 ............................................................................ Section XVII, Force Placement 8 

Section X, Question 60 ............................................................................ Section XVII, Force Placement 4 

Section X, Question 61 ............................................................................ Section XVII, Force Placement 5 

Section X, Question 62 ............................................................................ Section XVII, Force Placement 9 

Section XI. Private Flood Insurance ......................................................... Section III–V. Private Flood Insurance. 

Section XI, Question 63 ........................................................................... Deleted 

Section XI, Question 64 ........................................................................... Section I, Applicability 14 

Section XII. Required Use of Standard Flood Hazard Determination 

Form (SFHDF).

Section VI. Standard Flood Hazard Determination Form (SFHDF). 

Section XII, Question 65 .......................................................................... Section VI, SFHDF 1 

Section XII, Question 66 .......................................................................... Section VI, SFHDF 2 

Section XII, Question 67 .......................................................................... Section VI, SFHDF 3 

Section XII, Question 68 .......................................................................... Section VI, SFHDF 4 

Section XIII. Flood Determination Fees ................................................... Section VII. Flood Insurance Determination Fees. 

Section XIII, Question 69 ......................................................................... Section VII, Fees 1 

Section XIII, Question 70 ......................................................................... Section VII, Fees 2 

Section XIV. Flood Zone Discrepancies .................................................. Section VIII. Flood Zone Discrepancies. 

Section XIV, Question 71 ......................................................................... Section VIII, Zone 1 

Section XIV, Question 72 ......................................................................... Section VIII, Zone 2 

Section XV. Notice of Special Flood Hazards and Availability of Federal 

Disaster Relief.

Section IX. Notice of Special Flood Hazards and Availability of Federal 

Disaster Relief. 

Section XV, Question 73 .......................................................................... Section IX, Notice 1 

Section XV, Question 74 .......................................................................... Section IX, Notice 2 

Section XV, Question 75 .......................................................................... Section IX, Notice 3 

Section XV, Question 76 .......................................................................... Section IX, Notice 4 

Section XV, Question 77 .......................................................................... Section IX, Notice 4 

Section XV, Question 78 .......................................................................... Section IX, Notice 5 

Section XV, Question 79 .......................................................................... Section IX, Notice 6 


khammond on DSKJM1Z7X2PROD with RULES3
Federal Register / Vol. 87, No. 104 / Tuesday, May 31, 2022 / Rules and Regulations 32867 

1 12 CFR part 22 (OCC); 12 CFR 208.25 (Board); 

12 CFR part 339 (FDIC); 12 CFR part 614, subpart 

S (FCA); and 12 CFR part 760 (NCUA). 

2 42 U.S.C 4003(a)(10). 

3 12 CFR 22.6(a) (OCC); 12 CFR 208.25(f)(1) 

(Board); 12 CFR 339.6(a) (FDIC); 12 CFR 614.4940(a) 

(FCA); and 12 CFR 760.6(a) (NCUA). 

4 12 CFR 22.9(a) (OCC); 12 CFR 208.25(i) (Board); 

12 CFR 339.9(a) (FDIC); 12 CFR 614.4955(a) (FCA); 

and 12 CFR 760.9(a) (NCUA). 

5 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 

6 12 CFR 22.4(c) (OCC); 12 CFR 208.25(d)(3) 

(Board); 12 CFR 339.4(c) (FDIC); 12 CFR 614.4932(c) 

(FCA); and 12 CFR 760.4(c) (NCUA). 

7 12 CFR 22.6(a) (OCC); 12 CFR 208.25(f)(1) 

(Board); 12 CFR 339.6(a) (FDIC); 12 CFR 614.4940(a) 

(FCA); and 12 CFR 760.6(a) (NCUA). 

2009 & 2011 Interagency Q&A 2022 Interagency Q&A 

Section XV, Question 80 .......................................................................... Section IX, Notice 7 

Section XVI. Mandatory Civil Money Penalties ........................................ Section XIX. Mandatory Civil Money Penalties. 

Section XVI, Question 81 ......................................................................... Section XIX, Penalty 1 

Section XVI, Question 82 ......................................................................... Section XIX, Penalty 2 

Interagency Questions and Answers 

Regarding Flood Insurance 

The Interagency Questions and 

Answers are organized by topic. Each 

topic addresses a major area of flood 

insurance law and regulations. For ease 

of reference, the following terms are 

used throughout this document: ‘‘Act’’ 

refers to the National Flood Insurance 

Act of 1968 and the Flood Disaster 

Protection Act of 1973, as revised. 

‘‘Regulation’’ refers to each Agency’s 

current final rule.1 ‘‘Lenders’’ refers 

only to regulated lending institutions as 

defined in the Act.2 ‘‘Designated loan’’ 

means a loan secured by a building or 

mobile home that is located or to be 

located in a special flood hazard area 

(SFHA) in which flood insurance is 

available under the Act. The Office of 

the Comptroller of the Currency (OCC); 

Board of Governors of the Federal 

Reserve System (Board); Federal Deposit 

Insurance Corporation (FDIC); Farm 

Credit Administration (FCA); and 

National Credit Union Administration 

(NCUA) (collectively, ‘‘the Agencies’’) 

are providing answers to questions 

pertaining to the following topics: 

I. Determining the Applicability of Flood 

Insurance Requirements for Certain 

Loans 

II. Exemptions from the Mandatory Flood 

Insurance Purchase Requirements 

III. Private Flood Insurance—Mandatory 

Acceptance 

IV. Private Flood Insurance—Discretionary 

Acceptance 

V. Private Flood Insurance—General 

Compliance 

VI. Standard Flood Hazard Determination 

Form (SFHDF) 

VII. Flood Insurance Determination Fees 

VIII. Flood Zone Discrepancies 

IX. Notice of Special Flood Hazards and 

Availability of Federal Disaster Relief 

X. Determining the Appropriate Amount of 

Flood Insurance Required 

XI. Flood Insurance Requirements for 

Construction Loans 

XII. Flood Insurance Requirements for 

Residential Condominiums and Co-Ops 

XIII. Flood Insurance Requirements for Home 

Equity Loans, Lines of Credit, 

Subordinate Liens, and Other Security 

Interests in Collateral Located in an 

SFHA 

XIV. Requirement to Escrow Flood Insurance 

Premiums and Fees—General 

XV. Requirement to Escrow Flood Insurance 

Premiums and Fees—Escrow Small 

Lender Exception 

XVI. Requirement to Escrow Flood Insurance 

Premiums and Fees—Escrow Loan 

Exceptions 

XVII. Force Placement of Flood Insurance 

XVIII. Flood Insurance Requirements in the 

Event of the Sale or Transfer of a 

Designated Loan and/or Its Servicing 

Rights 

XIX. Mandatory Civil Money Penalties 

I. Determining the Applicability of 

Flood Insurance Requirements for 

Certain Loans (Applicability) 

APPLICABILITY 1. Does the 

Regulation apply to a loan where the 

building or mobile home securing such 

loan is located in a community that 

does not participate in the National 

Flood Insurance Program (NFIP)? 

Yes, the Regulation does apply; 

however, a lender need not require 

borrowers to obtain flood insurance for 

a building or mobile home located in a 

community that does not participate in 

the NFIP, even if the building or mobile 

home securing the loan is located in an 

SFHA. Nonetheless, a lender, using the 

Standard Flood Hazard Determination 

Form, must still determine whether the 

building or mobile home is located in an 

SFHA.3 If the building or mobile home 

is determined to be located in an SFHA, 

a lender is required to mail or deliver 

a written notice to the borrower.4 In this 

case, a lender, generally, may make a 

conventional loan without requiring 

flood insurance. However, because 

Federal agencies such as the Small 

Business Administration, Veterans 

Administration, or Federal Housing 

Administration are prohibited from 

guaranteeing or insuring a loan secured 

by a building or mobile home located in 

an SFHA in a community that does not 

participate in the NFIP, a lender would 

not be able to make a federally 

guaranteed or insured loan. See 42 

U.S.C. 4106(a). Also, a lender is 

responsible for exercising sound risk 

management practices to avoid making 

a loan secured by a building or mobile 

home located in an SFHA where no 

flood insurance is available, if doing so 

would pose an unacceptable risk to the 

lender. 

APPLICABILITY 2. Some borrowers 

have buildings with limited utility or 

value and, in many cases, the borrower 

would not replace them if lost in a flood. 

Must a lender require flood insurance 

for such buildings? 

Lenders must require flood insurance 

on a building or mobile home when 

those structures are part of the property 

securing the loan and are located in an 

SFHA in a participating community.5

However, flood insurance is not 

required on a structure that is part of a 

residential property but is detached 

from the primary residential structure of 

such property and does not serve as a 

residence.6 If the limited utility or value 

structure does not qualify for the 

detached structure exemption, a lender 

may consider ‘‘carving out’’ the building 

from the security it takes on the loan to 

avoid having to require flood insurance 

on the structure. However, the lender 

should fully analyze the risks of this 

option. In particular, a lender should 

consider whether and how it would be 

able to market and sell the property 

securing its loan in the event of 

foreclosure. See also Q&A Exemptions 

1. 

APPLICABILITY 3. What are a 

lender’s requirements under the 

Regulation for a loan secured by 

multiple buildings when some of the 

buildings are located in an SFHA in 

which flood insurance is available and 

other buildings are not? What if the 

buildings are located in different 

communities and some of the 

communities participate in the NFIP 

and others do not? 

A lender must determine whether a 

building securing the loan is in an 

SFHA.7 In cases in which the loan is 

secured by multiple buildings and some 

of the buildings are located in an SFHA 


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8 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 

9See 42 U.S.C. 4012a(b); FEMA Standard Flood 

Hazard Determination Form. 

10 12 CFR 22.2(e), 22.3(a) (OCC); 12 CFR 

208.25(b)(5) and (c)(1) (Board); 12 CFR 339.2, 

339.3(a) (FDIC); 12 CFR 614.4925, 614.4930 (FCA); 

and 12 CFR 760.2, 760.3(a) (NCUA). 

11 12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) 

(Board); 12 CFR 339.7(a) (FDIC); 12 CFR 614.4945(a) 

(FCA); and 12 CFR 760.7(a) (NCUA). 

12 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930 

(FCA); and 12 CFR 760.3(a) (NCUA). 

13 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930 

(FCA); and 12 CFR 760.3(a) (NCUA). 

14 12 CFR 22.2(m) (OCC); 12 CFR 208.25(b)(11) 

(Board); 12 CFR 339.2 (FDIC); 12 CFR 614.4925 

(FCA); and 12 CFR 760.2 (NCUA). 

15 12 CFR 22.3(b) (OCC); 12 CFR 208.25(c)(2) 

(Board); 12 CFR 339.3(b) (FDIC); 12 CFR 

614.4930(b) (FCA); and 12 CFR 760.3(b) (NCUA). 

16 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930 

(FCA); and 12 CFR 760.3(a) (NCUA). 

17 12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) 

(Board); 12 CFR 339.7(a) (FDIC); 12 CFR 614.4945(a) 

(FCA); and 12 CFR 760.7(a) (NCUA). 

in which flood insurance is available 

under the Act, but other buildings are 

not located in an SFHA (or are located 

in an SFHA, but not in a participating 

community), a lender is required to 

obtain flood insurance only on the 

buildings securing the loan that are 

located in an SFHA in which flood 

insurance is available under the Act.8

For example, assume a loan is secured 

by five buildings as follows: 

• Buildings 1 and 2 are located in an 

SFHA and the community participates 

in the NFIP; 

• Building 3 is not located in an 

SFHA; and 

• Buildings 4 and 5 are located in an 

SFHA, but the communities do not 

participate in the NFIP. 

In this scenario, the lender is required 

to obtain insurance only on buildings 1 

and 2. As a matter of safety and 

soundness, however, a lender may 

decide to require the purchase of flood 

insurance (from a private insurer) on 

buildings 4 and 5 because these 

buildings are located in an SFHA. In 

addition, depending on the risk factors 

of building 3, the lender may elect to 

require flood insurance as a matter of 

safety and soundness, even if the 

building is not located in an SFHA. 

Further, if any portion of a building 

is located in an SFHA in which flood 

insurance is available under the Act, the 

flood insurance requirement applies 

even if the entire structure is not located 

in the SFHA. However, a building 

located on a portion of a plat or lot that 

is not in an SFHA is not subject to the 

mandatory flood insurance purchase 

requirement even if a portion of the plat 

or lot not containing a building extends 

into an SFHA.9

APPLICABILITY 4. What is a lender’s 

responsibility if a particular building or 

mobile home that secures a loan is not 

located within an SFHA, or is no longer 

located within an SFHA due to a map 

change? 

Although a lender is not obligated to 

require mandatory flood insurance on a 

building or mobile home securing a loan 

that is not located within an SFHA or 

is no longer located within an SFHA, a 

lender may, at its discretion and taking 

into consideration State law, as 

appropriate, require flood insurance for 

property outside of SFHAs for safety 

and soundness purposes as a condition 

of a loan being made. Each lender 

should tailor its own flood insurance 

policies and procedures to suit its 

business needs and protect its ongoing 

interest in the collateral. 

APPLICABILITY 5. Does a lender’s 

purchase from another lender of a loan 

secured by a building or mobile home 

located in an SFHA in which flood 

insurance is available under the Act 

trigger any requirements under the 

Regulation? 

No. A lender’s purchase of a loan, 

secured by a building or mobile home 

located in an SFHA in which flood 

insurance is available under the Act, 

alone, is not an event that triggers the 

Regulation’s requirements, such as 

making a new flood determination or 

requiring a borrower to purchase flood 

insurance. Requirements under the 

Regulation are triggered when a lender 

makes, increases, extends, or renews a 

designated loan.10 A lender’s purchase 

of a loan does not fall within any of 

those categories. 

However, if a lender becomes aware at 

any point during the life of a designated 

loan that flood insurance is required, 

the requirements of the Regulation 

apply, including force-placing 

insurance, if necessary.11 Depending on 

the circumstances, the lender may need 

to conduct due diligence for safety and 

soundness reasons, which could include 

determining whether flood insurance on 

purchased loans is required. 

Additionally, if the purchasing lender 

subsequently refinances, extends, 

increases, or renews a designated loan, 

it must comply with the Regulation.12

APPLICABILITY 6. If a loan is being 

restructured or modified, does that 

constitute a triggering event under the 

Regulation? 

It depends. If a loan modification or 

restructuring involves recapitalizing 

into the loan’s outstanding principal 

balance: (1) Delinquent payments and 

other amounts due under the loan and 

the maturity date of the loan otherwise 

stays the same, or (2) amounts that were 

otherwise originally contemplated to be 

part of the loan pursuant to the contract 

with the borrower and the maturity date 

of the loan otherwise stays the same, the 

Regulation would not apply because the 

modification or restructuring would not 

increase, extend, or renew the terms of 

the loan. 

In contrast, if the loan modification or 

restructuring changes terms of the loan 

such as by increasing the outstanding 

principal balance beyond what was 

contemplated as part of the loan under 

the contract with the borrower, or by 

extending the maturity date of the loan, 

the Regulation would apply because the 

lender increased or extended the terms 

of the loan beyond what was originally 

contemplated to be part of the loan.13

APPLICABILITY 7. Are table funded 

loans treated as new loan originations? 

Yes. Table funding, as defined in the 

Regulation, means a settlement at which 

a loan is funded by a contemporaneous 

advance of loan funds and an 

assignment of the loan to the person 

advancing the funds.14 A loan made 

through a table funding process is 

treated as though the party advancing 

the funds has originated the loan.15 The 

funding party is required to comply 

with the Regulation. The table funding 

lender can meet the administrative 

requirements of the Regulation by 

requiring the party processing and 

underwriting the application to perform 

those functions on its behalf. 

APPLICABILITY 8. Is a lender 

required by the Act or the Regulation to 

perform a review of its, or of its 

servicer’s, existing loan portfolio for 

compliance with the flood insurance 

requirements under the Act and 

Regulation? 

No. Apart from the requirements 

mandated when a loan is made, 

increased, extended, or renewed,16 a 

lender need only review and take action 

on any part of its existing portfolio for 

safety and soundness purposes, or if it 

knows or has reason to know of the 

need for NFIP coverage.17 Regardless of 

the lack of such requirement in the Act 

and Regulation, however, sound risk 

management practices may lead a lender 

to conduct scheduled periodic reviews 

that track the need for flood insurance 

on a loan portfolio. 

APPLICABILITY 9. Do the mandatory 

purchase requirements under the Act 

and Regulation apply when a lender 

participates in a loan syndication or 

participation? 

The acquisition by a lender of an 

interest in a loan either by participation 


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Federal Register / Vol. 87, No. 104 / Tuesday, May 31, 2022 / Rules and Regulations 32869 

18 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 

19 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 

20 12 CFR 22.6(a) (OCC); 12 CFR 208.25(f)(1) 

(Board); 12 CFR 339.6(a) (FDIC); 12 CFR 614.4940(a) 

(FCA); and 12 CFR 760.6(a) (NCUA). 

21 12 CFR 22.9(a) (OCC); 12 CFR 208.25(i) (Board); 

12 CFR 339.9(a) (FDIC); 12 CFR 614.4955(a) (FCA); 

and 12 CFR 760.9(a) (NCUA). 

or syndication after that loan has been 

made does not trigger the requirements 

of the Act or the Regulation, such as 

making a new flood determination or 

requiring a borrower to purchase flood 

insurance. Nonetheless, as with 

purchased loans, depending upon the 

circumstances, the lender may 

undertake due diligence for safety and 

soundness purposes to protect itself 

against the risk of flood or other types 

of loss. 

Lenders who pool or contribute funds 

that will be simultaneously advanced to 

a borrower or borrowers as a loan 

secured by improved real estate would 

be making a loan that triggers the 

requirements of the Act and 

Regulation.18 Federal flood insurance 

requirements also would apply when a 

group of lenders refinances, extends, 

renews or increases a loan.19 Although 

the agreement among the lenders may 

assign compliance duties to a lead 

lender or agent, and include clauses in 

which the lead lender or agent 

indemnifies participating lenders 

against flood losses, each participating 

lender remains individually responsible 

for compliance with the Act and 

Regulation. Therefore, the Agencies will 

examine whether the regulated 

institution/participating lender has 

performed upfront due diligence to 

determine whether the lead lender or 

agent has undertaken the necessary 

activities to ensure that the borrower 

obtains appropriate flood insurance and 

that the lead lender or agent has 

adequate controls to monitor the loan(s) 

on an ongoing basis for compliance with 

the flood insurance requirements. 

Further, the Agencies expect the 

participating lender to have adequate 

controls to monitor the activities of the 

lead lender or agent for compliance with 

flood insurance requirements over the 

term of the loan. This due diligence and 

monitoring is especially important 

when the lead lender itself is not subject 

to Federal flood insurance requirements. 

APPLICABILITY 10. Is a lender 

expected to consider any triggering 

event or any cashless roll of which it 

becomes aware in any tranche of a 

multi-tranche credit facility, regardless 

of whether the lender participates in the 

affected tranche? 

No. Consistent with Q&A 

Applicability 9, the Agencies expect 

that a lender participating in a multitranche credit facility will perform 

upfront due diligence to determine 

whether the lead lender has adequate 

controls to monitor the loan on an 

ongoing basis for compliance with the 

flood insurance requirements. This due 

diligence is especially important when 

the lead lender itself is not subject to 

Federal flood insurance requirements. 

Even though each lender participating 

in a tranche in a multi-tranche credit 

facility remains individually 

responsible for compliance with the 

flood insurance requirements relating to 

structures securing the tranche in which 

it participates, this obligation can be 

achieved through the upfront due 

diligence process when determining the 

lead lender/administrative agent’s 

ongoing monitoring for compliance with 

flood insurance requirements. A multitranche credit facility is analogous in 

many respects to a loan syndication or 

participation. Q&A Applicability 9 

addresses applicability of the mandatory 

purchase requirements when a lender 

participates in a loan syndication or 

participation. Similar to a loan 

syndication or participation, a multitranche credit facility involves one 

credit agreement that describes and 

governs all the tranches. In addition, 

similar to a loan syndication or 

participation, a multi-tranche credit 

facility typically has one lead lender 

that acts as the administrative agent for 

the credit facility and its tranches. Thus, 

the Agencies do not expect a lender 

participating in one tranche in a multitranche credit facility to be responsible 

for taking direct steps to comply with 

flood insurance requirements in 

connection with a triggering event (i.e., 

making, increasing, extending or 

renewing) or cashless roll that occurs in 

a tranche in which the lender does not 

participate. 

A multi-tranche commercial credit 

facility is a loan arrangement containing 

more than one type of loan or tranche. 

Each loan within the overall credit 

facility is made to the same borrower or 

group of related borrowers, but the loans 

may have different lenders and different 

terms and conditions. For example, a 

credit facility might have one tranche 

that is a revolving line of credit with a 

one-year maturity date and one or more 

additional tranches that are fixed rate 

loans with different interest rates and 

different maturity dates. Various lenders 

may participate in each tranche. 

Generally, the tranches share the same 

collateral and there is one credit 

agreement that describes and governs all 

the tranches. 

Under most multi-tranche credit 

facility agreements, a triggering event 

can occur within a particular tranche 

without any requirement to notify and 

obtain the consent of the lenders not 

participating in that tranche. Lenders 

may also participate in a cashless roll, 

which is an exchange of an existing loan 

for a new or amended loan without any 

transfer of cash. A cashless roll may be 

used to replace or supplement existing 

tranches, but not to increase the total 

amount of committed debt; therefore, 

this is not considered a triggering event. 

APPLICABILITY 11. Does an 

automatic extension of a credit facility, 

that was agreed upon by the borrower 

and the lender at loan origination and 

memorialized in the loan agreement, 

constitute a triggering event i.e., making, 

increasing, extending or renewing) that 

would trigger the Federal flood 

insurance requirements? 

No. An automatic extension of a 

credit facility that was agreed upon by 

the lender and the borrower at loan 

origination and memorialized in the 

loan agreement does not constitute a 

triggering event (i.e., making, increasing, 

extending or renewing) that would 

trigger the Federal flood insurance 

requirements, because the automatic 

extension was agreed to in the original 

loan contract. 

APPLICABILITY 12. What is the 

applicability of the mandatory purchase 

requirement during a period of time 

when coverage under the NFIP is not 

available? 

During a period when coverage under 

the NFIP is not available, such as due 

to a lapse in authorization or in 

appropriations, lenders may continue to 

make loans subject to the Regulation 

without requiring flood insurance 

coverage. However, lenders must 

continue to make flood 

determinations,20 provide timely, 

complete, and accurate notices to 

borrowers,21 and comply with other 

applicable parts of the Regulation. 

In addition, lenders should evaluate 

safety and soundness and legal risks and 

prudently manage those risks during a 

period when coverage under the NFIP is 

not available. Lenders should take 

appropriate measures or consider 

possible options in consultation with 

the borrower to mitigate loss exposures 

in the event of a flood during such 

periods. For example, 

• Lenders may determine the risk of 

loss is sufficient to justify a 

postponement in closing the loan until 

the NFIP coverage is available again. 

• Lenders may require the borrower 

to obtain private flood insurance if 

available, as a condition of closing the 


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22 12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) 

(Board); 12 CFR 339.7(a) (FDIC); 12 CFR 614.4945(a) 

(FCA); and 12 CFR 760.7(a) (NCUA). 

23 12 CFR 22.3(a); 12 CFR 208.25(c)(1) (Board); 12 

CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) (FCA); and 

12 CFR 760.3(a) (NCUA). 

24See 12 CFR part 22 (OCC); 12 CFR 208.25 

(Board); 12 CFR part 339 (FDIC); 12 CFR part 614 

(FCA); and 12 CFR part 760 (NCUA). 

25 12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) 

(Board); 12 CFR 339.7(a) (FDIC); 12 CFR 614.4945(a) 

(FCA); and 12 CFR 760.7(a) (NCUA). 

26 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 

27 12 CFR 22.4(a) (OCC); 12 CFR 208.25(d)(1) 

(Board); 12 CFR 339.4(a) (FDIC); 12 CFR 614.4932(a) 

(FCA); and 12 CFR 760.4(a) (NCUA). 

28 12 CFR 22.4(b) (OCC); 12 CFR 208.25(d)(2) 

(Board); 12 CFR 339.4(b) (FDIC); 12 CFR 

614.4932(b) (FCA); and 12 CFR 760.4(b) (NCUA). 

loan. However, after considering the 

cost of the private flood policy, a lender 

or the borrower may decide to postpone 

closing rather than incur a long-term 

obligation to address a possible shortterm lapse. 

• Lenders may make the loan without 

requiring the borrower to apply for flood 

insurance and pay the premium while 

NFIP coverage is unavailable. However, 

this option poses a number of risks that 

should be carefully evaluated. 

Moreover, once NFIP coverage becomes 

available again, the Agencies expect that 

flood insurance will be obtained for 

these loans, including, if necessary, by 

force placement.22 Before making such 

loans, lenders should make borrowers 

aware of the flood insurance 

requirements and that force-placed 

insurance is typically more costly than 

borrower-obtained insurance. Lenders 

also should have a process to identify 

these loans to ensure that insurance is 

promptly purchased when NFIP 

coverage becomes available subsequent 

to their closing. 

APPLICABILITY 13. What is a 

‘‘triggering event’’ under the Regulation? 

If there is a triggering event, what is 

required under the Regulation? 

Under the Regulation, a triggering 

event occurs when a designated loan is 

made, increased, extended, or renewed 

(also known as a ‘‘MIER’’ or ‘‘MIRE’’ 

event).23 If a triggering event occurs 

with respect to a designated loan, the 

lender must comply with the Regulation 

as applicable, including the mandatory 

flood insurance purchase requirement, 

the requirement to provide the Notice of 

Special Flood Hazards to the borrower, 

the requirement to notify the 

Administrator of the Federal Emergency 

Management Agency (FEMA) or the 

Administrator’s designee (the insurance 

provider) in writing of the identity of 

the servicer of the loan, and the 

requirement to escrow for a loan 

secured by residential property, unless 

either the lender or the loan qualifies for 

an exception.24

Examples of events that are not 

considered triggering events for 

purposes of the Regulation include: The 

purchase of a loan from another lender 

(see Q&A Applicability 5); a loan 

restructuring or modification that does 

not increase the amount of the loan nor 

extend or renew the terms of the loan 

(see Q&A Applicability 6); the 

assumption of the loan by another 

borrower; the remapping of a building 

securing the loan into an SFHA; the 

acquisition by a lender of an interest in 

a loan either by participation or 

syndication (see Q&A Applicability 9); a 

cashless roll (see Q&A Applicability 10); 

certain automatic extensions of credit 

(see Q&A Applicability 11); And certain 

treatments of force placement premiums 

and fees (see Q&A Force Placement 10). 

APPLICABILITY 14. May a lender rely 

on an insurance policy providing 

portfolio-wide coverage to meet the 

flood insurance purchase requirement 

or the force placement requirement 

under the Regulation? 

It depends. A lender may not rely on 

an insurance policy providing portfoliowide coverage to meet the flood 

insurance purchase or force placement 

requirements if the policy only provides 

coverage to the lender (‘‘single 

interest’’). When a flood insurance 

policy has expired and the borrower has 

failed to renew coverage, insurance 

policies providing portfolio-wide 

coverage may be useful protection for 

the lender for a gap in coverage in the 

period of time before a force-placed 

policy takes effect. However, even if a 

lender has portfolio-wide coverage to 

address gaps, the lender must still 

ensure the flood insurance purchase 

requirement is satisfied at the time a 

loan is made, increased, renewed or 

extended, and the lender must still force 

place coverage on the borrower’s behalf 

in a timely manner, as required,25 and 

may not rely on an insurance policy that 

provides portfolio-wide coverage as a 

substitute for a force-placed policy. 

In contrast, lenders may purchase a 

master flood insurance policy that 

provides coverage for its entire portfolio 

and covers both the lender and the 

borrower (‘‘dual interest’’). Such 

policies provide coverage for the entire 

portfolio as well as individual coverage, 

and include the issuance of an 

individual property policy or certificate 

after the required notice period. 

APPLICABILITY 15. When does 

mandatory flood insurance on a 

designated loan need to be in place 

during the closing process? 

The Regulation states that a lender 

cannot ‘‘make’’ a loan secured by a 

property in an SFHA without adequate 

flood insurance coverage being in 

place.26 A lender should use the loan 

‘‘closing date’’ to determine the date by 

which flood insurance must be in place 

for a designated loan. FEMA deems the 

‘‘closing date’’ as the day the ownership 

of the property transfers to the new 

owner based on State law. 

‘‘Wet funding’’ and ‘‘dry funding,’’ 

which varies by State, refer to when a 

mortgage is considered officially closed. 

In a ‘‘wet’’ settlement State, the signing 

of closing documents, funding, and 

transfer of title occur all on the same 

day. By contrast, in a ‘‘dry’’ settlement 

State, documents are signed on one 

date, but loan funding and/or transfer of 

title/recording occur on subsequent 

date(s). Therefore, in ‘‘dry’’ settlement 

States, the ‘‘closing date’’ is the date of 

property transfer, regardless of loan 

signing or funding date. 

For transactions where there is no 

transfer of property ownership, such as 

a refinance, and the borrower is 

purchasing a new flood insurance 

policy or is required to increase flood 

insurance coverage, the lender should 

use the loan’s consummation date as the 

effective date for the flood insurance 

policy, as noted above. 

It is also important to note that the 

application and premium payment for 

NFIP flood insurance must be provided 

at or prior to the ‘‘closing date’’ since 

this impacts the FEMA flood insurance 

effective date and any resulting 30-day 

waiting period for new policies not 

made in connection with a triggering 

event. This application requirement 

applies for properties located in both 

dry and wet settlement States. See NFIP 

Flood Insurance Manual. 

II. Exemptions From the Mandatory 

Flood Insurance Purchase 

Requirements (Exemptions) 

EXEMPTIONS 1. What are the 

exemptions from the mandatory 

purchase requirement? 

There are only three exemptions from 

the mandatory requirement to purchase 

flood insurance on a designated loan. 

The first applies to State-owned 

property covered under a policy of selfinsurance satisfactory to the 

Administrator of FEMA.27 The second 

applies if both the original principal 

balance of the loan is $5,000 or less, and 

the original repayment term is one year 

or less.28 The third applies to any 

structure that is a part of any residential 

property but is detached from the 

primary residential structure of such 

property and does not serve as a 

residence. For purposes of the detached 


khammond on DSKJM1Z7X2PROD with RULES3
Federal Register / Vol. 87, No. 104 / Tuesday, May 31, 2022 / Rules and Regulations 32871 

29 12 CFR 22.4(c) (OCC); 12 CFR 208.25(d)(3) 

(Board); 12 CFR 339.4(c) (FDIC); 12 CFR 614.4932(c) 

(FCA); and 12 CFR 760.4(c) (NCUA). 

30 12 CFR 22.4(c) (OCC); 12 CFR 208.25(d)(3) 

(Board); 12 CFR 339.4(c) (FDIC); 12 CFR 614.4932(c) 

(FCA); and 12 CFR 760.4(c) (NCUA). 

31 12 CFR 22.4(c)(1) (OCC); 12 CFR 208.25(d)(3)(i) 

(Board); 12 CFR 339.4(c)(1)(FDIC); 12 CFR 

614.4932(c)(1) (FCA); and 12 CFR 760.4(c)(1) 

(NCUA). 

32 12 CFR 22.6(a) (OCC); 12 CFR 208.25(f)(1) 

(Board); 12 CFR 339.6(a) (FDIC); 12 CFR 614.4940(a) 

(FCA); and 12 CFR 760.6(a) (NCUA). 

33 12 CFR 22.4(c) (OCC); 12 CFR 208.25(d)(3) 

(Board); 12 CFR 339.4(c) (FDIC); 12 CFR 614.4932(c) 

(FCA); and 12 CFR 760.4(c) (NCUA). 

34 12 CFR 22.3(a) and 22.4(c) (OCC); 12 CFR 

208.25(c)(1) and 208.25(d)(3) (Board); 12 CFR 

339.3(a) and 339.4(c) (FDIC); 12 CFR 614.4930(a) 

and 614.4932(c) (FCA); and 12 CFR 760.3(a) and 

760.4(c) (NCUA). 

35 12 CFR 22.4(c) (OCC); 12 CFR 208.25(d)(3) 

(Board); 12 CFR 339.4(c) (FDIC); 12 CFR 614.4932(c) 

(FCA); and 12 CFR 760.4(c) (NCUA). 

36 Id. 

37 12 CFR 22.4(a) and (b) (OCC); 12 CFR 

208.25(d)(1) and (2) (Board); 12 CFR 339.4(a) and 

(b) (FDIC); 12 CFR 614.4932(a) and (b) (FCA); and 

12 CFR 760.4(a) and (b) (NCUA). 

38 12 CFR 22.4(c)(2) (OCC); 12 CFR 

208.25(d)(3)(ii) (Board); 12 CFR 339.4(c)(2) (FDIC); 

12 CFR 614.4932(c)(2) (FCA); and 12 CFR 

760.4(c)(2) (NCUA). 

structure exemption, a ‘‘structure that is 

a part of residential property’’ is a 

structure used primarily for personal, 

family, or household purposes, and not 

used primarily for agricultural, 

commercial, industrial, or other 

business purposes. In addition, a 

structure is ‘‘detached’’ from the 

primary residential structure if it is not 

joined by any structural connection to 

that structure. Furthermore, whether a 

structure ‘‘does not serve as a 

residence’’ is based upon the good faith 

determination of the lender that the 

structure is not intended for use or 

actually used as a residence, which 

generally includes sleeping, bathroom, 

or kitchen facilities.29 See also Q&A 

Exemptions 2. If one of these 

exemptions applies, a borrower may 

still elect to purchase flood insurance. 

Also, a lender may require flood 

insurance as a condition of making the 

loan, as a matter of safety and 

soundness. 

EXEMPTIONS 2. Does a lender have 

to take a security interest in the primary 

residential structure for detached 

structures to be eligible for the detached 

structure exemption? For example, 

suppose the house on a farm is not 

collateral, but all of the outbuildings 

including the barn, the equipment 

storage shed, and the silo (which are 

used for farm production), and a 

detached garage where the homeowner 

keeps his car, are taken as collateral. 

May the lender apply the detached 

structure exemption to the outbuildings? 

The lender does not have to take a 

security interest in the primary 

residential structure for detached 

structures to be eligible for the 

exemption, but the lender needs to 

evaluate the uses of detached structures 

to determine if they are eligible.30 The 

term ‘‘a structure that is part of a 

residential property’’ in the detached 

structure exemption applies only to 

structures for which there is a 

residential use and not to structures for 

which there is a commercial, 

agricultural, or other business use.31 In 

this example, only the garage is serving 

a residential use, so it could qualify for 

the exemption. The barn, equipment 

storage shed, and silo, which are used 

for farm production, would not qualify 

for the exemption. 

EXEMPTIONS 3. Is a flood hazard 

determination required even where the 

secured property may contain detached 

structures for which coverage is not 

required under the Regulation? 

Yes, as required under the Regulation, 

a flood hazard determination is needed 

to determine whether a building or 

mobile home securing a loan is or will 

be located in an SFHA where flood 

insurance is available under the Act. 

In order to determine whether the 

exemption for non-residential detached 

structures that are part of a residential 

property may apply, a flood hazard 

determination must be conducted first, 

without regard to whether there may be 

any detached structures that could be 

exempt.32

EXEMPTIONS 4. If a borrower 

currently has a flood insurance policy 

on a detached structure that is part of 

residential property and the detached 

structure does not serve as a residence, 

may the lender or its servicer cancel its 

requirement to carry flood insurance on 

that structure? 

Yes. If a borrower has a flood 

insurance policy on a detached 

structure that is part of a residential 

property and does not serve as a 

residence, the lender is no longer 

mandated by the Act to require flood 

insurance on that structure.33 The 

lender may allow the borrower to cancel 

the policy. If warranted as a matter of 

safety and soundness, the lender may 

continue to require flood insurance 

coverage on the detached structure. 

EXEMPTIONS 5. In the event that a 

triggering event has occurred, is the 

lender required to review the intended 

use of each detached structure? 

Yes, a lender must examine the status 

of a detached structure upon a 

qualifying triggering event to determine 

whether the detached structure 

exemption still applies.34 See 

Applicability 13. There is no duty to 

monitor the status of a detached 

structure following the lender’s initial 

determination unless a triggering event 

occurs. However, regardless of the 

absence of a duty to monitor the status 

of a detached structure in the 

Regulation, sound risk management 

practices may lead a lender to conduct 

scheduled periodic reviews that track 

the need for flood insurance on a loan 

portfolio. 

EXEMPTIONS 6. May a lender review 

current loans in its portfolio as the flood 

insurance policies renew and determine 

that it will no longer require flood 

insurance on a detached structure in an 

SFHA if the structure does not 

contribute to the value of the property 

securing the loan? 

A lender or servicer could initiate 

such a review; however, the Regulation 

does not permit the exemption of 

structures from the mandatory flood 

insurance purchase requirement based 

solely on whether the detached 

structure contributes value to the overall 

residential property securing the loan.35

In the case of any residential property, 

flood insurance is not required on any 

structure that is part of such property as 

long as it is detached from the primary 

residential structure and does not serve 

as a residence.36 In addition, there are 

other exemptions that could apply: The 

exemption for State-owned property 

covered under a policy of self-insurance 

satisfactory to the Administrator of 

FEMA or the exemption for property 

securing any loan with an original 

principal balance of $5,000 or less and 

a repayment term of one year or less.37

EXEMPTIONS 7. If a loan is secured 

by a residential property and the 

primary residential structure is joined to 

another building by a stairway or 

covered walkway, for purposes of 

Federal flood insurance requirements, 

would the other building qualify as a 

detached structure? 

For purposes of the detached 

structure exemption, a structure is 

‘‘detached’’ from the primary residential 

structure if it is not joined by any 

structural connection to that structure.38

That is, a structure is ‘‘detached’’ if it 

stands alone. This definition is 

consistent with the coverage provision 

of the NFIP’s Standard Flood Insurance 

Policy (SFIP) for additions and 

extensions to the dwelling unit. See the 

NFIP Flood Insurance Manual. In this 

case, the other building would not 

qualify as a detached structure because 

it is attached to the primary residential 


khammond on DSKJM1Z7X2PROD with RULES3
32872 Federal Register / Vol. 87, No. 104 / Tuesday, May 31, 2022 / Rules and Regulations 

39Public Law 93–234, 87 Stat. 975 (1973). 

40See 12 CFR 22.3(c) (OCC); 12 CFR 208.25(c)(3) 

(Board); 12 CFR 339.3(c) (FDIC); 12 CFR 614.4930(c) 

(FCA); and 12 CFR 760.3(c) (NCUA). 

41 12 CFR 22.3(c)(1) (OCC); 12 CFR 208.25(c)(3)(i) 

(Board); 12 CFR 339.3(c)(1) (FDIC); 12 CFR 

614.4930(c)(1) (FCA); and 12 CFR 760.3(c)(1) 

(NCUA). 

42 12 CFR 22.3(c)(2) (OCC); 12 CFR 208.25(c)(3)(ii) 

(Board); 12 CFR 339.3(c)(2) (FDIC); 12 CFR 

614.4930(c)(2) (FCA); and 12 CFR 760.3(c)(2) 

(NCUA). 

43 12 CFR 22.3(c)(2) (OCC); 12 CFR 208.25(c)(3)(ii) 

(Board); 12 CFR 339.3(c)(2) (FDIC); 12 CFR 

614.4930(c)(2) (FCA); and 12 CFR 760.3(c)(2) 

(NCUA). 

44 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 

45 12 CFR 22.3(c)(3) (OCC); 12 CFR 

208.25(c)(3)(iii) (Board); 12 CFR 339.3(c)(3) (FDIC); 

12 CFR 614.4930(c)(3) (FCA); and 12 CFR 

760.3(c)(3) (NCUA). 

46 12 CFR 22.3(c) (OCC); 12 CFR 208.25(c)(3) 

(Board); 12 CFR 339.3(c) (FDIC); 12 CFR 614.4930(c) 

(FCA); and 12 CFR 760.3(c) (NCUA). 

structure by a stairway or covered 

walkway and does not stand alone. 

III. Private Flood Insurance— 

Mandatory Acceptance (Mandatory) 

MANDATORY 1. May a lender decide 

to only accept private flood insurance 

policies under the mandatory 

acceptance provision of the Regulation? 

Yes. A lender is only required to 

accept flood insurance policies issued 

by a private insurer that meet the 

definition of ‘‘private flood insurance’’ 

under the Regulation, as long as the 

policy meets the amount of insurance 

required under the Regulation. A lender 

is not required to accept flood insurance 

policies that only meet the criteria set 

forth in the discretionary acceptance or 

mutual aid provision of the Regulation. 

MANDATORY 2. If a lender has a 

policy not to originate a mortgage in 

non-participating communities or 

coastal barrier regions where the NFIP is 

not available, do the private flood 

insurance requirements under the 

Regulation require a lender to change its 

policy? 

The Regulation does not require that 

a lender originate a loan that does not 

meet the lender’s underwriting criteria. 

The flood insurance purchase 

requirement only applies to loans 

secured by structures located or to be 

located in an SFHA in which flood 

insurance is available under the Act.39

The flood insurance purchase 

requirement does not apply within nonparticipating communities, where NFIP 

insurance is not available under the Act. 

See Q&A Applicability 1. Therefore, the 

lender does not need to change its 

policy of not originating mortgages in 

areas where NFIP insurance is 

unavailable solely because of the private 

flood insurance requirements under the 

Regulation. 

MANDATORY 3. Did the Agencies 

intend the compliance aid statement to 

act as a conformity clause that would 

make a private policy conform to the 

definition of ‘‘private flood insurance’’? 

No. The Agencies did not intend the 

compliance aid statement to act as a 

conformity clause. Rather, the 

compliance aid statement is intended to 

facilitate the ability of lenders, as well 

as consumers, to recognize policies that 

meet the definition of ‘‘private flood 

insurance’’ and promote the consistent 

acceptance of policies that meet this 

definition. The compliance aid 

statement is intended to leverage the 

expertise of insurers to assist lenders in 

satisfying the ‘‘private flood insurance’’ 

definition of the Regulation. 

MANDATORY 4. Is a lender required 

to accept a flood insurance policy 

issued by a private insurer that includes 

the compliance aid statement? 

Conversely, may a lender reject a flood 

insurance policy issued by a private 

insurer solely because it does not 

contain the compliance aid statement? 

If a flood insurance policy issued by 

a private insurer includes the 

compliance aid statement, the lender 

may choose to rely upon the statement 

and would not need to review the policy 

further to determine if the policy meets 

the definition of ‘‘private flood 

insurance.’’ 

However, the lender is not required to 

accept this policy based upon inclusion 

of the compliance aid statement alone 

and may choose to make its own 

determination about whether the policy 

meets the definition of ‘‘private flood 

insurance’’ or whether the policy is 

acceptable under the discretionary 

acceptance or mutual aid criteria.40

If a flood insurance policy issued by 

a private insurer does not include the 

compliance aid statement, the lender 

may not reject the policy solely because 

it does not include this statement. The 

lender is not relieved from the 

requirement to accept a policy that 

meets the definition of ‘‘private flood 

insurance,’’ as long as the policy meets 

the amount of insurance required under 

the Regulation.41 Further, the lender 

may determine the policy is acceptable 

under the discretionary acceptance or 

mutual aid criteria. 

MANDATORY 5. If a flood insurance 

policy issued by a private insurer 

includes the compliance aid statement, 

does a lender need to conduct an 

additional review of the policy for 

compliance with the mandatory 

acceptance provision of the Regulation? 

No, under the mandatory acceptance 

provision of the Regulation, if a policy 

or an endorsement to the policy 

contains the compliance aid statement, 

further review is not necessary in order 

for the lender to determine that a policy 

meets the definition of ‘‘private flood 

insurance.’’ 42 It is important to note 

that, in order for the lender to rely on 

the compliance aid statement without 

further review of the policy, the 

language of the compliance aid 

statement must be stated in the policy, 

or as an endorsement to the policy, as 

set forth in the Regulation.43 If the 

language is different from the 

compliance aid statement set forth in 

the Regulation, the lender cannot rely 

on the protections of the compliance aid 

statement in the Regulation and should 

review the policy to determine if it 

meets the definition of ‘‘private flood 

insurance.’’ However, a policy 

containing the compliance aid statement 

need not be rejected if there are stylistic 

differences, such as formatting, font, 

and punctuation that do not change the 

substantive meaning of the clause, from 

the compliance aid statement included 

in the Regulation. See also Q&A 

Mandatory 6. 

MANDATORY 6. Under the 

Regulation, what additional reviews 

does a lender need to conduct if the 

flood insurance policy issued by a 

private insurer includes the compliance 

aid statement? 

Although a lender may rely on the 

compliance aid statement to determine 

that a flood insurance policy meets the 

definition of ‘‘private flood insurance’’ 

in the Regulation, the lender must also 

ensure that the amount of insurance is 

at least equal to the lesser of the 

outstanding principal balance of the 

designated loan, or the maximum limit 

of coverage available for the particular 

type of property under the Act.44 See 

also Q&A Mandatory 5. 

MANDATORY 7. If a flood insurance 

policy issued by a private issuer does 

not include a compliance aid statement, 

can a lender use the criteria under the 

discretionary acceptance provision to 

decide whether to accept the policy 

without first checking to see if the policy 

meets the criteria under the mandatory 

acceptance provision? 

Yes, the lender may first review the 

policy to determine whether it meets the 

criteria under the discretionary 

acceptance provision.45 However, if the 

policy does not meet the discretionary 

acceptance criteria, the lender will still 

need to determine whether it must 

accept the policy under the mandatory 

acceptance criteria.46

Note that if the lender accepts a 

policy under the discretionary 


khammond on DSKJM1Z7X2PROD with RULES3
Federal Register / Vol. 87, No. 104 / Tuesday, May 31, 2022 / Rules and Regulations 32873 

47 12 CFR 22.3(c)(3) (OCC); 12 CFR 

208.25(c)(3)(iii) (Board); 12 CFR 339.3(c)(3) (FDIC); 

12 CFR 614.4930(c)(3) (FCA); and 12 CFR 

760.3(c)(3) (NCUA). 

48 12 CFR 22.2(k) (OCC); 12 CFR 208.25(b)(9) 

(Board); 12 CFR 339.2 (FDIC): 12 CFR 614.4925 

(FCA); and 12 CFR 760.2 (NCUA). 

acceptance provision, the Regulation 

requires the lender to document that the 

policy provides sufficient protection of 

the loan.47 See also Q&A Discretionary 2. 

MANDATORY 8. If a lender only 

receives a declarations page without 

receiving a copy of the policy, and the 

declarations page includes the 

compliance aid statement, may the 

lender accept the policy? 

If the compliance aid statement is 

included on the declarations page, a 

lender may determine the policy meets 

the definition of ‘‘private flood 

insurance’’ without further review. 

However, a lender also must ensure that 

the policy meets the amount of 

insurance required under the 

Regulation. See Q&A Mandatory 6. 

MANDATORY 9. May a lender accept 

a private flood insurance policy that 

includes a compliance aid statement, 

but also includes a disclaimer 

explaining that the ‘‘insurer is not 

licensed in the State or jurisdiction in 

which the property is located,’’ which 

suggests that the policy is issued by a 

surplus lines insurer? 

Even if the policy includes a 

statement indicating that the insurer is 

not licensed in the State or jurisdiction 

in which the property is located, 

suggesting that the policy is issued by 

a surplus lines insurer, but contains a 

compliance aid statement, lenders may 

accept the policy as long as the policy 

complies with the Regulation and 

applicable State laws. See Q&A Private 

Flood Compliance 10. 

IV. Private Flood Insurance— 

Discretionary Acceptance 

(Discretionary) 

DISCRETIONARY 1. Are lenders 

required to accept flood insurance 

policies that meet the discretionary 

acceptance criteria? 

No, the discretionary acceptance 

criteria in the Regulation sets forth the 

minimum acceptable criteria that a 

flood insurance policy must have for the 

lender to accept the policy under the 

discretionary acceptance provision. It is 

at the lender’s discretion to accept a 

policy that meets the discretionary 

acceptance criteria so long as the policy 

does not meet the mandatory acceptance 

criteria. 

DISCRETIONARY 2. If the lender 

determines that a flood insurance policy 

meets the discretionary acceptance 

criteria and accepts that policy, what 

documentation will demonstrate that 

the policy provides sufficient protection 

of the loan, consistent with general 

safety and soundness principles? 

The Regulation requires the lender to 

document its conclusion in writing that 

the policy provides sufficient protection 

of the loan, consistent with general 

safety and soundness principles. See 

also Q&A Discretionary 4. This review 

may be performed and recorded 

electronically. While the Regulation 

does not require any specific 

documentation to demonstrate that the 

policy provides sufficient protection of 

the loan, lenders may include any 

information that reasonably supports 

the lender’s conclusion following 

review of the policy. 

DISCRETIONARY 3. How can a 

lender evaluate the sufficiency of an 

insurer’s solvency, strength, and ability 

to satisfy claims when determining 

whether a flood insurance policy 

provides sufficient protection of the 

loan, consistent with general safety and 

soundness principles? 

A lender may evaluate an insurer’s 

solvency, strength, and ability to satisfy 

claims by obtaining information from 

the State insurance regulator’s office of 

the State in which the property securing 

the loan is located, among other options. 

A lender can rely on the licensing or 

other processes used by the State 

insurance regulator for such an 

evaluation. See Q&A Discretionary 4. 

DISCRETIONARY 4. What are some 

factors to consider when determining 

whether a flood insurance policy issued 

by a private insurer under the 

discretionary acceptance provision or a 

mutual aid plan provides sufficient 

protection of a loan secured by 

improved real property located in an 

SFHA, consistent with general safety 

and soundness principles? 

Some factors, among others, that a 

lender could consider in determining 

whether a policy provides sufficient 

protection of a loan include whether: (1) 

A policy’s deductible is reasonable 

based on the borrower’s financial 

condition; (2) the insurer provides 

adequate notice of cancellation to the 

mortgagor and mortgagee to allow for 

timely force placement of flood 

insurance, if necessary; (3) the terms 

and conditions of the policy, with 

respect to payment per occurrence or 

per loss and aggregate limits, are 

adequate to protect the regulated 

lending institution’s interest in the 

collateral; (4) the flood insurance policy 

complies with applicable State 

insurance laws; and (5) the private 

insurance company has the financial 

solvency, strength, and ability to satisfy 

claims. 

V. Private Flood Insurance—General 

Compliance (Private Flood Compliance) 

PRIVATE FLOOD COMPLIANCE 1. 

What is the maximum deductible a 

flood insurance policy issued by a 

private insurer can have for residential 

or commercial properties located in an 

SFHA? 

The maximum deductible for a flood 

insurance policy issued by a private 

insurer varies depending on whether the 

lender accepts the policy under the 

mandatory acceptance or the 

discretionary acceptance provision. For 

purposes of compliance with the 

mandatory acceptance provision, the 

Regulation provides that a policy must 

provide coverage at least as broad as the 

coverage provided under an SFIP for the 

same type of property, including a 

deductible that is no higher than the 

specified maximum under an SFIP for 

any total coverage amount up to the 

maximum available under the NFIP at 

the time the policy is provided to the 

lender.48 For a private policy with a 

coverage amount exceeding that 

available under the NFIP, the deductible 

may exceed the specific maximum 

deductible under an SFIP. However, for 

safety and soundness purposes, the 

lender should consider whether the 

deductible is reasonable based on the 

borrower’s financial condition, among 

other factors. See Q&A Amount 9. 

• For example, if a private policy for 

a commercial building provided 

$1,000,000 of flood insurance coverage, 

which is in excess of the NFIP 

maximum coverage of $500,000 for a 

commercial building, then it would be 

acceptable for a million-dollar policy to 

have a deductible higher than the 

maximum deductible for a policy 

available under the NFIP. The lender 

should consider whether the deductible 

is reasonable based on the borrower’s 

financial condition. 

• Similarly, if a private policy for a 

residential building provided 

$1,000,000 of flood insurance coverage, 

which is in excess of the NFIP 

maximum coverage of $250,000 for a 

residential building, then it would be 

acceptable for a million-dollar policy to 

have a deductible higher than the 

maximum deductible for a policy 

available under the NFIP. The lender 

should consider whether the deductible 

is reasonable based on the borrower’s 

financial condition. 

For purposes of compliance with the 

discretionary acceptance provision, the 

Regulation requires that the policy 

provide sufficient protection of the loan, 


khammond on DSKJM1Z7X2PROD with RULES3
32874 Federal Register / Vol. 87, No. 104 / Tuesday, May 31, 2022 / Rules and Regulations 

49 12 CFR 22.3(c)(3)(iv) (OCC); 12 CFR 

208.25(c)(3)(iii)(D) (Board); 12 CFR 339.3(c)(3)(iv) 

(FDIC); 12 CFR 614.4930(c)(3)(iv) (FCA); and 12 

CFR 760.3(c)(3)(iv) (NCUA). 

50 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 

51 12 CFR 22.2(k)(2)(iii) (OCC); 12 CFR 

208.25(b)(9)(ii)(B) (Board); 12 CFR 339.2 (FDIC); 12 

CFR 614.4925 (FCA); and 12 CFR 760.2 (NCUA). 

52 12 CFR 22.3(c)(3)(iv)(D) (OCC); 12 CFR 

208.25(c)(3)(iii)(D) (Board); 12 CFR 339.3(c)(3)(iv) 

(FDIC); 12 CFR 614.4930(c)(3)(iv) (FCA); and 12 

CFR 760.3(c)(3)(iv) (NCUA). 

consistent with safety and soundness 

principles.49 Among the factors a lender 

could consider in determining whether 

a policy provides sufficient protection 

of a loan is whether the policy’s 

deductible is reasonable based on the 

borrower’s financial condition. Unlike 

the limitation on deductibles for 

policies accepted under the mandatory 

acceptance provision for any total 

coverage amount up to the maximum 

available under the NFIP, a lender can 

accept a flood insurance policy issued 

by a private insurer under the 

discretionary acceptance provision with 

a deductible higher than that for an SFIP 

for a similar type of property, provided 

the lender has determined the policy 

provides sufficient protection of the 

loan, consistent with safety and 

soundness principles. 

Whether the lender is evaluating the 

policy under the mandatory acceptance 

provision or the discretionary 

acceptance provision, a lender may not 

allow the borrower to use a deductible 

amount equal to the insurable value of 

the property to avoid the mandatory 

purchase requirement for flood 

insurance.50 However, a lender may 

accept a private flood insurance policy 

covering multiple buildings regardless 

of whether any single building covered 

by the policy has an insurable value 

lower than the amount of the per 

occurrence deductible. See Q&A 

Amount 9, Q&A Amount 10, and Q&A 

Private Flood Compliance 2. 

PRIVATE FLOOD COMPLIANCE 2. 

May a lender require that the deductible 

of any flood insurance policy issued by 

a private insurer be lower than the 

maximum deductible for an SFIP? 

Yes. If the lender is accepting the 

private flood insurance policy under the 

mandatory acceptance provision, the 

Regulation requires that the private 

flood insurance policy be at least as 

broad as an SFIP, which includes a 

requirement that the private flood 

insurance policy contain a deductible 

no higher than the specified maximum 

deductible for an SFIP.51 The lender 

may require a borrower’s private flood 

insurance policy deductible to be lower 

than the maximum deductible for an 

SFIP in connection with a policy that 

the lender accepts under the mandatory 

acceptance provision, consistent with 

general safety and soundness principles 

and based on a borrower’s financial 

condition, among other factors. 

If the lender is accepting a flood 

insurance policy issued by a private 

insurer under the discretionary 

acceptance provision, the lender need 

only consider whether the policy, 

including the stated deductible, 

provides sufficient protection of the 

loan, consistent with general safety and 

soundness principles.52 See also Q&A 

Private Flood Compliance 1. 

PRIVATE FLOOD COMPLIANCE 3. If 

a lender utilizes a third party to review 

flood insurance policies, would it be 

permissible for a lender to charge the 

borrower a fee for this review? 

The Act and the Regulation do not 

prohibit lenders from charging fees to 

borrowers for contracting with third 

parties to review flood insurance 

policies issued by private insurers. As 

explained in Q&A Fees 1 and Q&A Fees 

2, lenders may charge limited, 

reasonable fees for flood determinations 

and life-of-loan monitoring. Similarly, 

the Act and the Regulation do not 

prohibit lenders from charging a fee to 

a borrower when a third party reviews 

a flood insurance policy issued by a 

private insurer. However, lenders 

should be aware of any other applicable 

requirements regarding fees and 

disclosures of fees. 

PRIVATE FLOOD COMPLIANCE 4. If 

the policy is not available prior to 

closing, what can the lender rely on to 

make sure the policy meets the private 

flood insurance requirements of the 

Regulation? 

The Act and Regulation do not specify 

the acceptable types of documentation 

for a lender to rely on when reviewing 

a flood insurance policy issued by a 

private insurer. Lenders should 

determine whether they have sufficient 

evidence to show the policy meets the 

private flood insurance requirements 

under the Regulation. 

Lenders can take steps to help 

mitigate against closing delays such as 

designating employees responsible for 

reviewing flood policies, training 

employees, and requesting additional 

information from insurers early in the 

process. If the lender does not have 

enough information to determine if the 

policy meets the private flood insurance 

requirements under the Regulation, then 

the lender should timely request 

additional information as necessary to 

complete its review. See also Q&A 

Private Flood Compliance 5. 

PRIVATE FLOOD COMPLIANCE 5. 

Under existing force placement 

requirements, a declarations page is 

sufficient to evidence a borrower’s 

purchase of a flood insurance policy. 

Does the declarations page have 

sufficient information for a lender to 

determine whether the policy complies 

with the private flood insurance 

requirements of the Regulation? 

It depends. If the declarations page 

provides enough information for the 

lender to determine whether the policy 

meets the mandatory acceptance 

provision or discretionary acceptance 

provision of the Regulation or if the 

declarations pages contains the 

compliance aid statement, then the 

lender may rely on the declarations 

pages. However, if the declarations page 

does not provide enough information for 

the lender to determine whether the 

policy satisfies the mandatory 

acceptance provision or discretionary 

acceptance provision of the Regulation, 

the lender should request additional 

information about the policy to aid in 

making its determination. 

PRIVATE FLOOD COMPLIANCE 6. 

May a lender accept a multiple-peril 

policy issued by a private insurer to 

satisfy the mandatory purchase of flood 

insurance requirement? 

Yes. A lender can accept a multipleperil policy that covers the hazard of 

flood, either in the policy or as an 

endorsement, under the private flood 

insurance provisions of the Regulation. 

PRIVATE FLOOD COMPLIANCE 7. 

How do the private flood insurance 

requirements of the Regulation, 

especially the compliance aid 

statement, work in conjunction with the 

requirements from secondary market 

investors (for example, the Federal 

National Mortgage Association (Fannie 

Mae) or the Federal Home Loan 

Mortgage Corporation (Freddie Mac))? 

Lenders must comply with Federal 

flood insurance requirements. The 

requirements for the secondary market 

are separate from the Regulation. A 

lender should carefully review these 

separate requirements for secondary 

market investors regarding acceptable 

private flood insurance if the lender 

plans to sell loans to such investors and 

should direct questions regarding these 

requirements to the appropriate entities. 

PRIVATE FLOOD COMPLIANCE 8. 

When servicing a loan covered by flood 

insurance pursuant to the Act and the 

Regulation, which requirements must a 

servicer follow in evaluating the 

acceptance of a flood insurance policy 

issued by a private insurer? 

For loans serviced on behalf of 

lenders supervised by the Agencies, the 

servicer must comply with the 


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Federal Register / Vol. 87, No. 104 / Tuesday, May 31, 2022 / Rules and Regulations 32875 

53https://www.naic.org/prod_serv_alpha_

listing.htm#quarterly_alien. 

54See 84 FR 4953, 4955–4956 (Feb. 20, 2019). See 

also 12 CFR 22.2(k)(1)(i) (OCC); 12 CFR 

208.25(b)(9)(i)(A) (Board); 12 CFR 339.2 (FDIC); 12 

CFR 614.4925 (FCA); and 12 CFR 760.2 (NCUA). 

55See 84 FR 4953, 4962 (Feb. 20, 2019). See also 

12 CFR 22.3(c)(3)(ii) (OCC); 12 CFR 

208.25(c)(3)(iii)(B) (Board); 12 CFR 339.3(c)(3)(ii) 

(FDIC); 12 CFR 614.4930(c)(3)(ii) (FCA); and 12 CFR 

760.3(c)(3)(ii) (NCUA). 

56See 12 CFR 22.3(c)(1) (OCC); 12 CFR 

208.25(c)(3)(i) (Board); 12 CFR 339.3(c)(1) (FDIC); 

12 CFR 614.4930(c)(1) (FCA); and 12 CFR 

760.3(c)(1) (NCUA). 

57 12 CFR 22.3(c)(2) (OCC); 12 CFR 208.25(c)(3)(ii) 

(Board); 12 CFR 339.3(c)(2) (FDIC); 12 CFR 

614.4930(c)(2) (FCA); and 12 CFR 760.3(c)(2) 

(NCUA). 

58 12 CFR 22.3(c) (OCC); 12 CFR 208.25(c) 

(Board); 12 CFR 339.3(c) (FDIC); 12 CFR 614.4930(c) 

(FCA); and 12 CFR 760.3(c) (NCUA). 

59 12 CFR 22.6(a) (OCC); 12 CFR 208.25(f)(1) 

(Board); 12 CFR 339.6 (FDIC); 12 CFR 614.4940 

(FCA); and 12 CFR 760.6 (NCUA). 

60 12 CFR 22.9 (OCC); 12 CFR 208.25(i) (Board); 

12 CFR 339.9 (FDIC); 12 CFR 614.4955 (FCA); and 

12 CFR 760.9 (NCUA). 

Regulation in determining whether a 

flood insurance policy issued by a 

private insurer must be accepted under 

the mandatory acceptance provision or 

may be accepted under the discretionary 

acceptance provision or mutual aid 

provision. For loans serviced on behalf 

of other entities not supervised by the 

Agencies, the servicer should comply 

with the terms of its contract with that 

entity. For example, when servicing 

loans on behalf of Fannie Mae or 

Freddie Mac, where there are insurer 

rating requirements specified within 

those entities’ servicing guidance or 

other relevant authorities that are not 

required in the Regulation, the servicer 

should adhere to those servicing 

requirements. 

PRIVATE FLOOD COMPLIANCE 9. 

How can a lender determine: (i) whether 

an insurer is licensed or admitted in a 

particular State, (ii) or whether a 

surplus lines or nonadmitted alien 

insurer is permitted to issue an 

insurance policy in a particular State? 

A lender may refer to the website of 

the State insurance regulator where the 

collateral property is located to 

determine whether a particular insurer 

is licensed, admitted, or otherwise 

permitted to issue an insurance policy 

in a particular State. If the lender cannot 

determine this information from the 

website, the lender could contact the 

State insurance regulator directly. 

Further, information with respect to 

surplus lines insurer eligibility also may 

be available in the Consumer Insurance 

Search (CIS) tool available on the 

National Association of Insurance 

Commissioners (NAIC) website. Lenders 

may consult commercial service 

providers regarding the eligibility of 

surplus lines insurers in particular 

States provided the lenders have a 

reasonable basis to believe that these 

service providers have reliable 

information. With regard to 

nonadmitted alien insurers in 

particular, lenders could review the 

NAIC’s Quarterly Listing of Alien 

Insurers.53

PRIVATE FLOOD COMPLIANCE 10. 

May lenders accept policies issued by 

private insurers that are surplus lines 

insurers for noncommercial properties? 

Yes, if the surplus lines insurer is 

eligible or not disapproved to place 

insurance in the State or jurisdiction in 

which the property to be insured is 

located, lenders may accept policies 

issued by surplus lines insurers as 

coverage for noncommercial (i.e., 

residential) properties. 

Consistent with the Act and the 

Regulation, the Agencies confirm that 

policies issued by surplus lines insurers 

for noncommercial properties are 

covered in the definition of ‘‘private 

flood insurance’’ and in the 

discretionary acceptance provision. In 

the definition of ‘‘private flood 

insurance,’’ surplus lines policies for 

noncommercial properties are covered 

as policies that are issued by insurance 

companies that are ‘‘otherwise approved 

to engage in the business of insurance 

by the insurance regulator of the State 

or jurisdiction in which the property to 

be insured is located.’’ 54 Similarly, 

within the discretionary acceptance 

provision, noncommercial residential 

policies issued by surplus lines carriers 

are covered as policies that are issued 

by private insurance companies that are 

‘‘otherwise approved to engage in the 

business of insurance by the insurance 

regulator of the State or jurisdiction in 

which the property to be insured is 

located.’’ 55

For purposes of the Regulation, the 

meaning of ‘‘otherwise approved’’ is 

based on whether applicable State law 

provides that the surplus lines insurer is 

eligible or not disapproved to place 

insurance in that State. Even if the 

surplus lines insurer is not considered 

to be engaged in the business of 

insurance under applicable State law, 

the surplus lines insurer would still be 

‘‘otherwise approved’’ only for purposes 

of this provision of the Regulation if the 

insurer is eligible or not disapproved to 

place insurance in the State. 

PRIVATE FLOOD COMPLIANCE 11. 

When must a lender review a flood 

insurance policy issued by a private 

insurer under the private flood 

insurance requirements of the 

Regulation? 

Any time the borrower presents the 

lender with a new flood insurance 

policy issued by a private insurer, 

regardless of whether a triggering event 

occurred, the lender must review the 

policy to determine whether it meets the 

private flood insurance requirements of 

the Regulation.56 A lender may 

determine that the policy meets the 

mandatory acceptance criteria without 

further review if the policy or an 

endorsement to the policy includes the 

compliance aid statement.57 If there is 

no compliance aid statement, or the 

lender chooses not to rely on the 

compliance aid statement, the lender 

must conduct its own review to 

determine if the policy meets the 

mandatory acceptance criteria. See Q&A 

Mandatory 4. If the policy does not meet 

the mandatory acceptance criteria, the 

lender may still accept the policy if it 

meets the discretionary acceptance 

criteria, or, if applicable, the mutual aid 

plan criteria. See also Q&A Mandatory 

7. If the policy does not meet the 

mandatory acceptance, discretionary 

acceptance, or mutual aid plan criteria, 

the lender may not accept the policy.58

If the lender has previously reviewed 

the flood insurance policy under the 

mandatory acceptance provision, the 

discretionary acceptance provision, or 

the mutual aid plan provision the lender 

may rely on its previous review, 

provided there are no changes to the 

terms of the policy that would affect the 

acceptance under the Regulation. The 

lender’s previous written 

documentation will constitute the 

documentation required under the 

Regulation each time the policy comes 

up for renewal. The lender should have 

effective internal controls in place 

through appropriate policies, 

procedures, training, and monitoring to 

ensure compliance with the 

requirements of the Regulation. 

VI. Standard Flood Hazard 

Determination Form (SFHDF) 

SFHDF 1. Does the SFHDF replace the 

borrower notification form? 

No. The SFHDF is used by the lender 

to determine whether the building or 

mobile home offered as collateral 

security for a loan is or will be located 

in an SFHA in which flood insurance is 

available under the Act.59 The 

notification form, on the other hand, is 

used to notify the borrower(s) that the 

building or mobile home is or will be 

located in an SFHA and to inform the 

borrower(s) about flood insurance 

requirements and the availability of 

Federal disaster relief assistance.60

SFHDF 2. May a lender provide the 

SFHDF to the borrower? 


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32876 Federal Register / Vol. 87, No. 104 / Tuesday, May 31, 2022 / Rules and Regulations 

61 12 CFR 22.6(b) (OCC); 12 CFR 208.25(f)(2) 

(Board); 12 CFR 339.6(b) (FDIC); 12 CFR 

614.4940(a) (FCA); and 12 CFR 760.6(b) (NCUA). 

62 12 CFR 22.8(b) (OCC); 12 CFR 208.25(h)(2) 

(Board); 12 CFR 339.8(b) (FDIC); 12 CFR 

614.4950(b) (FCA); and 12 CFR 760.8(b) (NCUA). 

63 12 CFR 22.8 (OCC); 12 CFR 208.25(h) (Board); 

12 CFR 339.8 (FDIC); 12 CFR 614.4950 (FCA); and 

12 CFR 760.8 (NCUA). 

64 12 U.S.C. 2607. See 12 CFR 1024.14(c). 

65See https://www.fema.gov/flood-insurance/ 

risk-rating. 

66New NFIP policies starting October 1, 2021 

have been issued under Risk Rating 2.0. NFIP 

policies that renew between October 1, 2021, and 

March 31, 2022, may or may not be renewed under 

Risk Rating 2.0. All NFIP policies that renew on or 

after April 1, 2022 will be renewed under Risk 

Rating 2.0. 

67 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 

Yes. Although not a statutory 

requirement, a lender may provide a 

copy of the flood determination to the 

borrower. In the event a lender provides 

the SFHDF to the borrower, the 

signature of the borrower is not required 

to acknowledge receipt of the form. The 

Agencies note that under the FEMA 

process for a Letter of Determination 

Review (LODR), a lender would need to 

make the determination available to the 

borrower. 

SFHDF 3. May the SFHDF be used in 

electronic format? 

Yes.61 In the final rule adopting the 

SFHDF, FEMA stated: ‘‘If an electronic 

format is used, the format and exact 

layout of the Standard Flood Hazard 

Determination Form is not required, but 

the fields and elements listed on the 

form are required. Any electronic format 

used by lenders must contain all 

mandatory fields indicated on the 

form.’’ It should be noted that the lender 

must be able to reproduce the form 

upon receiving a document request by 

its Federal supervisory agency. 

SFHDF 4. May a lender rely on a 

previous determination for a refinancing 

or assumption of a loan or multiple 

loans to the same borrower secured by 

the same property? 

It depends. The Act (42 U.S.C. 

4104b(e)) permits a lender to rely on a 

previous flood determination using the 

SFHDF when it increases, extends, 

renews, or purchases a loan secured by 

a building or a mobile home. Under the 

Act, the ‘‘making’’ of a loan is not listed 

as a permissible event that permits a 

lender to rely on a previous 

determination. When the loan involves 

a refinancing or assumption by the same 

lender who obtained the original flood 

determination on the same property, the 

lender may rely on the previous 

determination only if the original 

determination was made not more than 

seven years before the date of the 

transaction, the basis for the 

determination was set forth on the 

SFHDF, and there were no map 

revisions or updates affecting the 

security property since the original 

determination was made. Further, if the 

same lender makes multiple loans to the 

same borrower secured by the same 

improved real estate, the lender may 

rely on its previous determination if the 

original determination was made not 

more than seven years before the date of 

the transaction, the basis for the 

determination was set forth on the 

SFHDF, and there were no map 

revisions or updates affecting the 

security property since the original 

determination was made. These loans 

are extended by the same lender, to the 

same borrower, and are secured by the 

same improved real estate, and, 

therefore, these types of transactions are 

the functional equivalent of an increase 

of a loan. 

When the loan involves a refinancing 

or assumption made by a lender 

different from the one who obtained the 

original determination, this would 

constitute the making of a new loan, 

thereby requiring a new determination. 

VII. Flood Insurance Determination 

Fees (Fees) 

FEES 1. When can lenders or servicers 

charge the borrower a fee for making a 

determination? 

There are four instances under the Act 

and Regulation when the borrower can 

be charged a fee for a flood 

determination: 

• When the determination is made in 

connection with the making, increasing, 

extending, or renewing of a loan that is 

initiated by the borrower; 

• When the determination reflects a 

revision or updating by FEMA of 

floodplain areas or flood-risk zones; 

• When the determination reflects 

FEMA’s publication of a notice or 

compendium that affects the area in 

which the security property is located, 

or FEMA requires a determination as to 

whether the building securing the loan 

is located in an SFHA; or 

• When the determination results in 

force placement of insurance.62

Loan or other contractual documents 

between the parties may also permit the 

imposition of fees. 

FEES 2. May charges made for life-ofloan reviews by flood determination 

firms be passed along to the borrower? 

Yes, with limitations noted below. In 

addition to the initial determination at 

the time a loan is made, increased, 

renewed, or extended, many flood 

determination firms provide a service to 

the lender to review and report changes 

in the flood status of a dwelling for the 

entire term of the loan (i.e., life-of-loan 

monitoring). The fee charged for the 

service at loan closing is a composite fee 

for conducting both the original and 

subsequent reviews. Charging a fee for 

the original determination is clearly 

authorized by the Act. The Agencies 

agree that a determination fee may 

include, among other things, reasonable 

fees for a lender, servicer, or third party 

to monitor the flood hazard status of 

property securing a loan in order to 

make determinations on an ongoing 

basis. 

However, the life-of-loan fee is based 

on the authority to charge a 

determination fee and, therefore, the 

composite determination/life-of-loan 

monitoring fee may be charged only if 

the events specified in the answer to 

Q&A Fees 1 occur.63 Further, a lender 

may not charge a composite 

determination and life-of-loan fee if the 

loan does not close, because such lifeof loan fee would be an unearned fee in 

violation of the Real Estate Settlement 

Procedures Act.64

VIII. Flood Zone Discrepancies (Zone) 

ZONE 1. Does a lender need to 

reconcile a discrepancy between the 

flood zone designation on the flood 

determination form and the flood zone 

associated with a flood insurance 

policy? 

No, a lender need not reconcile or 

otherwise be concerned with a flood 

zone discrepancy. For NFIP policies 

issued under FEMA’s Risk Rating 2.0— 

Equity in Action (Risk Rating 2.0), 65

premium rates are no longer determined 

by the flood zone in which the property 

is located. Moreover, the flood zone is 

no longer included on the declarations 

page for NFIP policies issued under Risk 

Rating 2.0. 

Flood insurance policies issued by a 

private insurer may still include the 

flood zone on the declarations page. 

Further, NFIP policies that have not 

been issued or renewed under Risk 

Rating 2.0 will include the flood zone 

on the declarations page.66 In these 

cases, lenders also need not reconcile 

any discrepancy. 

The flood zone determination is still 

necessary to determine if a property is 

located in an SFHA. If the SFHDF 

indicates that the building securing the 

loan is in an SFHA, the lender must 

require the appropriate amount of 

insurance coverage in accordance with 

the Act and Regulation.67 For disputes 

regarding whether a property is located 

in an SFHA, see Q&A Zone 3. 

ZONE 2. Is a lender in violation of the 

Regulation if there is a discrepancy 


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Federal Register / Vol. 87, No. 104 / Tuesday, May 31, 2022 / Rules and Regulations 32877 

68 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 

69 12 CFR 22.9(a) (OCC); 12 CFR 208.25(i) (Board); 

12 CFR 339.9(a) (FDIC); 12 CFR 614.4955(a) (FCA); 

and 12 CFR 760.9(a) (NCUA). 

70 12 CFR 22.9(c) (OCC); 12 CFR 208.25(i)(2) 

(Board); 12 CFR 339.9(c) (FDIC); 12 CFR 614.4955(c) 

(FCA); and 12 CFR 760.9(c) (NCUA). 

71 12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) 

(Board); 12 CFR 339.7(a) (FDIC); 12 CFR 614.4945(a) 

(FCA); and 12 CFR 760.7(a) (NCUA). 

72 12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) 

(Board); 12 CFR 339.7(a) (FDIC); 12 CFR 614.4945(a) 

(FCA); and 12 CFR 760.7(a) (NCUA). 

73 12 CFR 22.9(c) (OCC); 12 CFR 208.25(i)(2) 

(Board); 12 CFR 339.9(c) (FDIC); 12 CFR 614.4955(c) 

(FCA); and 12 CFR 760.9(c) (NCUA). 

74 12 CFR 22.9(c) (OCC); 12 CFR 208.25(i)(2) 

(Board); 12 CFR 339.9(c) (FDIC); 12 CFR 614.4955(c) 

(FCA); and 12 CFR 760.9(c) (NCUA). 

75 12 U.S.C. 4104a(a)(1); 12 CFR 22.9(c) (OCC); 12 

CFR 208.25(i)(2) (Board); 12 CFR 339.9(c) (FDIC); 12 

CFR 614.4955(c) (FCA); and 12 CFR 760.9(c) 

(NCUA). 

76 12 CFR 22.9(d) (OCC); 12 CFR 208.25(i)(3) 

(Board); 12 CFR 339.9(d) (FDIC); 12 CFR 

614.4955(d) (FCA); and 12 CFR 760.9(d) (NCUA). 

between the flood zone on the SFHDF 

and the flood zone associated with a 

flood insurance policy? 

No, a lender is not in violation of the 

Regulation if there is a discrepancy 

between the flood zone on the SFHDF 

and the flood zone associated with the 

policy. See Q&A Zone 1. 

ZONE 3. What should a lender do 

when the lender’s flood zone 

determination specifies that a building 

securing the loan is located in an SFHA 

requiring mandatory flood insurance 

coverage, but the borrower disputes that 

determination? 

If a borrower disputes a lender’s 

determination that the building securing 

the loan is located in an SFHA requiring 

mandatory flood insurance coverage, the 

parties involved in making the 

determination are encouraged to resolve 

the flood zone discrepancy before 

contacting FEMA for a final 

determination. If the flood zone 

discrepancy cannot be resolved, an 

appeal may be filed with FEMA. 

Depending on the nature of the dispute, 

FEMA has different options for review, 

including: 

• Letters of Determination Review 

(LODR), and 

• Letters of Map Change (LOMC), 

which include Letters of Map 

Amendment (LOMA), Letters of Map 

Revision (LOMR), and Letters of Map 

Revision Based on Fill (LOMR–F). 

Lenders and borrowers should consult 

FEMA guidance on the appropriate 

process to follow, any applicable fees, 

and any deadlines by which the request 

to review must be made. However, as 

long as the lender’s flood determination 

specifies that a building securing the 

loan is located in an SFHA and requires 

mandatory flood insurance coverage, 

sufficient coverage must be in place in 

accordance with the Act and the 

Regulation until FEMA has determined 

that the building is not in an SFHA.68

IX. Notice of Special Flood Hazards 

and Availability of Federal Disaster 

Relief (Notice) 

NOTICE 1. Does the Notice of Special 

Flood Hazards have to be provided to 

each borrower for a real estate related 

loan? 

No. The Notice of Special Flood 

Hazards must be provided to one 

borrower when the lender determines 

that the property securing the loan is or 

will be located in an SFHA.69 In a 

transaction involving multiple 

borrowers, the lender need only provide 

the Notice of Special Flood Hazards to 

any one of the borrowers in the 

transaction. Lenders may provide 

multiple notices if they choose. The 

lender and borrower(s) typically 

designate the borrower to whom the 

Notice of Special Flood Hazards will be 

provided. 

NOTICE 2. When should a lender 

provide the Notice of Special Flood 

Hazards to the borrower? How does this 

requirement apply in situations 

regarding mobile homes where the 

lender may not know where the home is 

to be located until just prior to, or 

sometimes after, the time of loan 

closing? 

As required by the Regulation, a 

lender must provide the Notice of 

Special Flood Hazards to the borrower 

within a reasonable time before the 

completion of the transaction.70 What 

constitutes ‘‘reasonable’’ notice will 

necessarily vary according to the 

circumstances of particular transactions. 

A lender should bear in mind, however, 

that a borrower should receive timely 

notice to ensure that (1) the borrower 

has the opportunity to become aware of 

the borrower’s responsibilities under the 

Act; and (2) where applicable, the 

borrower can purchase flood insurance 

before completion of the loan 

transaction. The Agencies generally 

regard 10 calendar days as a 

‘‘reasonable’’ time interval. 

If a lender determines that a mobile 

home securing a designated loan will be 

located in an SFHA just prior to closing, 

the lender may need to delay the closing 

until the Notice of Special Flood 

Hazards has been provided in 

accordance with the Regulation. 

In the case of loan transactions 

secured by mobile homes not located on 

a permanent foundation, the Agencies 

note that such ‘‘home only’’ transactions 

are excluded from the definition of 

mobile home and the notice 

requirements would not apply to these 

transactions. However, the Agencies 

encourage a lender to advise the 

borrower that if the mobile home is later 

located on a permanent foundation in 

an SFHA, flood insurance will be 

required. If the lender, when notified of 

the location of the mobile home 

subsequent to the loan closing, 

determines that it has been placed on a 

permanent foundation and is located in 

an SFHA in which flood insurance is 

available under the Act, flood insurance 

coverage becomes mandatory and a 

force placement notice must be given to 

the borrower under those provisions.71

If the borrower fails to purchase flood 

insurance coverage within 45 days after 

notification, the lender must force-place 

the insurance.72

NOTICE 3. When is the lender 

required to provide notice to the servicer 

of a loan that flood insurance is 

required? 

Because the servicer of a loan is often 

not identified prior to the closing of a 

loan, the Regulation requires that notice 

be provided no later than the time the 

lender transmits other loan data, such as 

information concerning hazard 

insurance and taxes, to the servicer.73

NOTICE 4. What will constitute 

appropriate form of notice to the 

servicer? 

Delivery to the servicer of a copy of 

the notice given to the borrower is 

appropriate notice. The Regulation also 

provides that the notice can be made 

either electronically or by a written 

copy.74

In the case of a servicer affiliated with 

the lender, the Act requires the lender 

to notify the servicer of special flood 

hazards and the Regulation reflects this 

requirement. Neither the Act nor the 

Regulation contains an exception for 

affiliates.75

NOTICE 5. How long must the lender 

maintain the record of receipt by the 

borrower of the Notice of Special Flood 

Hazards? 

The record of receipt provided by the 

borrower must be maintained for the 

period of time that the lender owns the 

loan.76 Examples of a record of receipt 

include: the borrower’s signed 

acknowledgment of receipt of the Notice 

of Special Flood Hazards; the borrower’s 

initials on a form that acknowledges 

receipt; the borrower’s electronic 

signature that acknowledges receipt, or 

a certified return receipt if the Notice of 

Special Flood Hazards was mailed to 

the borrower. Lenders may keep the 

record in the form that best suits the 

lender’s business practices. Lenders 

may retain the record electronically, but 


khammond on DSKJM1Z7X2PROD with RULES3
32878 Federal Register / Vol. 87, No. 104 / Tuesday, May 31, 2022 / Rules and Regulations 

77 12 CFR 22.9(a) (OCC); 12 CFR 208.25(i) (Board); 

12 CFR 339.9(a) (FDIC); 12 CFR 614.4955(a) (FCA); 

and 12 CFR 760.9(a) (NCUA). 

78 12 CFR 22.9(a) (OCC); 12 CFR 208.25(i) (Board); 

12 CFR 339.9(a) (FDIC); 12 CFR 614.4955(a) (FCA); 

and 12 CFR 760.9(a) (NCUA). 

79 12 U.S.C. 4104a(a)(3); 12 CFR 22.9(b) (OCC); 12 

CFR 208.25(i)(1) (Board); 12 CFR 339.9(b) (FDIC); 12 

CFR 614.4955(b) (FCA); and 12 CFR 760.9(b) 

(NCUA). 

80 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 81 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 

82 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 

they must be able to retrieve the record 

within a reasonable time pursuant to a 

document request from their Federal 

supervisory agency. 

NOTICE 6. Can a lender rely on a 

previous Notice of Special Flood 

Hazards if it is less than seven years old, 

and it is the same property, same 

borrower, and same lender? 

The Regulation does not waive the 

requirement to provide the Notice of 

Special Flood Hazards to the borrower. 

Although subsequent transactions by 

the same lender with respect to the 

same property are the functional 

equivalent of a renewal and do not 

require a new determination, the lender 

must still provide a new Notice of 

Special Flood Hazards to the 

borrower.77

NOTICE 7. Is use of the sample form 

of Notice of Special Flood Hazards 

mandatory? 

Although lenders are required to 

provide a Notice of Special Flood 

Hazards to a borrower when they make, 

increase, extend, or renew a loan 

secured by an improved structure 

located in an SFHA,78 use of the sample 

form of Notice of Special Flood Hazards 

provided in appendix A of the 

Regulation is not mandatory. It should 

be noted that the sample form includes 

other information in addition to what is 

required by the Act and the Regulation. 

Lenders may personalize, change the 

format of, and add information to the 

sample form of notice, if they choose. 

However, a lender-revised Notice of 

Special Flood Hazards must provide the 

borrower with at least the minimum 

information required by the Act and 

Regulation.79 Therefore, lenders should 

consult the Act and Regulation to 

determine the information needed. 

X. Determining the Appropriate 

Amount of Flood Insurance Required 

(Amount) 

AMOUNT 1. The Regulation states 

that the amount of flood insurance 

required ‘‘must be at least equal to the 

lesser of the outstanding principal 

balance of the designated loan or the 

maximum limit of coverage available for 

the particular type of property under the 

Act.’’ What is meant by the ‘‘maximum 

limit of coverage available for the 

particular type of property under the 

Act’’? 

The maximum limit of coverage 

available for the particular type of 

property under the Act depends on the 

value of the secured collateral. First, 

under the NFIP, there are maximum 

caps on the amount of insurance 

available for buildings located in a 

participating community under the 

Regular Program. For single-family and 

two-to-four family dwellings and 

individually owned condominium units 

insured under the Dwelling Form 

policy, the maximum limit is $250,000. 

For a residential condominium building 

insured under the Residential 

Condominium Building Association 

Policy (RCBAP) form, the maximum 

amount of insurance available is 

$250,000 multiplied by the number of 

units. For all other buildings insured 

under the General Property Form, the 

maximum limit of building coverage 

available is $500,000. This includes all 

non-residential buildings, mixed-use 

condominium buildings not eligible for 

coverage under the RCBAP, and other 

residential buildings of five or more 

families, such as cooperatives or 

apartment buildings in the noncondominium form of ownership. (In 

participating communities that are 

under the emergency program phase, 

the maximum limits of insurance are 

different.) The maximum limit for 

contents insured under the Dwelling 

Form and RCBAP is $100,000 ($100,000 

total, not per unit) and $500,000 for 

contents insured under the General 

Property Form. See NFIP Flood 

Insurance Manual. 

In addition to the maximum caps 

under the NFIP, the Regulation also 

provides that ‘‘flood insurance coverage 

under the Act is limited to the building 

or mobile home and any personal 

property that secures a loan and not the 

land itself,’’ which is commonly 

referred to as the ‘‘insurable value’’ of a 

structure.80 The NFIP does not insure 

land; therefore, land values are not 

included in the calculation.81

An NFIP policy will not cover an 

amount exceeding the ‘‘insurable value’’ 

of the structure, so the maximum 

amount of insurance coverage is the 

applicable limit available under the 

NFIP or the insurable value, whichever 

is less. In determining coverage amounts 

for flood insurance, lenders often follow 

the same practice used to establish other 

hazard insurance coverage amounts. 

However, unlike the insurable valuation 

used to underwrite most other hazard 

insurance policies, the insurable value 

of improved real estate for flood 

insurance purposes also includes the 

repair or replacement cost of the 

foundation and supporting structures. It 

is very important to calculate the correct 

insurable value of the property; 

otherwise, the lender might 

inadvertently require the borrower to 

purchase too much or too little flood 

insurance coverage. For example, if the 

lender fails to exclude the value of the 

land when determining the insurable 

value of the improved real estate, the 

borrower will be asked to purchase 

coverage that exceeds the amount the 

NFIP will pay in the event of a loss. 

(Please note, however, when taking a 

security interest in improved real estate 

where the value of the land, excluding 

the value of the improvements, is 

sufficient collateral for the debt, the 

lender must nonetheless require flood 

insurance to cover the value of the 

structure if it is located in a 

participating community’s SFHA.) 82

AMOUNT 2. What is the ‘‘insurable 

value’’ of a building and how is it used 

to determine the required amount of 

flood insurance? 

The insurable value of the building 

may generally be the same as 100 

percent Replacement Cost Value (RCV), 

which is the cost to replace the building 

with the same kind of material and 

construction without deduction for 

depreciation. In calculating the amount 

of insurance to require, the lender and 

borrower (either by themselves or in 

consultation with the flood insurance 

provider or other appropriate 

professional) may choose from a variety 

of approaches or methods to establish 

the insurable value. They may use an 

appraisal based on a cost-value (not 

market-value) approach, a constructioncost calculation, the insurable value 

used on a hazard insurance policy 

(recognizing that the insurable value for 

flood insurance purposes may differ 

from the coverage provided by the 

hazard insurance and that adjustments 

may be necessary), the replacement cost 

value listed on the flood insurance 

policy declarations page, or any other 

reasonable approach, so long as it can be 

supported. 

AMOUNT 3. What are examples of 

residential buildings? 

A residential building is a noncommercial building designed for 

habitation by one or more families or a 

mixed-use building that qualifies as a 

single-family, 2–4 family, or other 

residential building. 


khammond on DSKJM1Z7X2PROD with RULES3
Federal Register / Vol. 87, No. 104 / Tuesday, May 31, 2022 / Rules and Regulations 32879 

83 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 

84 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 

85See 42 U.S.C. 4012a; 12 CFR 22.3(a) (OCC); 12 

CFR 208.25(c)(1) (Board); 12 CFR 339.3(a) (FDIC); 

12 CFR 614.4930(a) (FCA); and 12 CFR 760.3(a) 

(NCUA). 

86 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 

87 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 

The NFIP provides the following 

definitions: 

• A single family dwelling is either a 

residential single-family building in 

which the total floor area devoted to 

non-residential uses is less than 50 

percent of the building’s total floor area, 

or a single-family residential unit within 

a 2–4 family building, other-residential 

building, business, or non-residential 

building, in which commercial uses 

within the unit are limited to less than 

50 percent of the unit’s total floor area. 

• A 2–4 family residential building is 

a residential building, containing 2–4 

residential units and in which nonresidential uses are limited to less than 

25 percent of the building’s total floor 

area. This category includes apartment 

buildings and condominium buildings. 

It excludes hotels and motels with 

normal room rentals for less than six 

months. 

• An other residential building is a 

residential building containing five or 

more residential units or a mixed-use 

building in which the total floor area 

devoted to non-residential uses is less 

than 25 percent of the building’s total 

floor area. This category includes 

condominium and apartment buildings 

as well as hotels, motels, tourist homes, 

and rooming houses where the normal 

occupancy of a guest is six months or 

more. Additional examples of other 

residential buildings include 

dormitories and assisted-living 

facilities. 

For more complete information, refer 

to the NFIP Flood Insurance Manual. 

AMOUNT 4. What are examples of 

non-residential buildings? 

Pursuant to the NFIP Flood Insurance 

Manual, a non-residential building 

includes: 

1. A building in which the named 

insured is a commercial enterprise 

primarily carried out to generate income 

and the coverage is for: 

• A building not designed for 

habitation or residential uses; 

• A mixed-use building in which the 

total floor area devoted to residential 

uses is 50 percent or less of the total 

floor area within the building if the 

residential building is a single-family 

property; or 75 percent or less of the 

total floor area within the building for 

all other residential properties; or 

• A building designed for use as 

office or retail space, wholesale space, 

hospitality space, or for similar uses. 

• The following buildings where the 

normal occupancy of a guest is less than 

six months: Condominium buildings, 

apartment buildings, hotels and motels, 

tourist homes, or rooming houses. 

2. Other non-residential buildings 

including, but not limited to the 

following: Houses of worship, schools, 

agricultural structures, garages, pool 

houses, clubhouses, and recreational 

buildings. 

For more complete information, refer 

to the NFIP Flood Insurance Manual. 

AMOUNT 5. How much insurance is 

required on a building located in an 

SFHA in a participating community? 

The amount of insurance required by 

the Act and Regulation is the lesser of: 

• The outstanding principal balance 

of the loan(s); or 

• The maximum amount of insurance 

available under the NFIP, which is the 

lesser of: 

Æ The maximum limit available for 

the type of structure; or 

Æ The ‘‘insurable value’’ of the 

structure.83

Example: (Calculating insurance 

required on a non-residential building): 

Loan security includes one equipment 

shed located in an SFHA in a 

participating community under the 

Regular Program. 

• Outstanding loan principal balance 

is $300,000. 

• Maximum amount of insurance 

available under the NFIP: 

Æ Maximum limit available for type 

of structure is $500,000 per building 

(non-residential building). 

Æ Insurable value of the equipment 

shed is $30,000. 

The minimum amount of insurance 

required by the Regulation for the 

equipment shed is $30,000. 

AMOUNT 6. Is flood insurance 

required for each building when the real 

estate security contains more than one 

building located in an SFHA in a 

participating community? If so, how 

much coverage is required? 

Yes. The lender must determine the 

amount of insurance required on each 

building and add these individual 

amounts together.84 The total amount of 

required flood insurance is the lesser of: 

• The outstanding principal balance 

of the loan(s); or 

• The maximum amount of insurance 

available under the NFIP, which is the 

lesser of: 

Æ The maximum limit available for 

the type of structures; or 

Æ The ‘‘insurable value’’ of the 

structures. 

The amount of total required flood 

insurance can be allocated among the 

secured buildings in varying amounts, 

but all buildings in an SFHA must be 

covered in accordance with the 

statutory requirement.85

Example: Lender makes a loan in the 

principal amount of $150,000 secured 

by five non-residential buildings, only 

three of which are located in SFHAs 

within participating communities. 

• Outstanding loan principal is 

$150,000. 

• Maximum amount of insurance 

available under the NFIP. 

Æ Maximum limit available for the 

type of structure is $500,000 per 

building for non-residential buildings 

(or $1.5 million total); or 

Æ Insurable value ($100,000 for each 

non-residential building for which 

insurance is required, or $300,000 total). 

Amount of insurance required for the 

three buildings is $150,000. This 

amount of required flood insurance 

could be allocated among the three 

buildings in varying amounts, so long as 

each is covered in accordance with the 

statutory requirement. 

AMOUNT 7. If the insurable value of 

a building or mobile home securing a 

designated loan is less than the 

outstanding principal balance of the 

loan, must a lender require the borrower 

to obtain flood insurance up to the 

balance of the loan? 

No. The Regulation provides that the 

amount of flood insurance must be at 

least equal to the lesser of the 

outstanding principal balance of the 

designated loan or the maximum limit 

of coverage available for a particular 

type of property under the Act.86 The 

Regulation also provides that flood 

insurance coverage under the Act is 

limited to the building or mobile home 

and any personal property that secures 

a loan and not the land itself. 87 Since 

the NFIP policy does not cover land 

value, lenders determine the amount of 

insurance necessary based on the 

insurable value of the building. 

AMOUNT 8. Can a lender require 

more flood insurance than the 

minimum required by the Regulation? 

Yes. Lenders are permitted to require 

more than the minimum amount of 

flood insurance required by the 

Regulation, taking into consideration 

applicable State and Federal law and 

safe and sound banking practices, as 

appropriate. However, the borrower or 

lender may have to seek such coverage 


khammond on DSKJM1Z7X2PROD with RULES3
32880 Federal Register / Vol. 87, No. 104 / Tuesday, May 31, 2022 / Rules and Regulations 

88 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 

89 12 CFR 22.2(e) (OCC); 12 CFR 208.25(b)(5) 

(Board); 12 CFR 339.2 (FDIC); 12 CFR 614.4925 

(FCA); and 12 CFR 760.2 (NCUA). 

90 12 CFR 22.6(a) (OCC): 12 CFR 208.25(f)(1) 

(Board); 12 CFR 339.6(a) (FDIC); 12 CFR 614.4940(a) 

(FCA); and 12 CFR 760.6(a) (NCUA). 

91 12 CFR 22.9(a) (OCC); 12 CFR 208.25(i) (Board); 

12 CFR 339.9(a) (FDIC); 12 CFR 614.4955(a) (FCA); 

and 12 CFR 760.9(a) (NCUA). 

92 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 

93 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 

outside the NFIP. Although a lender has 

the responsibility to tailor its own flood 

insurance policies and procedures to 

suit its business needs and protect its 

ongoing interest in the collateral, it 

should consider the extent of recovery 

allowed under the NFIP or a private 

policy for the type of property being 

insured to assist the borrower in 

avoiding paying for coverage that 

exceeds the amount the insured would 

recover in the event of a loss. 

AMOUNT 9. Can a lender allow the 

borrower to use the maximum 

deductible to reduce the cost of flood 

insurance? 

Yes. However, it may not be a sound 

business practice for a lender, as a 

matter of policy, to always allow the 

borrower to use the maximum 

deductible. A lender should determine 

the reasonableness of the deductible on 

a case-by-case basis, taking into account 

the risk that such a deductible would 

pose to the borrower and lender. A 

lender may not allow the borrower to 

use a deductible amount equal to the 

insurable value of the property to avoid 

the mandatory purchase requirement for 

flood insurance.88

AMOUNT 10. Can a lender accept a 

blanket flood insurance policy or 

blanket multi-peril policy covering 

multiple buildings that includes a peroccurrence deductible, regardless of 

whether any single building covered by 

the policy has an insurable value lower 

than the amount of the deductible? 

Yes, a lender may accept a blanket 

flood insurance policy or blanket multiperil policy covering multiple buildings 

that includes a per-occurrence 

deductible, regardless of whether any 

single building covered by the policy 

has an insurable value lower than the 

amount of the deductible. A blanket 

flood insurance policy or blanket multiperil policy that includes a peroccurrence deductible provides 

coverage for each building covered by 

such a policy, regardless of whether any 

individual building covered under the 

policy has an insurable value that may 

be lower than the amount of the 

deductible. However, a lender may not 

allow the borrower to use a deductible 

amount equal to the aggregate insurable 

value of the property to avoid the 

mandatory purchase requirement. A 

lender should determine the 

reasonableness of the deductible on a 

case-by-case basis, taking into account 

the risk that such deductible would 

pose to the borrower and lender. See 

Q&A Amount 9. 

XI. Flood Insurance Requirements for 

Construction Loans (Construction) 

CONSTRUCTION 1. Is a loan secured 

only by land, which is located in an 

SFHA in which flood insurance is 

available under the Act and that will be 

developed into buildable lot(s), a 

designated loan that requires flood 

insurance? 

No. A designated loan is a loan 

secured by a building or mobile home 

that is located or to be located in an 

SFHA in which flood insurance is 

available under the Act.89 Any loan 

secured only by land that is located in 

an SFHA in which flood insurance is 

available is not a designated loan since 

it is not secured by a building or mobile 

home. 

CONSTRUCTION 2. Is a loan secured 

or to be secured by a building in the 

course of construction that is located or 

to be located in an SFHA in which flood 

insurance is available under the Act a 

designated loan? 

Yes. A lender must always make a 

flood determination prior to loan 

origination to determine whether a 

building to be constructed that is 

security for the loan is located or will 

be located in an SFHA in which flood 

insurance is available under the Act.90

If the building or mobile home is 

located or will be located in an SFHA, 

then the loan is a designated loan and 

the lender must provide the requisite 

notice to the borrower prior to loan 

origination.91 The lender must then 

comply with the mandatory purchase 

requirement under the Act and 

Regulation.92

CONSTRUCTION 3. Is a building in 

the course of construction that is 

located in an SFHA in which flood 

insurance is available under the Act 

eligible for coverage under an NFIP 

policy? 

Yes. The NFIP will insure a building 

in the course of construction before it is 

walled and roofed using the NFIPissued rates based on the construction 

designs and the intended use of the 

building. However, buildings in the 

course of construction that are not 

walled and roofed are not eligible for 

coverage when construction stops for 

more than 90 days and/or if the lowest 

floor for rating purposes is below the 

Base Flood Elevation. The NFIP will not 

insure materials or supplies intended 

for use in such construction, alteration, 

or repair unless they are contained 

within an enclosed building on the 

premises or adjacent to the premises. 

(See NFIP Flood Insurance Manual; the 

NFIP Dwelling Form for an SFIP.) 

The NFIP Flood Insurance Manual 

defines ‘‘start of construction’’ in the 

case of new construction as ‘‘either the 

first placement of permanent 

construction of a building on site, such 

as the pouring of a slab or footing, the 

installation of piles, the construction of 

columns, or any work beyond the stage 

of excavation; or the placement of a 

manufactured (mobile) home on a 

foundation.’’ 

Although an NFIP policy may be 

purchased prior to the start of 

construction, as a practical matter, 

coverage under an NFIP policy is not 

effective until actual construction 

commences or when materials or 

supplies intended for use in such 

construction, alteration, or repair are 

contained in an enclosed building on 

the premises or adjacent to the 

premises. 

CONSTRUCTION 4. When must a 

lender require the purchase of flood 

insurance for a loan secured by a 

building in the course of construction 

that is located in an SFHA in which 

flood insurance is available? 

Under the Act, as implemented by the 

Regulation, a lender may not make, 

increase, extend, or renew any loan 

secured by a building or a mobile home, 

located or to be located in an SFHA in 

which flood insurance is available, 

unless the property is covered by 

adequate flood insurance for the term of 

the loan.93 The NFIP provides that 

lenders may comply with the mandatory 

purchase requirement for a loan secured 

by a building in the course of 

construction that is located in an SFHA 

by requiring borrowers to have a flood 

insurance policy in place at the time of 

loan origination. Such a policy is issued 

based upon the construction designs 

and intended use of the building. A 

borrower should obtain a provisional 

rating (available only if certain criteria 

are met) to enable the placement of 

coverage prior to receipt of the Elevation 

Certificate (EC). In accordance with the 

NFIP requirement, it is expected that an 

EC will be secured and a full-risk rating 

completed within 60 days of the policy 

effective date. Failure to obtain the EC 

could result in reduced coverage limits 


khammond on DSKJM1Z7X2PROD with RULES3
Federal Register / Vol. 87, No. 104 / Tuesday, May 31, 2022 / Rules and Regulations 32881 

94 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 

95 12 CFR 22.5(a)(1) (OCC); 12 CFR 208.25(e)(1)(i) 

(Board); 12 CFR 339.5(a)(1) (FDIC); 12 CFR 

614.4935(a)(1) (FCA); and 12 CFR 760.5(a)(1) 

(NCUA). 

96 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 

97 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 

98 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 

at the time of a loss. (See NFIP Flood 

Insurance Manual.) 

Alternatively, a lender may allow a 

borrower to defer the purchase of flood 

insurance until either after a foundation 

slab has been poured and/or an 

Elevation Certificate has been issued or, 

if the building to be constructed will 

have its lowest floor below the Base 

Flood Elevation, when the building is 

walled and roofed. However, in order to 

comply with the Regulation,94 the 

lender must require the borrower to 

have flood insurance for the security 

property in place before the lender 

disburses funds to pay for building 

construction (except for funds to be 

used to pour the slab or perform 

preliminary site work, such as laying 

utilities, clearing brush, or the purchase 

and/or delivery of building materials). If 

the lender elects this approach and does 

not require the borrower to obtain flood 

insurance at loan origination, then it 

should have adequate internal controls 

in place at origination to ensure that the 

borrower obtains flood insurance no 

later than 30 days prior to disbursement 

of funds to the borrower in light of the 

NFIP 30-day waiting period 

requirement. (See NFIP Flood Insurance 

Manual.) See also Q&A Construction 5. 

CONSTRUCTION 5. Does the NFIP 

30-day waiting period apply when the 

purchase of the flood insurance policy 

is deferred in connection with a 

construction loan? 

Yes. A 30-day waiting period will 

apply if a lender allows a borrower to 

delay the purchase of flood insurance in 

connection with a construction loan 

after making, increasing, renewing, or 

extending the loan. A borrower must 

apply for flood insurance on or before 

the closing date of a loan transaction for 

the NFIP 30-day waiting period to be 

waived. See NFIP Flood Insurance 

Manual. See also Q&A Construction 4. 

CONSTRUCTION 6. If a lender allows 

a borrower to defer the purchase of 

flood insurance until either a 

foundation slab has been poured and/or 

an Elevation Certificate has been issued, 

or if the building to be constructed will 

have its lowest floor below Base Flood 

Elevation when the building is walled 

and roofed, when must the lender begin 

escrowing flood insurance premiums 

and fees? 

If the lender allows a borrower to 

defer the purchase of flood insurance 

until either the foundation slab has been 

poured and/or an Elevation Certificate 

has been issued, or if the building to be 

constructed will have its lowest floor 

below Base Flood Elevation when the 

building is walled and roofed, a lender 

must escrow flood insurance premiums 

and fees at the time of purchase of the 

flood insurance, unless one of the 

escrow exceptions applies.95

XII. Flood Insurance Requirements for 

Residential Condominiums and CO– 

Ops (Condo and Co-Op) 

CONDO AND CO-OP 1. Are 

residential condominiums, including 

multi-story condominium complexes, 

subject to the statutory and regulatory 

requirements for flood insurance? 

Yes. The mandatory flood insurance 

purchase requirements under the Act 

and Regulation apply to loans secured 

by individual residential condominium 

units, including those located in multistory condominium complexes, located 

in an SFHA in which flood insurance is 

available under the Act.96 The 

mandatory purchase requirements also 

apply to loans secured by other 

residential condominium property, such 

as loans to a developer for construction 

of the condominium or loans to a 

condominium association. 

CONDO AND CO-OP 2. What is an 

NFIP Residential Condominium 

Building Association Policy (RCBAP)? 

The RCBAP is a master policy for 

residential condominiums issued by 

FEMA. A residential condominium 

building is defined as having 75 percent 

or more of the building’s floor area in 

residential use. It may be purchased 

only by condominium owners 

associations. The RCBAP covers both 

the common and individually owned 

building elements within the units, 

improvements within the units, and 

contents owned in common (if contents 

coverage is purchased). The maximum 

amount of building coverage that can be 

purchased under an RCBAP is either 

100 percent of the replacement cost 

value of the building, including 

amounts to repair or replace the 

foundation and its supporting 

structures, or the total number of units 

in the condominium building times 

$250,000, whichever is less. RCBAP 

coverage is available only for residential 

condominium buildings in Regular 

Program communities. 

CONDO AND CO-OP 3. What is the 

amount of flood insurance coverage that 

a lender must require with respect to 

residential condominium units, 

including those located in multi-story 

residential condominium complexes, to 

comply with the mandatory purchase 

requirements under the Act and the 

Regulation? 

To comply with the Regulation, the 

lender must ensure that the minimum 

amount of flood insurance covering the 

condominium unit is the lesser of: 

• The outstanding principal balance 

of the loan(s); or 

• The maximum amount of insurance 

available under the NFIP, which is the 

lesser of: 

Æ The maximum limit available for 

the residential condominium unit; or 

Æ The ‘‘insurable value’’ allocated to 

the residential condominium unit, 

which is the replacement cost value of 

the condominium building divided by 

the number of units.97

FEMA requires agents to provide on 

the declarations page of the RCBAP the 

replacement cost value of the 

condominium building and the number 

of units. Lenders may rely on the 

replacement cost value and number of 

units on the RCBAP declarations page in 

determining insurable value unless they 

have reason to believe that such 

amounts clearly conflict with other 

available information. If there is a 

conflict, the lender should notify the 

borrower of the facts that cause the 

lender to believe there is a conflict. If 

the lender determines that the borrower 

is underinsured, it must require the 

purchase of supplemental coverage.98

However, coverage under the 

supplemental policy may be limited 

depending on other coverage that may 

be applicable including the RCBAP 

insuring the condominium building and 

the terms and conditions of the policy. 

Assuming that the maximum amount 

of coverage available under the NFIP is 

less than the outstanding principal 

balance of the loan, the lender must 

require a borrower whose loan is 

secured by a residential condominium 

unit to either: 

• Ensure the condominium owners 

association has purchased an NFIP 

RCBAP covering either 100 percent of 

the insurable value (replacement cost) of 

the building, including amounts to 

repair or replace the foundation and its 

supporting structures, or the total 

number of units in the condominium 

building times $250,000, whichever is 

less; or 

• Obtain flood insurance coverage if 

there is no RCBAP, as explained in Q&A 

Condo and Co-Op 4, or if the RCBAP 


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32882 Federal Register / Vol. 87, No. 104 / Tuesday, May 31, 2022 / Rules and Regulations 

99 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 

100 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 

coverage is less than 100 percent of the 

replacement cost value of the building 

or the total number of units in the 

condominium building times $250,000, 

whichever is less, as explained in Q&A 

Condo and Co-Op 5. 

Example: Lender makes a loan in the 

principal amount of $300,000 secured 

by a condominium unit in a 50-unit 

condominium building, which is 

located in an SFHA within a 

participating community, with a 

replacement cost of $15 million and 

insured by an RCBAP with $12.5 

million of coverage. 

• Outstanding principal balance of 

loan is $300,000. 

• Maximum amount of coverage 

available under the NFIP, which is the 

lesser of: 

Æ Maximum limit available for the 

residential condominium unit is 

$250,000; or 

Æ Insurable value of the unit based on 

100 percent of the building’s 

replacement cost value ($15 million ÷ 

50 = $300,000). 

The lender does not need to require 

additional flood insurance since the 

RCBAP’s $250,000 per unit coverage 

($12.5 million ÷ 50 = $250,000) satisfies 

the Regulation’s mandatory flood 

insurance purchase requirement. (This 

is the lesser of the outstanding principal 

balance ($300,000), the maximum 

coverage available under the NFIP 

($250,000), or the insurable value 

($300,000)). See NFIP Flood Insurance 

Manual. 

The requirement discussed in this 

Q&A applies to any loan that is made, 

increased, extended, or renewed after 

October 1, 2007. This requirement does 

not apply to any loans made prior to 

October 1, 2007, until a triggering event 

occurs (that is, the loan is refinanced, 

extended, increased, or renewed) in 

connection with the loan. Absent a new 

triggering event, loans made prior to 

October 1, 2007, will be considered 

compliant if the lender complied with 

the Agencies’ previous guidance that an 

RCBAP with 80 percent RCV coverage 

was sufficient. FEMA issued guidance 

effective October 1, 2007, requiring 

NFIP insurers to add the RCV of the 

condominium building and the number 

of units to the RCBAP declarations page 

of all new and renewed policies. 

CONDO AND CO-OP 4. For 

residential condominiums with no 

RCBAP coverage, what action must a 

lender take for an individual unit 

owner? 

If there is no RCBAP on the 

residential condominium building, then 

the lender must require the individual 

unit owner to obtain coverage in an 

amount sufficient to meet the 

requirements outlined in Q&A Condo 

and Co-Op 3.99

Under the NFIP, a Dwelling Policy is 

available for condominium unit owners’ 

purchase when there is no or inadequate 

RCBAP coverage. 

Example: The lender makes a loan in 

the principal amount of $175,000 

secured by a residential condominium 

unit in a 50-unit residential 

condominium building, which is 

located in an SFHA within a 

participating community, with a 

replacement cost value of $10 million; 

however, there is no RCBAP. 

• Outstanding principal balance of 

loan is $175,000. 

• Maximum amount of coverage 

available under the NFIP, which is the 

lesser of: 

Æ Maximum limit available for the 

residential condominium unit is 

$250,000; or 

Æ Insurable value of the unit based on 

100 percent of the building’s 

replacement cost value ($10 million ÷ 

50 = $200,000). 

The lender must require the 

individual unit owner to purchase flood 

insurance coverage in the amount of at 

least $175,000, since there is no RCBAP, 

to satisfy the Regulation’s mandatory 

flood insurance purchase requirement. 

(This is the lesser of the outstanding 

principal balance ($175,000), the 

maximum coverage available under the 

NFIP ($250,000), or the insurable value 

($200,000).) 

CONDO AND CO-OP 5. What action 

must a lender take if the RCBAP 

coverage is insufficient to meet the 

Regulation’s mandatory purchase 

requirements for a loan secured by an 

individual residential condominium 

unit? 

If the lender determines that flood 

insurance coverage purchased under the 

RCBAP is insufficient to meet the 

Regulation’s mandatory purchase 

requirements, then the lender should 

request that the individual unit owner 

ask the condominium association to 

obtain additional coverage that would 

be sufficient to meet the Regulation’s 

requirements. See Q&A Condo and CoOp 3. If the condominium association 

does not obtain sufficient coverage, then 

the lender must require the individual 

unit owner to purchase supplemental 

coverage in an amount sufficient to meet 

the Regulation’s flood insurance 

requirements.100 The amount of 

supplemental coverage required to be 

purchased by the individual unit owner 

would be the difference between the 

RCBAP’s coverage allocated to that unit 

and the Regulation’s mandatory flood 

insurance purchase requirements. See 

Q&A Condo and Co-Op 4. 

Example: Lender makes a loan in the 

principal amount of $300,000 secured 

by a condominium unit in a 50-unit 

condominium building, which is 

located in an SFHA within a 

participating community, with a 

replacement cost value of $10 million; 

however, the RCBAP is at 80 percent of 

replacement cost value ($8 million or 

$160,000 per unit). 

• Outstanding principal balance of 

loan is $300,000. 

• Maximum amount of coverage 

available under the NFIP, which is the 

lesser of: 

Æ Maximum limit available for the 

residential condominium unit 

($250,000); or 

Æ Insurable value of the unit based on 

100 percent of the building’s 

replacement value ($10 million ÷ 50 = 

$200,000). 

The lender must require the 

individual unit owner to purchase 

supplemental flood insurance coverage 

in the amount of $40,000 to satisfy the 

Regulation’s mandatory flood insurance 

purchase requirement of $200,000. (This 

is the lesser of the outstanding principal 

balance ($300,000), the maximum 

coverage available under the NFIP 

($250,000), or the insurable value 

($200,000).) The RCBAP fulfills only 

$160,000 of the Regulation’s flood 

insurance requirement. 

While the individual unit owner’s 

purchase of a separate policy that 

provides for adequate flood insurance 

coverage under the Regulation will 

satisfy the Regulation’s mandatory flood 

insurance purchase requirements, the 

lender and the individual unit owner 

may still be exposed to additional risk 

of loss. Lenders are encouraged to 

apprise borrowers of this risk. For 

example, the NFIP Dwelling Policy 

provides individual unit owners with 

supplemental building coverage that is 

in excess to the RCBAP. The policies are 

coordinated such that the Dwelling 

Policy purchased by the unit owner 

responds to shortfalls on building 

coverage pertaining either to 

improvements owned by the insured 

unit owner or to assessments. However, 

the Dwelling Policy does not extend the 

RCBAP limits, nor does it enable the 

condominium association to fill in gaps 

in coverage. 

CONDO AND CO-OP 6. What must a 

lender do when a loan secured by a 

residential condominium unit is in a 

complex whose condominium 


khammond on DSKJM1Z7X2PROD with RULES3
Federal Register / Vol. 87, No. 104 / Tuesday, May 31, 2022 / Rules and Regulations 32883 

101 12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) 

(Board); 12 CFR 339.7(a) (FDIC); 12 CFR 614.4945(a) 

(FCA); and 12 CFR 760.7(a) (NCUA). 

102 12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) 

(Board); 12 CFR 339.7(a) (FDIC); 12 CFR 614.4945(a) 

(FCA); and 12 CFR 760.7(a) (NCUA). 

association allows its existing RCBAP to 

lapse? 

If a lender determines at any time 

during the term of a designated loan that 

the loan is not covered by flood 

insurance or is covered by such 

insurance in an amount less than that 

required under the Act and the 

Regulation, the lender must notify the 

individual unit owner of the 

requirement to maintain flood insurance 

coverage sufficient to meet the 

Regulation’s mandatory 

requirements.101 The lender should 

encourage the individual unit owner to 

work with the condominium association 

to acquire a new RCBAP in an amount 

sufficient to meet the Regulation’s 

mandatory flood insurance purchase 

requirement. See Q&A Condo and CoOp 3. Failing that, the lender must 

require the individual unit owner to 

obtain a flood insurance policy in an 

amount sufficient to meet the 

Regulation’s mandatory flood insurance 

purchase requirement. See Q&As Condo 

and Co-Op 4 & 5. If the borrower/unit 

owner or the condominium association 

fails to purchase flood insurance 

sufficient to meet the Regulation’s 

mandatory requirements within 45 days 

of the lender’s notification to the 

individual unit owner of inadequate 

insurance coverage, the lender must 

force place the necessary flood 

insurance on the borrower’s behalf.102

CONDO AND CO-OP 7. How does the 

RCBAP’s co-insurance penalty apply in 

the case of residential condominiums, 

including those located in multi-story 

condominium complexes? 

In the event the RCBAP’s coverage on 

a condominium building at the time of 

loss is less than 80 percent of either the 

building’s replacement cost or the 

maximum amount of insurance 

available for that building under the 

NFIP (whichever is less), then the loss 

payment, which is subject to a 

coinsurance penalty, is determined as 

follows (subject to all other relevant 

conditions in the policy, including 

those pertaining to valuation, 

adjustment, settlement, and payment of 

loss): 

A. Divide the actual amount of flood 

insurance carried on the condominium 

building at the time of loss by 80 

percent of either its replacement cost or 

the maximum amount of insurance 

available for the building under the 

NFIP, whichever is less. 

B. Multiply the amount of loss, before 

application of the deductible, by the 

figure determined in A above. 

C. Subtract the deductible from the 

figure determined in B above. 

The policy will pay the amount 

determined in C above, or the amount 

of insurance carried, whichever is less. 

Example 1: (Inadequate insurance 

amount to avoid penalty). 

Replacement value of the building: 

$250,000. 

80% of replacement value of the 

building: $200,000. 

Actual amount of insurance carried: 

$180,000. 

Amount of the loss: $150,000. 

Deductible: $500. 

Step A: 180,000 ÷ 200,000 = .90 

(90% of what should be carried to 

avoid coinsurance penalty) 

Step B: 150,000 × .90 = 135,000 

Step C: 135,000¥500 = 134,500 

The policy will pay no more than 

$134,500. The remaining $15,500 is not 

covered due to the co-insurance penalty 

($15,000) and application of the 

deductible ($500). 

Example 2: (Adequate insurance 

amount to avoid penalty). 

Replacement value of the building: 

$250,000. 

80% of replacement value of the 

building: $200,000. 

Actual amount of insurance carried: 

$200,000. 

Amount of the loss: $150,000. 

Deductible: $500. 

Step A: 200,000 ÷ 200,000 = 1.00 

(100% of what should be carried to 

avoid coinsurance penalty) 

Step B: 150,000 × 1.00 = 150,000 

Step C: 150,000¥500 = 149,500 

In this example there is no coinsurance penalty, because the actual 

amount of insurance carried meets the 

80 percent requirement to avoid the coinsurance penalty. The policy will pay 

no more than $149,500 ($150,000 

amount of loss minus the $500 

deductible). This example also assumes 

a $150,000 outstanding principal loan 

balance. 

CONDO AND CO-OP 8. What are the 

major factors involved with the 

individual unit owner’s NFIP Dwelling 

Policy’s coverage limitations with 

respect to the condominium 

association’s RCBAP coverage? 

The following examples demonstrate 

how the unit owner’s NFIP Dwelling 

Policy may cover in certain loss 

situations: 

Example 1: RCBAP 

If the unit owner purchases building 

coverage under the Dwelling Policy and 

if there is an RCBAP covering at least 80 

percent of the building replacement cost 

value, the loss assessment coverage 

under the Dwelling Policy will pay that 

part of a loss that exceeds 80 percent of 

the association’s building replacement 

cost allocated to that unit. 

The loss assessment coverage under 

the Dwelling Policy will not cover the 

association’s policy deductible 

purchased by the condominium 

association. 

If building elements within units have 

also been damaged, the Dwelling Policy 

pays to repair building elements after 

the RCBAP limits that apply to the unit 

have been exhausted. Coverage 

combinations cannot exceed the total 

limit of $250,000 per unit. 

Example 2: No RCBAP 

If the unit owner purchases building 

coverage under the Dwelling Policy and 

there is no RCBAP, the Dwelling Policy 

covers assessments against unit owners 

for damages to common areas up to the 

Dwelling Policy limit. 

However, if there is damage to the 

building elements of the unit (e.g., 

inside the individual unit) as well, the 

combined payment of unit building 

damages, which would apply first, and 

the loss assessment may not exceed the 

building coverage limit under the 

Dwelling Policy. 

CONDO AND CO-OP 9. What are the 

flood insurance requirements for a 

residential condominium unit or a nonresidential condominium unit located in 

a non-residential condominium 

building? What are the flood insurance 

requirements for a non-residential 

condominium unit located in a 

residential condominium building? 

Coverage is not available under the 

NFIP for an individual residential 

condominium unit or a non-residential 

condominium unit located in a nonresidential condominium building. 

NFIP coverage is also not available for 

a non-residential condominium unit 

located in a residential condominium 

building. Therefore, a loan secured by 

one of these types of units is not a 

designated loan under the Regulation, 

and the mandatory flood insurance 

requirement does not apply. The 

Agencies note, however, that contents 

coverage is available through the NFIP 

for these types of units. See NFIP Flood 

Insurance Manual. 

CONDO AND CO-OP 10. What flood 

insurance requirements apply to a loan 

secured by a share in a cooperative 

building that is located in an SFHA? 

It is important to recognize the 

difference between ownership of a 

condominium and a cooperative. 

Although an owner of a condominium 

owns title to real property, a cooperative 

unit holder holds stock in a corporation 

with the right to occupy a particular 

unit, but owns no title to the building. 


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32884 Federal Register / Vol. 87, No. 104 / Tuesday, May 31, 2022 / Rules and Regulations 

103 12 CFR 22.2(e) (OCC); 12 CFR 208.25(b)(5) 

(Board); 12 CFR 339.2 (FDIC); 12 CFR 614.4925 

(FCA); and 12 CFR 760.2 (NCUA). 

104 12 CFR 22.2(e) and 22.3(a) (OCC); 12 CFR 

208.25(b)(5) and (c)(1) (Board); 12 CFR 339.2 and 

339.3(a) (FDIC); 12 CFR 614.4925 and 614.4930(a) 

(FCA); and 12 CFR 760.2 and 760.3(a) (NCUA). 

105 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 

106 12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) 

(Board); 12 CFR 339.7(a) (FDIC); 12 CFR 614.4945(a) 

(FCA); and 12 CFR 760.7(a) (NCUA). 

107 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 

As a result, a loan to a cooperative unit 

owner, secured by the owner’s share in 

the cooperative, is not a designated loan 

that is subject to the Act or the 

Regulation. 

Although there is no requirement 

under the Act or Regulation to purchase 

flood insurance on the cooperative 

building if the loan is secured by the 

unit owner’s share in the cooperative, 

for safety and soundness purposes, 

residential or non-residential 

cooperative buildings may be insured by 

the association or corporation under the 

General Property Form. The entity that 

owns the cooperative building, not the 

individual unit members, is the named 

insured. 

XIII. Flood Insurance Requirements for 

Home Equity Loans, Lines of Credit, 

Subordinate Liens, and Other Security 

Interests in Collateral (Contents) 

Located in an SFHA (Other Security 

Interests) 

OTHER SECURITY INTERESTS 1. Is 

a home equity loan considered a 

designated loan that requires flood 

insurance? 

Yes. A home equity loan is a 

designated loan, regardless of the lien 

priority, if the loan is secured by a 

building or a mobile home located in an 

SFHA in which flood insurance is 

available under the Act.103

OTHER SECURITY INTERESTS 2. 

Does a draw against an approved line of 

credit secured by a building or mobile 

home, which is located in an SFHA in 

which flood insurance is available 

under the Act, require a flood 

determination under the Regulation? 

No. While a line of credit secured by 

a building or mobile home located in an 

SFHA in which flood insurance is 

available under the Act is a designated 

loan and, therefore, requires a flood 

determination before the loan is made, 

draws against an approved line do not 

require further determinations.104

However, a request made for an increase 

in an approved line of credit may 

require a new determination, depending 

upon whether a previous determination 

was done. See Q&A SFHDF 4. 

OTHER SECURITY INTERESTS 3. 

What is the amount of flood insurance 

coverage required on a line of credit 

secured by a residential improved real 

estate? 

A lender may take the following 

alternative approaches: 

• For administrative convenience in 

complying with the flood insurance 

requirements, upon origination, a lender 

may require the purchase of flood 

insurance for the total amount of all 

loans or the maximum amount of flood 

insurance coverage available, whichever 

is less; 105 or 

• A lender may actively review its 

records throughout the year to 

determine whether the appropriate 

amount of flood insurance coverage is 

maintained, considering the draws 

made against the line or repayments 

made to the account. In those instances 

in which there is no policy on the 

collateral at time of origination, the 

borrower must, at a minimum, obtain a 

policy as a requirement for drawing on 

the line. Lenders that choose to actively 

review the line should inform the 

borrower that this option may have 

more risks, such as inadequate flood 

insurance coverage during the 30-day 

waiting period for an NFIP flood policy 

to become effective. Lenders should be 

prepared to initiate force placement 

procedures if at any time the lender 

determines a lack of adequate flood 

insurance coverage for a designated line 

of credit, as required under the 

Regulation.106

OTHER SECURITY INTERESTS 4. 

When a lender makes, increases, 

extends or renews a second mortgage 

secured by a building or mobile home 

located in an SFHA, how much flood 

insurance must the lender require? 

The lender must ensure that adequate 

flood insurance is in place or require 

that additional flood insurance coverage 

be added to the flood insurance policy 

in the amount of the lesser of either the 

combined total outstanding principal 

balance of the first and second loan, the 

maximum amount available under the 

Act (currently $250,000 for most 

residential buildings and $500,000 for 

other buildings), or the insurable value 

of the building or mobile home.107 The 

junior lienholder should also have the 

borrower add the junior lienholder’s 

name as mortgagee/loss payee to the 

existing flood insurance policy. Given 

the provisions of NFIP policies, a lender 

cannot comply with the Act and 

Regulation by requiring the purchase of 

an NFIP flood insurance policy only in 

the amount of the outstanding principal 

balance of the second mortgage without 

regard to the amount of flood insurance 

coverage on a first mortgage. 

A junior lienholder should work with 

the senior lienholder, the borrower, or 

with both of these parties, to determine 

how much flood insurance is needed to 

cover improved real estate collateral. A 

junior lienholder should obtain the 

borrower’s consent in the loan 

agreement or otherwise for the junior 

lienholder to obtain information on 

balance and existing flood insurance 

coverage on senior lien loans from the 

senior lienholder. 

Junior lienholders also have the 

option of pulling a borrower’s credit 

report and using the information from 

that document to establish how much 

flood insurance is necessary upon 

increasing, extending, or renewing a 

junior lien, thus protecting the interests 

of the junior lienholder, the senior 

lienholder(s), and the borrower. In the 

limited situation in which a junior 

lienholder or its servicer is unable to 

obtain the necessary information about 

the amount of flood insurance in place 

on the outstanding balance of a senior 

lien (for example, in the context of a 

loan renewal), the lender may presume 

that the amount of insurance coverage 

relating to the senior lien in place at the 

time the junior lien was first established 

(provided that the amount of flood 

insurance relating to the senior lien was 

adequate at the time) continues to be 

sufficient. 

Example 1: Lender A makes a first 

mortgage with a principal balance of 

$100,000, but improperly requires only 

$75,000 of flood insurance coverage, 

which the borrower satisfied by 

obtaining an NFIP policy. Lender B 

issues a second mortgage with a 

principal balance of $50,000. The 

insurable value of the residential 

building securing the loans is $200,000. 

Lender B must ensure that flood 

insurance in the amount of $150,000 is 

purchased and maintained. If Lender B 

were to require additional flood 

insurance only in an amount equal to 

the principal balance of the second 

mortgage ($50,000), its interest in the 

secured property would not be fully 

protected in the event of a flood loss 

because Lender A would have prior 

claim on $100,000 of the loss payment 

towards its principal balance of 

$100,000, while Lender B would receive 

only $25,000 of the loss payment toward 

its principal balance of $50,000. 

Example 2: Lender A, who is not 

directly covered by the Act or 

Regulation, makes a first mortgage with 

a principal balance of $100,000 and 

does not require flood insurance. Lender 

B, who is directly covered by the Act 

and Regulation, issues a second 


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Federal Register / Vol. 87, No. 104 / Tuesday, May 31, 2022 / Rules and Regulations 32885 

108 12 CFR 22.3(a), 22.6(a) (OCC); 12 CFR 

208.25(c)(1) and (f)(1) (Board); 12 CFR 339.3(a), 

339.6(a) (FDIC); 12 CFR 614.4930(a), 614.4940(a) 

(FCA); and 12 CFR 760.3(a), 760.6(a) (NCUA). 

109 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 

110 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 

111 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 

mortgage with a principal balance of 

$50,000. The insurable value of the 

residential building securing the loans 

is $200,000. Lender B must ensure that 

flood insurance in the amount of 

$150,000 is purchased and maintained. 

If Lender B were to require flood 

insurance only in an amount equal to 

the principal balance of the second 

mortgage ($50,000) through an NFIP 

policy, then its interest in the secured 

property would not be protected in the 

event of a flood loss because Lender A 

would have prior claim on the entire 

$50,000 loss payment towards its 

principal balance of $100,000. 

Example 3: Lender A made a first 

mortgage with a principal balance of 

$100,000 on improved real estate with 

a fair market value of $150,000. The 

insurable value of the residential 

building on the improved real estate is 

$90,000; however, Lender A improperly 

required only $70,000 of flood 

insurance coverage, which the borrower 

satisfied by purchasing an NFIP policy. 

Lender B later takes a second mortgage 

on the property with a principal balance 

of $10,000. Lender B must ensure that 

flood insurance in the amount of 

$90,000 (the insurable value) is 

purchased and maintained on the 

secured property to comply with the Act 

and Regulation. If Lender B were to 

require flood insurance only in an 

amount equal to the principal balance of 

the second mortgage ($10,000), its 

interest in the secured property would 

not be protected in the event of a flood 

loss because Lender A would have prior 

claim on the entire $80,000 loss 

payment towards the insurable value of 

$90,000. 

OTHER SECURITY INTERESTS 5. If a 

borrower requesting a loan secured by a 

junior lien provides evidence that flood 

insurance coverage is in place, does the 

lender have to make a new 

determination? Does the lender have to 

adjust the insurance coverage? 

It depends. Assuming the 

requirements in Section 528 of the Act 

(42 U.S.C. 4104b) are met and the same 

lender made the first mortgage, then a 

new determination may not be 

necessary when the existing 

determination is not more than seven 

years old, there have been no map 

changes, and the determination was 

recorded on an SFHDF. If, however, a 

lender other than the one that made the 

first mortgage loan is making the junior 

lien loan, a new determination would be 

required because this lender would be 

deemed to be ‘‘making’’ a new loan.108

In either situation, the lender will need 

to determine whether the amount of 

insurance in effect is sufficient to cover 

the lesser of the combined outstanding 

principal balance of all loans (including 

the junior lien loan), the insurable 

value, or the maximum amount of 

coverage available on the improved real 

estate. This will hold true whether the 

subordinate lien loan is a home equity 

loan or some other type of junior lien 

loan. 

OTHER SECURITY INTERESTS 6. If 

the loan request is to finance inventory 

stored in a building located within an 

SFHA, but the building is not security 

for the loan, is flood insurance required? 

No. The Act and the Regulation 

provide that a lender shall not make, 

increase, extend, or renew a designated 

loan, that is, a loan secured by a 

building or mobile home located or to 

be located in an SFHA, ‘‘unless the 

building or mobile home and any 

personal property securing the loan is 

covered by flood insurance for the term 

of the loan.’’ 109 In this example, the 

loan is not a designated loan because it 

is not secured by a building or mobile 

home; rather, the collateral is the 

inventory alone. 

OTHER SECURITY INTERESTS 7. Is 

flood insurance required if a building 

and its contents both secure a loan, and 

the building is located in an SFHA in 

which flood insurance is available? 

Yes. Flood insurance is required for 

the building located in the SFHA and 

any personal property securing the 

loan.110 The method for allocating flood 

insurance coverage among multiple 

buildings, as described in Q&A Amount 

6, would be the same method for 

allocating flood insurance coverage 

among contents and buildings. That is, 

both contents and building will be 

considered to have a sufficient amount 

of flood insurance coverage for 

regulatory purposes so long as some 

reasonable amount of insurance is 

allocated to each category. 

Example: Lender A makes a loan for 

$200,000 that is secured by a warehouse 

with an insurable value of $150,000 and 

inventory in the warehouse worth 

$100,000. The Act and Regulation 

require that flood insurance coverage be 

obtained for the lesser of the 

outstanding principal balance of the 

loan or the maximum amount of flood 

insurance that is available under the 

NFIP. The maximum amount of 

insurance that is available for both 

building and contents is $500,000 for 

each category. In this situation, Federal 

flood insurance requirements could be 

satisfied by placing $150,000 worth of 

flood insurance coverage on the 

warehouse, thus insuring it to its 

insurable value, and $50,000 worth of 

contents flood insurance coverage on 

the inventory, thus providing total 

coverage in the amount of the 

outstanding principal balance of the 

loan. Note that this holds true even 

though the inventory is worth $100,000. 

OTHER SECURITY INTERESTS 8. If a 

loan is secured by Building A, which is 

located in an SFHA, and contents 

located in Building B where building B 

does not secure the loan, is flood 

insurance required on the contents 

securing the loan? 

No. If collateral securing the loan is 

stored in Building B, where Building B 

does not secure the loan, then flood 

insurance is not required on those 

contents whether or not Building B is 

located in an SFHA. 

OTHER SECURITY INTERESTS 9. 

Does the Regulation apply when the 

lender takes a security interest in 

improved real estate and contents 

located in an SFHA only as an 

‘‘abundance of caution’’? 

Yes. The Act and Regulation look to 

the collateral securing the loan. If the 

lender takes a security interest in 

improved real estate and contents 

located in an SFHA, then flood 

insurance is required.111

The language in the loan agreement or 

security instrument determines whether 

the improved real estate and contents 

are taken as security for the loan. If a 

lender intends to take a security interest 

in the improved real estate and 

contents, the loan agreement or security 

instrument should include language 

indicating that the improved real estate 

and contents are security for the loan. If 

the lender does not intend to take a 

security interest in either the improved 

real estate and/or contents, the loan 

agreement or security instrument should 

not include language to this effect, 

including language inserted out of an 

‘‘abundance of caution.’’ 

OTHER SECURITY INTERESTS 10. Is 

flood insurance required if the lender 

takes a security interest in contents 

located in a building in an SFHA 

securing the loan but does not perfect 

the security interest? 

Yes, flood insurance is required. The 

language in the loan agreement or 


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32886 Federal Register / Vol. 87, No. 104 / Tuesday, May 31, 2022 / Rules and Regulations 

112 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 

113 12 CFR 22.2(e) (OCC); 12 CFR 208.25(b)(5) 

(Board); 12 CFR 339.2 (FDIC); 12 CFR 614.4925 

(FCA); and 12 CFR 760.2 (NCUA). 

114 12 CFR 22.2(e) (OCC); 12 CFR 208.25(b)(5) 

(Board); 12 CFR 339.2 (FDIC); 12 CFR 614.4925 

(FCA); and 12 CFR 760.2 (NCUA). 

115 12 CFR 22.5(a) (OCC); 12 CFR 208.25(e)(1) 

(Board); 12 CFR 339.5(a)(1) (FDIC); 12 CFR 

614.4935(a)(1) (FCA); and 12 CFR 760.5(a)(1) 

(NCUA). 

116 12 CFR 22.5(c) (OCC); 12 CFR 208.25(e)(3) 

(Board); 12 CFR 339.5(c) (FDIC); 12 CFR 614.4935(c) 

(FCA); and 12 CFR 760.5(c) (NCUA). 

117 12 CFR 22.5(a)(2) (OCC); 12 CFR 

208.25(e)(1)(ii) (Board); 12 CFR 339.5(a)(2) (FDIC); 

12 CFR 614.4935(a)(2) (FCA); and 12 CFR 

760.5(a)(2) (NCUA). 

118 12 CFR 22.5(c)(2) (OCC); 12 CFR 

208.25(e)(3)(ii) (Board); 12 CFR 339.5(c)(2) (FDIC); 

12 CFR 614.4935(c)(2) (FCA); and 12 CFR 

760.5(c)(2) (NCUA). 

119 12 CFR 22.5(a)(3) (OCC); 12 CFR 

208.25(e)(1)(iii) (Board); 12 CFR 339.5(a)(3) (FDIC); 

12 CFR 614.4935(a)(3) (FCA); and 12 CFR 

760.5(a)(3) (NCUA). 

120 12 CFR 22.5(a)(1) (OCC); 12 CFR 

208.25(e)(1)(i) (Board); 12 CFR 339.5(a)(1) (FDIC); 

12 CFR 614.4935(a)(1) (FCA); and 12 CFR 

760.5(a)(1) (NCUA). 

121 12 CFR 22.5(a) (OCC); 12 CFR 208.25(e)(1) 

(Board); 12 CFR 339.5(a)(1) (FDIC); 12 CFR 

614.4935(a)(1) (FCA); and 12 CFR 760.5(a)(1) 

(NCUA). 

122 12 CFR 22.5(a) (OCC); 12 CFR 208.25(e)(1) 

(Board); 12 CFR 339.5(a) (FDIC); 12 CFR 614.4935(a) 

(FCA); and 12 CFR 760.5(a)(NCUA). 

123 12 CFR 22.5(d) (OCC); 12 CFR 208.25(e)(4) 

(Board); 12 CFR 339.5(d) (FDIC); 12 CFR 

614.4935(d) (FCA); and 12 CFR 760.5(d) (NCUA). 

security instrument determines whether 

the contents are taken as security for the 

loan. If the lender takes a security 

interest in contents located in a building 

in an SFHA securing the loan, flood 

insurance is required for the contents, 

regardless of whether that security 

interest is perfected.112

OTHER SECURITY INTERESTS 11. If 

a borrower offers a note on a singlefamily dwelling as collateral for a loan 

but the lender does not take a security 

interest in the dwelling itself, is this a 

designated loan that requires flood 

insurance? 

No. A designated loan is a loan 

secured by a building or mobile home 

that is located or to be located in an 

SFHA in which flood insurance is 

available under the Act.113 In this 

example, the lender did not take a 

security interest in the building; 

therefore, the loan is not a designated 

loan. 

OTHER SECURITY INTERESTS 12. If 

a lender makes a loan that is not 

secured by real estate, but is made on 

the condition of a personal guarantee by 

a third party who gives the lender a 

security interest in improved real estate 

owned by the third party that is located 

in an SFHA in which flood insurance is 

available, is it a designated loan that 

requires flood insurance? 

Yes. In this scenario, a loan is made 

on condition of a personal guarantee by 

a third party and further secured by 

improved real estate, which is located in 

an SFHA and owned by that third party. 

Under these circumstances, the security 

of improved real estate in an SFHA is 

so closely tied to the making of the loan 

that it is considered a designated loan 

that requires flood insurance.114

XIV. Requirement To Escrow Flood 

Insurance Premiums and Fees— 

General (Escrow) 

ESCROW 1. When must escrow 

accounts be established for flood 

insurance purposes? 

A lender, or a servicer acting on its 

behalf, must escrow all premiums and 

fees for any flood insurance required 

under the mandatory purchase of flood 

insurance requirement for any 

designated loan secured by residential 

improved real estate or a mobile home 

that is made, increased, extended, or 

renewed on or after January 1, 2016. The 

escrow must be payable with the same 

frequency as payments on the 

designated loan are required to be made 

for the duration of the loan, unless the 

loan or lender is subject to one of the 

exceptions.115

A lender is not required to escrow for 

flood insurance if it qualifies for the 

small lender exception 116 or the loan 

qualifies for one of the following loanrelated exceptions 117 in the Regulation: 

• A loan that is an extension of credit 

primarily for business, commercial, or 

agricultural purposes; 

• A loan that is in a subordinate 

position to a senior lien secured by the 

same property for which the borrower 

has obtained adequate flood insurance 

coverage; 

• A loan that is covered by a 

condominium association, cooperative, 

homeowners association or other 

applicable group’s adequate flood 

insurance policy; 

• A loan that is a home equity line of 

credit; 

• A loan that is a nonperforming loan 

that is 90 or more days past due; or 

• A loan that has a term not longer 

than 12 months. 

If a lender no longer qualifies for the 

small lender exception, it must escrow 

all premiums and fees for any flood 

insurance required under the mandatory 

purchase of flood insurance requirement 

for any designated loan secured by 

residential improved real estate or a 

mobile home that is made, increased, 

extended, or renewed on or after July 1 

of the first calendar year in which a 

lender has a change in status, unless a 

loan qualifies for another exception.118

If a lender, other than a lender that 

qualifies for the small lender exception, 

determines at any time during the term 

of a designated loan secured by 

residential improved real estate or a 

mobile home that an exception from the 

escrow requirement that previously 

applied to a particular loan no longer 

applies to the loan, the lender must 

escrow flood insurance premiums and 

fees as soon as reasonably 

practicable.119

ESCROW 2. If a lender does not 

escrow for taxes or homeowner’s 

insurance, is it required to escrow for 

flood insurance under the Regulation? If 

yes, is the lender obligated to escrow for 

taxes and other insurance because it 

escrows for flood insurance pursuant to 

the rule? 

If a lender or its servicer is required 

to escrow for flood insurance under the 

Regulation, it must do so even if it does 

not escrow for taxes or other 

insurance.120 A lender or servicer is not, 

however, obligated to escrow for taxes 

and other insurance solely because it 

must escrow for flood insurance 

pursuant to the Regulation, though there 

may be other laws or regulations that 

require that additional escrow. 

ESCROW 3. Are lenders required to 

escrow force-placed insurance? 

Yes, the Regulation requires lenders 

or their servicers to escrow flood 

insurance premiums for any residential 

designated loan made, increased, 

extended, or renewed on or after 

January 1, 2016, unless the lender or the 

loan qualifies for an exception from the 

escrow requirement.121 The Act and 

Regulation do not include an exception 

to the escrow requirement for forceplaced insurance. 

ESCROW 4. Does the requirement to 

escrow flood insurance premiums and 

fees apply when a loan does not 

experience a triggering event? 

No, subject to certain exceptions. The 

Regulation provides that a lender or its 

servicer is required to escrow flood 

insurance premiums and fees when a 

designated loan is made, increased, 

extended, or renewed (a triggering 

event), unless either the lender or the 

loan is excepted from the escrow 

requirement.122 Until the loan 

experiences a triggering event, the 

lender is not required to escrow flood 

insurance premiums and fees, unless: (i) 

A borrower requests the escrow in 

connection with the requirement that 

the lender provide an option to escrow 

for outstanding loans; 123 or (ii) the 

lender determines that a loan exception 


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124 12 CFR 22.5(a)(3) (OCC); 12 CFR 

208.25(e)(1)(iii) (Board); 12 CFR 339.5(a)(3) (FDIC); 

12 CFR 614.4935(a)(3) (FCA); and 12 CFR 

760.5(a)(3) (NCUA). 

125 12 CFR 23.2(j) (OCC); 12 CFR 208.25(b)(8) 

(Board); 12 CFR 339.2 (FDIC); 12 CFR 614.4925 

(FCA); and 12 CFR 760.2 (NCUA). 

126 12 CFR 22.5(a)(2)(i) (OCC); 12 CFR 

208.25(e)(1)(ii)(A) (Board); 12 CFR 339.5(a)(2) 

(FDIC); 12 CFR 614.4935(a)(2) (FCA); and 12 CFR 

760.5(a)(2) (NCUA). 

127 12 CFR 22.5(a)(2)(ii) (OCC); 12 CFR 

208.25(e)(1)(ii)(B) (Board); 12 CFR 339.5(a)(2) 

(FDIC); 12 CFR 614.4935(a)(2) (FCA); and 12 CFR 

760.5(a)(2) (NCUA). 

128 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 

129 12 CFR 22.5(a)(2)(iv) (OCC); 12 CFR 

208.25(e)(1)(ii)(D) (Board); 12 CFR 339.5(a)(2) 

(FDIC); 12 CFR 614.4935(a)(2) (FCA); and 12 CFR 

760.5(a)(2) (NCUA). 

130 12 CFR 22.5(a)(1) (OCC); 12 CFR 

208.25(e)(1)(i) (Board); 12 CFR 339.5(a)(1) (FDIC); 

12 CFR 614.4935(a) (FCA); and 12 CFR 760.5(a)(1) 

(NCUA). 

131 12 CFR 22.5(c)(1) (OCC); 12 CFR 

208.25(e)(3)(i) (Board); 12 CFR 339.5(c) (FDIC); 12 

CFR 614.4935(c) (FCA); and 12 CFR 760.5(c) 

(NCUA). 

132 12 CFR 22.5(c)(1) (OCC); 12 CFR 

208.25(e)(3)(i) (Board); 12 CFR 339.5(c) (FDIC); 12 

CFR 614.4935(c) (FCA); and 12 CFR 760.5(c) 

(NCUA). 

to the escrow requirement no longer 

applies.124

ESCROW 5. Are multi-family 

buildings or mixed-use properties 

included in the definition of ‘‘residential 

improved real estate’’ under the 

Regulation for which escrows are 

required (unless an exception applies)? 

Yes. For the purposes of the Act and 

the Regulation, the definition of 

residential improved real estate does not 

make a distinction between whether a 

building is single- or multi-family, or 

whether a building is owner- or renteroccupied.125 Single-family dwellings 

(including mobile homes), two-to-four 

family dwellings, and multi-family 

properties containing five or more 

residential units are considered 

residential improved real estate. 

However, with regard to mixed-use 

properties, the lender should look to the 

primary use of a building to determine 

whether it meets the definition of 

‘‘residential improved real estate.’’ See 

Q&As Amount 3 and 4 for guidance on 

residential and non-residential 

buildings. A loan secured by residential 

improved real estate is not subject to the 

escrow requirement if the loan is an 

extension of credit primarily for 

business, commercial or agricultural 

purposes.126

ESCROW 6. If a borrower obtains a 

second mortgage loan for a property 

located in an SFHA, and it is 

determined that the first lienholder does 

not have sufficient flood insurance 

coverage for both liens and is not 

currently escrowing for flood insurance, 

does the junior lienholder have to 

escrow for the additional amount of 

flood insurance coverage? 

Under the Regulation, for a closedend second mortgage loan, junior 

lienholders are not required to escrow 

for flood insurance as long as the 

borrower has obtained flood insurance 

coverage that meets the mandatory 

purchase requirement. Thus, the junior 

lender or its servicer must ensure that 

adequate flood insurance is in place. 

See Q&A Other Security Interests 4 for 

junior lienholder requirements.127 Q&A 

Other Security Interests 4 explains the 

requirements for junior lienholders. If 

adequate flood insurance has not been 

obtained by the first lienholder and 

insurance must be purchased in 

connection with the second mortgage 

loan to meet the mandatory purchase 

requirement, the junior lender or its 

servicer would need to escrow the 

insurance obtained in connection with 

the second mortgage loan.128 However, 

the escrow requirements do not apply to 

a junior lien that is a home equity line 

of credit (HELOC) since HELOCs have a 

separate escrow exception under the Act 

and Regulation.129

ESCROW 7. Does a lender or servicer 

have to escrow for loans when the 

security property is not located in an 

SFHA, but the borrower chooses to buy 

flood insurance? 

Under the Regulation, lenders and 

servicers are only required to escrow for 

loans that are secured by residential 

improved real estate or a mobile home 

located or to be located in SFHAs where 

flood insurance is available under the 

NFIP and that experience a triggering 

event (made, increased, extended, or 

renewed) on or after January 1, 2016, 

unless either the lender or the loan 

qualifies for an exception.130 If the 

property securing the loan is not located 

in an SFHA, it is not a designated loan, 

and the lender or its servicer is not 

required to escrow, although the lender 

or servicer may offer escrow service to 

the borrower. 

XV. Requirement To Escrow Flood 

Insurance Premiums and Fees—Escrow 

Small Lender Exception (Escrow Small 

Lender Exception) 

ESCROW SMALL LENDER 

EXCEPTION 1. Is the $1B small lender 

exception for the mandatory escrow of 

flood insurance premiums at the 

lending institution level or bank holding 

company level? 

By its own terms, the small lender 

exception to the flood insurance escrow 

requirement applies to lenders rather 

than holding companies.131 Therefore, 

the $1 billion requirement is calculated 

based on the assets held at the lending 

institution level, rather than at the 

holding company level. 

ESCROW SMALL LENDER 

EXCEPTION 2. If a lender was required 

to escrow for taxes and hazard 

insurance solely under the (a) HigherPriced Mortgage Loan (HPML) rules or 

(b) U.S. Department of Agriculture 

(USDA) or Federal Housing 

Administration (FHA) programs on or 

before July 6, 2012, is such a lender, 

who otherwise qualifies for the small 

lender exception, required to escrow the 

premiums and fees for flood insurance? 

The Act and Regulation provide that 

a small lender is eligible for the 

exception only if, on or before July 6, 

2012, the lender: (1) was not required 

under Federal or State law to deposit 

taxes, insurance premiums, fees, or any 

other charges in an escrow account for 

the entire term of any loan secured by 

residential improved real estate or a 

mobile home; and (2) did not have a 

policy of consistently and uniformly 

requiring the deposit of taxes, insurance 

premiums, fees, or other charges in an 

escrow account for any loans secured by 

residential improved real estate or a 

mobile home.132

• With respect to an HPML, Federal 

law in effect on or before July 6, 2012, 

permitted a borrower to request 

cancellation of the escrow rather than 

have it apply for the entire term of the 

loan. Therefore, HPML escrow 

requirements would not result in the 

loss of the escrow exception for a small 

lender that made an HPML-covered loan 

prior to July 6, 2012, because the lender 

was not required under Federal law to 

escrow for the entire term of the loan. 

Note that the phrase ‘‘entire term’’ 

applies only with respect to the Federal 

or State law requirements criterion of 

the exception. In addition, if a lender 

required escrow for an HPML solely to 

comply with Federal law, a lender 

complying with that law would not be 

considered to have its own separate 

policy of consistently and uniformly 

requiring escrow. 

• With respect to loans under the 

USDA or FHA programs, under Federal 

law, such loans require the deposit of 

taxes, insurance premiums, fees and 

other charges in an escrow account for 

the entire term of the loan. Therefore, 

the first criterion of the exception would 

not be met and would disqualify the 

lender from the small lender exception 

under the Act and the Regulation. 

ESCROW SMALL LENDER 

EXCEPTION 3. Is a lender disqualified 


khammond on DSKJM1Z7X2PROD with RULES3
32888 Federal Register / Vol. 87, No. 104 / Tuesday, May 31, 2022 / Rules and Regulations 

133 12 CFR 22.5(c)(1)(ii)(B) (OCC); 12 CFR 

208.25(e)(3)(i)(B)(2) (Board); 12 CFR 

339.5(c)(1)(ii)(B) (FDIC); 12 CFR 

614.4935(c)(1)(ii)(B) (FCA); and 12 CFR 

760.5(c)(1)(ii)(B) (NCUA). 

134 12 CFR 22.5(c)(1)(ii)(B) (OCC); 12 CFR 

208.25(e)(3)(i)(B)(2) (Board); 12 CFR 

339.5(c)(1)(ii)(B) (FDIC); 12 CFR 

614.4935(c)(1)(ii)(B) (FCA); and 12 CFR 

760.5(c)(1)(ii)(B) (NCUA). 

135 12 CFR 22.5(d) (OCC); 12 CFR 208.25(e)(4) 

(Board); 12 CFR 339.5(d) (FDIC); 12 CFR 

614.4935(d) (FCA); and 12 CFR 760.5(d) (NCUA). 

136 12 CFR 22.5(c)(2) (OCC); 12 CFR 

208.25(e)(3)(ii) (Board); 12 CFR 339.5(c)(2) (FDIC); 

12 CFR 614.4935(c)(2) (FCA); and 12 CFR 

760.5(c)(2) (NCUA). 

137 12 CFR 22.5(d)(2) (OCC); 12 CFR 

208.25(e)(4)(ii) (Board); 12 CFR 339.5(d)(2) (FDIC); 

12 CFR 614.4935(d)(2) (FCA); and 12 CFR 

760.5(d)(2) (NCUA). 

138 12 CFR 22.5(d)(2) (OCC); 12 CFR 

208.25(e)(4)(ii) (Board); 12 CFR 339.5(d)(2) (FDIC); 

12 CFR 614.4935(d)(2) (FCA); and 12 CFR 

760.5(d)(2) (NCUA). 

139 12 CFR 22.5(d)(1) (OCC); 12 CFR 

208.25(e)(4)(i) (Board); 12 CFR 339.5(d)(1) (FDIC); 

12 CFR 614.4935(d)(1) (FCA); and 12 CFR 

760.5(d)(1) (NCUA). 

140 12 CFR 22.5(a)(2) (OCC); 12 CFR 

208.25(e)(1)(ii) (Board); 12 CFR 339.5(a)(2) (FDIC); 

12 CFR 614.4935(a)(2) (FCA); and 12 CFR 

760.5(a)(2) (NCUA). 

from the small lender escrow exception 

if it is required to collect escrowed funds 

on a mortgage loan on behalf of a third 

party? 

To qualify for the small lender 

exception, one requirement is the lender 

must not have had a policy on or before 

July 6, 2012, of consistently and 

uniformly requiring the deposit of taxes, 

insurance premiums, fees, or any other 

charges in an escrow account for any 

loans secured by residential improved 

real estate or a mobile home.133

• With regard to mortgage loans for 

which the lender had a policy on or 

before July 6, 2012, of collecting escrow 

funds at closing and the lender 

maintained servicing of the loan, the 

lender would not qualify for the 

exception because the lender 

established an individual escrow 

account for the loan it would then 

service. 

• With regard to mortgage loans for 

which the lender did not have a policy 

on or before July 6, 2012, of collecting 

the escrow funds on its own behalf at 

closing, but escrowed funds on behalf of 

a third party and then transferred those 

escrow funds to the third party servicing 

that loan, the lender would be able to 

qualify for the small lender exception 

provided the lender did not establish an 

individual escrow account and the 

lender transferred the funds to the third 

party as soon as reasonably practicable. 

The small lender must also satisfy the 

other requirements for the exception, 

but because no individual escrow 

account was established for the loan 

whose servicing rights were transferred 

pursuant to a third party’s requirements, 

the lender would not have had a policy 

of consistently and uniformly requiring 

the deposit of funds in an escrow 

account. 

ESCROW SMALL LENDER 

EXCEPTION 4. Is a lender eligible for 

the small lender exception if, on or 

before July 6, 2012, it offered escrow 

accounts only upon a borrower’s 

request? 

Yes. If, on or before July 6, 2012, a 

lender offered escrow accounts only 

upon the request of borrowers, this 

practice did not constitute a consistent 

or uniform policy of requiring escrow 

and the lender is eligible for the 

exception, provided all other conditions 

for the exception are met. The small 

lender exception does not apply if, on 

or before July 6, 2012, the lender had a 

policy of consistently and uniformly 

requiring the deposit of taxes, insurance 

premiums, fees, or any other charges in 

an escrow account for a loan secured by 

residential improved real estate or a 

mobile home.134

ESCROW SMALL LENDER 

EXCEPTION 5. Is the option to escrow 

notice required for all outstanding loans 

secured by residential real estate that 

are not excepted from the escrow 

requirement? What about outstanding 

loans that are not secured by buildings 

located in SFHAs? 

Under the Regulation, lenders or their 

servicers are required to offer and make 

available the option to escrow flood 

insurance premiums and fees for all 

outstanding designated loans secured by 

residential improved real estate or a 

mobile home located in an SFHA as of 

January 1, 2016, or July 1 of the first 

calendar year in which the lender no 

longer qualifies for the small lender 

exception to the escrow requirement.135

With the expiration of the June 30, 2016, 

deadline to comply with the option to 

escrow notice requirement for 

outstanding loans as of January 1, 2016, 

that requirement currently applies only 

to lenders who have a change in status 

and no longer qualify for the small 

lender exception.136 Such lenders will 

be required to provide the option to 

escrow notice by September 30 of the 

first calendar year in which the lender 

has had a change in status pursuant to 

the Regulation.137 The requirement to 

provide the option to escrow notice 

does not apply to outstanding loans or 

to lenders that are excepted from the 

general escrow requirement under the 

Regulation. The option to escrow notice 

requirement also does not apply to loans 

that are not subject to the mandatory 

flood insurance purchase requirement. 

ESCROW SMALL LENDER 

EXCEPTION 6. If the borrower has 

waived escrow of flood insurance 

premiums and fees, does the lender or 

its servicer still need to send a notice to 

offer the ability to escrow for the flood 

insurance? 

Yes, if the small lender exception no 

longer applies. See Q&A Escrow Small 

Lender Exception 5. The Regulation 

does not exclude loans for which 

borrowers have previously waived 

escrow from the requirement to offer 

and make available the option to escrow 

flood insurance premiums and fees. 

Consequently, lenders or their servicers 

must send a notice of the option to 

escrow flood insurance premiums and 

fees to borrowers who have previously 

waived escrow or for whom lenders 

previously offered an option to 

escrow.138 Although a borrower may 

have previously decided to waive 

escrow or been offered an option to 

escrow, it is possible that the borrower’s 

circumstances have changed, and if 

offered another chance to escrow, the 

borrower may desire to do so. 

ESCROW SMALL LENDER 

EXCEPTION 7. Is it correct that lenders 

that qualify for the small lender 

exception are not required to provide 

borrowers the escrow notice or the 

option to escrow notice? 

Yes. Lenders that qualify for the small 

lender exception are not required to 

provide borrowers either the escrow 

notice or the option to escrow notice 

unless the lender ceases to qualify for 

the small lender exception.139

XVI. Requirement To Escrow Flood 

Insurance Premiums and Fees—Escrow 

Loan Exceptions (Escrow Loan 

Exceptions) 

ESCROW LOAN EXCEPTIONS 1. Are 

escrow accounts for flood insurance 

premiums and fees required for 

commercial loans that are secured by 

residential property? 

No. Extensions of credit primarily for 

business, commercial or agricultural 

purposes are not subject to the escrow 

requirement for flood insurance 

premiums and fees, even if such loans 

are secured by residential improved real 

estate or a mobile home.140 See Q&A 

Exemptions 1 for further information on 

the definition of residential property. 

ESCROW LOAN EXCEPTIONS 2. Are 

escrow accounts for flood insurance 

premiums and fees required for loans 

secured by particular units located in 

multi-family buildings? 

The escrow requirements in the 

Regulation would not apply to a loan 

secured by a particular unit in a multifamily residential building if a 


khammond on DSKJM1Z7X2PROD with RULES3
Federal Register / Vol. 87, No. 104 / Tuesday, May 31, 2022 / Rules and Regulations 32889 

141 12 CFR 22.5(a)(2)(iii) (OCC); 12 CFR 

208.25(e)(1)(ii)(C) (Board); 12 CFR 339.5(a)(2)(iii) 

(FDIC); 12 CFR 614.4935(a)(2)(iii) (FCA); and 12 

CFR 760.5(a)(2)(iii) (NCUA). 

142 12 CFR 22.5(a)(2)(iii) (OCC); 12 CFR 

208.25(e)(1)(ii)(C) (Board); 12 CFR 339.5(a)(2)(iii) 

(FDIC); 12 CFR 614.4935(a)(2)(iii) (FCA); and 12 

CFR 760.5(a)(2)(iii) (NCUA). 

143 12 CFR 22.5(a) (OCC); 12 CFR 208.25(e)(1) 

(Board); 12 CFR 339.5(a)(1) (FDIC); 12 CFR 

614.4935(a) (FCA); and 12 CFR 760.5(a)(1) (NCUA). 

144 12 CFR 22.5(a)(3) (OCC); 12 CFR 

208.25(e)(1)(iii) (Board); 12 CFR 339.5(a)(3) (FDIC); 

12 CFR 614.4935(a)(3) (FCA); and 12 CFR 

760.5(a)(3) (NCUA). 

145 12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) 

(Board); 12 CFR 339.7(a) (FDIC); 12 CFR 614.4945(a) 

(FCA); and 12 CFR 760.7(a) (NCUA). 

condominium association, cooperative, 

homeowners association, or other 

applicable group provides an adequate 

policy and pays for the insurance as a 

common expense.141 See Q&A 

Exemptions 1. Otherwise, the escrow 

requirements generally would apply to 

loans for particular units in multi-family 

residential buildings. 

ESCROW LOAN EXCEPTIONS 3. 

Which requirements for an escrow 

account apply to a property covered by 

an RCBAP? 

An RCBAP (Residential 

Condominium Building Association 

Policy) is a policy purchased by the 

condominium association on behalf of 

itself and the individual unit owners in 

the condominium. Typically, a portion 

of the periodic dues paid to the 

association by the condominium owners 

applies to the premiums on the policy. 

When a lender makes, increases, 

renews, or extends a loan secured by a 

condominium unit that is adequately 

covered by an RCBAP and RCBAP 

premiums are paid by the condominium 

association as a common expense, an 

escrow account is not required.142

However, if the RCBAP coverage is 

inadequate and the unit is also covered 

by a flood insurance policy for 

supplemental coverage, premiums for 

the supplemental policy would need to 

be escrowed, provided the lender or the 

loan did not qualify for any other 

exception from the Regulation’s escrow 

requirement.143 Lenders should exercise 

due diligence with respect to continuing 

compliance with the insurance 

requirements on the part of the 

condominium association. 

ESCROW LOAN EXCEPTIONS 4. Do 

construction-permanent loans qualify 

for the 12-month exception if one phase 

of the loan is for 12 months or less? 

Generally, no. Constructionpermanent loans (or C–P loans) are 

loans that have a construction phase of 

approximately one year before the loan 

converts into permanent financing. 

During the construction phase, the loan 

is typically interest-only, so the 

borrower does not start paying principal 

until the permanent phase. After the 

construction phase, the borrower 

generally comes in to sign papers to 

start the permanent phase, but this is 

not a true closing. Given that C–P loans 

are generally 20- to 30-year term loans, 

a C–P loan would not qualify for the 12 

month-exception from escrow, even if 

one phase of the loan is for 12 months 

or less. 

ESCROW LOAN EXCEPTIONS 5. 

Although a lender is not required to 

monitor whether a subordinate lien 

moves into first lien position for the 

purpose of the mandatory escrow 

requirement, if the lender becomes 

aware that the subordinate lien 

exception no longer applies, when must 

the lender begin to escrow? 

If at any time during the term of the 

loan a lender determines that a 

subordinate lien exception no longer 

applies, the lender must begin 

escrowing flood insurance premiums 

and fees as soon as reasonably 

practicable (unless another exception 

applies).144 Lenders should ensure that 

the loan documents for the subordinate 

lien permit the lender to require an 

escrow if the loan takes a first lien 

position. 

XVII. Force Placement Of Flood 

Insurance (Force Placement) 

FORCE PLACEMENT 1. What is the 

requirement for the force placement of 

flood insurance under the Act and the 

Regulation? 

When a lender makes a determination 

that the collateral securing the loan is 

uninsured or underinsured, it must 

begin the force placement process. 

Specifically, the Act and the Regulation 

provide that if a lender, or a servicer 

acting on its behalf, determines at any 

time during the term of a designated 

loan that a building or mobile home and 

any personal property securing the loan 

is not covered by flood insurance or is 

covered by flood insurance in an 

amount less than the amount required 

under the Regulation, the lender or its 

servicer must notify the borrower that 

the borrower must obtain flood 

insurance, at the borrower’s expense, in 

an amount at least equal to the 

minimum amount required under the 

Regulation. If the borrower fails to 

obtain flood insurance within 45 days of 

the lender’s notification to the borrower, 

the lender must purchase flood 

insurance on the borrower’s behalf at 

that time. The lender must force place 

flood insurance for the full amount 

required under the Regulation, or if the 

borrower has purchased flood insurance 

that otherwise satisfies the flood 

insurance requirements but in an 

insufficient amount, the lender would 

be required to force place only for the 

‘‘insufficient amount,’’ that is, the 

difference between the amount the 

borrower insured and the required 

amount of flood insurance. The Act and 

the Regulation also provide that the 

lender or its servicer may purchase 

insurance on the borrower’s behalf and 

may charge the borrower for the cost of 

premiums and fees incurred in 

purchasing the insurance beginning on 

the date on which flood insurance 

coverage lapsed or did not provide a 

sufficient coverage amount. See also 

Q&A Force Placement 8.145

A lender or its servicer may include 

in the force placement notice the 

amount of flood insurance needed. By 

providing this information, the lender or 

its servicer can help ensure that a 

borrower obtains the appropriate 

amount of insurance. In addition, before 

the lender or servicer must force place 

flood insurance, if the lender or servicer 

is aware that a borrower has obtained 

insurance that otherwise satisfies the 

flood insurance requirements but in an 

insufficient amount, the lender or 

servicer should inform the borrower an 

additional amount of insurance is 

needed in order to comply with the 

Regulation. 

FORCE PLACEMENT 2. When must a 

lender provide the force placement 

notice to the borrower? 

The Regulation requires the lender, or 

its servicer, to send notice to the 

borrower upon making a determination 

that the building or mobile home and 

any personal property securing the 

designated loan is not covered by flood 

insurance or is covered by flood 

insurance in an amount less than the 

amount required under the Regulation. 

The Agencies expect that such notice 

will be provided to the borrower at the 

time of determination of no or 

insufficient coverage. If there is a brief 

delay in providing the notice, the 

Agencies will expect the lender or 

servicer to provide a reasonable 

explanation for the delay. For example, 

there may be brief delays due to various 

lender processes, including but not 

limited to, batch processing and manual 

exception processing. 

FORCE PLACEMENT 3. May a 

servicer force place on behalf of a 

lender? 

Yes. Assuming the statutory 

prerequisites for force placement are 

met, and subject to the servicing 

contract between the lender and its 

servicer, the Act authorizes servicers to 

force place flood insurance on behalf of 


khammond on DSKJM1Z7X2PROD with RULES3
32890 Federal Register / Vol. 87, No. 104 / Tuesday, May 31, 2022 / Rules and Regulations 

146 42 U.S.C. 4012a(e); 12 CFR 22.7(a) (OCC); 12 

CFR 208.25(g)(1) (Board); 12 CFR 339.7(a) (FDIC); 

12 CFR 614.4945(a) (FCA); and 12 CFR 760.7(a) 

(NCUA). 

147 12 U.S.C. 4012a(e)(1). See also 12 CFR 22.7(a) 

(OCC); 12 CFR 208.25(g)(1) (Board); 12 CFR 339.7(a) 

(FDIC); 12 CFR 614.4945(a) (FCA); and 12 CFR 

760.7(a) (NCUA). 

148 12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) 

(Board); 12 CFR 339.7(a) (FDIC); 12 CFR 614.4945(a) 

(FCA); and 12 CFR 760.7(a) (NCUA). 

149 12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) 

(Board); 12 CFR 339.7(a) (FDIC); 12 CFR 614.4945(a) 

(FCA); and 12 CFR 760.7(a) (NCUA). 

150 12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) 

(Board); 12 CFR 339.7(a) (FDIC); 12 CFR 614.4945(a) 

(FCA); and 12 CFR 760.7(a) (NCUA). 

151 12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) 

(Board); 12 CFR 339.7(a) (FDIC); 12 CFR 614.4945(a) 

(FCA); and 12 CFR 760.7(a) (NCUA). 

152 12 CFR 22.7(b)(1)(ii) (OCC); 12 CFR 

208.25(g)(2)(i)(B) (Board); 12 CFR 339.7(b)(1)(ii) 

(FDIC); 12 CFR 614.4945(b)(1)(ii) (FCA); and 12 CFR 

760.7(b)(1)(ii) (NCUA). 

153 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 

154 12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) 

(Board); 12 CFR 339.7(a) (FDIC); 12 CFR 614.4945(a) 

(FCA); and 12 CFR 760.7(a) (NCUA) 

155 12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) 

(Board); 12 CFR 339.7(a) (FDIC); 12 CFR 614.4945(a) 

(FCA); and 12 CFR 760.7(a) (NCUA). 

the lender, following the procedures set 

forth in the Regulation.146

FORCE PLACEMENT 4. May a lender 

satisfy its notice requirement by sending 

the force placement notice to the 

borrower prior to the expiration of the 

flood insurance policy? 

No. The Act specifically provides that 

the lender or servicer for a loan must 

send a notice upon its determination 

that the collateral property securing the 

loan is either not covered by flood 

insurance or is covered by flood 

insurance in an amount less than the 

amount required.147 Although a lender 

may send notice prior to the expiration 

date of the flood insurance policy as a 

courtesy, the lender or servicer is still 

required to send notice upon 

determining that the flood insurance 

policy actually has lapsed or is 

insufficient in meeting the statutory 

requirement. The lender may purchase 

insurance on the borrower’s behalf 

beginning on the date of the lapse.148

FORCE PLACEMENT 5. When must 

the lender have flood insurance in place 

if the borrower has not obtained 

adequate insurance within 45 days after 

notification? 

The Regulation provides that the 

lender or its servicer shall purchase 

insurance on the borrower’s behalf if the 

borrower fails to obtain flood insurance 

within 45 days after notification.149 If 

the borrower fails to obtain flood 

insurance and the lender does not force 

place flood insurance by the end of the 

force placement notification period, the 

Agencies will expect the lender to 

provide a reasonable explanation for the 

brief delay, for example, that a lender 

uses batch processing to purchase forceplaced flood insurance policies. 

FORCE PLACEMENT 6. Once a lender 

makes a determination that a 

designated loan has no or insufficient 

flood insurance coverage and sends the 

borrower a force placement notice, may 

a lender make a subsequent 

determination in connection with the 

initial notification period that the 

designated loan has no or insufficient 

coverage and send another force 

placement notice, effectively providing 

more than 45 days for the borrower to 

obtain sufficient coverage? 

No. The Act and Regulation state that 

once a lender makes a determination 

that a designated loan has no or 

insufficient flood insurance coverage, 

the lender must notify the borrower and, 

if the borrower fails to obtain sufficient 

flood insurance coverage within 45 days 

after that notice, the lender must 

purchase coverage on the borrower’s 

behalf.150 For example, if in response to 

a force placement notice, the borrower 

obtains flood insurance that is 

insufficient in amount, there is no 

extension of the time period by which 

the lender must force place flood 

insurance. 

FORCE PLACEMENT 7. May a lender 

commence a force-placed insurance 

policy on the day the previous policy 

expires, or must the new policy begin on 

the day after? 

The Regulation provides that the 

lender or its servicer may charge the 

borrower for the cost of premiums and 

fees incurred in purchasing the 

insurance, including premiums or fees 

incurred for coverage, beginning on the 

date on which flood insurance lapsed or 

did not provide a sufficient coverage 

amount.151

A lender, however, may not require 

the borrower to pay for double coverage. 

The Regulation requires the lender or its 

servicer to refund to the borrower all 

premiums paid by the borrower for any 

force-placed insurance purchased by the 

lender or its servicer during any period 

in which the borrower’s flood insurance 

coverage and the force-placed insurance 

policy were each in effect.152

For example, if the previous policy 

expires at 12:01 a.m., the lender’s new 

force-placed policy should not begin to 

provide coverage until 12:01 a.m. of the 

same day. If the lender did force place 

at a date and time that would result in 

the force-placed policy providing 

overlapping coverage, the lender should 

not charge the borrower for the period 

of overlapping coverage. 

FORCE PLACEMENT 8. When force 

placement occurs, what is the amount of 

insurance required to be placed? 

The Regulation states that the 

minimum amount of flood insurance 

required ‘‘must be at least equal to the 

lesser of the outstanding principal 

balance of the designated loan or the 

maximum limit of coverage available for 

the particular type of property under the 

Act.’’ 153 Therefore, if the outstanding 

principal balance is the basis for the 

minimum amount of required flood 

insurance, the lender must ensure that 

the force-placed policy amount covers 

the outstanding principal balance plus 

any additional force-placed premium 

and fees capitalized into the outstanding 

principal balance.154

To illustrate this point, assume that 

there is a loan with an outstanding 

principal balance of $200,000, secured 

by a residential property located in an 

SFHA that has an insurable value of 

$350,000. The borrower has a $200,000 

flood insurance policy for that property, 

reflecting the minimum amount 

required under the Regulation. If the 

$200,000 flood insurance policy lapses, 

the lender or its servicer must notify the 

borrower of the need to obtain adequate 

flood insurance. If the borrower fails to 

obtain adequate flood insurance within 

45 days after notification, then the 

lender or its servicer must purchase 

insurance on the borrower’s behalf.155

If the lender intends to capitalize the 

premium for the force-placed policy 

into the outstanding principal balance, 

the lender must ensure that the policy 

is issued in an amount sufficient to 

cover the anticipated higher outstanding 

principal balance, including the forceplaced policy premium, even if the 

capitalization of the force-placed 

premium is not considered a triggering 

event. See also Q&A Force Placement 

10. In this scenario, if the cost of the 

force-placed policy is $2,000, the 

coverage amount of the force-placed 

policy must be at least $202,000. 

FORCE PLACEMENT 9. When may a 

lender or its servicer charge the 

borrower for the cost of force-placed 

insurance? 

A lender, or a servicer acting on its 

behalf, may force place flood insurance 

and charge the borrower for the cost of 

premiums and fees incurred by the 

lender or servicer in purchasing the 

flood insurance on the borrower’s behalf 

at any time starting from the date on 

which flood insurance coverage lapsed 

or did not provide a sufficient coverage 

amount. The lender or servicer would 

not have to wait 45 days after providing 


khammond on DSKJM1Z7X2PROD with RULES3
Federal Register / Vol. 87, No. 104 / Tuesday, May 31, 2022 / Rules and Regulations 32891 

156 12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) 

(Board); 12 CFR 339.7(a) (FDIC); 12 CFR 614.4945(a) 

(FCA); and 12 CFR 760.7(a) (NCUA). 

157 12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) 

(Board); 12 CFR 339.7(a) (FDIC); 12 CFR 614.4945(a) 

(FCA); and 12 CFR 760.7(a) (NCUA). 

158 12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) 

(Board); 12 CFR 339.7(a) (FDIC); 12 CFR 614.4945(a) 

(FCA); and 12 CFR 760.7(a) (NCUA). 

159 12 CFR 22.7(b)(2) (OCC); 12 CFR 

208.25(g)(2)(ii) (Board); 12 CFR 339.7(b)(2) (FDIC); 

12 CFR 614.4945(b)(2) (FCA); and 12 CFR 

760.7(b)(2) (NCUA). 

notification to force place insurance.156

Lenders that monitor loans secured by 

property located in an SFHA for 

continuous flood insurance coverage 

can minimize any gaps in coverage and 

any charge to the borrower for coverage 

for a timeframe prior to the lender’s or 

its servicer’s date of discovery and force 

placement. If a lender or its servicer, 

despite its monitoring efforts, discovers 

a loan with no or insufficient coverage, 

for example, due to a remapping, it may 

charge the borrower for premiums and 

fees incurred by the lender or servicer 

for a force-placed flood insurance policy 

purchased on the borrower’s behalf, 

including premiums and fees for 

coverage, beginning on the date of no or 

insufficient coverage, provided that the 

policy was effective as of the date of the 

insufficient coverage. When a lender or 

its servicer purchases a policy on the 

borrower’s behalf, the lender or its 

servicer may not charge for premiums 

and fees for coverage beginning on the 

date of lapse or insufficient coverage if 

that policy purchased on the borrower’s 

behalf did not provide coverage for the 

borrower prior to purchase. A lender’s 

or servicer’s frequent need to purchase 

policies on a borrower’s behalf having 

coverage that precedes the date of 

purchase may, depending upon the facts 

and circumstances, indicate that there 

are weaknesses within the lender’s or 

servicer’s compliance management 

system. 

FORCE PLACEMENT 10. Does 

capitalizing the flood insurance 

premium into the outstanding principal 

balance constitute a triggering event— 

an ‘‘increase’’ that would trigger the 

applicability of flood insurance 

regulatory requirements? 

The Act and the Regulation require a 

lender to notify the borrower that the 

borrower should obtain adequate flood 

insurance when the lender determines 

that a building or a mobile home located 

or to be located in an SFHA is not 

covered by any or adequate flood 

insurance.157 If the borrower fails to 

obtain adequate flood insurance within 

45 days, then the lender must purchase 

insurance on the borrower’s behalf. The 

lender may charge the borrower for the 

premiums and fees incurred by the 

lender in purchasing the force-placed 

flood insurance.158

Among the various methods that a 

lender might use to charge a borrower 

for force-placed flood insurance are: (1) 

Capitalizing the premium and fees into 

the outstanding principal balance; (2) 

adding the premium and fees to a 

separate account; (3) advancing funds 

from the escrow account to pay for the 

premiums and fees of the force-placed 

flood insurance; or (4) billing the 

borrower directly for the premiums and 

fees of the force-placed flood insurance 

policy. The treatment of force-placed 

flood insurance premiums and fees 

depends on the method the lender 

chooses for charging the borrower. 

Premium and Fees Capitalized Into 

Outstanding Principal Balance 

If the lender’s loan contract with the 

borrower includes a provision 

permitting the lender or servicer to 

advance funds to pay for flood 

insurance premiums and fees as 

additional debt to be secured by the 

building or mobile home, such an 

advancement would be considered part 

of the loan. As such, the capitalization 

of the flood insurance premiums and 

fees into the outstanding principal 

balance is not considered an ‘‘increase’’ 

in the loan amount, and thus would not 

be considered a triggering event. If, 

however, there is no explicit provision 

permitting this type of advancement of 

funds in the loan contract, the 

capitalization of flood insurance 

premiums and fees into the borrower’s 

outstanding principal balance would be 

considered an ‘‘increase’’ in the loan 

amount, and, therefore is considered a 

triggering event because no 

advancement of funds was 

contemplated as part of the loan. See 

also Q&A Force Placement 8. 

Premium and Fees Added to an Account 

If the lender accounts for and tracks 

the amount owed on the force-placed 

flood insurance premium and fees in a 

separate account, this approach does not 

result in an increase in the loan balance 

and, therefore, is not considered a 

triggering event. 

Premium and Fees Advanced From the 

Borrower’s Escrow Account 

If the lender’s loan contract with the 

borrower permits the lender to advance 

the premiums and fees for the forceplaced flood insurance from the 

borrower’s escrow account, this 

approach does not increase the 

outstanding principal balance and is not 

considered a triggering event. 

Premium and Fees Billed Directly to 

Borrower 

If the lender bills the borrower 

directly for the cost of the force-placed 

flood insurance, this approach does not 

increase the outstanding principal 

balance and is not considered a 

triggering event. 

FORCE PLACEMENT 11. What 

documentation is sufficient to 

demonstrate evidence of flood insurance 

in connection with a lender’s refund of 

premiums paid by a borrower for forceplaced insurance during any period of 

overlap with borrower-purchased 

insurance? 

With respect to when a lender is 

required to refund premiums paid by a 

borrower for force-placed insurance 

during any period of overlap with 

borrower-purchased insurance, the 

Regulation specifically addresses the 

documentation requirements. The 

Regulation provides that, for purposes 

of confirming a borrower’s existing 

flood insurance coverage, a lender must 

accept from the borrower an insurance 

policy declarations page that includes 

the existing flood insurance policy 

number and the identity of, and contact 

information for, the insurance company 

or its agent.159 The Regulation does not 

require that the declarations page 

contain any additional information in 

order to ascertain whether the policy 

meets the mandatory flood insurance 

purchase requirement to determine 

whether a refund is required. See Q&A 

Private Flood Compliance 5 for further 

guidance regarding evaluation under the 

private flood insurance requirements of 

the Regulation. 

In situations not involving a lender’s 

refund of premiums for force-placed 

insurance, the Regulation does not 

specify what documentation would be 

sufficient. Generally, it is appropriate, 

although not required by the Regulation, 

for lenders to accept a copy of the flood 

insurance application and premium 

payment as evidence of proof of 

purchase for new policies. 

FORCE PLACEMENT 12. If a lender 

receives a confirmation, consistent with 

the Regulation, of a borrower’s existing 

flood insurance coverage evidencing an 

overlap with a force-placed flood 

insurance policy, but the lender does 

not receive a refund from the insurance 

provider of the force-placed flood 

insurance policy in a timely manner, is 

the lender still required to refund any 

premiums for overlapping coverage to 

the borrower within 30 days? 


khammond on DSKJM1Z7X2PROD with RULES3
32892 Federal Register / Vol. 87, No. 104 / Tuesday, May 31, 2022 / Rules and Regulations 

160 12 CFR 22.7(b)(1) (OCC); 12 CFR 

208.25(g)(2)(i) (Board); 12 CFR 339.7(b)(1) (FDIC); 

12 CFR 614.4945(b)(1) (FCA); and 12 CFR 

760.7(b)(1) (NCUA). 

161 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 

162 12 CFR 22.9(a) (OCC); 12 CFR 208.25(i) 

(Board); 12 CFR 339.9(a) (FDIC); 12 CFR 614.4955(a) 

(FCA); and 12 CFR 760.9(a) (NCUA). 

163 12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) 

(Board); 12 CFR 339.7(a) (FDIC); 12 CFR 614.4945(a) 

(FCA); and 12 CFR 760.7(a) (NCUA). 

164 12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) 

(Board); 12 CFR 339.7(a) (FDIC); 12 CFR 614.4945(a) 

(FCA); and 12 CFR 760.7(a) (NCUA). 

165 12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) 

(Board); 12 CFR 339.7(a) (FDIC); 12 CFR 614.4945(a) 

(FCA); and 12 CFR 760.7(a) (NCUA). 

166 12 CFR 22.7(b)(1)(ii) (OCC); 12 CFR 

208.25(g)(2)(i)(B) (Board); 12 CFR 339.7(b)(1)(ii) 

(FDIC); 12 CFR 614.4945(b)(1)(ii) (FCA); and 12 CFR 

760.7(b)(1)(ii) (NCUA). 

167 12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) 

(Board); 12 CFR 339.7(a) (FDIC); 12 CFR 614.4945(a) 

(FCA); and 12 CFR 760.7(a) (NCUA). 

Yes. The Regulation specifically 

requires the refund of force-placed 

insurance premiums and any related 

fees charged to the borrower for any 

overlap period within 30 days of receipt 

of a confirmation of a borrower’s 

existing flood insurance coverage 

without exception.160

FORCE PLACEMENT 13. Is a lender 

permitted to increase, renew, or extend 

a designated loan that is currently 

insured by force-placed insurance? More 

specifically, if the borrower is 

undergoing a refinance or a loan 

modification, can the lender rely on the 

existing force-placed insurance to meet 

the mandatory purchase requirement? 

A lender can rely on existing forceplaced insurance to satisfy the 

mandatory flood insurance purchase 

requirement if the borrower does not 

purchase his or her own policy. The 

Regulation states that a lender ‘‘shall not 

make, increase, extend or renew any 

designated loan unless the building or 

mobile home and any personal property 

securing the loan is covered by flood 

insurance for the term of the loan.’’ 161

Assuming the force-placed policy is in 

effect and otherwise satisfies the 

regulatory coverage standards, then that 

policy may satisfy the mandatory 

purchase requirement. 

A refinance is the ‘‘making’’ of a loan, 

and a loan modification that increases, 

renews, or extends a loan is a triggering 

event for the flood insurance 

requirements. See Applicability 6 and 

Applicability 13. Therefore, when a 

lender refinances, increases, renews, or 

extends an existing loan, the lender is 

required to provide the Notice of 

Special Flood Hazards, which details 

the borrower’s obligation to obtain a 

flood insurance policy for any building 

in an SFHA securing the loan.162 At that 

time, the lender, at its discretion, could 

encourage the borrower to purchase his 

or her own policy, which may be 

available for a lower premium amount. 

FORCE PLACEMENT 14. If a 

borrower’s force-placed flood insurance 

expires, is the lender required to send a 

force placement notification to the 

borrower prior to renewing the forceplaced flood insurance coverage? 

No. The Regulation does not require 

the lender to send a notice to the 

borrower prior to renewing a forceplaced policy. However, the lender or 

its servicer, at its discretion, may notify 

the borrower that the lender is planning 

to renew or has renewed the forceplaced policy. Such a notification may 

encourage the borrower to purchase his 

or her own policy, which may be 

available for a lower premium amount. 

FORCE PLACEMENT 15. Are lenders 

required to have in place ‘‘Life-of-Loan’’ 

monitoring for continuous coverage of 

designated loans? 

Although there is no explicit duty to 

monitor flood insurance coverage over 

the life of the loan in the Act or 

Regulation, for purposes of safety and 

soundness, many lenders monitor the 

continuous coverage of flood insurance 

for the building or mobile home and any 

personal property securing the loan. 

Such a practice helps to ensure that 

lenders complete the force placement of 

flood insurance in a timely manner 

upon lapse of a policy, that there is 

continuous coverage to protect both the 

borrower and the lender, and that 

lenders are promptly made aware of 

flood map changes. 

FORCE PLACEMENT 16. If a lender or 

its servicer receives a notice of 

remapping that states that a property 

has been or will be remapped into an 

SFHA, what do the Act and Regulation 

require the lender or its servicer to do? 

The Act and Regulation provide that 

if a lender, or its servicer, determines at 

any time during the term of a designated 

loan, that a building or mobile home 

and any personal property securing a 

loan is uninsured or underinsured, the 

lender or its servicer must begin the 

notice and force placement process, as 

detailed in Q&A Force Placement 1.163

A loan that is secured by property that 

was not located in an SFHA does not 

become a designated loan until the 

effective date of the map change that 

remaps the property into an SFHA. 

Therefore, when a lender or its servicer 

receives advance notice that a property 

will be remapped into an SFHA, the 

effective date of the remapping becomes 

the date on which the lender or its 

servicer must determine whether the 

property is covered by sufficient flood 

insurance. If the borrower does not 

purchase a flood insurance policy that 

begins on the effective date of the map 

change, the lender or its servicer must 

send the force placement notice to the 

borrower to purchase adequate flood 

insurance.164 Similar to the guidance set 

forth in Q&A Force Placement 4, a 

lender also may send notice prior to the 

effective date of the map change as a 

courtesy. 

In addition, as of the effective date of 

the remapping, if the lender makes a 

determination that the property securing 

a designated loan is not covered by 

sufficient flood insurance, the lender or 

servicer must begin the force placement 

process and may charge the borrower for 

the force-placed insurance.165 However, 

if the borrower purchases an adequate 

flood insurance policy, the lender or 

servicer would need to reimburse the 

borrower for premiums and fees charged 

for the force-placed coverage during any 

period of overlapping coverage.166

If the lender or its servicer receives 

notice after a property has been 

remapped into an SFHA, then the 

lender or its servicer must determine 

whether the property securing the loan 

is covered by sufficient flood insurance. 

The lender or its servicer must begin the 

notice and force placement process, as 

detailed in Q&A Force Placement 1, if 

the property is uninsured or 

underinsured.167 See also Q&A Force 

Placement 9. 

XVIII. Flood Insurance Requirements 

in the Event of the Sale or Transfer of 

a Designated Loan and/or Its Servicing 

Rights (Servicing) 

SERVICING 1. How do the flood 

insurance requirements under the 

Regulation apply to lenders under the 

following scenarios involving loan 

servicing? 

Scenario 1: A regulated lender 

originates a designated loan secured by 

a building or mobile home located in an 

SFHA in which flood insurance is 

available under the Act. The regulated 

lender makes the initial flood 

determination, provides the borrower 

with appropriate notice, and flood 

insurance is obtained. The regulated 

lender initially services the loan; 

however, the regulated lender 

subsequently sells both the loan and the 

servicing rights to a nonregulated party. 

What are the regulated lender’s 

requirements under the Regulation? 

What are the regulated lender’s 

requirements under the Regulation if it 

only transfers or sells the servicing 

rights, but retains ownership of the 

loan? 


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168 12 CFR 22.10(b) (OCC); 12 CFR 208.25(j)(2) 

(Board); 12 CFR 339.10(b) (FDIC); 12 CFR 

614.4960(b) (FCA); and 12 CFR 760.10(b) (NCUA). 169 12 CFR 22.10(b) (OCC); 12 CFR 208.25(j)(2) 

(Board); 12 CFR 339.10(b) (FDIC); 12 CFR 

614.4960(b) (FCA); and 12 CFR 760.10(b) (NCUA). 

170 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 

171 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 

172 42 U.S.C. 4012a(e)(1). 

173 12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) 

(Board); 12 CFR 339.7(a) (FDIC); 12 CFR 614.4945(a) 

(FCA); and 12 CFR 760.7(a) (NCUA). 

174 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) 

(Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) 

(FCA); and 12 CFR 760.3(a) (NCUA). 

175 12 CFR 22.10(b) (OCC); 12 CFR 208.25(j)(2) 

(Board); 12 CFR 339.10(b) (FDIC); 12 CFR 

614.4960(b) (FCA); and 12 CFR 760.10(b) (NCUA). 

176 12 CFR 22.10(a) (OCC); 12 CFR 208.25(j)(1) 

(Board); 12 CFR 339.10(a) (FDIC); 12 CFR 

614.4960(a) (FCA); and 12 CFR 760.10(a) (NCUA). 

177 12 CFR 22.10(b) (OCC); 12 CFR 208.25(j)(2) 

(Board); 12 CFR 339.10(b) (FDIC); 12 CFR 

614.4960(b) (FCA); and 12 CFR 760.10(b) (NCUA). 

The regulated lender must comply 

with all requirements of the Regulation, 

including making the initial flood 

determination, providing appropriate 

notice to the borrower, and ensuring 

that the proper amount of insurance is 

obtained. In the event the regulated 

lender sells or transfers the loan and 

servicing rights, the regulated lender 

must provide notice of the identity of 

the new servicer to the Administrator of 

FEMA or its designee if the policy is an 

NFIP policy.168 In the case of a flood 

insurance policy issued by a private 

insurer, the lender should provide 

notice of the identity of the new servicer 

to the private insurer. Once the 

regulated lender has sold the loan and 

the servicing rights, the lender has no 

further obligation regarding flood 

insurance on the loan. 

If the regulated lender retains 

ownership of the loan and only transfers 

or sells the servicing rights to a 

nonregulated party, and the policy is an 

NFIP policy, the regulated lender must 

notify the Administrator of FEMA or its 

designee of the identity of the new 

servicer.169 In the case of a flood 

insurance policy issued by a private 

insurer, the lender should provide 

notice of the identity of the new servicer 

to the private insurer. The servicing 

contract should require the servicer to 

comply with all the requirements that 

are imposed on the regulated lender as 

owner of the loan, including escrow of 

insurance premiums and force 

placement of insurance, if necessary. 

Generally, the Regulation does not 

impose obligations on a loan servicer 

independent from the obligations it 

imposes on the owner of a loan. Loan 

servicers are covered by the escrow, 

force placement, and flood hazard 

determination fee provisions of the Act 

and Regulation primarily so that they 

may perform the administrative tasks for 

the regulated lender, without fear of 

liability to the borrower for the 

imposition of unauthorized charges. It is 

the Agencies’ longstanding position that 

the obligation of a loan servicer to fulfill 

administrative duties with respect to the 

flood insurance requirements arises 

from the contractual relationship 

between the loan servicer and the 

regulated lender or from other 

commonly accepted standards for 

performance of servicing obligations. 

The regulated lender remains ultimately 

liable for fulfillment of those 

responsibilities and must take adequate 

steps to ensure that the loan servicer 

maintains compliance with the flood 

insurance requirements. 

Scenario 2: A nonregulated lender 

originates a designated loan. The 

nonregulated lender does not make an 

initial flood determination or notify the 

borrower of the need to obtain 

insurance. The nonregulated lender 

sells the loan and servicing rights to a 

regulated lender. What are the regulated 

lender’s requirements under the 

Regulation? What are the regulated 

lender’s requirements if it only 

purchases the servicing rights? 

A regulated lender’s purchase of a 

loan and servicing rights, secured by a 

building or mobile home located in an 

SFHA in which flood insurance is 

available under the Act, is not an event 

that triggers certain requirements under 

the Regulation, such as making a new 

flood determination or requiring a 

borrower to purchase flood 

insurance.170 Those requirements only 

are triggered when a regulated lender 

makes, increases, extends, or renews a 

designated loan.171 A regulated lender’s 

purchase of a loan does not fall within 

any of those categories. However, if a 

regulated lender becomes aware at any 

point during the life of a designated 

loan that flood insurance is required,172

then the regulated lender must comply 

with the Regulation, including force 

placing insurance, if necessary.173

Depending upon the circumstances, as a 

matter of safety and soundness, the 

lender may undertake due diligence 

upon the purchase of a loan, which 

would make the lender aware of the lack 

of adequate flood insurance and trigger 

flood insurance compliance 

requirements. Further, if the purchasing 

lender subsequently extends, increases, 

or renews a designated loan, it must also 

comply with the Act and Regulation.174

When a regulated lender purchases 

only the servicing rights to a loan 

originated by a nonregulated lender, the 

regulated lender is obligated to follow 

the terms of its servicing contract with 

the owner of the loan. In the event the 

regulated lender subsequently sells or 

transfers the servicing rights on that 

loan, the regulated lender must notify 

the Administrator of FEMA or its 

designee of the identity of the new 

servicer, if required to do so by the 

servicing contract with the owner of the 

loan.175

SERVICING 2. When a lender makes 

a designated loan and will be servicing 

that loan, what are the requirements for 

notifying the Administrator of FEMA or 

the Administrator’s designee, i.e. the 

insurance provider? 

Under the Regulation, the 

Administrator’s designee is the 

insurance company issuing the flood 

insurance policy.176 The borrower’s 

purchase of an NFIP policy (or the 

lender’s force placement of an NFIP 

policy) will constitute notice to the 

Administrator of FEMA when the lender 

is servicing that loan. 

In the event the servicing is 

subsequently transferred to a new 

servicer, the lender must provide notice 

to the insurance company of the identity 

of the new servicer no later than 60 days 

after the effective date of such a 

change.177

In the case of a flood insurance policy 

issued by a private insurer, the lender 

should provide notice to the flood 

insurance provider. If the lender does 

not provide this notice to the flood 

insurance provider, the provider will be 

unable to properly administer the 

policy, such as by providing notice to 

the servicer about the expiration of the 

flood insurance policy. 

SERVICING 3. Would a Real Estate 

Settlement Procedures Act (RESPA) 

Notice of Transfer sent to the 

Administrator of FEMA (or the 

Administrator’s designee, i.e., the 

insurance provider) satisfy the 

requirements of the Act? 

Yes. The delivery of a copy of the 

Notice of Transfer or any other form of 

notice is sufficient if the sender 

includes, on or with the notice, the 

following information that FEMA has 

indicated is needed by its designee: 

• Borrower’s full name; 

• Flood insurance policy number; 

• Property address (including city 

and State); 

• Name of lender or servicer making 

notification; 

• Name and address of new servicer; 

and 

• Name and telephone number of 

contact person at new servicer. 


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32894 Federal Register / Vol. 87, No. 104 / Tuesday, May 31, 2022 / Rules and Regulations 

178 12 CFR 22.10(a) (OCC); 12 CFR 208.25(j)(1) 

(Board); 12 CFR 339.10(a) (FDIC); 12 CFR 

614.4960(a) (FCA); and 12 CFR 760.10(a) (NCUA). 

179 12 CFR 22.10 (OCC); 12 CFR 208.25(j) (Board); 

12 CFR 339.10 (FDIC); 12 CFR 614.4960 (FCA); and 

12 CFR 760.10 (NCUA). 

180 12 CFR 22.10 (OCC); 12 CFR 208.25(j) (Board); 

12 CFR 339.10 (FDIC); 12 CFR 614.4960 (FCA); and 

12 CFR 760.10 (NCUA). 

181 12 U.S.C. 4104a(b)(1). 

182Public Law 101–410, Oct. 5, 1990, 104 Stat. 

890. This act was amended by the Federal Civil 

Penalties Inflation Adjustment Act Improvements 

Act of 2015, Public Law 114–74, Title VII, section 

701(b), Nov. 2, 2015, 129 Stat. 599. Please refer to 

12 CFR 19.240(b) & 12 CFR 109.103(c)(2) (OCC); 12 

CFR 263.65(b) (Board); 12 CFR 308.132(d)(18) 

(FDIC); 12 CFR 622.61(b) (FCA); and 12 CFR 

747.1001 (NCUA) for the Agencies’ current civil 

penalty limits. 

183 42 U.S.C. 4012a(f)(8). 

SERVICING 4. Can delivery of the 

notice be made electronically, including 

batch transmission? 

Yes. The Regulation specifically 

permits transmission by electronic 

means.178 A timely batch transmission 

of the notice would also be permissible, 

if it is acceptable to the Administrator’s 

designee, i.e., the insurance provider. 

SERVICING 5. If the loan and its 

servicing rights are sold by the lender, 

is the lender required to provide notice 

to the Administrator or the 

Administrator’s designee (i.e., the 

insurance provider)? 

Yes, in the case of an NFIP policy.179

Failure to provide such notice would 

defeat the purpose of the notice 

requirement because FEMA would have 

no record of the identity of either the 

owner or servicer of the loan. 

In the case of a flood insurance policy 

issued by a private insurer, the lender 

should provide notice to the flood 

insurance provider. If the lender does 

not provide this notice to the flood 

insurance provider, the provider will be 

unable to properly administer the 

policy, such as by providing notice to 

the servicer about the expiration of the 

flood insurance policy. 

SERVICING 6. Is a lender required to 

provide notice when the servicer, not the 

lender, sells or transfers the servicing 

rights to another servicer? 

No. After servicing rights are sold or 

transferred, the subsequent notification 

obligations applicable in connection 

with NFIP policies are the responsibility 

of the new servicer.180 The obligation of 

the lender to notify the Administrator or 

the Administrator’s designee (i.e., the 

insurance provider) of the identity of 

the servicer transfers to the new 

servicer. The duty to notify the 

insurance provider of any subsequent 

sale or transfer of the servicing rights 

and responsibilities belongs to that 

servicer.181 For example, if a lender 

makes and services a loan and then sells 

the loan in the secondary market and 

also sells the servicing rights to a 

mortgage company, then the lender 

must notify the insurance provider of 

the identity of the new servicer and the 

other information requested by FEMA 

so that flood insurance transactions can 

be properly administered by the 

insurance provider. If the mortgage 

company later sells the servicing rights 

to another firm, the mortgage company, 

not the lender, is responsible for 

notifying the insurance provider of the 

identity of the new servicer. 

Similarly, for a flood insurance policy 

issued by a private insurer, if a lender 

sells or transfers the servicing rights, the 

Agencies do not expect the lender to 

provide notice to the insurance provider 

of any subsequent sale or transfer of the 

servicing rights. 

SERVICING 7. In the event of a merger 

or acquisition of one lender with 

another, what are the responsibilities of 

the parties for notifying the 

Administrator’s designee (i.e., the 

insurance provider)? 

If a lender is acquired by or merges 

with another lender, the duty in 

connection with NFIP policies to 

provide notice for the loans being 

serviced by the acquired lender will fall 

to the successor lender in the event that 

notification is not provided by the 

acquired lender prior to the effective 

date of the acquisition or merger. 

Similarly, for a flood insurance policy 

issued by a private insurer, the 

successor lender should provide notice 

to the flood insurance provider in the 

event that notification is not provided 

by the acquired lender prior to the 

effective date of the acquisition or 

merger. 

XIX. Mandatory Civil Money Penalties 

(Penalty) 

PENALTY 1. Which violations of the 

Act can result in a mandatory civil 

money penalty? 

A pattern or practice of violations of 

any of the following requirements of the 

Act and its implementing Regulation 

triggers a mandatory civil money 

penalty: 

• Purchase of flood insurance where 

available (42 U.S.C. 4012a(b)); 

• Escrow of flood insurance 

premiums (42 U.S.C. 4012a(d)); 

• Failure to provide force placement 

notice or purchase force-placed flood 

insurance coverage, as appropriate (42 

U.S.C. 4012a(e)); 

• Notice of special flood hazards and 

the availability of Federal disaster relief 

assistance (42 U.S.C. 4104a(a)); and 

• Notice of servicer and any change of 

servicer (42 U.S.C. 4104a(b)). 

The Act provides that any regulated 

lending institution found to have a 

pattern or practice of the violations 

‘‘shall be assessed a civil penalty’’ by its 

Federal supervisory agency in an 

amount not to exceed $2,000 per 

violation (42 U.S.C. 4012a(f)(5)). There 

is no ceiling on the total penalty amount 

that a Federal supervisory agency can 

assess for a pattern or practice of 

violations. Each Agency adjusts the 

limit pursuant to the Federal Civil 

Penalties Inflation Adjustment Act of 

1990 (28 U.S.C. 2461 note).182 As 

required by the Act, the penalties must 

be paid into the National Flood 

Mitigation Fund.183

PENALTY 2. What constitutes a 

‘‘pattern or practice’’ of violations for 

which civil money penalties must be 

imposed under the Act? 

The Act does not define ‘‘pattern or 

practice.’’ The Agencies make a 

determination of whether a pattern or 

practice exists by weighing the 

individual facts and circumstances of 

each case. In making the determination, 

the Agencies look both to guidance and 

experience with determinations of 

pattern or practice under other 

regulations (such as Regulation B (Equal 

Credit Opportunity) and Regulation Z 

(Truth in Lending)), as well as Agencies’ 

precedents in considering the 

assessment of civil money penalties for 

flood insurance violations. The Policy 

Statement on Discrimination in Lending 

(Policy Statement) provided the 

following guidance on what constitutes 

a pattern or practice: Isolated, unrelated, 

or accidental occurrences will not 

constitute a pattern or practice. 

However, repeated, intentional, regular, 

usual, deliberate, or institutionalized 

practices will almost always constitute 

a pattern or practice. The totality of the 

circumstances must be considered when 

assessing whether a pattern or practice 

is present. 

In determining whether a lender has 

engaged in a pattern or practice of flood 

insurance violations, the Agencies’ 

considerations may include, but are not 

limited to, the presence of one or more 

of the following factors: 

• Whether the conduct resulted from 

a common cause or source within the 

lender’s control; 

• Whether the conduct appears to be 

grounded in a written or unwritten 

policy or established process; 

• Whether the noncompliance 

occurred over an extended period of 

time; 

• The relationship of the instances of 

noncompliance to one another (for 

example, whether the instances of 

noncompliance occurred in the same 

area of a lender’s operations); 


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Federal Register / Vol. 87, No. 104 / Tuesday, May 31, 2022 / Rules and Regulations 32895 

• Whether the number of instances of 

noncompliance is significant relative to 

the total number of applicable 

transactions. (Depending on the 

circumstances, however, violations that 

involve only a small percentage of a 

lender’s total activity could constitute a 

pattern or practice); 

• Whether a lender was cited for 

violations of the Act and Regulation at 

prior examinations and the steps taken 

by the lender to correct the identified 

deficiencies; 

• Whether a lender’s internal and/or 

external audit process had not identified 

and addressed deficiencies in its flood 

insurance compliance; and 

• Whether the lender lacks generally 

effective flood insurance compliance 

policies and procedures and/or a 

training program for its employees. 

Although these considerations are not 

dispositive of a final resolution, they do 

serve as a reference point in assessing 

whether there may be a pattern or 

practice of violations of the Act and 

Regulation in a particular case. As 

previously stated, the presence or 

absence of one or more of these 

considerations may not eliminate a 

finding that a pattern or practice exists. 

Michael J. Hsu, 

Acting Comptroller of the Currency.By order 

of the Board of Governors of the Federal 

Reserve System. 

Ann E. Misback, 

Secretary of the Board. Federal Deposit 

Insurance Corporation. 

Dated at Washington, DC, on January 27, 

2022. 

James P. Sheesley, 

Assistant Executive Secretary. 

Dated at McLean, VA, this 9 day of May 

2022. 

Ashley Waldron, 

Secretary, Farm Credit Administration Board. 

Melane Conyers-Ausbrooks, 

Secretary of the Board, National Credit Union 

Administration. 

[FR Doc. 2022–10414 Filed 5–27–22; 8:45 am] 

BILLING CODE 4810–33–P; 6210–01–P; 6714–01–P; 

7535–01–P; 6705–01–P 


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