compliance handbook

Regulation H

Flood Disaster Protection

Introduction

The National Flood Insurance Program (NFIP) is

administered primarily under the National Flood

Insurance Act of 1968 (1968 Act) and the Flood

Disaster Protection Act of 1973 (FDPA).

The 1968

Act made federally subsidized flood insurance

available to owners of improved real estate or

mobile homes located in special flood hazard areas

(SFHA) if their community participates in the NFIP.

The NFIP, administered by a department of the

Federal Emergency Management Agency (FEMA)

known as the Federal Insurance and Mitigation

Administration (FIMA), makes federally backed

flood insurance available to consumers through

NFIP Direct Program agents who deal directly with

FEMA or through the Write Your Own (WYO)

Program, which allows consumers to purchase

federal flood insurance from private insurance

carriers. The NFIP aims to reduce the impact of

flooding by providing affordable insurance to

property owners and by encouraging communities

to adopt and enforce floodplain management

regulations. The FDPA requires federal financial

regulatory agencies to adopt regulations prohibit-

ing their regulated lending institutions from making,

increasing, extending, or renewing a loan secured

by improved real estate or a mobile home located

or to be located in an SFHA in a community

participating in the NFIP unless the property

securing the loan is covered by flood insurance.

Flood insurance may be provided through the NFIP

or through a private insurance carrier.

Title V of the Riegle Community Development

and Regulatory Improvement Act of 1994,

which is

called the National Flood Insurance Reform Act of

1994 (1994 Act), comprehensively revised the

federal flood insurance statutes. The purpose of the

1994 Act was to increase compliance with flood

insurance requirements and participation in the

NFIP in order to provide additional income to the

National Flood Insurance Fund and to decrease the

financial burden of flooding on the federal govern-

ment, taxpayers, and flood victims.

The 1994 Act

required the federal financial regulatory agencies,

the Board of Governors of the Federal Reserve

System (FRB); the Federal Deposit Insurance

Corporation (FDIC); the National Credit Union

Administration (NCUA); and the Office of the

Comptroller of the Currency (OCC) to revise their

current flood insurance regulations and brought

lenders regulated by the Farm Credit Administra-

tion (FCA) under the coverage of the federal flood

insurance statutes. The federal financial regulatory

agencies and the FCA (collectively, the Agencies)

jointly issued regulations on August 29, 1996 (61

FR 45684).

The 1994 Act also made the flood insurance

requirements directly applicable to the loans pur-

chased by the Federal National Mortgage Associa-

tion (Fannie Mae) and the Federal Home Loan

Mortgage Corporation (Freddie Mac) and to agen-

cies that provide government insurance or guaran-

tees such as the Small Business Administration

(SBA), Federal Housing Administration (FHA), and

the Department of Veterans Affairs (VA).

The mandatory flood insurance purchase require-

ments of the FDPA were again significantly

amended with the passage of the Biggert-Waters

Flood Insurance Reform Act of 2012 (Biggert-

Waters Act) and the Homeowner Flood Insurance

Affordability Act of 2014 (HFIAA). These statutes

made changes to the provisions pertaining to force

placement of flood insurance; escrowing of flood

insurance premiums and fees; exemptions to the

mandatory flood insurance purchase requirement;

and civil money penalties. Moreover, a new provi-

sion mandating the acceptance of a private flood

insurance policy meeting certain criteria as satis-

faction of the mandatory purchase requirement was

added to the FDPA. The Agencies jointly issued

rules addressing force placement, escrow, and the

exemption to the mandatory purchase requirement

for detached structures on July 21, 2015 (80 FR

43215).

Objectives of the FDPA

• Provide flood insurance to owners of improved

real estate located in SFHAs of communities

participating in the NFIP.

• Require communities to enact measures de-

signed to reduce or avoid future flood losses as

a condition for making federally subsidized flood

insurance available.

• Require federal financial regulatory agencies to

adopt regulations prohibiting their regulated

lending institutions from making, increasing,

1. These statutes are codified at 42 USC §4001-4129. FEMA

administers the NFIP; its regulations implementing the NFIP

appear at 44 CFR parts 59-80.

2. Pub. L.103-325, Title V, 108 Stat. 2160, 2255-87 (Septem-

ber 23, 1994).

3. H.R. Conf. Rep. No. 652, 103d Cong. 2d Sess. 195 (1994).

(Conference Report).

4. Agency regulations are codified at 12 CFR 22 (OCC);

CFR 208 (FRB); 12 CFR 339 (FDIC); 12 CFR 614 (FCA); 12 CFR

760 (NCUA).

Consumer Compliance Handbook Reg. H – Flood Protection • 1 (7/16)

extending, or renewing a loan secured by

improved real estate or a mobile home located or

to be located in an SFHA of a community

participating in the NFIP, unless the property

securing the loan is covered by flood insurance.

• Require federal agencies, such as the FHA, the

SBA, and the VA not to subsidize, insure, or

guarantee any loan if the property securing the

loan is in an SFHA of a community not participat-

ing in the NFIP.

Structures Eligible for Flood Insurance

under the NFIP

The NFIP covers improved real property or mobile

homes located or to be located in an area identified

by FEMA as having special flood hazards. Gener-

ally, each insurable structure requires a separate

insurance policy. The following types of structures

are eligible for coverage:

• residential, industrial, commercial, and agricul-

tural buildings that are walled and roofed

structures that are principally above ground

• buildings under construction where a develop-

ment loan is made to construct insurable improve-

ments on the land. Insurance can be purchased

to keep pace with the new construction

• mobile homes that are affixed to a permanent

site, including mobile homes that are part of a

dealer’s inventory and affixed to permanent

foundations

• condominiums

• co-operative buildings

• flood insurance coverage is also available for

personal property and other insurable contents

contained in real property or mobile homes

located in SFHAs. The property must be insured

in order for the contents to be eligible.

Structures Not Eligible for Flood

Insurance under the NFIP

• unimproved land, bridges, dams, and roads

• mobile homes not affixed to a permanent site

• travel trailers and campers

• converted buses or vans

• buildings entirely in, on, or over water into which

boats are floated

• buildings newly constructed or substantially

improved on or after October 1, 1983, in an area

designated as an undeveloped coastal barrier

with the Coastal Barrier Resource System estab-

lished by the Coastal Barrier Resources Act

(Public Law 97-348)

Flood Insurance Requirements for

Lending Institutions

Basic Requirement

Flood insurance, either issued through the NFIP or

from a private insurance provider, is required for

the term of the loan on buildings or mobile homes

when an institution makes, increases, extends, or

renews a designated loan, meaning all three of the

following factors are present:

• the loan (commercial or consumer) is secured by

improved real estate or a mobile home that is

affixed to a permanent foundation (security

property);

• the property securing the loan is located or will

be located in an SFHA as identified by FEMA;

and

• the community in which the property is located

participates in the NFIP.

In the case of mobile homes, an institution does

not have to obtain a security interest in the

underlying real estate in order for a loan secured by

a mobile home to be covered by the regulations.

The FDPA provides that a regulated lending

institution may not make, increase, extend, or

renew any loan secured by improved real property

that is located in an SFHA unless the improved real

property is covered by the minimum amount of

flood insurance required by statute. This includes

situations where a security interest in improved real

property is taken only “out of an abundance of

caution.”

Nonparticipating Communities

Although a lender may make, increase, extend, or

renew a loan in a nonparticipating community, a

lender is still required to determine whether the

security property is located in an SFHA and if so, to

notify the borrower. The lender must also notify the

borrower that flood insurance coverage under the

NFIP is not available because the community does

not participate in the NFIP. If the nonparticipating

community has been identified for at least one year

as containing an SFHA, properties located in the

community will not be eligible for federal disaster

relief assistance in the event of a federally declared

disaster.

Because of the lack of NFIP flood insurance

coverage and limited federal disaster assistance

available, a lender should carefully evaluate the

risk involved in making such a loan. A lender

making a loan in a nonparticipating community may

want to require the purchase of private flood

insurance, if available. Also, a lender with signifi-

Flood Disaster Protection

2 (7/16) • Reg. H – Flood Protection Consumer

Compliance Handbook

cant lending in nonparticipating communities should

establish procedures to ensure that such loans do

not constitute an unacceptably large portion of the

financial institution’s loan portfolio.

Federal agency lenders such as the FHA, the

SBA, and the VA will not subsidize, insure, or

guarantee any loan if the property securing the loan

is in an SFHA of a community not participating in

the NFIP. In addition, Freddie Mac and Fannie Mae

will not purchase mortgages secured by improved

properties located in SFHAs in nonparticipating

communities.

Special Situation—Table-Funded Loans

In the typical table-funding situation, the party

providing the funding reviews and approves the

credit standing of the borrower and issues a

commitment to the broker or dealer to purchase the

loan at the time the loan is originated. Frequently, all

loan documentation and other statutorily mandated

notices are supplied by the party providing the

funding, rather than the broker or dealer. The

funding party provides the original funding “at the

table” when the broker or dealer and the borrower

close the loan. Concurrent with the loan closing, the

funding party acquires the loan from the broker or

dealer.

For flood hazard determination purposes, the

substance of the table-funded transaction should

control and the typical table-funded transaction

should be considered a loan made, rather than

purchased, by the entity that actually supplies the

funds. Regulated institutions that provide table

funding to close loans originated by a mortgage

broker or mobile home dealer will be considered to

be “making” a loan for purposes of the flood

insurance requirements.

Treating table-funded loans as loans made by

the funding entity need not result in duplication of

flood hazard determinations and borrower notices.

The funding entity may delegate to the broker or

dealer originating the transaction the responsibility

for fulfilling the flood insurance requirements or

may otherwise divide the responsibilities with the

broker or dealer.

Exemptions to the Purchase

Requirement

The flood insurance purchase requirement does

not apply to the following three loan situations:

1. loans on state-owned property covered under

an adequate policy of self-insurance satisfac-

tory to the administrator of FEMA. The adminis-

trator will periodically publish a list of state

property falling within this exemption

2. loans with an original principal balance of

$5,000 or less, and having an original repay-

ment term of one year or less

3. any structure that is a part of any residential

property but is detached from the primary

residential structure of such property and does

not serve as a residence

• a structure that is part of a residential property

is a structure used primarily for personal,

family, or household purposes and not used

primarily for agricultural, commercial, indus-

trial, or other business purposes. It is de-

tached from the primary residential structure

if it is not joined by any structural connection

to that structure;

• whether a structure serves as a residence is

based on the institution’s good faith determi-

nation that the structure is intended for

residential use or actually used as a resi-

dence, which generally includes sleeping,

bathroom, or kitchen facilities but not neces-

sarily all three.

Amount of Flood Insurance Required

The minimum amount of flood insurance required

must be at least equal to the lesser of the

outstanding principal balance of the loan, the

maximum amount available under the NFIP for the

type of structure, or the insurable value of the

property. Flood insurance coverage under the NFIP

is limited to the building or mobile home and any

personal property that secures the loan and not the

land itself.

The limits of coverage for flood policies are

• $250,000 for residential property structures and

$100,000 for personal contents

• $500,000 for nonresidential structures and

$500,000 for contents

• $500,000 for non-condominium residential build-

ings of five units or greater and $100,000 for

personal contents

Waiting Period

NFIP flood insurance policies that are not issued in

conjunction with the making, increasing, extending,

or renewing of a loan have a 30-day waiting period.

The congressional intent behind this requirement

was to prevent the purchase of flood insurance

(and any direct loss to the U.S. government) in

times of imminent loss. However, if the initial

purchase of flood insurance is made during the

13-month period following revision or update of a

5. This amount was increased from $250,000 to $500,000 as of

June

1, 2014.

Flood Disaster Protection

Consumer Compliance Handbook Reg.

H – Flood Protection • 3 (7/16)

Flood Insurance Rate Map for the community, there

is a one-day waiting period.

There is no waiting period when an additional

amount of NFIP insurance is required in connection

with the making, increasing, extending or renewing

of a loan, such as a second mortgage, home equity

loan, or refinancing.

Special Situations—Second

Mortgages/Home Equity Loans

Both second mortgages and home-equity loans are

transactions that may be subject to the mandatory

purchase requirements of the FDPA. Because only

one NFIP flood insurance policy can be issued on a

building, an institution should not request a new

NFIP flood insurance policy if one already exists.

Instead, the institution should have the borrower

contact the insurance agent

• to inform the agent of the intention to obtain a

loan involving a subordinate lien,

• to obtain verification of the existence of a flood

insurance policy, and

• to check whether the amount of insurance covers

all loan amounts.

After obtaining this information, the insurance

agent should increase the amount of NFIP cover-

age if necessary and issue an endorsement that

will reflect the institution as a lien holder.

As an alternative, the borrower may also con-

sider obtaining a private flood insurance policy in

the proper amount.

For loans with approved lines of credit to be used

in the future, it may be difficult to calculate the

amount of insurance for the loan since the borrower

will be drawing down differing amounts on the line

at different times. If there is no policy on the

collateral, the borrower must, at a minimum, obtain

a policy as a requirement for drawing on the line. As

a matter of administrative convenience to ensure

compliance with the requirements, an institution

may take the following alternative approaches:

• as part of its procedures, an institution should

review its records periodically so that as draws

are made against the line or repayments made to

the account, the appropriate amount of insur-

ance coverage can be maintained; or

• upon origination, require the purchase of flood

insurance for the total amount of the line, the

value of the improved property or the maximum

amount of flood insurance coverage available,

whichever is less.

Special Situations—Condominium

Policies

FEMA’s condominium master policy is called a

Residential Condominium Building Association Pol-

icy (RCBAP). The RCBAP covers both the common

and individually owned building elements within the

units, improvements within the units, and contents

owned in common if contents coverage is pur-

chased. The maximum amount of building flood

insurance coverage that can be purchased under

an RCBAP is either 100 percent of the replacement

cost value of the building or the total number of

units in the condominium building times $250,000,

whichever is less.

An institution must ensure that the minimum

amount of flood insurance covering the condo-

minium unit is the lesser of

• the outstanding principal balance of the loan; or

• the maximum amount of insurance available

under the NFIP, which is the lesser of

— the maximum limit available for the residential

condominium unit; or

— the insurable value allocated to the residen-

tial condominium unit, which is the replace-

ment cost value of the condominium building

divided by the number of units.

Therefore, an institution must require a borrower

whose loan is secured by a residential condo-

minium unit to either

• ensure the condominium owners association has

purchased an RCBAP, or other flood insurance

policy, covering either 100 percent of the replace-

ment cost value of the building or the total

number of units in the condominium building

times $250,000, whichever is less; or

• obtain a Dwelling Policy if the condominium

owners association has not purchased flood

insurance as described above or if that coverage

is less than either 100 percent of the replacement

cost value of the building or the total number of

units in the condominium building times

$250,000, whichever is less. The amount of

coverage under a Dwelling Policy required to be

purchased by the individual unit owner would be

the difference between the condominium pol-

icy’s coverage allocated to that unit and the

mandatory flood insurance purchase require-

ments discussed above.

For instance, the maximum amount of coverage

on a 50-unit condominium building would be

$12,500,000 ($250,000 x 50). If the replacement

cost value of the building was $10,000,000, the

condominium association could purchase a policy

of $10,000,000. This amount of insurance would

meet the requirements of the regulations for any

Flood Disaster Protection

4 (7/16) • Reg. H – Flood Protection Consumer

Compliance Handbook

individual unit insurance requirement in the condo-

minium.

Nonresidential condominium buildings are not

eligible for coverage under the RCBAP. The NFIP

offers a maximum amount of building coverage up

to $500,000 for these buildings and $500,000 for

commonly owned contents. Under the NFIP, the

owner of a nonresidential condominium unit within

a nonresidential condominium building may pur-

chase only contents coverage for that unit. Building

coverage may not be purchased in the name of the

unit owner. The maximum allowable contents

coverage for nonresidential owners is $500,000.

Other Special Situations

• Multiple Structures—Multiple structures that se-

cure a loan located in an SFHA must each be

covered by flood insurance, even though the

value of one structure may be sufficient to cover

the loan amount. Under the NFIP, FEMA gener-

ally requires one policy per building, but also

permits borrowers to insure nonresidential build-

ings using one policy with a schedule separately

listing each building. This coverage alternative

may be especially useful for loans secured by

agricultural properties and improvements.

• Other Real Estate Owned—An institution with

other real estate owned (OREO) in SFHAs

should, as a prudent practice, purchase flood

insurance policies on its OREO property, although

it is not required to do so by the regulations.

Escrow Requirements

The regulations require the escrowing of flood

insurance premiums and fees for designated loans

secured by residential improved real estate or a

mobile home made, increased, renewed, or

extended on or after January 1, 2016. In addition,

institutions must offer and make available the

option to escrow for flood insurance premiums and

fees to borrowers with designated loans secured

by residential improved real estate or a mobile

home outstanding as of January 1, 2016. The

escrow provisions are designed to improve com-

pliance with flood insurance requirements by

ensuring that borrowers with designated loans

secured by residential improved real estate or a

mobile home set aside funds to maintain flood

insurance for the life of the loan.

While the escrow requirement pertains generally

to any designated loan secured by residential

improved real estate or a mobile home, there are

two types of exceptions: a small lender exception

and a loan-type exception. The regulation provides

that an institution is not required to escrow if it has

total assets of less than $1 billion as of Decem-

ber 31 of either of the two prior calendar years and,

as of July 6, 2012,

• the institution was not required by federal or state

law to escrow taxes, insurance premiums, fees,

or any other charges for the term of the loan; and

• the institution did not have a policy of uniformly

and consistently escrowing the same.

If an excepted institution no longer qualifies for

the exception because its assets exceeded the

threshold for two consecutive calendar year ends,

it must begin escrowing for any designated loan

secured by residential improved real estate or a

mobile home made, increased, extended, or re-

newed on or after July 1 of the first calendar year of

changed status. If a financial institution provides

escrow accounts only upon requests from borrow-

ers, this does not constitute a uniform or consistent

policy of requiring escrows.

In addition, the escrow requirement does not

apply to the following types of loans

• extensions of credit primarily for business, com-

mercial, or agricultural purposes even if secured

by residential real estate;

• loans in a subordinate position to a senior lien

secured by the same property upon which the

borrower has obtained sufficient flood insurance;

• loans secured by a property that is covered by a

flood insurance policy with sufficient flood insur-

ance coverage, which is provided by a condo-

minium, cooperative, or homeowners associa-

tion;

• home equity lines of credit;

• nonperforming loans; or

• loans with a term of no longer than 12 months.

A nonperforming loan in this instance is a loan

that is 90 or more days past due and remains

nonperforming until it is permanently modified or

until the entire amount past due, including princi-

pal, accrued interest, and penalty interest incurred

as the result of the past due status, is collected or

otherwise discharged in full.

A loan that has a term exceeding 12 months does

not qualify for the 12-month exception, even if one

phase of the loan is for 12 months or less.

If the institution determines that a loan no longer

qualifies for one of these loan-type exceptions, the

institution must begin escrowing as soon as

reasonably practicable.

Option to escrow: An institution (or its servicer)

must offer and make available to borrowers the

option to escrow flood insurance premiums and

fees for designated loans secured by residential

improved real estate or a mobile home that are

outstanding as of January 1, 2016. In addition, an

Flood Disaster Protection

Consumer Compliance Handbook Reg.

H – Flood Protection • 5 (7/16)

institution must provide the option to escrow notice

to borrowers by June 30, 2016. A model clause for

the notice on the option to escrow is provided in

appendix B of the regulations.

An institution that no longer qualifies for the small

lender exception must provide a notice of the

option to escrow flood insurance premiums and

fees for loans outstanding on July 1 of the first

calendar year in which it has a change in status by

September 30 of that year. Further, the financial

institution must begin escrowing as soon as

reasonably practicable after receiving a borrower’s

request to escrow. The notice regarding the option

to escrow does not have to be provided in

conjunction with any other disclosure or be segre-

gated from other information provided to the

borrower. An institution may choose whether to

provide a separate notice or add it to any other

disclosure the lender provides the borrower, such

as a periodic statement.

Standard Flood Hazard

Determination Form

When an institution makes, increases, extends, or

renews any loan secured by improved real estate

or by a mobile home, it must use the standard flood

hazard determination form (SFHDF) developed by

FEMA

to determine whether the building or mobile

home offered as security property is or will be

located in an SFHA in which flood insurance is

available under the federal flood insurance stat-

utes.

An institution can use a printed, computerized, or

electronic form. It must retain a copy of the

completed form, in either hard copy or electronic

format, for the period of time it owns the loan. FEMA

has stated that if an electronic format is used, the

format and exact layout of the SFHDF is not

required, but the fields and elements listed on the

form are required. Accordingly, any electronic

format used by an institution must contain all

mandatory fields indicated on the SFHDF.

The SFHDF is available on the FEMA website at

www.fema.gov/media-library/assets/documents/

225.

Decisions as to the applicability of flood insur-

ance may not be based on an institution’s unilateral

determination of elevations at which floods may

occur. Official elevation determinations and, there-

fore, map revisions or amendments, Letter of Map

Revision (LOMR) or Letter of Map Amendment

(LOMA), respectively, may be performed only by

FEMA.

Letter of Map Amendment

• A flood map will occasionally show a property as

being in an SFHA, even though the building on

the property is actually above the base flood

elevation. In practice, flood insurance maps do

not reflect every rise in terrain, and there may be

instances of high ground inadvertently included

in the SFHAs. Nevertheless, lenders are bound

by the information shown on the FEMA maps until

the map is changed by FEMA.

• To resolve such a situation, a property owner can

submit elevation materials with a request to

FEMA for a LOMA to remove the property from

the SFHA. The request must be submitted on the

appropriate FEMA application form available at

www.fema.gov/flood-mapping-related-forms.

• Upon receiving a complete application package,

FEMA will normally complete its review and issue

its determination within four to six weeks.

• After obtaining a LOMA, a borrower must submit

it to the lender for the flood insurance require-

ment to be waived. The lender has the discretion

to continue to require flood insurance if the

lender determines it is prudent to do so.

Letter of Map Revision

• A LOMR is appropriate when physical changes

are necessary to raise the land above the base

flood elevation 100-year flood level. For example,

a LOMR request is appropriate when a property,

located within an SFHA, is graded and filled to

raise the level of the land above the base flood

elevation 100-year flood level. The request for a

LOMR must be initiated and approved by the

community since changes in land level may

affect other property owners. Community ap-

proval also confirms that the change in the land

has been reviewed and is compatible with the

community’s planning.

• A LOMR request must be submitted to FEMA on

the appropriate form, available at www.fema.gov/

flood-mapping-related-forms.

• After obtaining a LOMR, the borrower must

submit it to the lender before the flood insurance

requirement is waived. The lender has the

discretion to continue to require flood insurance

if the lender determines that it is prudent to do

so.

Flood maps, Standard Flood Hazard Determina-

tion forms, and Community Status Books may be

obtained from FEMA by

• calling: 1-800-358-9616 or 1-800-611-6125, or

• ordering online: http://msc.fema.gov/portal.

To obtain information on a community’s partici-

pation status, contact a FEMA representative at

6. See 63 FR 27857 (May 21, 1998) (codified at 44 CFR

65.16).

Flood Disaster Protection

6 (7/16) • Reg. H – Flood Protection Consumer

Compliance Handbook

1-800-358-9616 to request a community status

book. Information on community status is also

available on the Internet at www.fema.gov/national-

flood-insurance-program-community-status-book.

Reliance on Prior Determination

An institution may rely on a prior flood determina-

tion, whether or not the security property is located

in an SFHA, and it is exempt from liability for errors

in the previous determination if

• the previous determination is not more than

seven years old, and

• the basis for the previous determination was

recorded on the SFHDF.

There are, however, some circumstances in

which an institution may not rely on a previous

determination, such as

• if FEMA’s map revisions or updates show that the

security property has been remapped into an

SFHA, or

• if the lender contacts FEMA and discovers that

map revisions or updates affecting the security

property have been made after the date of the

previous determination.

An institution may also rely on a previous

determination, which is not more than seven years

old and is set forth on an SFHDF, when it increases,

extends, renews, or purchases a loan. The making

of a loan is not listed as a permissible event that

permits an institution to rely on a previous determi-

nation. However, when the loan involves a refinanc-

ing or assumption by the same lender who

obtained the original flood determination on the

same property, the institution may rely on the

previous determination, but only if the original

determination was made not more than seven

years before the date of the transaction, the basis

for the determination was set forth on the SFHDF,

and there were no map revisions affecting the

property since the original determination was

made. The same is true for multiple loans made by

the same lender to the same borrower secured by

the same property. A new determination is required

when a loan refinancing or assumption is made by

a lender different from the one who obtained the

original determination because this constitutes a

new loan.

Force Placement Requirements

An institution is not required to monitor for map

changes, and flood determinations are not required

to be made at any time other than when a loan is

made, increased, extended, or renewed. If, how-

ever, at any time during the life of the loan the

institution or its servicer determines that required

flood insurance is deficient, the Agencies’ regula-

tions require initiation of force placement proce-

dures.

An institution or a servicer acting on its behalf is

required to purchase or “force place” flood insur-

ance for the borrower if the institution or the

servicer determines that coverage is inadequate.

An institution, or servicer acting on its behalf, upon

discovering that the security property is not cov-

ered by an adequate amount of flood insurance,

must provide notice to the borrower that the

borrower should obtain flood insurance. If the

borrower fails to purchase flood insurance in the

appropriate amount within 45 days, the lender must

purchase insurance on the borrower’s behalf. If

there is a brief delay in force placing coverage, the

Agencies expect the lender to be able to provide a

reasonable explanation, for example, because the

lender uses batch processing when purchasing

force-placed flood insurance policies.

An institution or its servicer continues to be

responsible for ensuring that if flood insurance was

required at origination, the borrower renews the

flood insurance policy and continues to renew it for

as long as flood insurance is required for the

security property. If a borrower allows a policy to

lapse when insurance is required, the institution or

its servicer is required to commence force place-

ment procedures.

Under the Biggert-Waters Act, an institution may

force place and charge for insurance beginning on

the date on which flood insurance coverage lapsed

or did not provide a sufficient coverage amount.

The Biggert-Waters Act also provides that an

institution must terminate force-placed insurance

within 30 days of receipt of confirmation of a

borrower’s existing flood insurance coverage. Ad-

ditionally, an institution must refund to the borrower

all premiums and fees for force-placed insurance

paid by the borrower during any period of overlap

between the borrower’s policy and the force-

placed policy. Because an insurer is the entity that

actually cancels the policy, an institution need only

notify the insurer to terminate the force-placed

policy in order to comply with the termination

requirement.

Force placement authority is designed to be

used if, over the term of the loan, the institution or its

servicer determines that flood insurance coverage

on the security property is deficient; that is,

whenever the amount of coverage in place is not

equal to the lesser of the outstanding principal

balance of the loan or the maximum coverage

available under the NFIP. If a borrower fails to

obtain the required amount of flood insurance

coverage upon notification by an institution or its

servicer, the amount that must be force placed is

Flood Disaster Protection

Consumer Compliance Handbook Reg.

H – Flood Protection • 7 (7/16)

equal to the difference between the present amount

of coverage, if any, and the lesser of the outstand-

ing principal balance or the maximum coverage

limit.

There is no required form of notice to borrowers

for use in connection with the force placement

procedures. An institution or its servicer may

choose to send the notice directly or may use the

insurance company that issues the force place-

ment policy to send the notice. Force-placed flood

insurance policies are available through private

insurers or through the NFIP. FEMA has developed

the Mortgage Portfolio Protection Program (MPPP)

to assist lenders in connection with force-

placement procedures. For information concerning

the MPPP, lenders and others should consult

FEMA’s website.

Determination Fees

The regulations permit an institution or its servicer

to charge a reasonable fee to the borrower for the

costs of making a flood hazard determination under

the following circumstances:

• the borrower initiates a transaction (making,

increasing, extending, or renewing a loan) that

triggers a flood hazard determination;

• there is a revision or updating of floodplain areas

or risk zones by FEMA;

• the determination is due to FEMA’s publication of

a notice that affects the area in which the loan is

located; or

• the determination results in the purchase of flood

insurance under the force placement provision.

The loan agreement or other contractual docu-

ments between the parties may also permit the

imposition of fees.

The authority to charge a borrower a reasonable

fee for a flood hazard determination extends to a

fee for life-of-loan monitoring by either the institu-

tion, its servicer, or by a third party, such as a flood

hazard determination company.

Truth in Lending Act Issues

The Commentary to Regulation Z states that a fee

for services that will be performed periodically

during the loan term is a finance charge, regardless

of whether the fee is imposed at closing, or when

the service is performed. This would include the fee

for life-of-loan monitoring. The fee for the original

flood determination (i.e., whether a security prop-

erty is in an SFHA) is excluded from the finance

charge. The Commentary further indicates that any

portion of a fee that does not relate to the initial

decision to grant credit must be included in the

finance charge.

If creditors are uncertain about

what portion of a fee is related to the initial decision

to grant credit, the entire fee may be treated as a

finance charge.

Notice of Special Flood Hazards and

Availability of Federal Disaster Relief

Assistance

When an institution makes, increases, extends, or

renews a loan secured by property that is or will be

located in an SFHA, the institution must provide a

written notice of special flood hazards to the

borrower and the servicer, if there is one. This

notice of special flood hazards must be provided

regardless of whether the security property is

located in a participating or nonparticipating com-

munity. The written notice must contain the follow-

ing information:

• a warning that the building or mobile home is or

will be located in an SFHA

• a description of the flood purchase requirements

contained in section 102(b) of the FDPA, as

amended

• a statement, if applicable, that flood insurance

coverage is available under the NFIP and may

also be available from private insurers

• a statement that flood insurance coverage is

available from private insurance companies that

issue standard flood insurance policies on behalf

of the NFIP or directly from the NFIP

• a statement that flood insurance that provides

the same level of coverage as a standard flood

insurance policy under the NFIP may also be

available from a private insurance company that

issues policies on behalf of the company

• a statement that the borrower is encouraged to

compare flood insurance policies issued on

behalf of the NFIP and policies issued on behalf

of private insurance companies, and that the

borrower should inquire about the availability,

cost, and comparisons of flood insurance cover-

age to an insurance agent

• a statement whether federal disaster relief assis-

tance may be available in the event of damage to

the building or mobile home, caused by flooding

in a federally declared disaster

For any loan for which an institution is required to

escrow under the regulations, the institution must

provide a written notice with the notice of special

flood hazards informing the borrower that the

7. See www.fema.gov/media-library-data/1444065610669-

de95573a833329e4a889e95569d5d9b/

11_mppp_508_nov2015.pdf.

8. See 12 CFR part 1026, supplement 1, comment 4(c)(7)-3.

Flood Disaster Protection

8 (7/16) • Reg. H – Flood Protection Consumer

Compliance Handbook

institution is required to escrow all premiums and

fees for flood insurance required under the regula-

tions. The language in the notice about escrow

should be substantially similar to the model clauses

provided in appendix A of the regulations, under

the section titled “Escrow Requirements for Resi-

dential Loans.” The escrow notice may be provided

in the notice of special flood hazards or separately.

An institution may use the sample form contained

in appendix A to the regulations to comply with the

notice requirements. The sample form is an exam-

ple of an acceptable form the notice may take and

contains additional information not required under

the regulations. Lenders may also personalize,

change the format of, and add information to the

sample form if they wish to do so. However, to

ensure compliance with the notice requirements, a

lender-revised notice form must provide the bor-

rower, at a minimum, with the information required

by the regulations.

The regulations permit an institution to rely on

assurances from a seller or lessor that the seller or

lessor has provided the requisite notice to the

purchaser or lessee. As an example, this alternate

form of notice might arise in a situation in which the

lender is providing financing through a developer

for the purchase of condominium units by multiple

borrowers. The lender may not deal directly with the

individual condominium unit purchaser and need

not provide notice to each purchaser but may

instead rely on the developer/seller’s assurances

that the developer/seller has given the required

notice.

Delivery of the notice of special flood hazards

must take place within a “reasonable time” before

the completion of the transaction. What constitutes

“reasonable” notice will necessarily vary according

to the circumstances of particular transactions. An

institution should bear in mind, however, that a

borrower should receive notice timely enough to

ensure that

• the borrower has the opportunity to become

aware of the borrower’s responsibilities under

the NFIP; and

• where applicable, the borrower can purchase

flood insurance before completion of the loan

transaction.

The Agencies generally regard 10 days as a

“reasonable” time interval.

Notice to Servicer

Loan servicers must also be notified of special

flood hazards. In many cases, the servicer’s

identity will not be known until well after the loan

closing; consequently, notification to the servicer in

advance of the loan closing would not be possible

or would serve no purpose. Notice to the servicer is

required as promptly as practicable after the

institution provides notice to the borrower, and must

be given no later than at the time the lender

transmits to the servicer other loan data concerning

hazard insurance and taxes. Delivery to the

servicer of a copy of the borrower’s notice suffices

as notice to the servicer.

Notice to the Administrator of FEMA

An institution must notify the administrator of FEMA,

or the administrator’s designee, of the identity of

the loan servicer and of any change in the servicer.

FEMA has designated the insurance carrier as its

designee to receive notice of the servicer’s identity

and of any change thereof, and at FEMA’s request

this designation is stated in the regulations. Notice

of the identity of the servicer will enable FEMA’s

designee to provide notice to the servicer of a loan

45 days before the expiration of a flood insurance

contract. Notice is required to be sent within 60

days of the effective date of the transfer of

servicing. No standard form of notice is required to

be used; however, the information should be

sufficient for the administrator, or the administra-

tor’s designee, to identify the security property and

the loan, as well as the new servicer and its

address.

Notice of Option to Escrow

When an institution must offer and make available

to a borrower the option to escrow flood insurance

premiums and fees, the institution is required to

mail or deliver to the borrower a written notice of the

option to escrow for required flood insurance. The

language in this notice must be similar to the

language in the model clause of appendix B of the

regulations. The notice must also include the

method(s) by which the borrower may request the

escrow. Institutions must mail or deliver the notice

no later than June 30, 2016, for any loan covered

by flood insurance and outstanding on January 1,

2016.

Institutions that no longer qualify for the small

lender exception must mail or deliver, for any loan

covered by flood insurance and outstanding on

July 1 of the first calendar year in which the

institution had a change in status, the notice by

September 30 of that year.

Recordkeeping Requirements

The record keeping requirements of the regulations

include retention of

• copies of completed SFHDFs in either hard copy

or electronic form, for as long as the institution

owns the loan; and

Flood Disaster Protection

Consumer Compliance Handbook Reg.

H – Flood Protection • 9 (7/16)

• records of the receipt of the notice of special

flood hazards to the borrower and the servicer

for as long as the institution owns the loan.

There is no particular form required for the record

of receipt; however, it should contain a statement

from the borrower indicating that the borrower has

received the notification. Examples of records of

receipt may include

• a borrower’s signed acknowledgment on a copy

of the notice,

• a borrower-initialed list of documents and disclo-

sures that the lender provided the borrower, or

• a scanned electronic image of a receipt or other

document signed by the borrower.

An institution may keep the record of receipt

provided by the borrower and the servicer in the

form that best suits the institution’s business.

Institutions that retain these records electronically

must be able to retrieve them within a reasonable

time.

Penalties and Liabilities

The FDPA provides penalties for violations of

• mandatory flood purchase requirement;

• escrow requirements;

• notice requirements; and

• force placement requirements.

If an institution is found to have a pattern or

practice of committing any of these violations, the

Agencies are required to assess civil money

penalties in an amount not to exceed $2,000 per

violation. Any penalty assessed will be paid into the

FEMA National Flood Mitigation Fund. Liability for

violations cannot be transferred to a subsequent

purchaser of a loan. No penalty may be imposed

after the expiration of four years beginning on the

date of the occurrence of the violation.

Flood Disaster Protection

10 (7/16) • Reg. H – Flood Protection Consumer

Compliance Handbook

Regulation H—Flood Disaster Protection

Examination Objectives and Procedures

EXAMINATION OBJECTIVES

1. To determine whether an institution performs

required flood determinations for loans secured

by improved real estate or a mobile home

affixed to a permanent foundation in accor-

dance with the regulations.

2. To determine if the institution requires flood

insurance in the correct amount when it makes,

increases, extends, or renews a loan secured by

improved real estate or a mobile home located

or to be located in an SFHA in a participating

community.

3. To determine if the institution provides the

required notices to the borrower and servicer

when the property is located in an SFHA, and to

the administrator of FEMA whenever flood

insurance is required as a condition of the loan.

4. To determine if the institution requires flood

insurance premiums to be escrowed when

required by law.

5. To determine if the institution complies with the

force placement provisions if, at any time during

the term of a loan, it determines that flood

insurance on the loan is not sufficient to meet

the requirements of the regulation.

6. To initiate corrective action when policies or

internal controls are deficient, or when violations

of law are identified.

EXAMINATION PROCEDURES

The following procedures should be performed, as

appropriate:

• by reviewing previous examinations and super-

visory correspondence;

• by obtaining and reviewing the institution’s

policies, procedures, and other pertinent infor-

mation;

• by reviewing the institution’s system of internal

controls;

• by discussing procedures with management;

and

• by reviewing a sample of loan files.

Coverage and Internal Control

1. Determine the method(s) used by the institution

to ascertain whether improved real estate or

mobile homes are or will be located in an SFHA.

2. Verify that the process used accurately identi-

fies special flood hazard areas.

3. For those special flood hazard areas identified,

determine if the communities in which they are

located participate in the NFIP.

4. If the detached structure is not covered by flood

insurance, review the institution’s documented

conclusion and verify that the structure meets

the exemption.

5. If the institution provides ″table funding″ to close

loans originated by mortgage brokers or deal-

ers, verify that it complies with regulatory

requirements.

6. If the institution purchases servicing rights,

review the contractual obligations placed on the

institution as servicer by the owner of the loans

to ascertain if flood insurance requirements are

identified and compliance responsibilities are

adequately addressed.

7. If the institution utilizes a third party to service

loans, review the contractual obligations

between the parties to ascertain that flood

insurance requirements are identified and com-

pliance responsibilities are adequately

addressed.

Property Determination Requirements

1. Verify that flood zone determinations are accu-

rately recorded on the SFHDF. (Note: An institu-

tion is required to prepare a flood hazard

determination for all detached structures, includ-

ing those that may not be in an SFHA or require

flood insurance coverage. Because a flood

hazard determination is often needed to identify

the number and types of structures on the

property, conducting a flood hazard determina-

tion remains necessary to ensure compliance

with the flood insurance requirements.)

2. Verify that the institution relies on a previous

determination only if it is not more than seven

years old; the determination was recorded on

the SFHDF; and the determination is not on a

property located in a community that has been

remapped.

3. If the institution utilizes a third party to prepare

flood zone determinations, review the contrac-

tual obligations between the parties to ascertain

that flood insurance requirements are identified

and compliance responsibilities are adequately

covered, including the extent of the third party’s

9. These reflect the interagency examination procedures in

their

entirety.

Consumer Compliance Handbook Reg. H – Flood • 11 (7/16)

guarantee of work and the procedures in place

to resolve disputes relating to determinations.

4. Verify that the institution retains a copy of the

completed SFHDF, in either hard copy or

electronic form, for as long as it owns the loan.

Purchase Requirements

1. For loans that require flood insurance, deter-

mine that sufficient insurance was obtained

prior to loan closing and is maintained for the life

of the loan.

2. In connection with a residential property, if flood

insurance was not required for a detached

structure, determine whether the institution fol-

lowed its internal policies and procedures and

verify that the institution documented its deci-

sion in writing not to require insurance for such

structure at the time of loan origination.

3. If the institution makes loans insured or guaran-

teed by a government agency (SBA, VA, or

FHA) determine how it complies with the

prohibition against making these loans if the

security property is in an SFHA within a

nonparticipating community.

Determination Fee Requirements

1. Determine that any fees charged to the bor-

rower by the institution for flood zone determi-

nations (absent some other authority such as

contract language) are charged only when a

loan

• is made, increased, renewed, or extended;

• is made in response to a remapping by

FEMA; or

• results in the purchase of flood insurance

under the force placement provisions.

2. If other authority permits the institution to charge

fees for determinations in situations other than

the ones listed above, determine if the institution

is consistent in this practice.

3. Determine the reasonableness of any fees

charged to a borrower for flood determinations

by evaluating the method used by the institution

to determine the amount of the charge. Con-

sider, for example, the relationship of the fees

charged to the cost of services provided.

Notice Requirements

Notice of Special Flood Hazards and

Availability of Federal Disaster Relief

Assistance

1. Ascertain that when an institution makes,

increases, extends, or renews a loan secured by

property located in an SFHA, written notice is

mailed or delivered to the borrower within a

reasonable time prior to completion of the

transaction.

2. Verify that the notice contains

• a warning that the property securing the loan

is or will be located in an SFHA;

• a description of the flood insurance purchase

requirements;

• a statement, where applicable, that flood

insurance coverage is available under the

NFIP and may also be available from private

insurers, if applicable;

• a statement that flood insurance coverage is

available from private insurance companies

that issue standard flood insurance policies

on behalf of the NFIP or directly from the NFIP;

• a statement that flood insurance that provides

the same level of coverage as a standard

flood insurance policy under the NFIP may

also be available from a private insurance

company that issues policies on behalf of the

company;

• a statement that the borrower is encouraged

to compare flood insurance policies issued

on behalf of the NFIP and policies issued on

behalf of private insurance companies, and

that the borrower should inquire about the

availability, cost, and comparisons of flood

insurance coverage to an insurance agent;

• a statement whether federal disaster relief

assistance may be available in the event of

damage to the property caused by flooding in

a federally declared disaster, if applicable.

3. If an institution is required to escrow under the

regulations, verify that the institution provided a

written notice with the notice of special flood

hazards informing the borrower that the institu-

tion is required to escrow all premiums and fees

for flood insurance, similar to the model clause

in appendix A of the regulations.

4. If the seller or lessor provided the notice to the

purchaser or lessee, verify that the institution

obtained satisfactory written assurance that the

notice was provided within a reasonable time

before the completion of the sale or lease

transaction.

5. Verify that the institution retains a record of

receipt of the notice provided to the borrower for

as long as it owns the loan.

6. If applicable, verify that the institution provided

written notice to the servicer of the loan within

the prescribed time frames and that the institu-

tion retains a record of receipt of the notice for

as long as it owns the loan.

Flood Disaster Protection: Examination Objectives and Procedures

12 (7/16) • Reg. H – Flood Consumer

Compliance Handbook

Notice of the Option to Escrow

1. If the institution is required to send a notice of

option to escrow flood insurance premiums and

fees, ascertain that written notice is mailed or

delivered to the borrower (1) by June 30, 2016

for any loan covered by flood insurance and

outstanding on January 1, 2016, or, if applica-

ble; (2) by September 30 of the first calendar

year in which the institution has had a change in

status and no longer qualifies for the small

lender exception for any loan covered by flood

insurance and outstanding as of July 1 of that

calendar year.

2. Verify that the notice contains

• a statement that the borrower has an option to

escrow required flood insurance premiums

and fees

• a statement about the methods the borrower

may use to request the escrow

Notice of Servicer’s Identity

1. If the institution transfers servicing of loans to

another servicer, ascertain whether it provides

notice of the new servicer’s identity to the flood

insurance carrier (the administrator of FEMA’s

designee) within prescribed time frames.

Escrow Requirements

1. Verify that the institution escrows for flood

insurance premiums and fees for designated

loans made, increased, renewed, or extended

on or after January 1, 2016, unless the loan

qualifies for one of the exceptions or the

institution qualifies for the small lender excep-

tion.

2. If a designated loan no longer qualifies for a

loan-related exception, verify that the institution

established an escrow account as soon as

reasonably practicable.

3. If the institution no longer qualifies for the small

lender exception, verify that the institution

started requiring escrow on designated loans

made, increased, extended, or renewed on or

after July 1 of the first calendar year of changed

status.

4. Verify that an institution (or its servicer) offered

and made available to borrowers the option to

escrow flood insurance premiums and fees for

loans secured by residential improved real

estate or a mobile home that are outstanding as

of January 1, 2016. In addition, verify that an

institution started escrowing as soon as reason-

ably practicable after receiving the borrower’s

request to escrow.

5. Verify that, for institutions that no longer qualify

for the small lender exception, the institution

mailed or delivered, for any loan covered by

flood insurance and outstanding on July 1 of the

first calendar year in which the institution no

longer qualifies for the small lender exception,

the notice of the option to escrow by September

30 of that year. In addition, verify that the

institution started escrowing as soon as reason-

ably practicable after receiving a borrower’s

request to escrow.

6. Verify that the institution’s escrow procedures

comply with section 10 of the Real Estate

Settlement Procedures Act (RESPA).

Force Placement Requirements

1. If the institution determines that flood insurance

coverage is less than the amount required by

the FDPA, ascertain that it has appropriate

policies and procedures in place to exercise its

force placement authority.

2. If the institution is required to force place

insurance, verify

• that it provides written notice to the borrower

that flood insurance is required; and

• that if the required insurance is not purchased

by the borrower within 45 days from the time

that the institution provides the written notice,

that the institution purchases the required

insurance on the borrower’s behalf.

3. If the institution purchases required flood insur-

ance on the borrower’s behalf and charges the

borrower for premiums and fees incurred for

coverage, verify that within 30 days of receiving

confirmation of a borrower’s existing flood

insurance coverage, the institution

• notifies the insurance provider to terminate

the existing force-placed insurance, and

• refunds to the borrower all force-placed

insurance premiums and any fees paid for by

the borrower during any period of overlap

between the borrower’s policy and the force-

placed policy.

Flood Disaster Protection: Examination Objectives and Procedures

Consumer Compliance Handbook Reg.

H – Flood • 13 (7/16)

Regulation H—Flood Disaster Protection

Examination Checklist

The following questions are designed to be used in conjunction with the Examination Procedures to guide the

examiner in a comprehensive review of the requirements of the regulation as it is applied to depository

institutions.

Coverage

1. Does the institution offer or extend credit (consumer or commercial) that is

secured by improved real estate or mobile homes as defined in the

regulations? If yes, complete the remainder of this checklist. Yes No

2. If the institution provides “table funding” to close loans originated by mortgage

brokers or dealers, does it have procedures to ensure that the requirements of

the regulations are followed? Yes No

3. If the institution purchases servicing rights to loans covered by the regulation,

do the documents between the parties specify the contractual obligations on

the institution with respect to flood insurance compliance? Yes No

4. If the institution utilizes third parties to service loans covered by the regulation,

do the contractual documents between the parties require the servicer to meet

the requirements of the regulations? Yes No

Property Determination

1. If the institution utilizes a third party to prepare flood zone determinations, do

the contractual documents between the parties

• provide for the third party’s guarantee of work? Yes No

• contain provisions to resolve disputes relating to determinations, to allocate

responsibility for compliance, and to address which party will be

responsible for penalties incurred for noncompliance? Yes No

2. Are the determinations prepared on the SFHDF developed and authorized by

FEMA? Yes No

• If the form is maintained in electronic format, does it contain the elements

required by FEMA? Yes No

3. Does the institution maintain a record of the SFHDF either in hard copy or

electronic form for as long as it owns the loan? Yes No

4. When increasing, extending, renewing, or purchasing a loan (not making a

loan), does the institution rely on a prior determination only if it is made on the

SFHDF, is no more than seven years old, and the community has not been

remapped? Yes No

Determination Fees

1. Absent some other authority (such as contract language) does the institution

charge a fee to the borrower for a flood determination only when

• it is made when a loan is made, increased, renewed, or extended; or Yes No

• it is made in response to a remapping by FEMA; or Yes No

• it results in the purchase of flood insurance under the force placement

provisions? Yes No

2. If the institution has other authority to charge fees for determinations in

situations other than those noted above, is the practice followed consistently? Yes No

Consumer Compliance Handbook Reg. H – Flood • 15 (7/16)

3. For those loans subject to the Truth in Lending Act (TILA), if the institution

requires the borrower to obtain life-of-loan monitoring and passes that charge

along to the borrower, does it either

• break out the original determination charge from the charge for life-of-loan

monitoring or Yes No

• include the full amount of the charge as a finance charge? Yes No

4. Are the fees charged by the institution for making a flood determination

reasonable? Yes No

Notice Requirements

Notice of Special Flood Hazards and Availability of

Federal Disaster Relief Assistance

1. Are borrowers whose security property is located in an SFHA provided written

notice of special flood hazards within a reasonable time prior to loan closing? Yes No

2. Does the notice contain the following required information?

• A warning that the building or mobile home is located in a SFHA; Yes No

• A description of the flood insurance requirements; Yes No

• a statement that flood insurance is available under the NFIP and is also

available from private insurers; Yes No

• a statement that flood insurance coverage is available from private

insurance companies that issue standard flood insurance policies on

behalf of the NFIP or directly from the NFIP; Yes No

• a statement that flood insurance that provides the same level of coverage

as a standard flood insurance policy under the NFIP may also be available

from a private insurance company that issues policies on behalf of the

company; Yes No

• a statement that the borrower is encouraged to compare flood insurance

policies issued on behalf of the NFIP and policies issued on behalf of

private insurance companies, and that the borrower should inquire about

the availability, cost, and comparisons of flood insurance coverage to an

insurance agent; Yes No

• a statement whether federal disaster relief assistance may be available in

the event of damage to the property caused by flooding in a federally

declared disaster, if applicable. Yes No

3. If an institution is required to escrow under the regulations, verify that the

institution provided a written notice with the notice of special flood hazards

informing the borrower that the institution is required to escrow all premiums

and fees for flood insurance, similar to the model clause in appendix A of the

regulations. Yes No

4. If the institution uses the alternate notice procedures in certain instances as

permitted by the regulation, does it obtain the required satisfactory written

assurance from the seller or lessor? Yes No

5. Does the institution provide a copy of the notice of special flood hazards to the

servicer of the loan within the required time frames? Yes No

6. Does the institution retain a record of receipt of the notifications provided to the

borrower and the servicer for as long as it owns the loan? Yes No

Flood Disaster Protection: Examination Checklist

16 (7/16) • Reg. H – Flood Consumer Compliance Handbook

Notice of Option to Escrow

1. If the institution is required to mail or deliver a notice of the option to escrow

flood insurance premiums and fees, ascertain that written notice is mailed or

delivered to the borrower (1) by June 30, 2016, for any loan covered by flood

insurance and outstanding as of January 1, 2016; or (2) if applicable, by

September 30 of the first calendar year in which the institution has had a

change in status and no longer qualifies for the small lender exception in the

regulation for any loan covered by flood insurance and outstanding on July 1

of that calendar year. Yes No

2. Verify that the notice contains

• a statement that the borrower has an option to escrow required flood

insurance premiums and fees Yes No

• a statement about the methods the borrower may use to request the

escrow. Yes No

Insurance Requirements

1. If an improved property or mobile home is located in an SFHA and flood

insurance is required, does the institution have the borrower obtain a policy,

with the institution as loss payee, in the correct amount prior to closing? Yes No

2. When multiple properties securing the loan are located in SFHAs, does the

institution have sufficient insurance, either through a single policy with a

scheduled list of several buildings or multiple policies, to meet the minimum

requirements of the regulation? (See narrative for description of minimum

requirements.) Yes No

Escrow Requirements

1. Does the institution require the escrow of premiums and fees for flood

insurance on designated loans secured by residential improved real estate or

a mobile home made, increased, extended, or renewed after January 1, 2016,

unless the loan qualifies for one of the exceptions or the institution qualifies for

the small lender exception? Yes No

2. If a designated loan secured by residential improved real estate or a mobile

home no longer qualifies for the loan-related exception, does the lender

establish an escrow as soon as reasonably practicable? Yes No

3. If the institution no longer qualifies for the small lender exception, did the

lender begin requiring escrow on designated loans secured by residential

improved real estate or a mobile home made, increased, extended, or

renewed on or after July 1 of the first calendar year of changed status? Yes No

4. Did the institution (or its servicer) offer and make available to borrowers the

option to escrow flood insurance premiums and fees for designated loans

secured by residential improved real estate or a mobile home that are

outstanding as of January 1, 2016? In addition, did the institution start

escrowing as soon as reasonably practicable after receiving a borrower’s

request to escrow? Yes No

5. If the institution no longer qualifies for the small lender exception, did the

institution mail or deliver, for any loan covered by flood insurance and

outstanding on July 1 of the first calendar year in which the institution no longer

qualifies for the small lender exception, the notice of the option to escrow by

September 30 of that year? In addition, did the institution start escrowing as

soon as reasonably practicable after receiving a borrower’s request to

escrow? Yes No

6. Does the institution comply with the provisions of section 10 of RESPA (12 CFR

§1024.17 of Regulation X) for escrows? Yes No

Flood Disaster Protection: Examination Checklist

Consumer Compliance Handbook Reg. H – Flood • 17 (7/16)

Force Placement Requirements

1. If at any time during the life of the loan, the institution determines that property

securing a designated loan lacks adequate flood insurance coverage:

• Does the institution provide written notice to the borrower stating that the

necessary coverage must be obtained or the institution will purchase it on

the borrower’s behalf? Yes No

• Does the institution purchase the coverage on the borrower’s behalf if the

borrower does not obtain the required policy 45 days after the notice to the

borrower has been sent? Yes No

2. If the institution purchases required flood insurance on the borrower’s behalf

and charges the borrower for premiums and fees incurred for coverage, verify

that within 30 days of receiving confirmation of a borrower’s existing flood

insurance coverage, the institution

• notifies the insurance provider to terminate the existing force-placed

insurance, and Yes No

• refunds to the borrower all force-placed insurance premiums and any fees

paid for by the borrower during any period of overlap between the

borrower’s policy and the force-placed policy. Yes No

Notice to Administrator of FEMA

1. Does the institution provide the appropriate notice to the carrier of the

insurance policy (the administrator of FEMA’s designee) regarding the identity

of the servicer of a designated loan? Yes No

2. If the institution sells or transfers the servicing of designated loans to another

party, does it have procedures in place to provide the appropriate notice to the

administrator’s designee within 60 days of the effective date of the transfer of

the servicing? Yes No

Flood Disaster Protection: Examination Checklist

18 (7/16) • Reg. H – Flood Consumer Compliance Handbook