OCC Bulletin 2019-8 | February 21, 2019

Loans in Areas Having Special Flood Hazards—Private Flood Insurance: Final Rule

To

Chief Executive Officers of All National Banks, Federal Savings Associations, and Federal Branches and Agencies; Department and Division Heads; All Examining Personnel; and Other Interested Parties

Summary

The Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Farm Credit Administration, and the National Credit Union Administration (collectively, the agencies) have issued a final rule that implements the private flood insurance provisions of the Biggert-Waters Flood Insurance Reform Act of 2012. Specifically, the final rule requires regulated lending institutions to accept policies that meet the statutory definition of “private flood insurance” in the Biggert-Waters Act. The final rule also permits regulated lending institutions to accept flood insurance provided by private insurers that does not meet the statutory definition of “private flood insurance,” subject to certain conditions. In addition, the final rule allows regulated lending institutions to accept certain flood coverage issued by mutual aid societies. The final rule takes effect on July 1, 2019.

Note for Community Banks

This final rule applies to all national banks, federal savings associations, and federal branches and agencies (collectively, banks), including community banks.

Highlights

The final rule requires banks to accept “private flood insurance,” as defined in the Biggert-Waters Act, to satisfy the requirement that flood insurance be purchased in connection with loans secured by buildings or mobile homes located in special flood hazard areas for which flood insurance is available under the National Flood Insurance Program (NFIP). The final rule also

includes a “compliance aid” provision to help a bank determine whether a flood insurance policy meets the Biggert-Waters Act definition of “private flood insurance” and must be accepted
permits banks to accept certain flood policies issued by private insurers that do not meet the definition of “private flood insurance.”
permits banks to accept certain flood coverage provided by mutual aid societies, such as Amish Aid Plans.

Background

The National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973 govern the NFIP. Among other things, these statutes require the purchase of flood insurance in connection with loans secured by improved real estate or mobile homes located in special flood hazard areas if the community where the improved real estate or mobile home is located participates in the NFIP. These statutes also make available federally subsidized flood insurance through the NFIP, which is administered by the Federal Emergency Management Agency. Regulations issued by the agencies implement these statutes for the lending institutions they supervise.

The Biggert-Waters Act significantly amended the NFIP requirements. Among other changes, the Biggert-Waters Act requires each of the agencies to issue a rule directing regulated lending institutions to accept private flood insurance as defined in the act. On October 30, 2013, the agencies jointly issued a proposed rule to implement this provision, as well as other provisions, of the act.¹ On November 7, 2016, the agencies re-proposed the private flood insurance provision.² The agencies are now finalizing this rule, with changes based on public comments received.

Currently, the OCC allows banks to accept private flood insurance and flood coverage provided by mutual aid societies, such as Amish Aid Plans, in satisfaction of NFIP requirements on a discretionary basis if the bank determines that the insurance adequately protects its security for a loan. Until the effective date of this rule, banks may continue to accept private flood insurance and flood coverage provided by mutual aid societies, as currently permitted. After the effective date of this rule, banks will be required to accept certain flood insurance policies and, similar to current practice, may continue to accept other flood insurance policies issued by private insurers and flood coverage issued by mutual aid societies.

Further Information

Please contact Rhonda L. Daniels, Compliance Specialist, Compliance Policy Division, at (202) 649-5405; or Sadia Chaudhary, Counsel; Heidi M. Thomas, Special Counsel; or Melissa J. Lisenbee, Senior Attorney, Chief Counsel’s Office, at (202) 649-5490.

Jonathan V. Gould
Senior Deputy Comptroller and Chief Counsel