Source: https://regulations.justia.com/regulations/fedreg/2011/10/17/2011-26749.html
Timestamp: 2020-07-14 10:55:18
Document Index: 565147815

Matched Legal Cases: ['art 22', 'art 172', 'art 208', 'art 339', 'art 391', 'art 614', 'art 760', 'art 572', 'art 22', 'art 172', 'art 208', 'art 339', 'art 391', 'art 614', 'art\n760', 'art 572']

Loans in Areas Having Special Flood Hazards; Interagency Questions and Answers Regarding Flood Insurance, 64175-64183 [2011-26749] :: Farm Credit Administration :: Agencies And Commissions :: Regulation Tracker :: Justia
Justia Regulation Tracker Agencies And Commissions Farm Credit Administration Loans in Areas Having Special Flood Hazards; Interagency Questions and Answers Regarding Flood Insurance, 64175-64183 [2011-26749]
Loans in Areas Having Special Flood Hazards; Interagency Questions and Answers Regarding Flood Insurance, 64175-64183 [2011-26749]
Download as PDF jlentini on DSK4TPTVN1PROD with NOTICES Federal Register / Vol. 76, No. 200 / Monday, October 17, 2011 / Notices II. Solicitation for Comments: Commenters are invited to submit views on: 1. Systemic risk regulation with respect to insurance; 2. Capital standards and the relationship between capital allocation and liabilities, including standards relating to liquidity and duration risk; 3. Consumer protection for insurance products and practices, including gaps in State regulation and access by traditionally underserved communities and consumers, minorities, and lowand moderate-income persons to affordable insurance products; 4. The degree of national uniformity of State insurance regulation, including the identification of, and methods for assessing, excessive, duplicative or outdated insurance regulation or regulatory licensing process; 5. The regulation of insurance companies and affiliates on a consolidated basis; 6. International coordination of insurance regulation; 7. The costs and benefits of potential Federal regulation of insurance across various lines of insurance (except health insurance); 8. The feasibility of regulating only certain lines of insurance at the Federal level, while leaving other lines of insurance to be regulated at the State level; 9. The ability of any potential Federal regulation or Federal regulators to eliminate or minimize regulatory arbitrage; 10. The impact that developments in the regulation of insurance in foreign jurisdictions might have on the potential Federal regulation of insurance; 11. The ability of any potential Federal regulation or Federal regulator to provide robust consumer protection for policyholders; and 12. The potential consequences of subjecting insurance companies to a Federal resolution authority, including the effects of any Federal resolution authority: i. On the operation of State insurance guaranty fund systems, including the loss of guaranty fund coverage if an insurance company is subject to a Federal resolution authority; ii. On policyholder protection, including the loss of the priority status of policyholder claims over other unsecured general creditor claims; iii. In the case of life insurance companies, on the loss of the special status of separate account assets and separate account liabilities; and iv. On the international competiveness of insurance companies. VerDate Mar<15>2010 16:32 Oct 14, 2011 Jkt 226001 Authority: 31 U.S.C. 313. Michael T. McRaith, Director, Federal Insurance Office, Department of Treasury. [FR Doc. 2011–26776 Filed 10–14–11; 8:45 am] BILLING CODE 4810–25–P DEPARTMENT OF THE TREASURY Office of the Comptroller of the Currency [Docket ID OCC–2011–0024] FEDERAL RESERVE SYSTEM [Docket No. OP–1431] FEDERAL DEPOSIT INSURANCE CORPORATION [RIN 3064–ZA00] FARM CREDIT ADMINISTRATION [RIN 3052–AC46] NATIONAL CREDIT UNION ADMINISTRATION [RIN 3133–AD41] Loans in Areas Having Special Flood Hazards; Interagency Questions and Answers Regarding Flood Insurance Office of the Comptroller of the Currency, Treasury (OCC); Board of Governors of the Federal Reserve System (Board); Federal Deposit Insurance Corporation (FDIC); Farm Credit Administration (FCA); National Credit Union Administration (NCUA). ACTION: Notice and request for comment. AGENCIES: The OCC, Board, FDIC, FCA, and NCUA (collectively, the Agencies) are finalizing two new questions and answers, one relating to insurable value and one relating to force placement, and withdrawing one question and answer regarding insurable value. The two final questions and answers supplement the ‘‘Interagency Questions and Answers Regarding Flood Insurance’’ (Interagency Questions and Answers), which were published on July 21, 2009 (74 FR 35914). Based on comments received, the Agencies also have significantly revised two questions and answers regarding force placement of flood insurance that were initially proposed on July 21, 2009, and are proposing revision to a previously finalized question and answer. These three revised questions and answers are being proposed for comment. DATES: Effective date of final questions and answers: October 17, 2011. Comment due date: Comments on the proposed questions and answers must SUMMARY: PO 00000 Frm 00106 Fmt 4703 Sfmt 4703 64175 be submitted on or before December 1, 2011. ADDRESSES: Although the Agencies will jointly review all the comments submitted, it will facilitate review of the comments if interested parties send comments to the agency that is the appropriate federal regulator for the type of institution addressed in the comments. Interested parties are invited to submit written comments to: OCC: Because paper mail in the Washington, DC area and at the Agencies is subject to delay, commenters are encouraged to submit comments by e-mail, if possible. Please use the title ‘‘Loans in Areas Having Special Flood Hazards; Interagency Questions and Answers Regarding Flood Insurance’’ to facilitate the organization and distribution of the comments. You may submit comments by any of the following methods: • E-mail: regs.comments@occ.treas.gov. • Mail: Office of the Comptroller of the Currency, 250 E Street, SW., Mail Stop 2–3, Washington, DC 20219. • Fax: (202) 874–5274. • Hand Delivery/Courier: 250 E Street, SW., Attn: Communications Division, Mail Stop 2–3, Washington, DC 20219. Instructions: You must include ‘‘OCC’’ as the agency name and ‘‘Docket ID OCC–2011–0024’’ in your comment. In general, the OCC will enter all comments received into the docket and publish them on the Regulations.gov Web site without change, including any business or personal information that you provide such as name and address information, e-mail addresses, or phone numbers. Comments received, including attachments and other supporting materials, are part of the public record and subject to public disclosure. Do not enclose any information in your comment or supporting materials that you consider confidential or inappropriate for public disclosure. You may review comments and other related materials that pertain to this notice by any of the following methods: • Viewing Comments Personally: You may personally inspect and photocopy comments at the OCC’s Communications Division, 250 E Street, SW., Washington, DC. For security reasons, the OCC requires that visitors make an appointment to inspect comments. You may do so by calling in advance (202) 874–4700. Upon arrival, visitors will be required to present valid government-issued photo identification and submit to security screening in order to inspect and photocopy comments. E:\FR\FM\17OCN1.SGM 17OCN1 jlentini on DSK4TPTVN1PROD with NOTICES 64176 Federal Register / Vol. 76, No. 200 / Monday, October 17, 2011 / Notices • Docket: You may also view or request available background documents and project summaries using the methods described above. Board: You may submit comments, identified by Docket No. OP–1431, by any of the following methods: • Agency Web site: http:// www.federalreserve.gov. Follow the instructions for submitting comments at http://www.federalreserve.gov/ generalinfo/foia/ProposedRegs.cfm. • Federal eRulemaking Portal: http:// www.Regulations.gov. Follow the instructions for submitting comments. • E-mail: regs.comments@federal reserve.gov. Include docket number in the subject line of the message. • Fax: (202) 452–3819 or (202) 452– 3102. • Mail: Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, NW., Washington, DC 20551. All public comments are available from the Board’s Web site at http:// www.federalreserve.gov/generalinfo/ foia/ProposedRegs.cfm as submitted, unless modified for technical reasons. Accordingly, your comments will not be edited to remove any identifying or contact information. Public comments may also be viewed electronically or in paper in Room MP– 500 of the Board’s Martin Building (20th and C Streets, NW.) between 9 a.m. and 5 p.m. on weekdays. FDIC: You may submit comments, identified by RIN number 3064–ZA00 by any of the following methods: • Agency Web site: http:// www.fdic.gov/regulations/laws/federal/ propose.html. Follow instructions for submitting comments on the Agency Web site. • E-mail: Comments@fdic.gov. Include the RIN number in the subject line of the message. • Mail: Robert E. Feldman, Executive Secretary, Attention: Comments, Federal Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC 20429. • Hand Delivery/Courier: Guard station at the rear of the 550 17th Street Building (located on F Street) on business days between 7 a.m. and 5 p.m. • Instructions: All submissions received must include the agency name and RIN number. • Public Inspection: All comments received will be posted without change to http://www.fdic.gov/regulations/laws/ federal/propose.html including any personal information provided. Paper copies of public comments may be ordered from the Public Information Center by telephone at 1–877–275–3342 or 703–562–2200. VerDate Mar<15>2010 16:32 Oct 14, 2011 Jkt 226001 FCA: There are several methods for you to submit comments. For accuracy and efficiency reasons, commenters are encouraged to submit comments by email or through the Agency’s Web site. As facsimiles (fax) are difficult for us to process and achieve compliance with section 508 of the Rehabilitation Act (29 U.S.C. 794d), we are no longer accepting comments submitted by fax. Regardless of the method you use, please do not submit your comment multiple times via different methods. FCA requests that comments to the proposed amendment include the reference RIN 3052–AC46. You may submit comments by any of the following methods: • E-mail: Send us an e-mail at regcomm@fca.gov. • Web site: http://www.fca.gov. Select ‘‘Public Commenters,’’ then ‘‘Public Comments,’’ and follow the directions for ‘‘Submitting a Comment.’’ • Federal eRulemaking Portal: http:// www.Regulations.gov. Follow the instructions for submitting comments. • Mail: Gary K. Van Meter, Deputy Director, Office of Regulatory Policy, Farm Credit Administration, 1501 Farm Credit Drive, McLean, VA 22102–5090. You may review copies of all comments we receive at our office in McLean, Virginia, or from our Web site at http://www.fca.gov. Once you are in the Web site, select ‘‘Public Commenters’’ then ‘‘Public Comments’’ and follow the directions for ‘‘Reading Submitted Public Comments.’’ We will show your comments as submitted, but for technical reasons, we may omit items such as logos and special characters. Identifying information that you provide, such as phone numbers and addresses, will be publicly available. However, we will attempt to remove e-mail addresses to help reduce Internet spam. NCUA: You may submit comments by any of the following methods (please send comments by one method only): • Federal eRulemaking Portal: http:// www.Regulations.gov. Follow the instructions for submitting comments. • NCUA Web Site: http:// www.ncua.gov/ RegulationOpinionsLaws/ proposed_regs/proposed_regs.html. Follow the instructions for submitting comments. • E-mail: Address to regcomments@ncua.gov. Include ‘‘[Your name] Comments on Flood Insurance, Interagency Questions & Answers’’ in the e-mail subject line. • Fax: (703) 518–6319. Use the subject line described above for e-mail. • Mail: Address to Mary Rupp, Secretary of the Board, National Credit Union Administration, 1775 Duke PO 00000 Frm 00107 Fmt 4703 Sfmt 4703 Street, Alexandria, Virginia 22314– 3428. • Hand Delivery/Courier: Same as mail address. Public Inspection: All public comments are available on the agency’s Web site at http://www.ncua.gov/ RegulationOpinionsLaws/comments as submitted, except as may not be possible for technical reasons. Public comments will not be edited to remove any identifying or contact information. Paper copies of comments may be inspected in NCUA’s law library at 1775 Duke Street, Alexandria, Virginia 22314, by appointment weekdays between 9 a.m. and 3 p.m. To make an appointment, call (703) 518–6546 or send an e-mail to OGCMail@ncua.gov. FOR FURTHER INFORMATION CONTACT: OCC: Pamela Mount, National Bank Examiner, Compliance Policy, (202) 874–4428; or Margaret Hesse, Special Counsel, Community and Consumer Law Division, (202) 874–5750, Office of the Comptroller of the Currency, 250 E Street, SW., Washington, DC 20219. Board: Nikita M. Pastor, Senior Attorney, Division of Consumer and Community Affairs, (202) 452–2412; Lanette J. Meister, Senior Supervisory Consumer Financial Services Analyst (202) 452–2705; or Brad Fleetwood, Senior Counsel, Legal Division, (202) 452–3721, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, NW., Washington, DC 20551. For the deaf, hard of hearing, and speech impaired only, teletypewriter (TTY), (202) 263–4869. FDIC: John Jackwood, Senior Policy Analyst, Supervisory Policy Branch, Division of Depositor and Consumer Protection, (202) 898–3991; or Mark Mellon, Counsel, Legal Division, (202) 898–3884, Federal Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC 20429. For the hearing impaired only, telecommunications device for the deaf TDD: 800–925–4618. FCA: Mark L. Johansen, Senior Policy Analyst, Office of Regulatory Policy, Farm Credit Administration, McLean, VA 22102–5090, (703) 883–4498, TTY (703) 883–4434; or Mary Alice Donner, Senior Attorney, Office of General Counsel, Farm Credit Administration, McLean, VA 22102–5090, (703) 883– 4033, TTY (703) 883–4020. NCUA: Justin M. Anderson, Staff Attorney, Office of General Counsel, (703) 518–6540; or Pamela Yu, Staff Attorney, Office of General Counsel, (703) 518–6593, National Credit Union Administration, 1775 Duke Street, Alexandria, VA 22314–3428. SUPPLEMENTARY INFORMATION: E:\FR\FM\17OCN1.SGM 17OCN1 Federal Register / Vol. 76, No. 200 / Monday, October 17, 2011 / Notices jlentini on DSK4TPTVN1PROD with NOTICES Background 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 two federal flood insurance statutes, the National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973. The Reform Act required the OCC, Board, FDIC, the 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, NCUA, and FCA (collectively, ‘‘the Agencies’’) fulfilled these requirements by issuing a joint final rule in the summer of 1996. See 61 FR 45684 (August 29, 1996).1 In connection with the 1996 joint rulemaking process, the Agencies received a number of requests to clarify specific issues covering a wide spectrum of the proposed rule’s provisions. The Agencies addressed many of these requests in the preamble to the joint final rule. The Agencies concluded, however, that given the number, level of detail, and diversity of the requests, guidance addressing the technical compliance issues would be helpful and appropriate. Consequently, the Agencies decided guidance would be appropriate to address these technical issues subsequent to the promulgation of the final rule (61 FR 45685). The Federal Financial Institutions Examination Council (FFIEC) fulfilled that objective through the initial release of the Interagency Questions and Answers in 1997 (1997 Interagency Questions and Answers). 62 FR 39523 (July 23, 1997). After notice and comment, on July 21, 2009, the Agencies updated the interagency guidance (2009 Interagency Questions and Answers). 74 FR 35914 (July 21, 2009). In this publication, the Agencies also proposed five new questions and answers for comment. See 74 FR 35931. The proposed questions and answers addressed issues related to insurable value and force placement of flood insurance. The Agencies received 28 total comments on the proposed questions and answers. These comments are discussed below. The Agencies are adopting two of the five questions and answers proposed in the 2009 Interagency Questions and Answers: one question and answer relating to insurable value (question and answer 9) and another question and answer relating to force placement of flood insurance (question and answer 61). The Agencies are also withdrawing one question and answer relating to insurable value and have reserved this question and answer for later use (question and answer 10). However, as discussed below, because the Agencies propose to significantly and substantively change the answers to two of the questions and answers relating to the force placement of flood insurance, the Agencies are proposing them for additional comment (questions and answers 60 and 62). In addition, the Agencies are proposing changes to a previously finalized question and answer (question and answer 57) that also relates to the force placement of flood insurance to be consistent with the proposed changes to these two questions and answers. The two questions and answers being adopted as final today supplement the 2009 Interagency Questions and Answers and other guidance or interpretations issued by the Agencies and the Federal Emergency Management Agency (FEMA). The Agencies will publish the combined and complete Interagency Questions and Answers in their entirety once the questions and answers that are being proposed for comment are finalized. 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 Reform Act (codified at 42 U.S.C. 4001 et seq.). ‘‘Regulation’’ refers to each agency’s current final flood insurance rule.2 1 Throughout 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 (Jul. 6, 2011). 2 The Agencies’ rules are codified at 12 CFR part 22 (national banks) and 76 FR 48,950, 49,140 (Aug. 9, 2011) (to be codified at 12 CFR part 172) (Federal savings associations) (OCC), 12 CFR part 208 (Board), 12 CFR part 339 (state nonmember banks) and 76 FR 47,822 (Aug. 5, 2011) (to be codified at 12 CFR part 391 subpart D) (state savings associations) (FDIC), 12 CFR part 614 (FCA), and 12 CFR part 760 (NCUA). OTS’s rules at 12 CFR part 572 will be removed from codification at a later date. VerDate Mar<15>2010 16:32 Oct 14, 2011 Jkt 226001 PO 00000 Frm 00108 Fmt 4703 Sfmt 4703 64177 Final and Withdrawn Questions and Answers Section II. Determining When Certain Loans Are Designated Loans for Which Flood Insurance Is Required Under the Act and Regulation Insurable value. In general, the questions and answers in Section II explain that, in order to comply with the Regulation, the amount of insurance required is the lesser of the outstanding principal balance of the designated loan or the maximum amount of insurance available under the National Flood Insurance Program (NFIP). The maximum amount of insurance available under the NFIP is the lesser of the maximum limit of coverage available for the particular type of property under the Act or ‘‘the overall value of the property securing the designated loan minus the value of the land on which the property is located.’’ Consistent with terminology used by FEMA in its guidance, the Agencies use the term ‘‘insurable value’’ to denote the regulatory phrase ‘‘overall value of the property minus the value of the land.’’ See generally question and answer 8. The Agencies proposed questions and answers 9 and 10 in an effort to assist lenders in calculating the ‘‘insurable value’’ of a property for purposes of determining the required amount of flood insurance under the NFIP. Proposed question and answer 9 referenced FEMA guidelines in providing that the full insurable value of a building is the same as 100 percent replacement cost value (RCV) 3 of the insured building. Proposed question and answer 9 sought to illustrate the flexibility lenders have in determining RCV of a building by providing that lenders (either by themselves or in consultation with the flood insurance provider or other professionals) could consider permissible methods, such as the RCV used in a hazard insurance policy (recognizing that replacement cost for flood insurance will include the foundation), an appraisal based on a cost-value (not market-value) approach before depreciation deductions, and/or a construction cost calculation. Proposed question and answer 10 provided alternatives to determining the insurable value other than RCV for certain nonresidential buildings used for ranching, farming, and industrial purposes when the borrower either would replace the building with a structure more closely aligned with the 3 RCV is the cost to replace property with the same kind of material and construction without deduction for depreciation. FEMA, Mandatory Purchase of Flood Insurance Guidelines, at GLS 10. E:\FR\FM\17OCN1.SGM 17OCN1 64178 Federal Register / Vol. 76, No. 200 / Monday, October 17, 2011 / Notices function the building is presently providing or would not replace the building if damaged or destroyed by a flood. In such cases, the alternatives proposed by the Agencies would have allowed the lender to determine the insurable value by either the ‘‘functional building cost value’’ or by the demolition/removal cost value. jlentini on DSK4TPTVN1PROD with NOTICES Comments and Final Question and Answer 9 Although the Agencies received several comments commending the proposed guidance, numerous commenters objected to tying insurable value to RCV in all cases. Commenters stated that it was not possible to obtain RCV in many instances, particularly in cases of nonresidential properties. Commenters also stated that reliance on RCV was inappropriate for nonresidential properties because borrowers would only recover actual cash value 4 in the event of a loss for these types of properties, resulting in the borrower being over-insured. In response, the Agencies reaffirm that the insurable value for certain residential or condominium properties should be written to RCV. Further, the Agencies recognize that this strict interpretation of insurable value as RCV may not be practical in all cases for nonresidential buildings. Although FEMA’s guidance states that insurable value is the same as RCV, it also provides that lenders should avoid creating a situation in which the insured pays for coverage that exceeds the amount the NFIP will pay in the event of a loss.5 In cases involving certain residential or condominium properties,6 insurance policies should be written to, and the insurance loss payout would be the equivalent of, RCV. However, in cases involving nonresidential 4 ‘‘Actual cash value’’ is the cost to replace an insured item of property at the time of loss, less the value of its physical depreciation. FEMA, Mandatory Purchase of Flood Insurance Guidelines, at GLS 1. 5 FEMA, Mandatory Purchase of Flood Insurance Guidelines, at 27. 6 A single-family dwelling, including a singlefamily unit in a building under a condominium form of ownership, used as the insured’s primary residence is covered under the NFIP’s Dwelling Policy and, upon loss, payment is settled at RCV if the dwelling is insured for at least the lesser of 80 percent of the dwelling’s full RCV or the maximum limit of coverage under the NFIP. Losses on other residential properties are settled at actual cash value. See FEMA, Flood Insurance Manual, at POL 3–20. Residential condominium buildings are covered under the NFIP’s Residential Condominium Building Association Policy (RCBAP). Losses on residential condominium buildings are settled at RCV, unless subject to a coinsurance penalty, which applies when the building coverage is less than the lesser of 80 percent of full RCV or the maximum limit of coverage under the NFIP. See id. at POL 43–60. VerDate Mar<15>2010 16:32 Oct 14, 2011 Jkt 226001 properties, as well as some residential properties, where the insurance loss payout is normally based on actual cash value, insurance policies written at RCV may require an insured to pay for coverage that significantly exceeds the amount the NFIP would pay in the event of a loss. Similarly, in the case of certain nonresidential buildings used for ranching, farming, or industrial purposes that the borrower either would not replace if damaged or destroyed by a flood or would replace with a structure more closely aligned to the function the building is providing at the time of the flood, payouts may be well below RCV. Further, in cases where the physical depreciation of a nonresidential building is very high, the actual cash value payout would likely be very low, causing an even larger gap in the amount of insurance purchased and the potential payout. As a result, requiring flood insurance equal to RCV in such instances may lead to overinsurance for such properties. Lenders, however, need to be equally mindful of avoiding situations in which, as a result of insuring at a level below RCV, they under-insure property. In determining the amount of insurance to require, lenders should consider the extent of recovery allowed under the applicable NFIP policy. Given these practical considerations, the Agencies are adopting question and answer 9 with a revision to provide that, in calculating the required amount of insurance, 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 a reasonable valuation. They may use an appraisal based on a cost-value (not market-value) approach, a construction-cost calculation, the insurable value used in 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; for example, most hazard policies do not cover foundations), or any other reasonable approach, so long as it can be supported. It is important for lenders to recognize that, when calculating the minimum amount of insurance that is required to be purchased, the insurable value is only relevant to the extent that it is lower than either the outstanding principal balance of the loan or the maximum amount of insurance available under the NFIP. PO 00000 Frm 00109 Fmt 4703 Sfmt 4703 Withdrawn Question and Answer 10 In light of the alternative approaches suggested in final question and answer 9, the Agencies believe the specific exceptions to insurable value in proposed question and answer 10 are no longer necessary. As a result, the Agencies are withdrawing question and answer 10 and that number is reserved for future use. Section X. Force Placement of Flood Insurance Section X addressed issues concerning the force placement of flood insurance. The section and the accompanying questions and answers were originally adopted in the 1997 Interagency Questions and Answers. The Agencies proposed changes to those existing questions and answers in March 2008 designed to provide greater clarity with no intended change in substance and meaning. These revisions were adopted in July 2009. In response to comments received, however, the Agencies proposed three new questions and answers (60, 61, and 62). These proposed questions and answers addressed the following force placement issues: when the 45-day notice period should begin, whether a borrower may be charged for the cost of flood insurance coverage during the 45-day notice period, and how soon after the end of the notice period a lender should purchase a flood insurance policy when the borrower has failed to purchase an appropriate policy. The Agencies are adopting question and answer 61 as final, with minor nonsubstantive clarifications. However, after consideration of the comments received on questions and answers 60 and 62, the Agencies are revising these proposed questions and answers for further comment. The Agencies are also proposing revisions to question and answer 57 to make it consistent with proposed questions and answers 60 and 62. Comments and Final Question and Answer 61 The Agencies proposed new question and answer 61 to address questions and concerns about how soon lenders have to force place insurance after the end of the 45-day notice period. 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. Proposed question and answer 61 stated that, given that the lender is already aware during the 45-day notice period that it may be required to force place insurance E:\FR\FM\17OCN1.SGM 17OCN1 Federal Register / Vol. 76, No. 200 / Monday, October 17, 2011 / Notices if there is no response from the borrower, any delay in force placing flood insurance should be brief. Where there is a brief delay in force placing required insurance, the proposed question and answer stated that the Agencies will expect the lender to provide a reasonable explanation for the delay. The Agencies received comments from six commenters addressing proposed question and answer 61. Two lender commenters explained that batch processing of force placed flood insurance policies may cause a brief delay in the completion of the force placement process. They requested that the Agencies specify in the answer that, if a policy is in effect, for example, five days after the end of the 45-day notice period, then the force placement time frame has been satisfied. The Agencies decline to set an arbitrary number of days after the end of the 45-day notice period as a ‘‘safe harbor’’ for completion of the force placement process. The Agencies believe that the lender should have policies and procedures in place to allow force placement generally to commence when the 45-day notice period has expired. However, the Agencies also recognize that the process of force placing flood insurance may not always occur immediately on the 46th day. If there is a brief delay in force placing the required insurance, the lender should be able to provide a reasonable explanation for the delay. A government-sponsored enterprise (GSE) commenter did not agree with allowing a brief delay, even if the lender could provide a reasonable explanation, noting that flood insurance coverage is required at all times during the term of the mortgage. This commenter also expressed concern over the concept of the 45-day notice period, which results in the unintended consequence that properties may be uninsured or underinsured during the term of the loan. The Agencies are unable to address this overall concern, given that the 45-day notice requirement is found in the Act. The Agencies are adopting final question and answer 61 with minor nonsubstantive clarifications. jlentini on DSK4TPTVN1PROD with NOTICES Revised Proposed Questions and Answers Section X. Force Placement of Flood Insurance Section X addressed issues concerning the force placement of flood insurance. As noted above, the Agencies have revised and are re-proposing question and answer 60, which addresses when a lender should send the force-placement notice, and VerDate Mar<15>2010 16:32 Oct 14, 2011 Jkt 226001 question and answer 62, which addresses when a lender may charge a borrower for the cost of flood insurance during the 45-day notice period. The Agencies are also proposing revisions to final question and answer 57 in consideration of the proposed revisions to questions and answers 60 and 62. Comments and Revised Proposed Question and Answer 60 On July 21, 2009, the Agencies proposed question and answer 60 to address the permissibility of a lender’s acceleration of the 45-day notice period for force placement by sending notice to the borrower before the borrower’s flood insurance coverage expires. The Act provides that a lender or its servicer must notify a borrower if it determines that the improved real estate collateral’s insurance coverage has expired or is less than the amount required for that particular property. The Act further provides that if the borrower fails to purchase flood insurance within 45 days of such notice, the lender or servicer is required to purchase the insurance on behalf of the borrower. See 42 U.S.C. 4012a(e)(1) & (2). The proposed answer to question 60 stated that although a lender or servicer could send an advance notice, the Act and Regulation do not allow a lender or its servicer to shorten the 45-day forceplacement notice period by sending a notice to the borrower prior to the actual expiration date of the flood insurance policy. The proposed answer also provided that the notice must allow the borrower 45 days in which to obtain flood insurance. The Agencies received a number of comments on this question and answer. A few commenters generally agreed with the proposed answer to question 60; however, the majority of the commenters viewed the proposed question and answer as thwarting the flood insurance program’s primary purpose of ensuring continuous flood insurance coverage during the life of the loan. Some commenters asserted that the proposed question and answer contradicted the NFIP Flood Insurance Manual, which requires flood insurance protection for the life of the loan and states that renewal/expiration letters should be sent not less than 45 days before policy expiration. However, that discussion referenced in the manual pertains to the renewal notice that is sent by an insurance company to policyholders, reminding them that their flood insurance coverage is about to lapse. As such, it has no application to the question and answer, which pertains to the notice that a lender or its PO 00000 Frm 00110 Fmt 4703 Sfmt 4703 64179 servicer is required to send to borrowers once the lender or its servicer has made a determination that flood insurance coverage has either lapsed or is inadequate. The Agencies agree with the commenters that the purpose of the notice process is to ensure that there is continuous flood insurance coverage during the life of the loan. In considering these comments to proposed question and answer 60, the Agencies have sought to reconcile the statute’s requirement that a lender send the borrower notice of inadequate or lapsed flood insurance with the purpose of the statute to facilitate a lender or servicer’s ability to ensure continuous flood insurance coverage. The Agencies are, therefore, proposing revisions to question and answer 60 to clarify when a lender is required to send a force placement notice to the borrower to ensure adequate flood insurance coverage is maintained throughout the term of the loan. The revisions to the question and answer are further made in recognition of the position, set out in the revisions to proposed question and answer 62 infra, that lenders may force place flood insurance coverage for any part of the 45-day notice period in which no adequate borrower-purchased flood insurance is in effect and charge the borrower for the costs of such coverage, if the borrower has given the lender express authority as a contractual condition of the loan being made. The text of the revised proposed question and answer is as follows: ﬂ60. When should a lender send the force placement notice to the borrower? Answer: To ensure that adequate flood insurance coverage is maintained throughout the term of the loan, a lender or its servicer must notify a borrower whenever flood insurance on the collateral has expired or is less than the amount required for the property. The lender must send this notice upon making a determination that the flood insurance coverage is inadequate or has expired, such as upon receipt of the notice of cancellation or expiration from the insurance provider or as a result of an internal flood policy monitoring system. Notice is also required when a lender learns that a property requires flood insurance coverage because it is in an SFHA as a result of a flood map change (which is occurring in many communities as a result of FEMA’s map modernization program). To avoid the expiration of insurance, the Agencies recommend that the lender also advise the borrower when flood insurance on the collateral is about to expire.ﬁ E:\FR\FM\17OCN1.SGM 17OCN1 jlentini on DSK4TPTVN1PROD with NOTICES 64180 Federal Register / Vol. 76, No. 200 / Monday, October 17, 2011 / Notices Comments on Revised Proposed Question and Answer 62 On July 21, 2009, the Agencies proposed question and answer 62 to address whether a borrower may ever be charged for the cost of flood insurance that provides coverage for the 45-day force-placement notice period. The Agencies received comments from 19 commenters regarding the proposed question and answer. Of these, a majority disagreed with the proposition that a lender or servicer has no authority to charge a borrower for coverage that applies to the notice period. One commenter favored the question and answer, but noted that gaps in coverage and costly administration of the notice requirements would be eliminated if lenders escrowed flood insurance premiums, even though not legally required to do so. Another commenter had no objection to the proposed question and answer. Several commenters reasoned that the Act intended to establish a goal of continuous coverage throughout the life of a mortgage loan. These commenters contended that question and answer 62 would undercut this primary goal if finalized as proposed. Commenters also contended that a borrower must maintain flood insurance at the borrower’s expense throughout the life of the loan. They argued that it is in the borrower’s best interest if flood insurance coverage on the collateral is purchased by the lender during the 45day notice period after a policy lapses if a borrower has not renewed the policy or otherwise purchased insurance. A commenter contended that it is fair and equitable that borrowers should pay for continuous coverage. Some commenters also noted that the Act expressly allows a lender to charge a borrower for the cost of premiums and fees incurred in purchasing insurance. One commenter argued it would further safety and soundness principles to allow a lender or a servicer to charge a borrower for the cost of flood insurance during the notice period because, otherwise, the lender may not purchase such coverage if it could not recoup its cost. Another commenter did not address the proposed question and answer directly, but did argue for continuous flood insurance coverage throughout the life of a mortgage, including the notice period, citing potential significant financial risk to a borrower during that time. Some commenters acknowledged that the Act does not specifically authorize a lender or a servicer to charge a borrower for a force-placed policy until the notice period has expired. However, VerDate Mar<15>2010 16:32 Oct 14, 2011 Jkt 226001 these commenters contended that, absent a specific prohibition on charging borrowers for coverage for the 45-day notice period, lenders should be permitted to charge borrowers for such coverage. Several commenters contended that most loan agreements generally prohibit any gap in flood insurance coverage and authorize a lender to force place insurance on the collateral if the borrower fails to maintain coverage. One commenter advised that the proposed question and answer would interfere with the borrower-lender contractual relationship and also with the purpose of the Act by prohibiting lenders from relying on the authority granted in their loan documents to force place flood coverage. One commenter noted that a policy force-placed through the NFIP is not available until the expiration of the notice period; others contended that private insurers offer force-placed coverage effective retroactively to the date of the lapse to avoid any uninsured loss. With respect to coverage during the notice period, one commenter noted that, if retroactive coverage to the date of lapse is not permitted for a forceplaced private insurance policy, the lender (and the borrower) will be exposed to loss. Several commenters noted that the lender would be exposed to at least a 15-day lapse in coverage under an NFIP policy because the lender’s coverage continues for only 30 days after lapse, not 45. Several commenters maintained that proposed question and answer 62 could harm borrowers. Commenters argued that a borrower would not have to pay for duplicate coverage under most forceplaced policies. They contended that an insurer would waive or refund the premiums for force-placed insurance if the borrower establishes that coverage is already in place or was obtained during the notice period. Several commenters even argued that the proposed question and answer might encourage a ‘‘freerider situation’’ in which borrowers may delay renewal or even cancel policies since they cannot be charged during the notice period. A few commenters argued that proposed question and answer 62 could lead to increased losses for the NFIP since lenders would submit more claims under the mortgagee clauses of the NFIP policy for losses that occur during the notice period instead of submitting them to a private force-placed policy. The same commenters maintained that smaller lenders may not be able to afford the cost of blanket or force-placed policies and will allow collateral to remain uninsured for the gap period, PO 00000 Frm 00111 Fmt 4703 Sfmt 4703 contrary to safety and soundness principles. In consideration of the comments received, the Agencies are revising proposed question and answer 62. As a general rule, the revised proposed question and answer would allow a lender or its servicer to charge a borrower for insurance coverage for any part of the 45-day notice period in which no adequate borrower-purchased flood insurance coverage is in effect if the borrower has given the lender or its servicer the express authority to charge the borrower for such coverage as a contractual condition of the loan being made. Any policy that is obtained by a lender or its servicer, the premium of which is charged to the borrower pursuant to a contractual right, should be equivalent in coverage and exclusions to an NFIP policy and cover the interests of both the borrower and the lender. In the proposed question and answer, the Agencies also encourage institutions to explain their force-placement policies to borrowers (including their policy on charging for force-placement coverage for the 45-day period and the timing of that charge) and encourage lenders and servicers to escrow flood insurance premiums. Following these recommendations could result in significantly less force placement of flood insurance. The Agencies also note in the proposed question and answer that Regulation Z requires lenders to establish an escrow account for the payment of property taxes and mortgage-related insurance required by the lender, including flood insurance, for all ‘‘higher priced’’ first-lien mortgage loans. See 12 CFR 226.35(b)(3).7 The text of the revised proposed question and answer follows: ﬂ62. When may a lender or its servicer charge a borrower for the cost of insurance that covers collateral during the 45-day notice period? Answer: A lender or its servicer may charge a borrower for insurance coverage for any part of the 45-day notice period in which no adequate borrower-purchased flood insurance coverage is in effect, if the borrower has given the lender or its servicer the express authority to charge the borrower for such coverage as a contractual condition of the loan being made. Any policy that is obtained by a lender or its servicer, the premium of which is 7 Institutions should note that upcoming rules to implement section 1461 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. 111–203) (Dodd-Frank Act), may affect the portion of the answer referencing mandatory escrow requirements for flood insurance. E:\FR\FM\17OCN1.SGM 17OCN1 Federal Register / Vol. 76, No. 200 / Monday, October 17, 2011 / Notices jlentini on DSK4TPTVN1PROD with NOTICES charged to the borrower pursuant to a contractual right, should be equivalent in coverage and exclusions to an NFIP policy and cover the interests of both the borrower and the lender. The Agencies encourage institutions to explain their force-placement policies to borrowers (including their policy on charging for force-placement coverage for the 45-day period and the timing of that charge) and encourage lenders and servicers to escrow flood insurance premiums. Following these recommendations could result in less force placement of flood insurance. Further, Regulation Z requires lenders to establish an escrow account for the payment of property taxes and mortgage-related insurance required by the lender, including flood insurance, for all ‘‘higher priced’’ first-lien mortgage loans. See 12 CFR 226.35(b)(3).ﬁ Revised Proposed Question and Answer 57 Proposed question and answer 57 provides general guidance on force placement under the Act and Regulation. The Agencies are proposing revisions to previously finalized question and answer 57 as a result of the proposed revisions to questions and answers 60 and 62. The proposed revisions to question and answer 57 clarify when a lender is required to send a force-placement notice to the borrower to ensure adequate flood insurance coverage is maintained throughout the term of the loan. The proposed revisions also clarify best practices that lenders should follow in providing borrowers with useful information in the forceplacement notice to assist them in understanding the high costs of premiums and fees in connection with force-placed insurance coverage. The revised question and answer also encourages lenders, in situations where a borrower has not previously been required to have flood insurance (such as a map change), to send borrowers the Notice of Special Flood Hazards and Availability of Federal Disaster Assistance with the force-placement notice to give borrowers important information about the implications of being in a SFHA. The text of the revised proposed question and answer is as follows: ﬂ57. What is the requirement for the force placement of flood insurance under the Act and Regulation? Answer: The Act and Regulation require a lender to force place flood insurance, if all of the following circumstances occur: • The lender determines at any time during the life of the loan that the VerDate Mar<15>2010 16:32 Oct 14, 2011 Jkt 226001 property securing the loan is located in an SFHA; • Flood insurance under the Act is available for improved property securing the loan; • The lender determines that flood insurance coverage is inadequate or does not exist; and • After required notice, the borrower fails to purchase the appropriate amount of coverage within 45 days. The Act and Regulation require the lender, or its servicer, to send notice to the borrower upon making a determination that the improved real estate collateral’s insurance coverage has expired or is less than the amount required for that particular property, such as upon receipt of the notice of cancellation or expiration from the insurance provider. The Act and Regulation also require the lender, or its servicer, to give notice and force-place such insurance, if necessary, when a lender learns that a property requires flood insurance coverage because it is in an SFHA as a result of a flood map change (which is occurring in many communities as a result of FEMA’s map modernization program). The notice to the borrower must clearly state that the borrower should obtain, at the borrower’s expense, flood insurance in an amount at least equal to the amount required under the NFIP, for the remainder of the loan’s term. The notice should also state that if the borrower does not obtain the insurance within 45 days, the lender will purchase the insurance on behalf of the borrower and may charge the borrower for the cost of premiums and fees to obtain the coverage, which are likely to be more expensive than if the borrower purchases it. The Agencies encourage institutions to explain their forceplacement policies to borrowers (including, where applicable, that they charge for force-placement coverage for the 45-day period and the timing of that charge). In situations where a borrower has not previously been required to have flood insurance (such as a map change), it is a best practice to also provide the Notice of Special Flood Hazards and Availability of Federal Disaster Assistance, which give borrowers important information about the implications of being in an SFHA. If adequate insurance is not obtained by the borrower within the 45-day notice period, then the lender must purchase insurance on the borrower’s behalf. Standard Fannie Mae/Freddie Mac documents permit the servicer or lender to add those charges to the principal amount of the loan. FEMA developed the Mortgage Portfolio Protection Program (MPPP) to PO 00000 Frm 00112 Fmt 4703 Sfmt 4703 64181 assist lenders in connection with forceplacement procedures. FEMA published these procedures in the Federal Register on August 29, 1995 (60 FR 44881). Appendix A of FEMA’s September 2007 Mandatory Purchase of Flood Insurance Guidelines sets out the MPPP Guidelines and Requirements, including force-placement procedures and examples of notification letters to be used in connection with the MPPP. ﬁ Public Comments The Agencies invite specific public comment on proposed questions and answers 57, 60, and 62 and are particularly interested in comments regarding proposed question and answer 62. With regard to proposed question and answer 62, the Agencies note that question and answer 62 being proposed today reaches a conclusion that is significantly different from the guidance proposed in July 2009. In the July 2009 proposed guidance, proposed question and answer 62 stated that a lender or its servicer does not have the authority to charge a borrower for the cost of insurance coverage during the 45-day notice period. However, in recognition of standard provisions in many contracts entered into between borrowers and lenders at loan origination, the Agencies are now proposing guidance allowing lenders, or servicers acting on behalf of lenders, to charge a borrower for insurance coverage for any part of the 45-day notice period in which no adequate borrower-purchased flood insurance coverage is in effect if the borrower has given the lender or its servicer the express authority to charge the borrower for such coverage as a contractual condition of the loan being made. The Agencies are concerned that borrowers are not adequately aware of the higher costs of lender-placed flood insurance. In addition, the Agencies are concerned that borrowers may not be aware that lender force placement may occur during the 45-day notice period and that the borrower could be charged for such coverage. The Agencies invite comment on how to address these concerns and on whether they should adopt question and answer 62 as proposed. The Agencies also seek comment on whether there are alternative approaches that would appropriately balance the borrower’s right to obtain flood insurance at any time during the 45-day period after notification and avoid force placement with the lender’s need to protect itself during that period and to be compensated for lender-purchased insurance. E:\FR\FM\17OCN1.SGM 17OCN1 jlentini on DSK4TPTVN1PROD with NOTICES 64182 Federal Register / Vol. 76, No. 200 / Monday, October 17, 2011 / Notices The Agencies note that an NFIP flood insurance policy provides coverage for the mortgagee for 30 days after lapse. Proposed question and answer 62 does not directly address whether a lender may charge the borrower for coverage during the 30 days after lapse of the borrower-purchased NFIP policy, during which time the policy is still in effect, other than stating that the lender may charge a borrower for insurance coverage for any part of the 45-day notice period in which no adequate borrower-purchased flood insurance coverage is in effect. The Agencies also seek comment on whether any final question and answer on this issue should provide that lenders may not charge for additional overlapping lender-placed coverage during that 30day period. Finally, the Agencies note that there are a number of recent developments relating to force-placed insurance on consumer mortgages. For example, Congress recently set forth notice and force-placement requirements for hazard insurance in section 1463 of the DoddFrank Act, which amends the Real Estate Settlement Procedures Act of 1974. While section 1463 is still awaiting regulatory implementation, the statutory language provides that a servicer of a federally related mortgage may not impose any charge on any borrower for force-placed hazard insurance unless the servicer has sent the borrower two separate notices within a 45-day period and has not received confirmation from the borrower that such insurance has been obtained during that period. The Agencies note that section 1463 of the Dodd-Frank Act does not cover the force placement of flood insurance. Forceplacement of insurance also has been raised as a significant concern in connection with recent foreclosure activity. The Agencies will continue to monitor developments in this area to the extent that they can inform agencies’ supervisory policy with regard to the Act rules. If financial institutions, bank examiners, community groups, or other interested parties have unanswered questions or comments about the Agencies’ flood insurance regulation, they should submit them to the Agencies. The Agencies will consider addressing these questions in future guidance. Solicitation of Comments Regarding the Use of ‘‘Plain Language’’ Section 722 of the Gramm—Leach— Bliley Act of 1999, 12 U.S.C. 4809, requires the federal banking Agencies to use ‘‘plain language’’ in all proposed VerDate Mar<15>2010 16:32 Oct 14, 2011 Jkt 226001 and final rules published after January 1, 2000. Although this document is not a proposed rule, comments are nevertheless invited on whether the proposed questions and answers are stated clearly and how they might be revised to be easier to read. The text of the new final Questions and Answers follows: Interagency Questions and Answers Regarding Flood Insurance * * * * * II. Determining the Appropriate Amount of Flood Insurance Required Under the Act and Regulation * * * * * 9. What is the ‘‘insurable value’’ of a building? Answer: The insurable value of a building is the same as the overall value of a property minus the land on which the property is located. FEMA’s Mandatory Purchase of Flood Insurance Guidelines state that the insurable value of a building is the same as 100 percent replacement cost value (RCV) of the insured building, which is defined as ‘‘[t] he cost to replace property with the same kind of material and construction without deduction for depreciation.’’ 8 FEMA’s guidelines, however, also provide that lenders should avoid creating a situation in which the insured pays for more coverage than the NFIP would pay in the event of a loss.9 Strictly linking insurable value to RCV is not practical in all cases. In cases involving certain residential or condominium properties, insurance policies should be written to, and the insurance loss payout usually would be the equivalent of, RCV.10 However, in cases involving nonresidential properties, and even some residential properties, where the insurance loss payout would normally be based on actual cash value, which is RCV less physical depreciation,11 insurance policies written at RCV may require an insured to pay for coverage that exceeds the amount the NFIP would pay in the event of a loss. Therefore, it is reasonable for lenders, in determining the amount of flood insurance required, to 8 FEMA, Mandatory Purchase of Flood Insurance Guidelines, at GLS 10. 9 FEMA, Mandatory Purchase of Flood Insurance Guidelines, at 27. 10 A single-family dwelling, including a singlefamily unit in a building under a condominium form of ownership, used as the insured’s primary residence is covered under the NFIP’s Dwelling Policy and, upon loss, payment is settled at RCV if the dwelling is insured for at least the lesser of 80 percent of the dwelling’s full RCV or the maximum limit of coverage under the NFIP. Losses on other residential properties are settled at actual cash value. See FEMA, Flood Insurance Manual, at POL 3–20. Residential condominium buildings are covered under the NFIP’s Residential Condominium Building Association Policy (RCBAP). Losses on residential condominium buildings are settled at RCV, unless subject to a coinsurance penalty, which applies when the building coverage is less than the lesser of 80 percent of full RCV or the maximum limit of coverage under the NFIP. See id. at POL 43–60. 11 FEMA, Mandatory Purchase of Flood Insurance Guidelines, at GLS 1. PO 00000 Frm 00113 Fmt 4703 Sfmt 4703 consider the extent of recovery allowed under the NFIP policy for the type of property being insured. This allows the lender to assist the borrower in avoiding situations in which the insured pays for coverage that exceeds the amount the NFIP will pay in the event of a loss. Lenders need to be equally mindful of avoiding situations in which, as a result of insuring at a level below RCV, they underinsure property. 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 construction-cost calculation, the insurable value used in 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; for example, most hazard policies do not cover foundations), or any other reasonable approach, so long as it can be supported. 10. [Reserved] Answer: [Reserved] * * * * * X. Force Placement of Flood Insurance * * * * * 57. What is the requirement for the force placement of flood insurance under the Act and Regulation? Answer: [Reserved] 60. When should a lender send the forceplacement notice to the borrower? Answer: [Reserved] 61. When must the lender have flood insurance in place if the borrower has not obtained adequate insurance within the 45day notice period? Answer: 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. However, where there is a brief delay in force placing required insurance, the Agencies will expect the lender to provide a reasonable explanation for the delay, for example, where a lender uses batch processing to purchase force-placed flood insurance policies. 62. When may a lender or its servicer charge a borrower for the cost of insurance that covers collateral during the 45-day notice period? Answer: [Reserved] * * * * * End of text of the new final Questions and Answers. Dated: June 28, 2011. John Walsh, Acting Comptroller of the Currency. By order of the Board of Governors of the Federal Reserve System, September 30, 2011. Jennifer J. Johnson, Secretary of the Board. Dated at Washington, DC this 11th day of October, 2011. E:\FR\FM\17OCN1.SGM 17OCN1 Federal Register / Vol. 76, No. 200 / Monday, October 17, 2011 / Notices Federal Deposit Insurance Corporation. Valerie J. Best, Assistant Executive Secretary. Dated: October 5, 2011. Dale L. Aultman, Secretary, Farm Credit Administration Board. By the National Credit Union Administration Board, on October 3, 2011. Mary F. Rupp, Secretary of the Board. [FR Doc. 2011–26749 Filed 10–14–11; 8:45 am] BILLING CODE 4810–33–P; 6210–01–P; 6714–01–P; 6705–01–P; 7535–01–P DEPARTMENT OF THE TREASURY Office of Foreign Assets Control Designation of Five Individuals Pursuant to Executive Order 13224 of September 23, 2001, ‘‘Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten To Commit, or Support Terrorism.’’ Office of Foreign Assets Control, Treasury. ACTION: Notice. AGENCY: The Treasury Department’s Office of Foreign Assets Control (‘‘OFAC’’) is publishing the names of five individuals whose property and interests in property are blocked pursuant to Executive Order 13224 of September 23, 2001, ‘‘Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten To Commit, or Support Terrorism.’’ DATES: The designations by the Director of OFAC of the five individuals in this notice, pursuant to Executive Order 13224, are effective on October 11, 2011. FOR FURTHER INFORMATION CONTACT: Assistant Director, Compliance Outreach & Implementation, Office of Foreign Assets Control, Department of the Treasury, Washington, DC 20220, tel.: 202/622–2490. SUPPLEMENTARY INFORMATION: SUMMARY: jlentini on DSK4TPTVN1PROD with NOTICES Electronic and Facsimile Availability This document and additional information concerning OFAC are available from OFAC’s Web site (http:// www.treas.gov/ofac) or via facsimile through a 24-hour fax-on-demand service, tel.: 202/622–0077. Background On September 23, 2001, the President issued Executive Order 13224 (the ‘‘Order’’) pursuant to the International Emergency Economic Powers Act, 50 U.S.C. 1701–1706, and the United Nations Participation Act of 1945, 22 U.S.C. 287c. In the Order, the President VerDate Mar<15>2010 16:32 Oct 14, 2011 Jkt 226001 declared a national emergency to address grave acts of terrorism and threats of terrorism committed by foreign terrorists, including the September 11, 2001 terrorist attacks in New York, Pennsylvania, and at the Pentagon. The Order imposes economic sanctions on persons who have committed, pose a significant risk of committing, or support acts of terrorism. The President identified in the Annex to the Order, as amended by Executive Order 13268 of July 2, 2002, 13 individuals and 16 entities as subject to the economic sanctions. The Order was further amended by Executive Order 13284 of January 23, 2003, to reflect the creation of the Department of Homeland Security. Section 1 of the Order blocks, with certain exceptions, all property and interests in property that are in or hereafter come within the United States or the possession or control of United States persons, of: (1) Foreign persons listed in the Annex to the Order; (2) foreign persons determined by the Secretary of State, in consultation with the Secretary of the Treasury, the Secretary of the Department of Homeland Security and the Attorney General, to have committed, or to pose a significant risk of committing, acts of terrorism that threaten the security of U.S. nationals or the national security, foreign policy, or economy of the United States; (3) persons determined by the Director of OFAC, in consultation with the Departments of State, Homeland Security and Justice, to be owned or controlled by, or to act for or on behalf of those persons listed in the Annex to the Order or those persons determined to be subject to subsection 1(b), 1(c), or 1(d)(i) of the Order; and (4) except as provided in section 5 of the Order and after such consultation, if any, with foreign authorities as the Secretary of State, in consultation with the Secretary of the Treasury, the Secretary of the Department of Homeland Security and the Attorney General, deems appropriate in the exercise of his discretion, persons determined by the Director of OFAC, in consultation with the Departments of State, Homeland Security and Justice, to assist in, sponsor, or provide financial, material, or technological support for, or financial or other services to or in support of, such acts of terrorism or those persons listed in the Annex to the Order or determined to be subject to the Order or to be otherwise associated with those persons listed in the Annex to the Order or those persons determined to be subject to subsection 1(b), 1(c), or 1(d)(i) of the Order. PO 00000 Frm 00114 Fmt 4703 Sfmt 9990 64183 On October 11, 2011, the Director of OFAC, in consultation with the Departments of State, Homeland Security, Justice and other relevant agencies, designated, pursuant to one or more of the criteria set forth in subsections 1(b), 1(c) or 1(d) of the Order, five individuals whose property and interests in property are blocked pursuant to Executive Order 13224. The listings for the five individuals on OFAC’s list of Specially Designated Nationals and Blocked Persons appear as follows: Individuals ABDOLLAHI, Hamed (a.k.a. ABDULLAHI, Mustafa); DOB 11 Aug 1960; citizen Iran; Passport D9004878 (individual) [SDGT] [IRGC]. ARBABSIAR, Manssor (a.k.a. ARBABSIAR, Mansour), 805 Cisco Valley CV, Round Rock, TX 78664; 5403 Everhardt Road, Corpus Christi, TX 78411; DOB 15 Mar 1955; alt. DOB 6 Mar 1955; POB Iran; citizen United States; Driver’s License No. 07442833 (United States) expires 15 Mar 2016; Passport C2002515 (Iran); alt. Passport 477845448 (United States); Driver’s License is issued by the State of Texas (individual) [SDGT] [IRGC]. SHAHLAI, Abdul Reza (a.k.a. SHAHLAEE, Abdul-Reza; a.k.a. SHAHLAI, Abdol Reza; a.k.a. SHAHLA’I, Abdolreza; a.k.a. SHAHLAI, ’Abdorreza; a.k.a. SHALAI, ’Abd-al Reza; a.k.a. SHALA’I, Abdul Reza; a.k.a. ‘‘ABU–AL–KARKH’, ’Yusuf’’; a.k.a. ‘‘YASIR, Hajji’’; a.k.a. ‘‘YUSEF, Hajj’’; a.k.a. ‘‘YUSIF, Haji’’; a.k.a. ‘‘YUSIF, Hajji’’), Kermanshah, Iran; Mehran Military Base, Ilam Province, Iran; DOB circa 1957 (individual) [SDGT] [IRAQ3] [IRGC]. SHAKURI, Gholam, Tehran, Iran; DOB 1964; alt. DOB 1965; alt. DOB 1966 (individual) [SDGT] [IRGC]. SOLEIMANI, Qasem (a.k.a. SALIMANI, Qasem; a.k.a. SOLAIMANI, Qasem; a.k.a. SOLEMANI, Qasem; a.k.a. SOLEYMANI, Ghasem; a.k.a. SOLEYMANI, Qasem; a.k.a. SULAIMANI, Qasem; a.k.a. SULAYMAN, Qasim; a.k.a. SULEMANI, Qasem); DOB 11 Mar 1957; POB Qom, Iran; citizen Iran; nationality Iran; Diplomatic Passport 008827 (Iran) issued 1999 (individual) [SDGT] [SYRIA] [NPWMD] [IRGC]. Dated: October 11, 2011. Adam J. Szubin, Director, Office of Foreign Assets Control. [FR Doc. 2011–26775 Filed 10–14–11; 8:45 am] BILLING CODE 4810–AL–P E:\FR\FM\17OCN1.SGM 17OCN1
[Pages 64175-64183]
[FR Doc No: 2011-26749]
Loans in Areas Having Special Flood Hazards; Interagency
Deposit Insurance Corporation (FDIC); Farm Credit Administration (FCA);
SUMMARY: The OCC, Board, FDIC, FCA, and NCUA (collectively, the
Agencies) are finalizing two new questions and answers, one relating to
insurable value and one relating to force placement, and withdrawing
one question and answer regarding insurable value. The two final
questions and answers supplement the ``Interagency Questions and
Answers Regarding Flood Insurance'' (Interagency Questions and
Answers), which were published on July 21, 2009 (74 FR 35914). Based on
comments received, the Agencies also have significantly revised two
questions and answers regarding force placement of flood insurance that
were initially proposed on July 21, 2009, and are proposing revision to
a previously finalized question and answer. These three revised
questions and answers are being proposed for comment.
DATES: Effective date of final questions and answers: October 17, 2011.
Comment due date: Comments on the proposed questions and answers must
be submitted on or before December 1, 2011.
ADDRESSES: Although the Agencies will jointly review all the comments
submitted, it will facilitate review of the comments if interested
parties send comments to the agency that is the appropriate federal
regulator for the type of institution addressed in the comments.
comments by e-mail, if possible. Please use the title ``Loans in Areas
Having Special Flood Hazards; Interagency Questions and Answers
Regarding Flood Insurance'' to facilitate the organization and
Hand Delivery/Courier: 250 E Street, SW., Attn:
Communications Division, Mail Stop 2-3, Washington, DC 20219.
``Docket ID OCC-2011-0024'' in your comment. In general, the OCC will
and photocopy comments at the OCC's Communications Division, 250 E
calling in advance (202) 874-4700. Upon arrival, visitors will be
[[Page 64176]]
Board: You may submit comments, identified by Docket No. OP-1431,
FDIC: You may submit comments, identified by RIN number 3064-ZA00
agency name and RIN number.
without change to http://www.fdic.gov/regulations/laws/federal/propose.html including any personal information provided. Paper copies
of public comments may be ordered from the Public Information Center by
telephone at 1-877-275-3342 or 703-562-2200.
FCA: There are several methods for you to submit comments. For
accuracy and efficiency reasons, commenters are encouraged to submit
comments by e-mail or through the Agency's Web site. As facsimiles
(fax) are difficult for us to process and achieve compliance with
section 508 of the Rehabilitation Act (29 U.S.C. 794d), we are no
longer accepting comments submitted by fax. Regardless of the method
you use, please do not submit your comment multiple times via different
methods. FCA requests that comments to the proposed amendment include
the reference RIN 3052-AC46. You may submit comments by any of the
Web site: http://www.fca.gov. Select ``Public
Commenters,'' then ``Public Comments,'' and follow the directions for
Mail: Gary K. Van Meter, Deputy Director, Office of
Regulatory Policy, Farm Credit Administration, 1501 Farm Credit Drive,
You may review copies of all comments we receive at our office in
McLean, Virginia, or from our Web site at http://www.fca.gov. Once you
are in the Web site, select ``Public Commenters'' then ``Public
Comments'' and follow the directions for ``Reading Submitted Public
Comments.'' We will show your comments as submitted, but for technical
reasons, we may omit items such as logos and special characters.
Identifying information that you provide, such as phone numbers and
addresses, will be publicly available. However, we will attempt to
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NCUA Web Site: http://www.ncua.gov/RegulationOpinionsLaws/proposed_regs/proposed_regs.html. Follow the instructions for
name] Comments on Flood Insurance, Interagency Questions & Answers'' in
agency's Web site at http://www.ncua.gov/RegulationOpinionsLaws/comments as submitted, except as may not be possible for technical
call (703) 518-6546 or send an e-mail to OGCMail@ncua.gov.
OCC: Pamela Mount, National Bank Examiner, Compliance Policy, (202)
874-4428; or Margaret Hesse, Special Counsel, Community and Consumer
Law Division, (202) 874-5750, Office of the Comptroller of the
Board: Nikita M. Pastor, Senior Attorney, Division of Consumer and
Community Affairs, (202) 452-2412; Lanette J. Meister, Senior
Supervisory Consumer Financial Services Analyst (202) 452-2705; or Brad
Fleetwood, Senior Counsel, Legal Division, (202) 452-3721, Board of
Avenue, NW., Washington, DC 20551. For the deaf, hard of hearing, and
speech impaired only, teletypewriter (TTY), (202) 263-4869.
FDIC: John Jackwood, Senior Policy Analyst, Supervisory Policy
Branch, Division of Depositor and Consumer Protection, (202) 898-3991;
or Mark Mellon, Counsel, Legal Division, (202) 898-3884, Federal
20429. For the hearing impaired only, telecommunications device for the
deaf TDD: 800-925-4618.
FCA: Mark L. Johansen, Senior Policy Analyst, Office of Regulatory
Policy, Farm Credit Administration, McLean, VA 22102-5090, (703) 883-
4498, TTY (703) 883-4434; or Mary Alice Donner, Senior Attorney, Office
of General Counsel, Farm Credit Administration, McLean, VA 22102-5090,
(703) 883-4033, TTY (703) 883-4020.
NCUA: Justin M. Anderson, Staff Attorney, Office of General
Counsel, (703) 518-6540; or Pamela Yu, Staff Attorney, Office of
General Counsel, (703) 518-6593, National Credit Union Administration,
[[Page 64177]]
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 two federal flood insurance
statutes, the National Flood Insurance Act of 1968 and the Flood
Disaster Protection Act of 1973. The Reform Act required the OCC,
Board, FDIC, the 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, NCUA, and FCA (collectively, ``the Agencies'')
fulfilled these requirements by issuing a joint final rule in the
summer of 1996. See 61 FR 45684 (August 29, 1996).\1\
\1\ Throughout 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 (Jul. 6, 2011).
In connection with the 1996 joint rulemaking process, the Agencies
received a number of requests to clarify specific issues covering a
wide spectrum of the proposed rule's provisions. The Agencies addressed
many of these requests in the preamble to the joint final rule. The
Agencies concluded, however, that given the number, level of detail,
and diversity of the requests, guidance addressing the technical
compliance issues would be helpful and appropriate. Consequently, the
Agencies decided guidance would be appropriate to address these
technical issues subsequent to the promulgation of the final rule (61
FR 45685). The Federal Financial Institutions Examination Council
(FFIEC) fulfilled that objective through the initial release of the
Interagency Questions and Answers in 1997 (1997 Interagency Questions
and Answers). 62 FR 39523 (July 23, 1997).
After notice and comment, on July 21, 2009, the Agencies updated
the interagency guidance (2009 Interagency Questions and Answers). 74
FR 35914 (July 21, 2009). In this publication, the Agencies also
proposed five new questions and answers for comment. See 74 FR 35931.
The proposed questions and answers addressed issues related to
insurable value and force placement of flood insurance.
The Agencies received 28 total comments on the proposed questions
and answers. These comments are discussed below.
The Agencies are adopting two of the five questions and answers
proposed in the 2009 Interagency Questions and Answers: one question
and answer relating to insurable value (question and answer 9) and
another question and answer relating to force placement of flood
insurance (question and answer 61). The Agencies are also withdrawing
one question and answer relating to insurable value and have reserved
this question and answer for later use (question and answer 10).
However, as discussed below, because the Agencies propose to
significantly and substantively change the answers to two of the
questions and answers relating to the force placement of flood
insurance, the Agencies are proposing them for additional comment
(questions and answers 60 and 62). In addition, the Agencies are
proposing changes to a previously finalized question and answer
(question and answer 57) that also relates to the force placement of
flood insurance to be consistent with the proposed changes to these two
The two questions and answers being adopted as final today
supplement the 2009 Interagency Questions and Answers and other
guidance or interpretations issued by the Agencies and the Federal
Emergency Management Agency (FEMA). The Agencies will publish the
combined and complete Interagency Questions and Answers in their
entirety once the questions and answers that are being proposed for
comment are finalized.
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 Reform
Act (codified at 42 U.S.C. 4001 et seq.). ``Regulation'' refers to each
agency's current final flood insurance rule.\2\
\2\ The Agencies' rules are codified at 12 CFR part 22 (national
banks) and 76 FR 48,950, 49,140 (Aug. 9, 2011) (to be codified at 12
CFR part 172) (Federal savings associations) (OCC), 12 CFR part 208
(Board), 12 CFR part 339 (state nonmember banks) and 76 FR 47,822
(Aug. 5, 2011) (to be codified at 12 CFR part 391 subpart D) (state
savings associations) (FDIC), 12 CFR part 614 (FCA), and 12 CFR part
760 (NCUA). OTS's rules at 12 CFR part 572 will be removed from
codification at a later date.
Final and Withdrawn Questions and Answers
Section II. Determining When Certain Loans Are Designated Loans for
Which Flood Insurance Is Required Under the Act and Regulation
Insurable value. In general, the questions and answers in Section
II explain that, in order to comply with the Regulation, the amount of
insurance required is the lesser of the outstanding principal balance
of the designated loan or the maximum amount of insurance available
under the National Flood Insurance Program (NFIP). The maximum amount
of insurance available under the NFIP is the lesser of the maximum
limit of coverage available for the particular type of property under
the Act or ``the overall value of the property securing the designated
loan minus the value of the land on which the property is located.''
Consistent with terminology used by FEMA in its guidance, the Agencies
use the term ``insurable value'' to denote the regulatory phrase
``overall value of the property minus the value of the land.'' See
generally question and answer 8.
The Agencies proposed questions and answers 9 and 10 in an effort
to assist lenders in calculating the ``insurable value'' of a property
for purposes of determining the required amount of flood insurance
under the NFIP. Proposed question and answer 9 referenced FEMA
guidelines in providing that the full insurable value of a building is
the same as 100 percent replacement cost value (RCV) \3\ of the insured
building. Proposed question and answer 9 sought to illustrate the
flexibility lenders have in determining RCV of a building by providing
that lenders (either by themselves or in consultation with the flood
insurance provider or other professionals) could consider permissible
methods, such as the RCV used in a hazard insurance policy (recognizing
that replacement cost for flood insurance will include the foundation),
an appraisal based on a cost-value (not market-value) approach before
depreciation deductions, and/or a construction cost calculation.
\3\ RCV is the cost to replace property with the same kind of
material and construction without deduction for depreciation. FEMA,
Mandatory Purchase of Flood Insurance Guidelines, at GLS 10.
Proposed question and answer 10 provided alternatives to
determining the insurable value other than RCV for certain
nonresidential buildings used for ranching, farming, and industrial
purposes when the borrower either would replace the building with a
structure more closely aligned with the
[[Page 64178]]
function the building is presently providing or would not replace the
building if damaged or destroyed by a flood. In such cases, the
alternatives proposed by the Agencies would have allowed the lender to
determine the insurable value by either the ``functional building cost
value'' or by the demolition/removal cost value.
Although the Agencies received several comments commending the
proposed guidance, numerous commenters objected to tying insurable
value to RCV in all cases. Commenters stated that it was not possible
to obtain RCV in many instances, particularly in cases of
nonresidential properties. Commenters also stated that reliance on RCV
was inappropriate for nonresidential properties because borrowers would
only recover actual cash value \4\ in the event of a loss for these
types of properties, resulting in the borrower being over-insured.
\4\ ``Actual cash value'' is the cost to replace an insured item
of property at the time of loss, less the value of its physical
depreciation. FEMA, Mandatory Purchase of Flood Insurance
Guidelines, at GLS 1.
In response, the Agencies reaffirm that the insurable value for
certain residential or condominium properties should be written to RCV.
Further, the Agencies recognize that this strict interpretation of
insurable value as RCV may not be practical in all cases for
nonresidential buildings. Although FEMA's guidance states that
insurable value is the same as RCV, it also provides that lenders
should avoid creating a situation in which the insured pays for
coverage that exceeds the amount the NFIP will pay in the event of a
loss.\5\ In cases involving certain residential or condominium
properties,\6\ insurance policies should be written to, and the
insurance loss payout would be the equivalent of, RCV. However, in
cases involving nonresidential properties, as well as some residential
properties, where the insurance loss payout is normally based on actual
cash value, insurance policies written at RCV may require an insured to
pay for coverage that significantly exceeds the amount the NFIP would
pay in the event of a loss. Similarly, in the case of certain
nonresidential buildings used for ranching, farming, or industrial
purposes that the borrower either would not replace if damaged or
destroyed by a flood or would replace with a structure more closely
aligned to the function the building is providing at the time of the
flood, payouts may be well below RCV. Further, in cases where the
physical depreciation of a nonresidential building is very high, the
actual cash value payout would likely be very low, causing an even
larger gap in the amount of insurance purchased and the potential
payout. As a result, requiring flood insurance equal to RCV in such
instances may lead to over-insurance for such properties. Lenders,
however, need to be equally mindful of avoiding situations in which, as
a result of insuring at a level below RCV, they under-insure property.
In determining the amount of insurance to require, lenders should
consider the extent of recovery allowed under the applicable NFIP
\5\ FEMA, Mandatory Purchase of Flood Insurance Guidelines, at
\6\ A single-family dwelling, including a single-family unit in
a building under a condominium form of ownership, used as the
insured's primary residence is covered under the NFIP's Dwelling
Policy and, upon loss, payment is settled at RCV if the dwelling is
insured for at least the lesser of 80 percent of the dwelling's full
RCV or the maximum limit of coverage under the NFIP. Losses on other
residential properties are settled at actual cash value. See FEMA,
Flood Insurance Manual, at POL 3-20. Residential condominium
buildings are covered under the NFIP's Residential Condominium
Building Association Policy (RCBAP). Losses on residential
condominium buildings are settled at RCV, unless subject to a co-
insurance penalty, which applies when the building coverage is less
than the lesser of 80 percent of full RCV or the maximum limit of
coverage under the NFIP. See id. at POL 43-60.
Given these practical considerations, the Agencies are adopting
question and answer 9 with a revision to provide that, in calculating
the required amount of insurance, 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 a reasonable valuation. They may use an
appraisal based on a cost-value (not market-value) approach, a
construction-cost calculation, the insurable value used in 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; for example, most
hazard policies do not cover foundations), or any other reasonable
approach, so long as it can be supported. It is important for lenders
to recognize that, when calculating the minimum amount of insurance
that is required to be purchased, the insurable value is only relevant
to the extent that it is lower than either the outstanding principal
balance of the loan or the maximum amount of insurance available under
Withdrawn Question and Answer 10
In light of the alternative approaches suggested in final question
and answer 9, the Agencies believe the specific exceptions to insurable
value in proposed question and answer 10 are no longer necessary. As a
result, the Agencies are withdrawing question and answer 10 and that
number is reserved for future use.
Section X addressed issues concerning the force placement of flood
insurance. The section and the accompanying questions and answers were
originally adopted in the 1997 Interagency Questions and Answers. The
Agencies proposed changes to those existing questions and answers in
March 2008 designed to provide greater clarity with no intended change
in substance and meaning. These revisions were adopted in July 2009. In
response to comments received, however, the Agencies proposed three new
questions and answers (60, 61, and 62). These proposed questions and
answers addressed the following force placement issues: when the 45-day
notice period should begin, whether a borrower may be charged for the
cost of flood insurance coverage during the 45-day notice period, and
how soon after the end of the notice period a lender should purchase a
flood insurance policy when the borrower has failed to purchase an
The Agencies are adopting question and answer 61 as final, with
minor nonsubstantive clarifications. However, after consideration of
the comments received on questions and answers 60 and 62, the Agencies
are revising these proposed questions and answers for further comment.
The Agencies are also proposing revisions to question and answer 57 to
make it consistent with proposed questions and answers 60 and 62.
The Agencies proposed new question and answer 61 to address
questions and concerns about how soon lenders have to force place
insurance after the end of the 45-day notice period. 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. Proposed question and answer 61
stated that, given that the lender is already aware during the 45-day
notice period that it may be required to force place insurance
if there is no response from the borrower, any delay in force placing
flood insurance should be brief. Where there is a brief delay in force
placing required insurance, the proposed question and answer stated
that the Agencies will expect the lender to provide a reasonable
The Agencies received comments from six commenters addressing
proposed question and answer 61. Two lender commenters explained that
batch processing of force placed flood insurance policies may cause a
brief delay in the completion of the force placement process. They
requested that the Agencies specify in the answer that, if a policy is
in effect, for example, five days after the end of the 45-day notice
period, then the force placement time frame has been satisfied. The
Agencies decline to set an arbitrary number of days after the end of
the 45-day notice period as a ``safe harbor'' for completion of the
force placement process. The Agencies believe that the lender should
have policies and procedures in place to allow force placement
generally to commence when the 45-day notice period has expired.
However, the Agencies also recognize that the process of force placing
flood insurance may not always occur immediately on the 46th day. If
there is a brief delay in force placing the required insurance, the
lender should be able to provide a reasonable explanation for the
A government-sponsored enterprise (GSE) commenter did not agree
with allowing a brief delay, even if the lender could provide a
reasonable explanation, noting that flood insurance coverage is
required at all times during the term of the mortgage. This commenter
also expressed concern over the concept of the 45-day notice period,
which results in the unintended consequence that properties may be
uninsured or under-insured during the term of the loan. The Agencies
are unable to address this overall concern, given that the 45-day
notice requirement is found in the Act.
The Agencies are adopting final question and answer 61 with minor
nonsubstantive clarifications.
insurance. As noted above, the Agencies have revised and are re-
proposing question and answer 60, which addresses when a lender should
send the force-placement notice, and question and answer 62, which
addresses when a lender may charge a borrower for the cost of flood
insurance during the 45-day notice period. The Agencies are also
proposing revisions to final question and answer 57 in consideration of
the proposed revisions to questions and answers 60 and 62.
On July 21, 2009, the Agencies proposed question and answer 60 to
address the permissibility of a lender's acceleration of the 45-day
notice period for force placement by sending notice to the borrower
before the borrower's flood insurance coverage expires. The Act
provides that a lender or its servicer must notify a borrower if it
determines that the improved real estate collateral's insurance
coverage has expired or is less than the amount required for that
particular property. The Act further provides that if the borrower
fails to purchase flood insurance within 45 days of such notice, the
lender or servicer is required to purchase the insurance on behalf of
the borrower. See 42 U.S.C. 4012a(e)(1) & (2). The proposed answer to
question 60 stated that although a lender or servicer could send an
advance notice, the Act and Regulation do not allow a lender or its
servicer to shorten the 45-day force-placement notice period by sending
a notice to the borrower prior to the actual expiration date of the
flood insurance policy. The proposed answer also provided that the
notice must allow the borrower 45 days in which to obtain flood
The Agencies received a number of comments on this question and
answer. A few commenters generally agreed with the proposed answer to
question 60; however, the majority of the commenters viewed the
proposed question and answer as thwarting the flood insurance program's
primary purpose of ensuring continuous flood insurance coverage during
Some commenters asserted that the proposed question and answer
contradicted the NFIP Flood Insurance Manual, which requires flood
insurance protection for the life of the loan and states that renewal/
expiration letters should be sent not less than 45 days before policy
expiration. However, that discussion referenced in the manual pertains
to the renewal notice that is sent by an insurance company to
policyholders, reminding them that their flood insurance coverage is
about to lapse. As such, it has no application to the question and
answer, which pertains to the notice that a lender or its servicer is
required to send to borrowers once the lender or its servicer has made
a determination that flood insurance coverage has either lapsed or is
The Agencies agree with the commenters that the purpose of the
notice process is to ensure that there is continuous flood insurance
coverage during the life of the loan. In considering these comments to
proposed question and answer 60, the Agencies have sought to reconcile
the statute's requirement that a lender send the borrower notice of
inadequate or lapsed flood insurance with the purpose of the statute to
facilitate a lender or servicer's ability to ensure continuous flood
insurance coverage. The Agencies are, therefore, proposing revisions to
question and answer 60 to clarify when a lender is required to send a
force placement notice to the borrower to ensure adequate flood
insurance coverage is maintained throughout the term of the loan. The
revisions to the question and answer are further made in recognition of
the position, set out in the revisions to proposed question and answer
62 infra, that lenders may force place flood insurance coverage for any
part of the 45-day notice period in which no adequate borrower-
purchased flood insurance is in effect and charge the borrower for the
costs of such coverage, if the borrower has given the lender express
authority as a contractual condition of the loan being made.
[rtrif]60. When should a lender send the force placement notice to
Answer: To ensure that adequate flood insurance coverage is
maintained throughout the term of the loan, a lender or its servicer
must notify a borrower whenever flood insurance on the collateral has
expired or is less than the amount required for the property. The
lender must send this notice upon making a determination that the flood
insurance coverage is inadequate or has expired, such as upon receipt
of the notice of cancellation or expiration from the insurance provider
or as a result of an internal flood policy monitoring system. Notice is
also required when a lender learns that a property requires flood
insurance coverage because it is in an SFHA as a result of a flood map
change (which is occurring in many communities as a result of FEMA's
map modernization program). To avoid the expiration of insurance, the
Agencies recommend that the lender also advise the borrower when flood
insurance on the collateral is about to expire.[ltrif]
[[Page 64180]]
On July 21, 2009, the Agencies proposed question and answer 62 to
address whether a borrower may ever be charged for the cost of flood
insurance that provides coverage for the 45-day force-placement notice
period. The Agencies received comments from 19 commenters regarding the
proposed question and answer. Of these, a majority disagreed with the
proposition that a lender or servicer has no authority to charge a
borrower for coverage that applies to the notice period. One commenter
favored the question and answer, but noted that gaps in coverage and
costly administration of the notice requirements would be eliminated if
lenders escrowed flood insurance premiums, even though not legally
required to do so. Another commenter had no objection to the proposed
Several commenters reasoned that the Act intended to establish a
goal of continuous coverage throughout the life of a mortgage loan.
These commenters contended that question and answer 62 would undercut
this primary goal if finalized as proposed.
Commenters also contended that a borrower must maintain flood
insurance at the borrower's expense throughout the life of the loan.
They argued that it is in the borrower's best interest if flood
insurance coverage on the collateral is purchased by the lender during
the 45-day notice period after a policy lapses if a borrower has not
renewed the policy or otherwise purchased insurance. A commenter
contended that it is fair and equitable that borrowers should pay for
continuous coverage. Some commenters also noted that the Act expressly
allows a lender to charge a borrower for the cost of premiums and fees
incurred in purchasing insurance. One commenter argued it would further
safety and soundness principles to allow a lender or a servicer to
charge a borrower for the cost of flood insurance during the notice
period because, otherwise, the lender may not purchase such coverage if
it could not recoup its cost. Another commenter did not address the
proposed question and answer directly, but did argue for continuous
flood insurance coverage throughout the life of a mortgage, including
the notice period, citing potential significant financial risk to a
borrower during that time.
Some commenters acknowledged that the Act does not specifically
authorize a lender or a servicer to charge a borrower for a force-
placed policy until the notice period has expired. However, these
commenters contended that, absent a specific prohibition on charging
borrowers for coverage for the 45-day notice period, lenders should be
permitted to charge borrowers for such coverage.
Several commenters contended that most loan agreements generally
prohibit any gap in flood insurance coverage and authorize a lender to
force place insurance on the collateral if the borrower fails to
maintain coverage. One commenter advised that the proposed question and
answer would interfere with the borrower-lender contractual
relationship and also with the purpose of the Act by prohibiting
lenders from relying on the authority granted in their loan documents
to force place flood coverage.
One commenter noted that a policy force-placed through the NFIP is
not available until the expiration of the notice period; others
contended that private insurers offer force-placed coverage effective
retroactively to the date of the lapse to avoid any uninsured loss.
With respect to coverage during the notice period, one commenter noted
that, if retroactive coverage to the date of lapse is not permitted for
a force-placed private insurance policy, the lender (and the borrower)
will be exposed to loss. Several commenters noted that the lender would
be exposed to at least a 15-day lapse in coverage under an NFIP policy
because the lender's coverage continues for only 30 days after lapse,
Several commenters maintained that proposed question and answer 62
could harm borrowers. Commenters argued that a borrower would not have
to pay for duplicate coverage under most force-placed policies. They
contended that an insurer would waive or refund the premiums for force-
placed insurance if the borrower establishes that coverage is already
in place or was obtained during the notice period. Several commenters
even argued that the proposed question and answer might encourage a
``free-rider situation'' in which borrowers may delay renewal or even
cancel policies since they cannot be charged during the notice period.
A few commenters argued that proposed question and answer 62 could
lead to increased losses for the NFIP since lenders would submit more
claims under the mortgagee clauses of the NFIP policy for losses that
occur during the notice period instead of submitting them to a private
force-placed policy. The same commenters maintained that smaller
lenders may not be able to afford the cost of blanket or force-placed
policies and will allow collateral to remain uninsured for the gap
period, contrary to safety and soundness principles.
In consideration of the comments received, the Agencies are
revising proposed question and answer 62. As a general rule, the
revised proposed question and answer would allow a lender or its
servicer to charge a borrower for insurance coverage for any part of
the 45-day notice period in which no adequate borrower-purchased flood
insurance coverage is in effect if the borrower has given the lender or
its servicer the express authority to charge the borrower for such
coverage as a contractual condition of the loan being made. Any policy
that is obtained by a lender or its servicer, the premium of which is
charged to the borrower pursuant to a contractual right, should be
equivalent in coverage and exclusions to an NFIP policy and cover the
interests of both the borrower and the lender.
In the proposed question and answer, the Agencies also encourage
institutions to explain their force-placement policies to borrowers
(including their policy on charging for force-placement coverage for
the 45-day period and the timing of that charge) and encourage lenders
and servicers to escrow flood insurance premiums. Following these
recommendations could result in significantly less force placement of
flood insurance. The Agencies also note in the proposed question and
answer that Regulation Z requires lenders to establish an escrow
account for the payment of property taxes and mortgage-related
insurance required by the lender, including flood insurance, for all
``higher priced'' first-lien mortgage loans. See 12 CFR
226.35(b)(3).\7\
\7\ Institutions should note that upcoming rules to implement
section 1461 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Pub. L. 111-203) (Dodd-Frank Act), may affect the
portion of the answer referencing mandatory escrow requirements for
[rtrif]62. When may a lender or its servicer charge a borrower for
the cost of insurance that covers collateral during the 45-day notice
Answer: A lender or its servicer may charge a borrower for
insurance coverage for any part of the 45-day notice period in which no
adequate borrower-purchased flood insurance coverage is in effect, if
the borrower has given the lender or its servicer the express authority
to charge the borrower for such coverage as a contractual condition of
the loan being made. Any policy that is obtained by a lender or its
servicer, the premium of which is
[[Page 64181]]
The Agencies encourage institutions to explain their force-
placement policies to borrowers (including their policy on charging for
force-placement coverage for the 45-day period and the timing of that
charge) and encourage lenders and servicers to escrow flood insurance
premiums. Following these recommendations could result in less force
placement of flood insurance. Further, Regulation Z requires lenders to
establish an escrow account for the payment of property taxes and
mortgage-related insurance required by the lender, including flood
insurance, for all ``higher priced'' first-lien mortgage loans. See 12
CFR 226.35(b)(3).[ltrif]
Proposed question and answer 57 provides general guidance on force
placement under the Act and Regulation. The Agencies are proposing
revisions to previously finalized question and answer 57 as a result of
the proposed revisions to questions and answers 60 and 62. The proposed
revisions to question and answer 57 clarify when a lender is required
to send a force-placement notice to the borrower to ensure adequate
flood insurance coverage is maintained throughout the term of the loan.
The proposed revisions also clarify best practices that lenders should
follow in providing borrowers with useful information in the force-
placement notice to assist them in understanding the high costs of
premiums and fees in connection with force-placed insurance coverage.
The revised question and answer also encourages lenders, in situations
where a borrower has not previously been required to have flood
insurance (such as a map change), to send borrowers the Notice of
Special Flood Hazards and Availability of Federal Disaster Assistance
with the force-placement notice to give borrowers important information
about the implications of being in a SFHA.
[rtrif]57. What is the requirement for the force placement of flood
insurance under the Act and Regulation?
Answer: The Act and Regulation require a lender to force place
flood insurance, if all of the following circumstances occur:
The lender determines at any time during the life of the
loan that the property securing the loan is located in an SFHA;
Flood insurance under the Act is available for improved
property securing the loan;
The lender determines that flood insurance coverage is
inadequate or does not exist; and
After required notice, the borrower fails to purchase the
appropriate amount of coverage within 45 days.
The Act and Regulation require the lender, or its servicer, to send
notice to the borrower upon making a determination that the improved
real estate collateral's insurance coverage has expired or is less than
the amount required for that particular property, such as upon receipt
of the notice of cancellation or expiration from the insurance
provider. The Act and Regulation also require the lender, or its
servicer, to give notice and force-place such insurance, if necessary,
when a lender learns that a property requires flood insurance coverage
because it is in an SFHA as a result of a flood map change (which is
occurring in many communities as a result of FEMA's map modernization
The notice to the borrower must clearly state that the borrower
should obtain, at the borrower's expense, flood insurance in an amount
at least equal to the amount required under the NFIP, for the remainder
of the loan's term. The notice should also state that if the borrower
does not obtain the insurance within 45 days, the lender will purchase
the insurance on behalf of the borrower and may charge the borrower for
the cost of premiums and fees to obtain the coverage, which are likely
to be more expensive than if the borrower purchases it. The Agencies
encourage institutions to explain their force-placement policies to
borrowers (including, where applicable, that they charge for force-
placement coverage for the 45-day period and the timing of that
charge). In situations where a borrower has not previously been
required to have flood insurance (such as a map change), it is a best
practice to also provide the Notice of Special Flood Hazards and
Availability of Federal Disaster Assistance, which give borrowers
important information about the implications of being in an SFHA.
If adequate insurance is not obtained by the borrower within the
45-day notice period, then the lender must purchase insurance on the
borrower's behalf. Standard Fannie Mae/Freddie Mac documents permit the
servicer or lender to add those charges to the principal amount of the
FEMA developed the Mortgage Portfolio Protection Program (MPPP) to
assist lenders in connection with force-placement procedures. FEMA
published these procedures in the Federal Register on August 29, 1995
(60 FR 44881). Appendix A of FEMA's September 2007 Mandatory Purchase
of Flood Insurance Guidelines sets out the MPPP Guidelines and
Requirements, including force-placement procedures and examples of
notification letters to be used in connection with the MPPP. [ltrif]
The Agencies invite specific public comment on proposed questions
and answers 57, 60, and 62 and are particularly interested in comments
regarding proposed question and answer 62. With regard to proposed
question and answer 62, the Agencies note that question and answer 62
being proposed today reaches a conclusion that is significantly
different from the guidance proposed in July 2009. In the July 2009
proposed guidance, proposed question and answer 62 stated that a lender
or its servicer does not have the authority to charge a borrower for
the cost of insurance coverage during the 45-day notice period.
However, in recognition of standard provisions in many contracts
entered into between borrowers and lenders at loan origination, the
Agencies are now proposing guidance allowing lenders, or servicers
acting on behalf of lenders, to charge a borrower for insurance
coverage for any part of the 45-day notice period in which no adequate
borrower-purchased flood insurance coverage is in effect if the
borrower has given the lender or its servicer the express authority to
charge the borrower for such coverage as a contractual condition of the
loan being made.
The Agencies are concerned that borrowers are not adequately aware
of the higher costs of lender-placed flood insurance. In addition, the
Agencies are concerned that borrowers may not be aware that lender
force placement may occur during the 45-day notice period and that the
borrower could be charged for such coverage. The Agencies invite
comment on how to address these concerns and on whether they should
adopt question and answer 62 as proposed. The Agencies also seek
comment on whether there are alternative approaches that would
appropriately balance the borrower's right to obtain flood insurance at
any time during the 45-day period after notification and avoid force
placement with the lender's need to protect itself during that period
and to be compensated for lender-purchased insurance.
The Agencies note that an NFIP flood insurance policy provides
coverage for the mortgagee for 30 days after lapse. Proposed question
and answer 62 does not directly address whether a lender may charge the
borrower for coverage during the 30 days after lapse of the borrower-
purchased NFIP policy, during which time the policy is still in effect,
other than stating that the lender may charge a borrower for insurance
borrower-purchased flood insurance coverage is in effect. The Agencies
also seek comment on whether any final question and answer on this
issue should provide that lenders may not charge for additional
overlapping lender-placed coverage during that 30-day period.
Finally, the Agencies note that there are a number of recent
developments relating to force-placed insurance on consumer mortgages.
For example, Congress recently set forth notice and force-placement
requirements for hazard insurance in section 1463 of the Dodd-Frank
Act, which amends the Real Estate Settlement Procedures Act of 1974.
While section 1463 is still awaiting regulatory implementation, the
statutory language provides that a servicer of a federally related
mortgage may not impose any charge on any borrower for force-placed
hazard insurance unless the servicer has sent the borrower two separate
notices within a 45-day period and has not received confirmation from
the borrower that such insurance has been obtained during that period.
The Agencies note that section 1463 of the Dodd-Frank Act does not
cover the force placement of flood insurance. Force-placement of
insurance also has been raised as a significant concern in connection
with recent foreclosure activity. The Agencies will continue to monitor
developments in this area to the extent that they can inform agencies'
supervisory policy with regard to the Act rules.
If financial institutions, bank examiners, community groups, or
other interested parties have unanswered questions or comments about
the Agencies' flood insurance regulation, they should submit them to
the Agencies. The Agencies will consider addressing these questions in
Section 722 of the Gramm--Leach--Bliley Act of 1999, 12 U.S.C.
4809, requires the federal banking Agencies to use ``plain language''
in all proposed and final rules published after January 1, 2000.
Although this document is not a proposed rule, comments are
nevertheless invited on whether the proposed questions and answers are
stated clearly and how they might be revised to be easier to read.
The text of the new final Questions and Answers follows:
II. Determining the Appropriate Amount of Flood Insurance Required
Under the Act and Regulation
9. What is the ``insurable value'' of a building?
Answer: The insurable value of a building is the same as the
overall value of a property minus the land on which the property is
located. FEMA's Mandatory Purchase of Flood Insurance Guidelines
state that the insurable value of a building is the same as 100
percent replacement cost value (RCV) of the insured building, which
is defined as ``[t] he cost to replace property with the same kind
of material and construction without deduction for depreciation.''
\8\ FEMA's guidelines, however, also provide that lenders should
avoid creating a situation in which the insured pays for more
coverage than the NFIP would pay in the event of a loss.\9\ Strictly
linking insurable value to RCV is not practical in all cases. In
cases involving certain residential or condominium properties,
insurance policies should be written to, and the insurance loss
payout usually would be the equivalent of, RCV.\10\ However, in
cases involving nonresidential properties, and even some residential
properties, where the insurance loss payout would normally be based
on actual cash value, which is RCV less physical depreciation,\11\
insurance policies written at RCV may require an insured to pay for
coverage that exceeds the amount the NFIP would pay in the event of
a loss. Therefore, it is reasonable for lenders, in determining the
amount of flood insurance required, to consider the extent of
recovery allowed under the NFIP policy for the type of property
being insured. This allows the lender to assist the borrower in
avoiding situations in which the insured pays for coverage that
exceeds the amount the NFIP will pay in the event of a loss. Lenders
need to be equally mindful of avoiding situations in which, as a
result of insuring at a level below RCV, they underinsure property.
\8\ FEMA, Mandatory Purchase of Flood Insurance Guidelines, at
GLS 10.
\9\ FEMA, Mandatory Purchase of Flood Insurance Guidelines, at
\10\ A single-family dwelling, including a single-family unit in
\11\ FEMA, Mandatory Purchase of Flood Insurance Guidelines, at
GLS 1.
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 construction-cost calculation, the insurable
value used in 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; for example, most hazard policies do not cover
foundations), or any other reasonable approach, so long as it can be
X. Force Placement of Flood Insurance
57. What is the requirement for the force placement of flood
60. When should a lender send the force-placement notice to the
61. When must the lender have flood insurance in place if the
borrower has not obtained adequate insurance within the 45-day
Answer: 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.
However, where there is a brief delay in force placing required
insurance, the Agencies will expect the lender to provide a
reasonable explanation for the delay, for example, where a lender
uses batch processing to purchase force-placed flood insurance
62. When may a lender or its servicer charge a borrower for the
cost of insurance that covers collateral during the 45-day notice
End of text of the new final Questions and Answers.
System, September 30, 2011.
Dated at Washington, DC this 11th day of October, 2011.
[[Page 64183]]
By the National Credit Union Administration Board, on October 3,
[FR Doc. 2011-26749 Filed 10-14-11; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P; 6705-01-P; 7535-01-P