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FDIC Consumer Compliance Examination Manual – November 2023 V - 6.1

Flood Disaster Protection Act

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 dep artment 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 Program (WYO), 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 prohibiting 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),

comp rehensively revised the Federal flood insurance statutes.

The purpose of the 1994 Act was to increase comp liance 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 government, 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

Administration (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 purchased by the Federal

National M ortgage Association (Fannie Mae) and the

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.

P ub. L.103-325, Title V, 108 Stat. 2160, 2255-87 (September 23, 1994).

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

Federal Home Loan M ortgage Corporation (Freddie Mac)

and to agencies that provide government insurance or

guarantees such as the Small Business Administration

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

Department of Veterans Affairs (VA).

The mandatory flood insurance purchase requirements of the

FDPA were again significantly amended with the p assage 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

provision mandating the acceptance of a private flood

insurance p olicy meeting certain criteria as satisfaction 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). The Agencies jointly issued rules imp lementing the

private flood insurance provisions of the Biggert-Waters Act

on February 20, 2019 (84 FR 4953).

Objectives of the FDPA:

• Provide flood insurance to owners of improved real

estate located in SFHAs of communities particip ating in

the NFIP.

• Require communities to enact measures designed 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, 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, 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 participating in the NFIP.

S tructures Eligible for Flood Insurance Unde r 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. Generally, each insurable

structure requires a separate insurance policy. The following

types of structures are eligible for coverage:

Report).

Agency regulations are codified at 12 CFR 22 (OCC); 12 CFR 208 (FRB); 12

CFR 339 (FDIC); 12 CFR 614 (FCA); 12 CFR 760 (NCUA).

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• Residential, industrial, commercial, and agricultural

buildings that are walled and roofed structures that are

principally above ground.

• Buildings under construction where a development loan

is made to construct insurable improvements 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 established 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.

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 significant 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 a SFHA of a community not

participating in the NFIP. In addition, Freddie M ac and

Fannie M ae will not purchase mortgages secured by

improved properties located in SFHAs in nonparticipating

communities.

Special Situation—Tabl e 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

an. 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

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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

otherwis e

divide the responsibilities with the broker or dealer.

Exemptions to the Purchase Re qui r ement

The flood insurance purchase requirement does not apply to the

following three loan situations:

• Loans on state-owned property covered under an

adequate policy of self-insurance satisfactory to the

Administrator of FEMA. The Administrator will

periodically publish a list of state property falling within

this exemption.

• Loans with an original principal balance of $5,000 or

less, and having an original repayment term of one year

or less.

• 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.

o A structure that is part of a residential property is

a structure used primarily for personal, family,

or household purposes, and not used primarily

for agricultural, commercial, industrial, or other

business purposes. It is detached from the

primary residential structure if it is not joined by

any structural connection to that structure.

o Whether a structure serves as a residence is

based on the institution’s good faith

determination that the structure is intended for

residential use or actually used as a residence,

which generally includes sleeping, bathroom, or

kitchen facilities, but not necessarily all three.

Amount of Flood Ins urance 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 non-residential structures and $500,000 for

contents.

• $500,000 for non-condominium residential buildings of

five units or greater and $100,000 for personal

contents.

Acceptance of Private Insurance Policies

This amount was increased from $250,000 to $500,000 as of June 1,

A regulated lending institution is required to accept a private

insurance policy to satisfy the flood insurance purchase

requirement if the policy meets the definition of “private flood

insurance” as set forth in the regulation (mandatory

acceptance).

A regulated lending institution may choose to accept certain

flood insurance policies that do not meet the definition of

“private flood insurance” set forth in the regulation if the

policy meets certain criteria (discretionary accep tance). A

regulated lending institution may also exercise its discretion to

accept certain plans providing flood coverage issued by

“mutual aid societies” p rovided that certain criteria are met.

Mandatory Acceptance

• Under the regulation, “private flood insurance” means

an insurance policy that: is issued by an insurance

company that is licensed, admitted or otherwise

approved to engage in the business of insurance by the

insurance regulator of the State or jurisdiction in which

the property to be insured is located, or

• is recognized, or not disapproved as a surplus lines

insurer by the insurance regulator of the State or

jurisdiction in which the property to be insured is

located in the case of a policy of difference in

conditions, multiple peril, all risk, or other blanket

coverage insuring nonresidential commercial property;

• provides flood insurance coverage that is at least as

broad as the coverage provided under the NFIP’s

Standard Flood Insurance Policy (SFIP) for the same

type of property, including when considering

deductibles, exclusions and conditions offered by the

insurer; to be at least as broad as the coverage provided

under an SFIP, the policy must at a minimum:

o define the term “flood” to include the events

defined as “flood” in an SFIP;

o contain the coverage sp ecified in an SFIP,

including that relating to building property

coverage; personal property coverage; other

coverages; and increased cost of comp liance

coverage;

o contain deductibles no higher than the

specified maximum, and include similar

non-app licability p rovisions, as under an

SFIP, for any total policy coverage amount

up to the maximum available under the

NFIP at the time the policy is provided to

the institution;

o provide coverage for direct physical loss

caused by a flood and may only exclude

other causes of loss that are excluded in an

SFIP. Any exclusions other than those in an

SFIP may pertain only to coverage that is in

2014.

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addition to the amount and type of coverage

that could be provided by an SFIP or have

the effect of providing broader coverage to

the p olicyholder; and

o not contain conditions that narrow the

coverage provided in an SFIP;

• provides that the insurer will give written notice 45 days

before cancellation or non-renewal of flood insurance

coverage to the insured and the regulated lending

institution, or servicer acting on its behalf;

• includes information about the availability of flood

insurance coverage under the NFIP;

• includes a mortgage interest clause similar to the clause

contained in an SFIP; includes a provision requiring an

insured to file suit not later than one year after the date

of a written denial of all or part of a claim under the

policy ; and

• contains cancellation provisions that are as restrictive as

the provisions in an SFIP.

For purposes of the definition of “private flood insurance,” the

SFIP is the policy that is in effect as of the date the private

flood insurance policy is provided to the regulated lending

institution. The SFIP is available on the FEMA website:

https://www.fema.gov/national-flood-insurance-

program/standard-flood-insurance-p olicy -forms. The

regulation includes a compliance aid provision to help a

regulated lending institution determine whether a flood

insurance policy meets the definition of “private flood

insurance” and must be accepted under the regulation. A

regulated lending institution may determine that a policy meets

the definition of “private flood insurance” without further

review of the policy if the policy or an endorsement to the

policy states: “This policy meets the definition of private flood

insurance contained in 42 U.S.C. 4012a(b)(7) and the

corresponding regulation.”

Discretionary Acceptance

Under the regulation, a regulated lending institution may, at its

discretion, accept a flood insurance policy issued by a private

insurer, even if the policy does not meet the statutory and

regulatory definition of “private flood insurance” as set forth

above. A regulated lending institution, may, at its discretion,

accept a private flood insurance policy in satisfaction of the

flood insurance purchase requirement if the policy:

• provides coverage in the amount as required under the

regulation;

• is issued by an insurer that is licensed, admitted or

otherwise approved to engage in the business of

insurance by the insurance regulator of the State or

jurisdiction in which the property to be insured is

located; or in the case of a policy of difference in

conditions, multiple peril, all risk or other blanket

coverage insuring nonresidential commercial property,

is issued by a surplus lines insurer recognized, or not

disapproved by the insurance regulator of the State or

jurisdiction where the property to be insured is located;

• covers both the mortgagor(s) and the mortgagee(s) as

loss pay ees, excep t in the case of a p olicy that is

provided by a condominium association, cooperative,

homeowners association, or other applicable group and

for which the premium is paid by the condominium

association, cooperative, homeowners association, or

other ap plicable group as a common exp ense; and

• provides sufficient protection of the designated loan,

consistent with general safety and soundness principles,

and the regulated lending institution documents its

conclusion regarding sufficiency of the protection of the

loan in writing.

Some factors that a regulated lending institution could consider

in determining whether a flood insurance policy provides

sufficient protection of a loan include:

• whether the flood insurance policy’s deductibles are

reasonable based on the borrower’s financial condition;

• whether the insurer provides adequate notice of

cancellation to the mortgagor and mortgagee to ensure

timely force placement of flood insurance, if necessary;

• whether the terms and conditions of the flood insurance

policy with respect to payment per occurrence or per

loss and aggregate limits are adequate to p rotect the

regulated lending institution’s interest in the collateral;

• whether the flood insurance policy complies with

app licable State insurance laws; and

• whether the private insurance company has the financial

solvency, strength, and ability to satisfy claims.

Plans Provided by Mutual Aid Societies

The regulation defines a “mutual aid society ” as an

organization: (1) whose members share a common religious,

charitable, educational, or fraternal bond; (2) that covers losses

caused by damage to members’ property pursuant to an

agreement, including damages caused by flooding, in

accordance with this common bond; and (3) that has a

demonstrated history of fulfilling the terms of agreements to

cover losses to members’ property caused by flooding. A

regulated lending institution may, at its discretion, accept a

plan issued by a mutual aid society in satisfaction of the flood

insurance purchase requirement, if the following criteria are

met:

• the regulated lending institution’s primary Federal

supervisory agency has determined that such plans

qualify as flood insurance for purposes of the Federal

flood insurance statute;

• the plan provides coverage in the amount required under

the regulation;

• the plan covers both the mortgagor(s) and the

mortgagee(s) as loss p ay ees; and

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• the plan provides sufficient protection of the designated

loan, consistent with general safety and soundness

principles, and the regulated lending institution

documents its conclusion regarding sufficiency of the

protection of the loan in writing.

FDIC Instructions for the Qualification of Plans Provided

by Mutual Aid Societies

In general, FDIC examiners will evaluate whether mutual aid

society plans qualify as flood insurance on a case-by-case

basis. To satisfy the first criterion listed above for the

acceptance of p lans offered by a mutual aid society, a p lan can

be deemed to qualify as flood insurance for purposes of the

Flood Disaster Protection Act of 1973, if either the:

(1) mutual aid society issuing the plan is licensed,

admitted, or otherwise approved to engage in the

business of insurance by the insurance regulator of

the state or jurisdiction in which the property to be

insured is located; or

(2) mutual aid plan is considered and regulated as

insurance by that state or jurisdiction in which the

property to be insured is located.

• When a financial institution uses its discretion to accept

a mutual aid society plan, FDIC examiners will rely on

the requirements of individual states’ laws and the

financial institution’s due diligence when assessing

compliance with the final rule’s first criterion. Evidence

of compliance may include, among other things, for

example, a certificate or other documentation indicating

that either the mutual aid society is licensed, admitted,

or otherwise approved to engage in the business of

insurance in the state or jurisdiction in which the

property to be insured is located, or the mutual aid p lan

is considered and regulated as insurance by that state or

jurisdiction.

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 Flood Insurance Rate M ap 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 S ituations—Second Mortgages/Home Equ i ty 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 ob

tain 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 coverage if necessary

and issue an endorsement that will reflect the institution as

a lien holder.

As an alternative, the borrower may also consider

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:

• A

s 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 insurance 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 S ituations—Condominium Policies

FEM A’s condominium master policy is called a Residential

Condominium Building Association Policy (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

purchased. 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

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insurance covering the condominium 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:

o the maximum limit available for the residential

condominium unit, or

o the insurable value allocated to the residential

condominium unit which is the replacement cost

value of the condominium building divided by

the number of units.

Therefore, an institution must require a borrower whose loan is

secured by a residential condominium unit to either:

• Ensure the condominium owners association has

purchased an RCBAP, or other flood insurance policy,

covering 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; 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

policy ’s coverage allocated to that unit and the

mandatory flood insurance purchase requirements

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 individual unit

insurance requirement in the condominium.

Non-residential 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 non-residential condominium unit

within a non-residential condominium building may purchase

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 non-residential owners is

$500,000.

Other S

pecial Situations

• Multiple Structures— M ultiple structures that secure 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, FEM A generally requires one policy

per building, but also permits borrowers to insure non-

residential buildings 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 Requ

irements

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 compliance 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-typ e excep tion. The regulation provides

that an institution is not required to escrow if it has total assets

of less than $1 billion as of December 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 renewed on or after July 1

of the first calendar year of changed status. If a financial

institution provides escrow accounts only upon requests from

borrowers, 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,

commercial, or agricultural purposes even if secured

by residential real estate;

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• 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 insurance

coverage, which is provided by a condominium,

cooperative, or homeowners association;

• 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 principal, 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-typ e excep tions, the institution must begin

escrowing as soon as reasonably p racticable.

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 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 segregated

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

See 63 FR 27857 (May 21, 1998) (codified at 44 CFR § 65.16).

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 statutes.

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. FEM A 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 FEM A Website at:

http://www.fema.gov/media-library/assets/documents/225

Decisions as to the applicability of flood insurance may not be

based on an institution’s unilateral determination of elevations

at which floods may occur. Official elevation determinations

and, therefore, map revisions or amendments, Letter of M ap

Revision (LOM R) or Letter of Map Amendment (LOMA),

respectively, may be performed only by FEMA.

Letter of Map Amendment (LOMA)

• 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 LOM A to remove the property from the SFHA.

The request must be submitted on the appropriate

FEM A ap p lication form available at:

https://www.fema.gov/flood-maps/change-your-

flood-zone.

• Upon receiving a complete app lication package,

FEM A will normally complete its review and issue

its determination within 4-6 weeks.

• After obtaining a LOM A, a borrower must submit it

to the lender for the flood insurance requirement 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 (LOMR)

• A LOM R is app rop riate when p hysical 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 a SFHA, is graded and filled to raise

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V - 6.8 FDIC Consumer Compliance Examination Manual – November 2023

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 approval also confirms that the

change in the land has been reviewed and is

compatible with the community’s planning.

• A LOM R request must be submitted to FEMA on the

appropriate form, available at:

https://www.fema.gov/flood-maps/change-your-

flood-zone.

• After obtaining a LOM R, 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, St andard Flood Hazard Determination forms, and

Community Stat us Books may be obtained from FEMA by:

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

• Ordering online: www.msc.fema.gov

To obtain information on a community’s participation status,

contact a FEM A representative at 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/national-flood-insurance-program-

community -status-book.

Reliance on Prior Determination

An institution may rely on a prior flood determination,

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 FEM A’s map revisions or updates show that the

security property has been remapp ed into an SFHA,

• 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

determination. However, when the loan involves a

refinancing 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, however, at any time during the life of the loan

the institution or its servicer determines that required flood

insurance is deficient, the Agencies’ regulations require

initiation of force placement procedures.

An institution or a servicer acting on its behalf is required to

purchase or “force place” flood insurance 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 covered 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 p lacing coverage, the Agencies exp ect

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 placement 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. Additionally, an institution must refund to the

borrower all premiums and fees for force-p laced

insurance paid by the borrower during any period of

overlap between the borrower’s policy and the force-

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FDIC Consumer Compliance Examination Manual – November 2023 V - 6.9

placed p olicy . 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 p lacement 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 equal to the difference between the

present amount of coverage, if any, and the lesser of the

outstanding 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 placement policy to send the notice. Force-placed

flood insurance policies are available through private

insurers or through the NFIP. FEM A 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 FEM A’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 FEM A’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 documents 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 institution, its servicer, or by a third

party, such as a flood hazard determination company.

http://www.fema.gov/media-library-data/1444065610669-

6de95573a833329e4a889e95569d5d9b/11_mppp_508_nov2015.pdf.

Truth in Lending Act Issues

The Commentary to Regulation Z states that

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

property 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 finan

ce 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 S pecial 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 a 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

non-participating community. The written notice must

contain the following information:

• A warning that the building or mobile home is or will

be located in a SFHA.

• A description of the flood purchase requirements

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

• A statement, if ap plicable, 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 comp anies 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

building or mobile home, caused by flooding in a

Federally declared disaster.

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

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V - 6.10 FDIC Consumer Compliance Examination Manual – November 2023

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 institution is required to escrow all premiums

and fees for flood insurance required under the regulations.

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 Residential 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 example 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

borrower, 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 h

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 ten 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 FEM A, 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 FEM A’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 se

nt 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 Administrator’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.

Record-Keeping Requi rements

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

• 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:

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FDIC Consumer Compliance Examination Manual – November 2023 V - 6.11

• A borrower’s signed acknowledgment on a copy of

the notice,

• A borrower-initialed list of documents and

disclosures 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 p lacement 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 FEM A National Flood M itigation 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.

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 accordance 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 a SFHA in a p articip ating

community.

3. To determine if the institution provides the required

notices to the borrower and servicer when the property

is located in a SFHA, and to the Administrator of

FEM A 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.

These reflect the interagency examination procedures in their entirety.

Consumer complaints can be a source of information about private flood

6. To determine if the institution complies with the

private flood insurance requirements of the

regulation.

7. To require 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 supervisory

correspondence;

• By obtaining and reviewing the institution’s policies,

procedures, and other pertinent information;

• By reviewing the institution’s system of internal

controls;

• By reviewing consumer complaints submitted to the

institution.

• By discussing procedures with management; and

• By reviewing a sample of loan files.

Coverage and Internal Control

1. Determine if the institution has effective internal

controls in place through appropriate policies,

procedures, training, and monitoring to ensure

compliance with the requirements of the regulations.

2. 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.

3. Verify that the process used accurately identifies special

flood hazard areas.

4. For those special flood hazard areas identified,

determine if the communities in which they are located

participate in the NFIP.

5. If the detached structure is not covered by flood

insurance, review the institution’s documented

conclusion and verify that the structure meets the

exemption.

6. If the institution provides “table funding” to close

loans originated by mortgage brokers or dealers, verify

that it complies with regulatory requirements.

7. 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.

8. If the institution utilizes a third party to service loans,

review the contractual obligations between the part ies to

ascertain that flood insurance requirements are

identified and compliance responsibilities are

adequately addressed.

policies that the institution did not accept.

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V - 6.12 FDIC Consumer Compliance Examination Manual – November 2023

Property Determination Re quirements

1. Verify that flood zone determinations are accurately

recorded on the SFHDF. (Note: An institution is

required to prepare a flood hazard determination for

all detached structures, including those that may not

be in a 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 determination 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 contractual 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 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, determine that

sufficient insurance was obtained prior to loan closing

and is maintained for the life of the loan.

a. If the institution accepted a private flood

insurance policy in accordance with the

mandatory acceptance requirements, verify

that the policy either: (a) contains the

compliance aid assurance clause exactly as

follows: “This policy meets the definition of

private flood insurance contained in 42 U.S.C.

4012a(b)(7) and the corresponding regulation”

or (b) that the policy meets the definition of

“private flood insurance” as set forth in the

regulation.

b. If the institution accepted a flood insurance

policy issued by a private insurer in

accordance with the discretionary accep tance

requirements, verify the following:

• the policy provides a sufficient

amount of insurance;

• the policy is issued by an insurer

permitted under the regulation;

• the policy covers both the

mortgagor(s) and the mortgagee(s) as

loss pay ees; and

• the institution determined that the

policy provides sufficient protection

of the designated loan, consistent

with general safety and soundness

principles, and that the institution

documented its conclusion regarding

sufficiency of the protection of the

loan in writing.

c. If the institution accepted a plan issued by a

mutual aid society in accordance with the

requirements for acceptance of such a plan,

verify the following:

• the institution’s regulator has

determined that such plans qualify as

flood insurance;

o for FDIC-regulated

institutions, assess whether

the regulated lending

institution has completed

the due diligence necessary

to determine that the mutual

aid plan is considered

insurance under applicable

state law. (See page 5 for

more information)

• the plan provides coverage in the

amount required;

• the plan covers both the mortgagor(s)

and the mortgagee(s) as loss payees;

and

• the institution documented in writing

its conclusion that the plan provides

sufficient protection of the designated

loan, consistent with general safety

and soundness principles.

2. In connection with a residential property, if flood

insurance was not required for a detached structure,

determine whether the institution followed its internal

policies and procedures and verify that the institution

documented its decision in writing not to require

insurance for such structure at the time of loan

origination.

3. If the institution makes loans insured or guaranteed 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

non-participating community.

Determination Fee Requirements

1. Determine that any fees charged to the borrower by

the institution for flood zone determinations (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;

• Results in the purchase of flood insurance under

the force placement provisions.

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FDIC Consumer Compliance Examination Manual – November 2023 V - 6.13

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. Consider, 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 institution 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 th e

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 institution retains a record of

receipt of the notice for as long as it owns the loan.

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 applicable, 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 excep tion 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

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 excep tion, 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

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V - 6.14 FDIC Consumer Compliance Examination Manual – November 2023

as soon as reasonably 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

reasonably practicable after receiving a borrower’s

request to escrow.

6. Verify that the institution’s escrow procedures

comply with section 10 of 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

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

• 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 p olicy .

FDPA Examination Checklis t

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:

Cove r age

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.

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?

3. If the institution purchases servicing rights to loans

covered by the regulation, do the documents between

the p arties specify the contractual obligations on the

institution with respect to flood insurance compliance?

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?

Property Determination

1. If the institution utilizes a third-party to prepare flood

zone determinations, do the contractual documents

between the p arties:

• Provide for the third-party’s guarantee of work?

• 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?

2. Are the determinations prepared on the SFHDF

developed and authorized by FEMA?

• If the form is maintained in an electronic format

does it contain the elements required by FEMA?

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?

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?

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

• It is made in response to a remapping by FEMA,

• It results in the purchase of flood insurance

under the force placement provisions?

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

determinations in situations other than those noted above,

is the practice followed consistently?

3. For those loans subject to 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

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FDIC Consumer Compliance Examination Manual – November 2023 V - 6.15

• Include the full amount of the charge as a

finance charge?

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

flood determination reasonable?

Notice Re qui r ements

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?

2. Does the notice contain the following required

information?

• A warning that the building or mobile home is

located in a SFHA;

• A description of the flood insurance

requirements;

• A statement that flood insurance is available

under the NFIP and is also 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 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 ap plicable.

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.

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?

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?

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?

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.

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.

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?

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

multip le policies, to meet the minimum

requirements of the regulation? (See narrative for

description of minimum requirements.)

3. If the institution accepts a private flood insurance policy

in accordance with the mandatory acceptance

requirements set forth in the regulation, does the

institution verify that either: (a) the policy or an

endorsement to the policy contains the compliance aid

assurance clause exactly as follows: “This p olicy meets

the definition of private flood insurance contained in 42

U.S.C. 4012a(b)(7) and the corresponding regulation”; or

(b) the policy meets the definition of “private flood

insurance” as set forth in the regulation?

4. If the institution exercises its discretion to accept flood

insurance issued by a private insurer that does not meet

the statutory definition of private flood insurance, does the

institution comply with the regulation’s discretionary

acceptance requirements?

5. If the institution accepts mutual aid plans, are the plans

accepted in accordance with the regulation’s

requirements?

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V - 6.16 FDIC Consumer Compliance Examination Manual – November 2023

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?

2. If a designated loan secured by residential improved real

estate or a mobile home no longer qualifies for the loan-

related excep tion, does the lender establish an escrow as

soon as reasonably practicable?

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?

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?

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 excep tion, 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?

6. Does the institution comply with the provisions of

section 10 of RESPA (12 CFR §1024.17 of

Regulation X) for escrows?

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?

• 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?

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

• 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 p olicy .

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?

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?

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FDIC Consumer Compliance Examination Manual – November 2023 V - 6.17

References

Flood Disaster Protection Act of 1973, as amended

12 CFR Part 339: Loans in Areas Having Special Flood

Hazards

Interagency Policy Regarding the Assessment of Civil Money

Penalties by the Federal Financial Institutions Regulatory

Agencies

2009 Interagency Flood Insurance Questions and Answers

2011 Interagency Flood Insurance Questions and Answers

FIL-42-2009 Flood Insurance: Revised Interagency Questions

and Answers Regarding Flood Insurance

FIL-14-2013 Interagency Statement on the Impact of Biggert-

Waters Act

FIL 28-2014: Interagency Statement on Increased Maximum

Flood Insurance Coverage for "Other Residential Buildings"

V. Lending — Flood Insurance Questions & Answers

V - 6.18 FDIC Consumer Compliance Examination Manual – November 2023

Loans in Areas Having S pecial Flood Hazards;

Interagency Questions and Answers Regarding Flood

Insurance

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,

and NCUA to revise their flood insurance regulations and

required the FCA to promulgate a flood insurance

regulatio n for

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

In October 2013, the Agencies jointly issued proposed rules

implement the escrow, force placement, and private flood

insurance provisions of the Biggert-Waters Flood Insurance

Reform Act of 2012 (the Biggert-Waters Act).

In March 2014,

Congress enacted the HFIAA, which, among other things,

amended the Biggert-Waters Act’s requirements regarding the

escrow of flood insurance premiums and fees and created a new

exemption from the mandatory flood insurance purchase

requirement for certain detached structures.

The Agencies

finalized the regulations to implement provisions in the Biggert-

Waters Act and HFIAA under the Agencies’ jurisdiction, excep t

for the provisions in the Biggert-Waters Act related to private flood

insurance, with a final rule issued in July 2015.

In February 2019,

the Agencies finalized regulations to implement the private flood

insurance related provisions of the Biggert-Waters Act.

The Agencies have previously issued Flood Insurance Questions

and answers in 2009 and 2011. In light of the significant changes

to flood insurance requirements pursuant to the Biggert-Waters

Act and HFIAA, as well as the Agencies’ regulations issued to

implement these laws, the Agencies issued interagency

proposed questions and answers (Q&As) in July, 2020 that

covered flood insurance requirements related to the escrow of

flood insurance premiums, the detached structure exemption,

and force placement procedures. Separately, in March, 2021,

the Agencies issued proposed new private flood insurance

Q&As to supplement the proposed July 2020 Flood Insurance

78 FR 65107 (Oct. 30, 2013).

Pub. L. 112-141, 126 Stat. 916 (2012).

Pub. L. 113–89, 128 Stat. 1020 (2014).

80 FR 43215 (July 21, 2015). Subsequently, on November 7, 2016, the

Q&As. The proposed Q&As covered private flood insurance

requirements imp lemented by the Agencies’ February 2019

final rule. The Q&As included provisions related to

mandatory accep tance, discretionary accep tance and other

general comp liance topics. The Agencies have analy zed all

comments received and revised the Q&As as appropriate.

Further the Agencies have combined both sets of Q&As into

one document and issued 144 new and revised Interagency

Q&As in M ay, 2022. These 2022 Interagency Q&As supersede

the 2009 and 2011 Interagency Q&As and supplement other

guidance or interpretations issued by the Agencies related to loans

in areas having special flood hazards.

Interagency Questions and Answers Regarding Flood

Insurance

The Interagency Questions and Answers (Q&As) are

organized by topic. Each topic addresses a major area of the

Act and Regulation. For ease of reference, the Q&As

provide a logical flow based on the flood insurance process

for lenders, servicers. Each Q&A is designated by the

category to which it belongs and then designated in

numerical order for that particular category. The categories

are abbreviated in the actual Q&A identifier. For examp le,

the topic Determining the Applicability of Flood Insurance

Requirements for Certain Loans has a corresponding Q&A

identifier of APPLICABILITY, followed by the numeric

question in the series.

Additionally , the following terms are used throughout this

document: “Act” refers to the National Flood Insurance Act

of 1968 and the Flood Disaster Protection Act of 1973, as

revised by the National Flood Insurance Reform Act of 1994

(codified at 42 U.S.C. 4001 et seq.). “Regulation” refers to

each agency’s current final rule.

The agencies are providing

answers to questions pertaining to the following topics:

1. Determining the Applicability of Flood Insurance

Requirements for Certain Loans [App licability]

2. Exemptions from the Mandatory Flood Insurance

Purchase Requirements [Exemptions]

3. Private Flood Insurance – M andatory Acceptance

[Mandatory]

4. Private Flood Insurance – Discretionary Accep tance

[Discretionary]

5. Private Flood Insurance – General Comp liance [Private

Flood Compliance]

6. Standard Flood Hazard Determination Form [SFHDF]

Agencies re-proposed the private flood insurance provisions through a joint

notice of proposed rulemaking (81 FR 78063).

84 FR 4953 (Feb. 20, 2019).

See note 1 above.

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FDIC Consumer Compliance Examination Manual – November 2023 V - 6.19

7. Flood Insurance Determination Fees [Fees]

8. Flood Zone Discrepancies [Zone]

9. Notice of Special Flood Hazards and Availability of

Federal Disaster Relief [Notice]

10. Determining the Appropriate Amount of Flood Insurance

Required [Amount]

11. Flood Insurance Requirements for Construction Loans

[Construction]

12. Flood Insurance Requirements for Residential

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

13. Flood Insurance Requirements for Home Equity Loans,

Lines of Credit, Subordinate Liens, and Other Security

Interests in Collateral Located in an SFHA [Other

Security Interests]

14. Requirement to Escrow Flood Insurance Premiums and

Fees – General [Escrow]

15. Requirement to Escrow Flood Insurance Premiums and

Fees – Small Lender Excep tion [Escrow Small Lender

Excep tion]

16. Requirement to Escrow Flood Insurance Premiums and

Fees – Loan Excep tions [Escrow Loan Exceptions]

17. Force Placement of Flood Insurance [Force Placement]

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

Transfer of a Designated Loan and/or Its Servicing Rights

[Servicing]

19. Mandatory Civil Money Penalties [Penalty ]

Determining the applicability of flood insurance

requi rements for certai n l oans (APPLICABILITY)

1. APPLICABILITY 1. Does the Regulation apply to a loan

where the building or mobile home securing such loan is

located in a community that does not participate in the

National Flood Insurance Program (NFIP)?

Answer: Yes, the Regulation does apply; however, a

lender need not require borrowers to obtain flood

insurance for a building or mobile home located in a

community that does not participate in the NFIP, even if

the building or mobile home securing the loan is located

in an SFHA. Nonetheless, a lender, using the Standard

Flood Hazard Determination Form, must still determine

whether the building or mobile home is located in an

SFHA.

If the building or mobile home is determined to

be located in an SFHA, a lender is required to mail or

deliver a written notice to the borrower.

In this case, a

lender, generally, may make a conventional loan without

requiring flood insurance. However, because Federal

12 CFR 22.6(a) (OCC); 12 CFR 208.25(f)(1) (Board); 12 CFR 339.6(a)

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

12 CFR 22.9(a) (OCC); 12 CFR 208.25(i) (Board); 12 CFR 339.9(a) (FDIC);

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

12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a)

(FDIC); 12 CFR 614.4930(a) (FCA); and 12 CFR 760.3(a) (NCUA).

agencies such as the Small Business Administration,

Veterans Administration, or Federal Housing

Administration are prohibited from guaranteeing or

insuring a loan secured by a building or mobile home

located in an SFHA in a community that does not

participate in the NFIP, a lender would not be able to

make a Federally guaranteed or insured loan. See 42

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

exercising sound risk management practices to avoid

making a loan secured by a building or mobile home

located in an SFHA where no flood insurance is available,

if doing so would pose an unacceptable risk to the lender.

2. APPLICABILITY 2. Some borrowers have buildings with

limited utility or value and, in many cases, the borrower

would not replace them if lost in a flood. Must a lender

require flood insurance for such buildings?

Lenders must require flood insurance on a building or

mobile home when those structures are part of the

property securing the loan and are located in an SFHA in

a p articipating community .

However, flood insurance is

not required on a structure that is part of a residential

property but is detached from the primary residential

structure of such property and does not serve as a

residence.

If the limited utility or value structure does

not qualify for the detached structure exemption, a lender

may consider “carving out” the building from the security

it takes on the loan to avoid having to require flood

insurance on the structure. However, the lender should

fully analyze the risks of this option. In particular, a

lender should consider whether and how it would be able

to market and sell the property securing its loan in the

event of foreclosure. See also Q&A Exemp tions 1.

3. APPLICABILITY 3. What are a lender’s requirements

under the Regulation for a loan secured by multiple

buildings when some of the buildings are located in an

SFHA in which flood insurance is available and other

buildings are not? What if the buildings are located in

different communities and some of the communities

participate in the NFIP and others do not?

A lender must determine whether a building securing the

loan is in an SFHA.

In cases in which the loan is secured

by multiple buildings and some of the buildings are

located in an

SFHA in which flood insurance is

available under the Act, but other buildings are not

located in an SFHA (or are located in an SFHA, but not in

a participating community), a lender is required to obtain

flood insurance only on the buildings securing the loan

that are located in an SFHA in which flood insurance is

available under the Act.8 For example, assume a loan is

secured by five buildings as follows:

12 CFR 22.4(c) (OCC); 12 CFR 208.25(d)(3) (Board); 12 CFR 339.4(c)

(FDIC); 12 CFR 614.4932(c) (FCA); and 12 CFR 760.4(c) (NCUA).

12 CFR 22.6(a) (OCC); 12 CFR 208.25(f)(1) (Board); 12 CFR 339.6(a)

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

12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a)

(FDIC); 12 CFR 614.4930(a) (FCA); and 12 CFR 760.3(a) (NCUA).

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V - 6.20 FDIC Consumer Compliance Examination Manual – November 2023

• Buildings 1 and 2 are located in an SFHA and the

community participates in the NFIP;

• Building 3 is not located in an SFHA; and

• Buildings 4 and 5 are located in an SFHA, but the

communities do not participate in the NFIP.

In this scenario, the lender is required to obtain insurance

only on buildings 1 and 2. As a matter of safety and

soundness, however, a lender may decide to require the

purchase of flood insurance (from a private insurer) on

buildings 4 and 5 because these buildings are located in an

SFHA. In addition, depending on the risk factors of

building 3, the lender may elect to require flood insurance

as a matter of safety and soundness, even if the building is

not located in an SFHA.

Further, if any portion of a building is located in an SFHA

in which flood insurance is available under the Act, the

flood insurance requirement applies even if the entire

structure is not located in the SFHA. However, a building

located on a portion of a plat or lot that is not in an SFHA

is not subject to the mandatory flood insurance purchase

requirement even if a portion of the plat or lot not

containing a building extends into an SFHA.

4. APPLICABILITY 4. What is a lender’s responsibility if a

particular building or mobile home that secures a loan is

not located within an SFHA, or is no longer located

within an SFHA due to a map change?

Answer: Although a lender is not obligated to require

mandatory flood insurance on a building or mobile home

securing a loan that is not located within an SFHA or is no

longer located within an SFHA, a lender may, at its

discretion and taking into consideration State law, as

appropriate, require flood insurance for property outside

of SFHAs for safety and soundness purposes as a

condition of a loan being made. Each lender should tailor

its own flood insurance policies and procedures to suit its

business needs and protect its ongoing interest in the

collateral.

5. APPLICABILITY 5. Does a lender’s purchase from

another lender of a loan secured by a building or mobile

home located in an SFHA in which flood insurance is

available under the Act trigger any requirements under

the Regulation?

Answer: No. A lender’s purchase of a loan, secured by a

building or mobile home located in an SFHA in which

flood insurance is available under the Act, alone, is not an

event that triggers the Regulation’s requirements, such as

making a new flood determination or requiring a borrower

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

Fo rm.

12 CFR 22.2(e), 22.3(a) (OCC); 12 CFR 208.25(b)(5) and (c)(1) (Board); 12

CFR 339.2, 339.3(a) (FDIC); 12 CFR 614.4925, 614.4930 (FCA); and 12 CFR

760.2, 760.3(a) (NCUA).

12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) (Board); 12 CFR 339.7(a)

(FDIC); 12 CFR 614.4945(a) (FCA); and 12 CFR 760.7(a) (NCUA).

12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a)

to purchase flood insurance. Requirements under the

Regulation are triggered when a lender makes, increases,

extends, or renews a designated loan.

A lender’s

purchase of a loan does not fall within any of those

categories.

However, if a lender becomes aware at any point during

the life of a designated loan that flood insurance is

required, the requirements of the Regulation apply,

including force-placing insurance, if necessary .

Depending on the circumstances, the lender may need to

conduct due diligence for safety and soundness reasons,

which could include determining whether flood insurance

on purchased loans is required. Additionally, if the

purchasing lender subsequently refinances, extends,

increases, or renews a designated loan, it must comply

with the Regulation.

6. APPLICABILITY 6. If a loan is being restructured or

modified, does that constitute a triggering event under the

Regulation?

Answer: It depends. If a loan modification or restructuring

involves recapitalizing into the loan’s outstanding

principal balance: (1) delinquent payments and other

amounts due under the loan and the maturity date of the

loan otherwise stays the same, or (2) amounts that were

otherwise originally contemplated to be part of the loan

pursuant to the contract with the borrower and the

maturity date of the loan otherwise stays the same, the

Regulation would not apply because the modification or

restructuring would not increase, extend, or renew the

terms of the loan.

In contrast, if the loan modification or restructuring

changes terms of the loan such as by increasing the

outstanding principal balance beyond what was

contemp lated as part of the loan under the contract with

the borrower, or by extending the maturity date of the

loan, the Regulation would apply because the lender

increased or extended the terms of the loan beyond what

was originally contemplated to be part of the loan.

7. APPLICABILITY 7. Are table funded loans treated as new

loan originations?

Answer: Yes. Table funding, as defined in the Regulation,

means a settlement at which a loan is funded by a

contemporaneous advance of loan funds and an

assignment of the loan to the person advancing the

funds.

A loan made through a table funding process is

treated as though the party advancing the funds has

originated the loan.

The funding party is required to

(FDIC); 12 CFR 614.4930 (FCA); and 12 CFR 760.3(a) (NCUA).

12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a)

(FDIC); 12 CFR 614.4930 (FCA); and 12 CFR 760.3(a) (NCUA).

12 CFR 22.2(m) (OCC); 12 CFR 208.25(b)(11) (Board); 12 CFR 339.2

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

12 CFR 22.3(b) (OCC); 12 CFR 208.25(c)(2) (Board); 12 CFR 339.3(b)

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

V. Lending — Flood Insurance Questions & Answers

FDIC Consumer Compliance Examination Manual – November 2023 V - 6.21

comply with the Regulation. The table funding lender can

meet the administrative requirements of the Regulation by

requiring the party processing and underwriting the

application to perform those functions on its behalf.

8. APPLICABILITY 8. Is a lender required by the Act or the

Regulation to perform a review of its, or of its servicer’s,

existing loan portfolio for compliance with the flood

insurance requirements under the Act and Regulation?

Answer: No. Apart from the requirements mandated when a

loan is made, increased, extended, or renewed,

a lender need

only review and take action on any part of its existing portfolio

for safety and soundness purposes, or if it knows or has reason

to know of the need for NFIP coverage.

Regardless of the

lack of such requirement in the Act and Regulation, however,

sound risk management practices may lead a lender to conduct

scheduled periodic reviews that track the need for flood

insurance on a loan portfolio.

9. APPLICABILITY 9. Do the mandatory purchase

requirements under the Act and Regulation apply when a

lender participates in a loan syndication or participation?

Answer: The acquisition by a lender of an interest in a

loan either by participation or syndication after that loan

has been made does not trigger the requirements of the

Act or the Regulation, such as making a new flood

determination or requiring a borrower to purchase flood

insurance. Nonetheless, as with purchased loans,

depending upon the circumstances, the lender may

undertake due diligence for safety and soundness

purposes to protect itself against the risk of flood or

other types of loss.

Lenders who pool or contribute funds that will be

simultaneously advanced to a borrower or borrowers as

a loan secured by improved real estate would be making

a loan that triggers the requirements of the Act and

Regulation.

Federal flood insurance requirements also

would apply when a group of lenders refinances,

extends, renews or increases a loan.

Although the

agreement among the lenders may assign comp liance

duties to a lead lender or agent, and include clauses in

which the lead lender or agent indemnifies participating

lenders against flood losses, each participating lender

remains individually responsible for compliance with the

Act and Regulation. Therefore, the Agencies will

examine whether the regulated institution/p articip ating

lender has performed upfront due diligence to determine

whether the lead lender or agent has undertaken the

necessary activities to ensure that the borrower obtains

appropriate flood insurance and that the lead lender or

agent has adequate controls to monitor the loan(s) on an

ongoing basis for compliance with the flood insurance

requirements. Further, the Agencies expect the

12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a)

(FDIC); 12 CFR 614.4930 (FCA); and 12 CFR 760.3(a) (NCUA).

12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) (Board); 12 CFR 339.7(a)

(FDIC); 12 CFR 614.4945(a) (FCA); and 12 CFR 760.7(a) (NCUA).

participating lender to have adequate controls to monitor

the activities of the lead lender or agent for comp liance

with flood insurance requirements over the term of the

loan. This due diligence and monitoring is especially

important when the lead lender itself is not subject to

Federal flood insurance requirements.

10. APPLICABILITY 10. Is a lender expected to consider any

triggering event or any cashless roll of which it becomes

aware in any tranche of a multi-tranche credit facility,

regardless of whether the lender participates in the

affected tranche?

Answer: No. Consistent with Q&A Applicability 9, the

Agencies exp ect that a lender participating in a multi-tranche

credit facility will perform upfront due diligence to determine

whether the lead lender has adequate controls to monitor the

loan on an ongoing basis for compliance with the flood

insurance requirements. This due diligence is especially

important when the lead lender itself is not subject to Federal

flood insurance requirements. Even though each lender

participating in a tranche in a multi-tranche credit facility

remains individually responsible for compliance with t he flood

insurance requirements relating to structures securing the

tranche in which it participates, this obligation can be achieved

through the upfront due diligence process when determining

the lead lender/administrative agent’s ongoing monitoring for

compliance with flood insurance requirements. A multi-

tranche credit facility is analogous in many respects to a loan

syndication or participation. Q&A Applicability 9 addresses

applicability of the mandatory purchase requirements when a

lender participates in a loan syndication or participation.

Similar to a loan syndication or p articipation, a multi-tranche

credit facility involves one credit agreement that describes and

governs all the tranches. In addition, similar to a loan

syndication or participation, a multi-tranche credit facility

ty pically has one lead lender that acts as the administrative

agent for the credit facility and its tranches. Thus, the Agencies

do not expect a lender participating in one tranche in a multi-

tranche credit facility to be responsible for taking direct steps to

comply with flood insurance requirements in connection with a

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

renewing) or cashless roll that occurs in a tranche in which the

lender does not participate.

A multi-tranche commercial credit facility is a loan

arrangement containing more than one type of loan or tranche.

Each loan within the overall credit facility is made to the same

borrower or group of related borrowers, but the loans may

have different lenders and different terms and conditions. For

example, a credit facility might have one tranche that is a

revolving line of credit with a one-year maturity date and one

or more additional tranches that are fixed rate loans with

different interest rates and different maturity dates. Various

lenders may participate in each tranche. Generally, the tranches

12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a)

(FDIC); 12 CFR 614.4930(a) (FCA); and 12 CFR 760.3(a) (NCUA).

12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a)

(FDIC); 12 CFR 614.4930(a) (FCA); and 12 CFR 760.3(a) (NCUA).

V. Lending — Flood Insurance Questions & Answers

V - 6.22 FDIC Consumer Compliance Examination Manual – November 2023

share the same collateral and there is one credit agreement that

describes and governs all the tranches.

Under most multi-tranche credit facility agreements, a

triggering event can occur within a particular tranche without

any requirement to notify and obtain the consent of the lenders

not p articipating in that tranche. Lenders may also participate

in a cashless roll, which is an exchange of an exist ing loan for a

new or amended loan without any transfer of cash. A cashless

roll may be used to replace or supplement existing tranches,

but not to increase the total amount of committed debt;

therefore, this is not considered a triggering event.

11. APPLICABILITY 11. Does an automatic extension of a

credit facility, that was agreed upon by the borrower and

the lender at loan origination and memorialized in the loan

agreement, constitute a triggering event (i.e., making,

increasing, extending or renewing) that would trigger the

Federal flood insurance requirements?

Answer: No. An automatic extension of a credit facility that

was agreed upon by the lender and the borrower at loan

origination and memorialized in the loan agreement does not

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

extending or renewing) that would trigger the Federal flood

insurance requirements, because the automatic extension was

agreed to in the original loan contract.

12. APPLICABILITY 12. What is the applicability of the

mandatory purchase requirement during a period of time

when coverage under the NFIP is not available?

Answer: During a period when coverage under the NFIP is

not available, such as due to a lapse in authorization or in

appropriations, lenders may continue to make loans subject to

the Regulation without requiring flood insurance coverage.

However, lenders must continue to make flood

determinations,

provide timely, complete, and accurate

notices to borrowers,

and comply with other applicable parts

of the Regulation.

In addition, lenders should evaluate safety and soundness and

legal risks and prudently manage those risks during a period

when coverage under the NFIP is not available. Lenders

should take appropriate measures or consider possible options

in consultation with the borrower to mitigate loss exposures in

the event of a flood during such periods. For example,

• Lenders may determine the risk of loss is sufficient to

justify a postponement in closing the loan until the

NFIP coverage is available again.

• Lenders may require the borrower to obtain private

flood insurance if available, as a condition of closing

the loan. However, after considering the cost of the

private flood policy, a lender or the borrower may

12 CFR 22.6(a) (OCC); 12 CFR 208.25(f)(1) (Board); 12 CFR 339.6(a)

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

12 CFR 22.9(a) (OCC); 12 CFR 208.25(i) (Board); 12 CFR 339.9(a)

(FDIC); 12 CFR 614.4955(a) (FCA); and 12 CFR 760.9(a) (NCUA).

12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) (Board); 12 CFR 339.7(a)

(FDIC); 12 CFR 614.4945(a) (FCA); and 12 CFR 760.7(a) (NCUA).

decide to postpone closing rather than incur a long-term

obligation to address a possible short-term lap se.

• Lenders may make the loan without requiring the

borrower to apply for flood insurance and pay the

premium while NFIP coverage is unavailable. However,

this option poses a number of risks that should be

carefully evaluated. Moreover, once NFIP coverage

becomes available again, the Agencies expect that flood

insurance will be obtained for these loans, including, if

necessary , by force placement.

Before making such

loans, lenders should make borrowers aware of the

flood insurance requirements and that force-p laced

insurance is typically more costly than borrower-

obtained insurance. Lenders also should have a process

to identify these loans to ensure that insurance is

promptly purchased when NFIP coverage becomes

available subsequent to their closing.

13. APPLICABILITY 13. What is a “triggering event” under

the Regulation? If there is a triggering event, what is

required under the Regulation?

Answer: Under the Regulation, a triggering event occurs when

a designated loan is made, increased, extended, or renewed

(also known as a “MIER” or “MIRE” event).

If a t riggering

event occurs with respect to a designated loan, the lender must

comply with the Regulation as applicable, including the

mandatory flood insurance purchase requirement, the

requirement to provide the Notice of Special Flood Hazards to

the borrower, the requirement to notify the Administrator of

the Federal Emergency Management Agency (FEMA) or t he

Administrator’s designee (the insurance provider) in writing of

the identity of the servicer of the loan, and the requirement to

escrow for a loan secured by residential property, unless either

the lender or the loan qualifies for an exception.

Examples of events that are not considered triggering events

for purposes of the Regulation include: the purchase of a loan

from another lender (s ee Q&A Applicability 5); a loan

restructuring or modification that does not increase the amount

of the loan nor extend or renew the terms of the loan (see Q&A

Applicability 6); the assumption of the loan by another

borrower; the remapping of a building securing the loan into an

SFHA; the acquisition by a lender of an interest in a loan either

by participation or syndication (see Q&A Applicability 9); a

cashless roll (see Q&A Applicability 10); certain automatic

extensions of credit (see Q&A Applicability 11); and certain

treatments of force placement premiums and fees (see Q&A

Force Placement 10).

14. APPLICABILITY 14. May a lender rely on an insurance

policy providing portfolio-wide coverage to meet the flood

insurance purchase requirement or the force placement

requirement under the Regulation?

12 CFR 22.3(a); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a) (FDIC); 12

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

See 12 CFR part 22 (OCC); 12 CFR part 208.25 (Board); 12 CFR part 339

(FDIC); 12 CFR part 614 (FCA); and 12 CFR part 760 (NCUA).

V. Lending — Flood Insurance Questions & Answers

FDIC Consumer Compliance Examination Manual – November 2023 V - 6.23

Answer: It depends. A lender may not rely on an

insurance policy providing portfolio-wide coverage to

meet the flood insurance purchase or force placement

requirements if the policy only provides coverage to the

lender (“single interest”). When a flood insurance policy

has expired and the borrower has failed to renew

coverage, insurance policies providing portfolio-wide

coverage may be useful protection for the lender for a gap

in coverage in the period of time before a force-placed

policy takes effect. However, even if a lender has

portfolio-wide coverage to address gaps, the lender must

still ensure the flood insurance purchase requirement is

satisfied at the time a loan is made, increased, renewed or

extended, and the lender must still force place coverage

on the borrower’s behalf in a timely manner, as

required,

and may not rely on an insurance policy that

provides portfolio-wide coverage as a substitute for a

force-placed p olicy .

In contrast, lenders may purchase a master flood

insurance policy that provides coverage for its entire

portfolio and covers both the lender and the borrower

(“dual interest”). Such policies provide coverage for the

entire portfolio as well as individual coverage, and

include the issuance of an individual property policy or

certificate after the required notice period.

15. APPLICABILITY 15. When does mandatory flood

insurance on a designated loan need to be in place during

the closing process?

Answer: The Regulation states that a lender cannot

“make” a loan secured by a property in an SFHA without

adequate flood insurance coverage being in place.

lender should use the loan “closing date” to determine the

date by which flood insurance must be in place for a

designated loan. FEM A deems the “closing date” as the

day the ownership of the property transfers to the new

owner based on State law.

“Wet funding” and “dry funding,” which varies by State,

refer to when a mortgage is considered officially closed.

In a “wet” settlement State, the signing of closing

documents, funding, and transfer of title occur all on the

same day. By contrast, in a “dry” settlement State,

documents are signed on one date, but loan funding and/or

transfer of title/recording occur on subsequent date(s).

Therefore, in “dry” settlement States, the “closing date” is

the date of property transfer, regardless of loan signing or

funding date.

For transactions where there is no transfer of property

ownership, such as a refinance, and the borrower is

purchasing a new flood insurance policy or is required to

12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) (Board); 12 CFR 339.7(a)

(FDIC); 12 CFR 614.4945(a) (FCA); and 12 CFR 760.7(a) (NCUA).

12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a)

(FDIC); 12 CFR 614.4930(a) (FCA); and 12 CFR 760.3(a) (NCUA).

12 CFR 22.4(a) (OCC); 12 CFR 208.25(d)(1) (Board); 12 CFR 339.4(a)

(FDIC); 12 CFR 614.4932(a) (FCA); and 12 CFR 760.4(a) (NCUA).

increase flood insurance coverage, the lender should use

the loan’s consummation date as the effective date for the

flood insurance policy, as noted above.

It is also important to note that the application and

premium payment for NFIP flood insurance must be

provided at or prior to the “closing date” since this

impacts the FEM A flood insurance effective date and any

resulting 30-day waiting period for new policies not made

in connection with a triggering event. This application

requirement applies for properties located in both dry and

wet settlement States. See NFIP Flood Insurance Manual.

Exemptions from the mandatory flood insurance purchase

requirements (EXEMPTIONS)

16. EXEMPTIONS 1. What are the exemptions from the

mandatory purchase requirement?

Answer: There are only three exemptions from the

mandatory requirement to purchase flood insurance on a

designated loan. The first applies to State-owned property

covered under a policy of self-insurance satisfactory to

the Administrator of FEMA.

The second applies if both

the original principal balance of the loan is $5,000 or less,

and the original repayment term is one year or less.

The

third applies to any structure that is a part of any

residential property but is detached from the primary

residential structure of such property and does not serve

as a residence. For purposes of the detached structure

exemption, a “structure that is a part of residential

property” is a structure used primarily for personal,

family, or household purposes, and not used primarily for

agricultural, commercial, industrial, or other business

purposes. In addition, a structure is “detached” from the

primary residential structure if it is not joined by any

structural connection to that structure. Furthermore,

whether a structure “does not serve as a residence” is

based upon the good faith determination of the lender that

the structure is not intended for use or actually used as a

residence, which generally includes sleeping, bathroom,

or kitchen facilities.

See also Q&A Private Flood

Compliance 1.

38. PRIVATE FLOOD COMPLIANCE 3. If a lender utilizes a

third party to review flood insurance policies, would it be

permissible for a lender to charge the borrower a fee for

this review?

Answer: The Act and the Regulation do not prohibit

lenders from charging fees to borrowers for contracting

with third parties to review flood insurance policies issued

by private insurers. As explained in Q&A Fees 1 and

Q&A Fees 2, lenders may charge limited, reasonable fees

for flood determinations and life-of-loan monitoring.

Similarly, the Act and the Regulation do not prohibit

lenders from charging a fee to a borrower when a third

party reviews a flood insurance policy issued by a private

insurer. However, lenders should be aware of any other

applicable requirements regarding fees and disclosures of

fees.

39. PRIVATE FLOOD COMPLIANCE 4. If the policy is not

available prior to closing, what can the lender rely on to

make sure the policy meets the private flood insurance

requirements of the Regulation?

Answer: The Act and Regulation do not specify the

acceptable types of documentation for a lender to rely on

when reviewing a flood insurance policy issued by a

private insurer. Lenders should determine whether they

have sufficient evidence to show the policy meets the

private flood insurance requirements under the

Regulation.

Lenders can take steps to help mitigate against closing

delays such as designating employees responsible for

12 CFR 22.2(k)(2)(iii) (OCC); 12 CFR 208.25(b)(9)(ii)(B) (Board); 12 CFR

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

reviewing flood policies, training employees, and

requesting additional information from insurers early in

the process. If the lender does not have enough

information to determine if the policy meets the private

flood insurance requirements under the Regulation, then

the lender should timely request additional information as

necessary to complete its review. See also Q&A Private

Flood Compliance 5.

40. PRIVATE FLOOD COMPLIANCE 5. Under existing

force placement requirements, a declarations page is

sufficient to evidence a borrower’s purchase of a flood

insurance policy. Does the declarations page have

sufficient information for a lender to determine whether

the policy complies with the private flood insurance

requirements of the Regulation?

Answer: It depends. If the declarations page provides

enough information for the lender to determine whether

the policy meets the mandatory acceptance provision or

discretionary acceptance provision of the Regulation or if

the declarations pages contains the compliance aid

statement, then the lender may rely on the declarations

pages. However, if the declarations page does not provide

enough information for the lender to determine whether

the policy satisfies the mandatory acceptance provision or

discretionary acceptance provision of the Regulation, the

lender should request additional information about the

policy to aid in making its determination.

41. PRIVATE FLOOD COMPLIANCE 6. May a lender

accept a multiple-peril policy issued by a private insurer

to satisfy the mandatory purchase of flood insurance

requirement?

Answer: Yes. A lender can accep t a multip le-peril policy

that covers the hazard of flood, either in the policy or as

an endorsement, under the private flood insurance

provisions of the Regulation.

42. PRIVATE FLOOD COMPLIANCE 7. How do the private

flood insurance requirements of the Regulation, especially

the compliance aid statement, work in conjunction with

the requirements from secondary market investors (for

example, the Federal National Mortgage Association

(Fannie Mae) or the Federal Home Loan Mortgage

Corporation (Freddie Mac))?

Answer: Lenders must comply with Federal flood

insurance requirements. The requirements for the

secondary market are separate from the Regulation. A

lender should carefully review these separate

requirements for secondary market investors regarding

acceptable private flood insurance if the lender plans to

sell loans to such investors and should direct questions

regarding these requirements to the appropriate entities.

43. PRIVATE FLOOD COMPLIANCE 8. When servicing a

loan covered by flood insurance pursuant to the Act and

12 CFR 22.3(c)(3)(iv)(D) (OCC); 12 CFR 208.25(c)(3)(iii)(D) (Board); 12

CFR 339.3(c)(3)(iv) (FDIC); 12 CFR 614.4930(c)(3)(iv) (FCA); and 12 CFR

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

V. Lending — Flood Insurance Questions & Answers

FDIC Consumer Compliance Examination Manual – November 2023 V - 6.29

the Regulation, which requirements must a servicer follow

in evaluating the acceptance of a flood insurance policy

issued by a private insurer?

Answer: For loans serviced on behalf of lenders

supervised by the Agencies, the servicer must comply

with the Regulation in determining whether a flood

insurance policy issued by a private insurer must be

accepted under the mandatory acceptance provision or

may be accep ted under the discretionary acceptance

provision or mutual aid provision. For loans serviced on

behalf of other entities not supervised by the Agencies,

the servicer should comply with the terms of its contract

with that entity. For example, when servicing loans on

behalf of Fannie Mae or Freddie Mac, where there are

insurer rating requirements specified within those entities’

servicing guidance or other relevant authorities that are

not required in the Regulation, the servicer should adhere

to those servicing requirements.

44. PRIVATE FLOOD COMPLIANCE 9. How can a lender

determine: (i) whether an insurer is licensed or admitted

in a particular State, (ii) or whether a surplus lines or

nonadmitted alien insurer is permitted to issue an

insurance policy in a particular State?

Answer: A lender may refer to the website of the State

insurance regulator where the collateral property is

located to determine whether a particular insurer is

licensed, admitted, or otherwise permitted to issue an

insurance policy in a particular State. If the lender cannot

determine this information from the website, the lender

could contact the State insurance regulator directly.

Further, information with respect to surplus lines insurer

eligibility also may be available in the Consumer

Insurance Search (CIS) tool available on the National

Association of Insurance Commissioners (NAIC) website.

Lenders may consult commercial service providers

regarding the eligibility of surplus lines insurers in

particular States provided the lenders have a reasonable

basis to believe that these service providers have reliable

information. With regard to nonadmitted alien insurers in

particular, lenders could review the NAIC’s Quarterly

Listing of Alien Insurers.

45. PRIVATE FLOOD COMPLIANCE 10. May lenders

accept policies issued by private insurers that are surplus

lines insurers for noncommercial properties?

Answer: Yes, if the surplus lines insurer is eligible or not

disapproved to place insurance in the State or jurisdiction

in which the property to be insured is located, lenders may

accept policies issued by surplus lines insurers as

coverage for noncommercial (i.e., residential) properties.

https://www.naic.org/prod_serv_alpha_listing.htm#quarterly_alien.

See 84 FR 4953, 4955-4956 (Feb. 20, 2019). See also 12 CFR 22.2(k)(1)(i)

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

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

See 84 FR 4953, 4962 (Feb. 20, 2019). See also 12 CFR 22.3(c)(3)(ii)

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

12 CFR 614.4930(c)(3)(ii) (FCA); and 12 CFR 760.3(c)(3)(ii) (NCUA).

Consistent with the Act and the Regulation, the Agencies

confirm that policies issued by surplus lines insurers for

noncommercial properties are covered in the definition of

“private flood insurance” and in the discretionary

acceptance provision. In the definition of “private flood

insurance,” surplus lines policies for noncommercial

prop erties are covered as policies that are issued by

insurance companies that are “otherwise approved to

engage in the business of insurance by the insurance

regulator of the State or jurisdiction in which the property

to be insured is located.”

Similarly, within the

discretionary acceptance provision, noncommercial

residential policies issued by surplus lines carriers are

covered as policies that are issued by private insurance

companies that are “otherwise approved to engage in the

business of insurance by the insurance regulator of the

State or jurisdiction in which the property to be insured is

located.”

For purposes of the Regulation, the meaning of

“otherwise approved” is based on whether applicable

State law provides that the surplus lines insurer is eligible

or not disapproved to place insurance in that State. Even if

the surplus lines insurer is not considered to be engaged in

the business of insurance under applicable State law, the

surp lus lines insurer would still be “otherwise approved”

only for purposes of this provision of the Regulation if the

insurer is eligible or not disapproved to place insurance in

the State.

46. PRIVATE FLOOD COMPLIANCE 11. When must a

lender review a flood insurance policy issued by a private

insurer under the private flood insurance requirements of

the Regulation?

Answer: Any time the borrower presents the lender with a

new flood insurance policy issued by a private insurer,

regardless of whether a triggering event occurred, the

lender must review the policy to determine whether it

meets the private flood insurance requirements of the

Regulation.

A lender may determine that the p olicy

meets the mandatory acceptance criteria without further

review if the policy or an endorsement to the policy

includes the compliance aid statement.

If there is no

compliance aid statement, or the lender chooses not to

rely on the compliance aid statement, the lender must

conduct its own review to determine if the policy meets

the mandatory accep tance criteria. See Q&A M andatory

4. If the policy does not meet the mandatory acceptance

criteria, the lender may still accept the policy if it meets

the discretionary acceptance criteria, or, if ap plicable, the

mutual aid plan criteria. See also Q&A Mandatory 7. If

the p olicy does not meet the mandatory acceptance,

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

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

(NCUA).

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

339.3(c)(2) (FDIC);

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

V. Lending — Flood Insurance Questions & Answers

V - 6.30 FDIC Consumer Compliance Examination Manual – November 2023

discretionary acceptance, or mutual aid plan criteria, the

lender may not accep t the policy .

If the lender has previously reviewed the flood insurance

policy under the mandatory acceptance p rovision, the

discretionary acceptance provision, or the mutual aid plan

provision the lender may rely on its previous review,

provided there are no changes to the terms of the policy

that would affect the acceptance under the Regulation.

The lender’s previous written documentation will

constitute the documentation required under the

Regulation each time the policy comes up for renewal.

The lender should have effective internal controls in place

through appropriate policies, procedures, training, and

monitoring to ensure compliance with the requirements of

the Regulation.

Standard flood hazard determination form (SFHDF)

47. SFHDF 1. Does the SFHDF replace the borrower

notification form?

Answer: No. The SFHDF is used by the lender to

determine whether the building or mobile home offered as

collateral security for a loan is or will be located in an

SFHA in which flood insurance is available under the

Act.

The notification form, on the other hand, is used to

notify the borrower(s) that the building or mobile home is

or will be located in an SFHA and to inform the

borrower(s) about flood insurance requirements and the

availability of Federal disaster relief assistance.

48. SFHDF 2. May a lender provide the SFHDF to the

borrower?

Answer: Yes. Although not a statutory requirement, a

lender may provide a copy of the flood determination to

the borrower. In the event a lender provides the SFHDF to

the borrower, the signature of the borrower is not required

to acknowledge receipt of the form. The Agencies note

that under the FEMA process for a Letter of

Determination Review (LODR), a lender would need to

make the determination available to the borrower.

49. SFHDF 3. May the SFHDF be used in electronic format?

Answer: Yes.

In the final rule adopting the SFHDF,

FEMA stated: “If an electronic format is used, the format

and exact layout of the Standard Flood Hazard

Determination Form is not required, but the fields and

elements listed on the form are required. Any electronic

format used by lenders must contain all mandatory fields

indicated on the form.” It should be noted that the lender

must be able to reproduce the form upon receiving a

document request by its Federal supervisory agency.

50. SFHDF 4. May a lender rely on a previous determination

for a refinancing or assumption of a loan or multiple

12 CFR 22.3(c) (OCC); 12 CFR 208.25(c) (Board); 12 CFR 339.3(c)

(FDIC); 12 CFR 614.4930(c) (FCA); and 12 CFR 760.3(c) (NCUA).

12 CFR 22.6(a) (OCC); 12 CFR 208.25(f)(1) (Board); 12 CFR 339.6

(FDIC); 12 CFR 614.4940 (FCA); and 12 CFR 760.6 (NCUA).

12 CFR 22.9 (OCC); 12 CFR 208.25(i) (Board); 12 CFR 339.9 (FDIC); 12

loans to the same borrower secured by the same

property?

Answer: It depends. The Act (42 U.S.C. 4104b(e))

permits a lender to rely on a previous flood determination

using the SFHDF when it increases, extends, renews, or

purchases a loan secured by a building or a mobile home.

Under the Act, the “making” of a loan is not listed as a

permissible event that permits a lender to rely on a

previous determination. When the loan involves a

refinancing or assumption by the same lender who

obtained the original flood determination on the same

property, the lender may rely on the previous

determination only if the original determination was made

not more than seven years before the date of the

transaction, the basis for the determination was set forth

on the SFHDF, and there were no map revisions or

updates affecting the security property since the original

determination was made. Further, if the same lender

makes multiple loans to the same borrower secured by the

same improved real estate, the lender may rely on its

previous determination if the original determination was

made not more than seven years before the date of the

transaction, the basis for the determination was set forth

on the SFHDF, and there were no map revisions or

updates affecting the security property since the original

determination was made. These loans are extended by the

same lender, to the same borrower, and are secured by the

same improved real estate, and, therefore, these types of

transactions are the functional equivalent of an increase of

a loan.

When the loan involves a refinancing or assumption made

by a lender different from the one who obtained the

original determination, this would constitute the making

of a new loan, thereby requiring a new determination.

Flood insurance determination fees (FEES)

51. FEES 1. When can lenders or servicers charge the

borrower a fee for making a determination?

Answer: There are four instances under the Act and

Regulation when the borrower can be charged a fee for a

flood determination:

• When the determination is made in connection with the

making, increasing, extending, or renewing of a loan

that is initiated by the borrower;

• When the determination reflects a revision or updating

by FEMA of floodplain areas or flood-risk zones;

• When the determination reflects FEMA’s publication of

a notice or compendium that affects the area in which

the security property is located, or FEMA requires a

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

12 CFR 22.6(b) (OCC); 12 CFR 208.25(f)(2) (Board); 12 CFR 339.6(b)

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

V. Lending — Flood Insurance Questions & Answers

FDIC Consumer Compliance Examination Manual – November 2023 V - 6.31

determination as to whether the building securing the

loan is located in an SFHA; or

• When the determination results in force placement of

insurance.

Loan or other contractual documents between the parties

may also permit the imposition of fees.

52. FEES 2. May charges made for life-of-loan reviews by

flood determination firms be passed along to the

borrower?

Answer: Yes, with limitations noted below. In addition to

the initial determination at the time a loan is made,

increased, renewed, or extended, many flood

determination firms provide a service to the lender to

review and report changes in the flood status of a dwelling

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

monitoring). The fee charged for the service at loan

closing is a composite fee for conducting both the original

and subsequent reviews. Charging a fee for the original

determination is clearly authorized by the Act. The

Agencies agree that a determination fee may include,

among other things, reasonable fees for a lender, servicer,

or third party to monitor the flood hazard status of

property securing a loan in order to make determinations

on an ongoing basis.

However, the life-of-loan fee is based on the authority to

charge a determination fee and, therefore, the composite

determination/life-of-loan monitoring fee may be charged

only if the events specified in the answer to Q&A Fees 1

occur.

Further, a lender may not charge a composite

determination and life-of-loan fee if the loan does not

close, because such life-of loan fee would be an unearned

fee in violation of the Real Estate Settlement Procedures

Act.

Flood zone discrepencies (ZONE)

53. ZONE 1. Does a lender need to reconcile a discrepancy

between the flood zone designation on the flood

determination form and the flood zone associated with a

flood insurance policy?

Answer: No, a lender need not reconcile or otherwise be

concerned with a flood zone discrepancy. For NFIP

policies issued under FEMA’s Risk Rating 2.0 - Equity in

Action (Risk Rating 2.0),

premium rates are no longer

determined by the flood zone in which the property is

located. M oreover, the flood zone is no longer included

on the declarations page for NFIP policies issued under

Risk Rating 2.0.

12 CFR 22.8(b) (OCC); 12 CFR 208.25(h)(2) (Board); 12 CFR 339.8(b)

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

12 CFR 22.8 (OCC); 12 CFR 208.25(h) (Board); 12 CFR 339.8 (FDIC); 12

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

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

See https://www.fema.gov/flood-insurance/risk-rating.

New NFIP policies starting October 1, 2021 have been issued under Risk

Flood insurance policies issued by a private insurer may

still include the flood zone on the declarations page.

Further, NFIP policies that have not been issued or

renewed under Risk Rating 2.0 will include the flood zone

on the declarations p age.

In these cases, lenders also

need not reconcile any discrepancy .

The flood zone determination is still necessary to

determine if a property is located in an SFHA. If the

SFHDF indicates that the building securing the loan is in

an SFHA, the lender must require the appropriate amount

of insurance coverage in accordance with the Act and

Regulation.

For disputes regarding whether a property is

located in an SFHA, see Q&A Zone 3.

54. ZONE 2. Is a lender in violation of the Regulation if there

is a discrepancy between the flood zone on the SFHDF

and the flood zone associated with a flood insurance

policy?

Answer: No, a lender is not in violation of the Regulation

if there is a discrepancy between the flood zone on the

SFHDF and the flood zone associated with the policy. See

Q&A Zone 1.

55. ZONE 3. What should a lender do when the lender’s flood

zone determination specifies that a building securing the

loan is located in an SFHA requiring mandatory flood

insurance coverage, but the borrower disputes that

determination?

Answer: If a borrower disputes a lender’s determination

that the building securing the loan is located in an SFHA

requiring mandatory flood insurance coverage, the p arties

involved in making the determination are encouraged to

resolve the flood zone discrepancy before contacting

FEMA for a final determination. If the flood zone

discrep ancy cannot be resolved, an app eal may be filed

with FEMA. Depending on the nature of the dispute,

FEMA has different options for review, including:

• Letters of Determination Review (LODR), and

• Letters of Map Change (LOM C), which include Letters

of M ap Amendment (LOM A), Letters of Map Revision

(LOMR), and Letters of M ap Revision Based on Fill

(LOM R-F).

Lenders and borrowers should consult FEMA guidance on

the appropriate process to follow, any applicable fees, and

any deadlines by which the request to review must be

made. However, as long as the lender’s flood

determination specifies that a building securing the loan is

located in an SFHA and requires mandatory flood

insurance coverage, sufficient coverage must be in place

in accordance with the Act and the Regulation until

Rating 2.0. NFIP policies that renew between October 1, 2021, and March 31,

2022, may or may not be renewed under Risk Rating 2.0. All NFIP policies

that renew on or after April 1, 2022 will be renewed under Risk Rating 2.0.

12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a)

(FDIC); 12 CFR 614.4930(a) (FCA); and 12 CFR 760.3(a) (NCUA).

V. Lending — Flood Insurance Questions & Answers

V - 6.32 FDIC Consumer Compliance Examination Manual – November 2023

FEMA has determined that the building is not in an

SFHA.

Notice of special flood hazards and availability of federal

disaster rel ief (NOTICE)

56. NOTICE 1. Does the Notice of Special Flood Hazards

have to be provided to each borrower for a real estate

related loan?

Answer: No. The Notice of Special Flood Hazards must

be provided to one borrower when the lender determines

that the property securing the loan is or will be located in

an SFHA.

In a transaction involving multiple borrowers,

the lender need only provide the Notice of Special Flood

Hazards to any one of the borrowers in the transaction.

Lenders may provide multiple notices if they choose. The

lender and borrower(s) typically designate the borrower to

whom the Notice of Special Flood Hazards will be

provided.

57. NOTICE 2. When should a lender provide the Notice of

Special Flood Hazards to the borrower? How does this

requirement apply in situations regarding mobile homes

where the lender may not know where the home is to be

located until just prior to, or sometimes after, the time of

loan closing?

Answer: As required by the Regulation, a lender must

provide the Notice of Special Flood Hazards to the

borrower within a reasonable time before the completion

of the transaction.

What constitutes “reasonable” notice

will necessarily vary according to the circumstances of

particular transactions. A lender should bear in mind,

however, that a borrower should receive timely notice to

ensure that (1) the borrower has the opportunity to

become aware of the borrower’s responsibilities under the

Act; and (2) where applicable, the borrower can purchase

flood insurance before completion of the loan transaction.

The Agencies generally regard 10 calendar days as a

“reasonable” time interval.

If a lender determines that a mobile home securing a

designated loan will be located in an SFHA just prior to

closing, the lender may need to delay the closing until the

Notice of Special Flood Hazards has been provided in

accordance with the Regulation.

In the case of loan transactions secured by mobile homes

not located on a permanent foundation, the Agencies note

12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a)

(FDIC); 12 CFR 614.4930(a) (FCA); and 12 CFR 760.3(a) (NCUA).

12 CFR 22.9(a) (OCC); 12 CFR 208.25(i) (Board); 12 CFR 339.9(a)

(FDIC); 12 CFR 614.4955(a) (FCA); and 12 CFR 760.9(a) (NCUA).

12 CFR 22.9(c) (OCC)12 CFR 208.25(i)(2) (Board); 12 CFR 339.9(c)

(FDIC); 12 CFR 614.4955(c) (FCA); and 12 CFR 760.9(c) (NCUA).

12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) (Board); 12 CFR 339.7(a)

(FDIC); 12 CFR 614.4945(a) (FCA); and 12 CFR 760.7(a) (NCUA).

12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) (Board); 12 CFR 339.7(a)

(FDIC); 12 CFR 614.4945(a) (FCA); and 12 CFR 760.7(a) (NCUA).

that such “home only” transactions are excluded from the

definition of mobile home and the notice requirements

would not apply to these transactions. However, the

Agencies encourage a lender to advise the borrower that if

the mobile home is later located on a permanent

foundation in an SFHA, flood insurance will be required.

If the lender, when notified of the location of the mobile

home subsequent to the loan closing, determines that it

has been p laced on a p ermanent foundation and is located

in an SFHA in which flood insurance is available under

the Act, flood insurance coverage becomes mandatory and

a force placement notice must be given to the borrower

under those provisions.

If the borrower fails to purchase

flood insurance coverage within 45 days after notification,

the lender must force-p lace the insurance.

58. NOTICE 3. When is the lender required to provide notice

to the servicer of a loan that flood insurance is required?

Answer: Because the servicer of a loan is often not

identified prior to the closing of a loan, the Regulation

requires that notice be provided no later than the time the

lender transmits other loan data, such as information

concerning hazard insurance and taxes, to the servicer.

59. NOTICE 4. What will constitute appropriate form of

notice to the servicer?

Answer: Delivery to the servicer of a copy of the notice

given to the borrower is appropriate notice. The

Regulation also provides that the notice can be made

either electronically or by a written cop y .

In the case of a servicer affiliated with the lender, the Act

requires the lender to notify the servicer of special flood

hazards and the Regulation reflects this requirement.

Neither the Act nor the Regulation contains an exception

for affiliates.

60. NOTICE 5. How long must the lender maintain the record

of receipt by the borrower of the Notice of Special Flood

Hazards?

Answer: The record of receipt provided by the borrower

must be maintained for the period of time that the lender

owns the loan.

Examples of a record of receipt include:

the borrower’s signed acknowledgment of receipt of the

Notice of Special Flood Hazards; the borrower’s initials

on a form that acknowledges receipt; the borrower’s

electronic signature that acknowledges receip t, or a

certified return receipt if the Notice of Special Flood

Hazards was mailed to the borrower. Lenders may keep

12 CFR 22.9(c) (OCC); 12 CFR 208.25(i)(2) (Board); 12 CFR 339.9(c)

(FDIC); 12 CFR 614.4955(c) (FCA); and 12 CFR 760.9(c) (NCUA).

12 CFR 22.9(c) (OCC); 12 CFR 208.25(i)(2) (Board); 12 CFR 339.9(c)

(FDIC); 12 CFR 614.4955(c) (FCA); and 12 CFR 760.9(c) (NCUA).

12 U.S.C. 4104a(a)(1); 12 CFR 22.9(c) (OCC); 12 CFR 208.25(i)(2)

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

760.9(c) (NCUA).

12 CFR 22.9(d) (OCC); 12 CFR 208.25(i)(3) (Board); 12 CFR 339.9(d)

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

V. Lending — Flood Insurance Questions & Answers

FDIC Consumer Compliance Examination Manual – November 2023 V - 6.33

the record in the form that best suits the lender’s business

practices. Lenders may retain the record electronically ,

but they must be able to retrieve the record within a

reasonable time pursuant to a document request from their

Federal supervisory agency.

61. NOTICE 6. Can a lender rely on a previous Notice of

Special Flood Hazards if it is less than seven years old,

and it is the same property, same borrower, and same

lender?

Answer: The Regulation does not waive the requirement

to provide the Notice of Special Flood Hazards to the

borrower. Although subsequent transactions by the same

lender with respect to the same property are the functional

equivalent of a renewal and do not require a new

determination, the lender must still provide a new Notice

of Special Flood Hazards to the borrower.

62. NOTICE 7. Is use of the sample form of Notice of Special

Flood Hazards mandatory?

Answer: Although lenders are required to provide a

Notice of Special Flood Hazards to a borrower when they

make, increase, extend, or renew a loan secured by an

improved structure located in an SFHA,

use of the

sample form of Notice of Special Flood Hazards provided

in Appendix A of the Regulation is not mandatory. It

should be noted that the sample form includes other

information in addition to what is required by the Act and

the Regulation. Lenders may personalize, change the

format of, and add information to the sample form of

notice, if they choose. However, a lender-revised Notice

of Special Flood Hazards must provide the borrower with

at least the minimum information required by the Act and

Regulation.

Therefore, lenders should consult the Act

and Regulation to determine the information needed.

Determining the appropriate amount of flood insurance

requi red (AMOUNT)

63. AMOUNT 1. The Regulation states that the amount of

flood insurance required “must be at least equal to the

lesser of the outstanding principal balance of the

designated loan or the maximum limit of coverage

available for the particular type of property under the

Act.” What is meant by the “maximum limit of coverage

available for the particular type of property under the

Act”?

Answer: The maximum limit of coverage available for the

particular type of property under the Act depends on the

value of the secured collateral. First, under the NFIP,

12 CFR 22.9(a) (OCC); 12 CFR 208.25(i) (Board); 12 CFR 339.9(a)

(FDIC); 12 CFR 614.4955(a) (FCA); and 12 CFR 760.9(a) (NCUA).

12 CFR 22.9(a) (OCC); 12 CFR 208.25(i) (Board); 12 CFR 339.9(a)

(FDIC); 12 CFR 614.4955(a) (FCA); and 12 CFR 760.9(a) (NCUA).

12 U.S.C. 4104a(a)(3); 12 CFR 22.9(b) (OCC); 12 CFR 208.25(i)(1)

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

760.9(b) (NCUA).

there are maximum caps on the amount of insurance

available for buildings located in a participating

community under the Regular Program. For single-family

and two-to-four family dwellings and individually owned

condominium units insured under the Dwelling Form

policy, the maximum limit is $250,000. For a residential

condominium building insured under the Residential

Condominium Building Association Policy (RCBAP)

form, the maximum amount of insurance available is

$250,000 multiplied by the number of units. For all other

buildings insured under the General Property Form, the

maximum limit of building coverage available is

$500,000. This includes all non-residential buildings,

mixed-use condominium buildings not eligible for

coverage under the RCBAP, and other residential

buildings of five or more families, such as cooperatives or

apartment buildings in the non-condominium form of

ownership. (In participating communities that are under

the emergency program phase, the maximum limits of

insurance are different.) The maximum limit for contents

insured under the Dwelling Form and RCBAP is

$100,000 ($100,000 total, not per unit) and $500,000 for

contents insured under the General Property Form. See

NFIP Flood Insurance Manual.

In addition to the maximum caps under the NFIP, the

Regulation also provides that “flood insurance coverage

under the Act is limited to the building or mobile home

and any personal property that secures a loan and not the

land itself,” which is commonly referred to as the

“insurable value” of a structure.

The NFIP does not

insure land; therefore, land values are not included in the

calculation.

An NFIP policy will not cover an amount exceeding the

“insurable value” of the structure, so the maximum

amount of insurance coverage is the applicable limit

available under the NFIP or the insurable value,

whichever is less. In determining coverage amounts for

flood insurance, lenders often follow the same practice

used to establish other hazard insurance coverage

amounts. However, unlike the insurable valuation used to

underwrite most other hazard insurance policies, the

insurable value of improved real estate for flood insurance

purposes also includes the repair or replacement cost of

the foundation and supporting structures. It is very

important to calculate the correct insurable value of the

property; otherwise, the lender might inadvertently

require the borrower to purchase too much or too little

flood insurance coverage. For example, if the lender fails

to exclude the value of the land when determining the

12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a)

(FDIC); 12 CFR 614.4930(a) (FCA); and 12 CFR 760.3(a) (NCUA).

12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a)

(FDIC); 12 CFR 614.4930(a) (FCA); and 12 CFR 760.3(a) (NCUA).

V. Lending — Flood Insurance Questions & Answers

V - 6.34 FDIC Consumer Compliance Examination Manual – November 2023

insurable value of the improved real estate, the borrower

will be asked to p urchase coverage that exceeds the

amount the NFIP will pay in the event of a loss. (Please

note, however, when taking a security interest in

improved real estate where the value of the land,

excluding the value of the improvements, is sufficient

collateral for the debt, the lender must nonetheless require

flood insurance to cover the value of the structure if it is

located in a participating community’s SFHA).

64. AMOUNT 2. What is the “insurable value” of a building

and how is it used to determine the required amount of

flood insurance?

Answer: The insurable value of the building may

generally be the same as 100 p ercent Replacement Cost

Value (RCV), which is the cost to replace the building

with the same kind of material and construction without

deduction for depreciation. In calculating the amount of

insurance to require, the lender and borrower (either by

themselves or in consultation with the flood insurance

provider or other appropriate professional) may choose

from a variety of approaches or methods to establish the

insurable value. They may use an ap praisal based on a

cost-value (not market-value) approach, a construction-

cost calculation, the insurable value used on a hazard

insurance policy (recognizing that the insurable value for

flood insurance purposes may differ from the coverage

provided by the hazard insurance and that adjustments

may be necessary ), the rep lacement cost value listed on

the flood insurance policy declarations page, or any other

reasonable approach, so long as it can be supported.

65. AMOUNT 3. What are examples of residential buildings?

Answer: A residential building is a non-commercial

building designed for habitation by one or more families

or a mixed-use building that qualifies as a single-family,

2-4 family, or other residential building.

The NFIP provides the following definitions:

• A single family dwelling is either a residential single-

family building in which the total floor area devoted to

non-residential uses is less than 50 percent of the

building’s total floor area, or a single-family residential

unit within a 2–4 family building, other-residential

building, business, or non-residential building, in which

commercial uses within the unit are limited to less than

50 percent of the unit’s total floor area.

• A 2-4 family residential building is a residential

building, containing 2–4 residential units and in which

non-residential uses are limited to less than 25 percent

of the building’s total floor area. This category includes

apartment buildings and condominium buildings. It

excludes hotels and motels with normal room rentals for

less than six months.

• An other residential building is a residential building

containing five or more residential units or a mixed-use

12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a)

(FDIC); 12 CFR 614.4930(a) (FCA); and 12 CFR 760.3(a) (NCUA).

building in which the total floor area devoted to non-

residential uses is less than 25 percent of the building’s

total floor area. This category includes condominium

and apartment buildings as well as hotels, motels,

tourist homes, and rooming houses where the normal

occupancy of a guest is six months or more. Additional

examples of other residential buildings include

dormitories and assisted-living facilities.

For more complete information, refer to the NFIP Flood

Insurance Manual.

66. AMOUNT 4. What are examples of non-residential

buildings?

Answer: Pursuant to the NFIP Flood Insurance Manual, a

non-residential building includes:

1. A building in which the named insured is a commercial

enterprise primarily carried out to generate income and

the coverage is for:

• A building not designed for habitation or residential

uses;

• A mixed-use building in which the total floor area

devoted to residential uses is 50 percent or less of the

total floor area within the building if the residential

building is a single-family property; or 75 percent or

less of the total floor area within the building for all

other residential properties; or

• A building designed for use as office or retail space,

wholesale space, hospitality space, or for similar uses.

• The following buildings where the normal occupancy of

a guest is less than six months: condominium buildings,

apartment buildings, hotels and motels, tourist homes,

or rooming houses.

2. Other non-residential buildings including, but not

limited to the following: houses of worship, schools,

agricultural structures, garages, pool houses,

clubhouses, and recreational buildings.

For more complete information, refer to the NFIP Flood

Insurance Manual.

67. AMOUNT 5. How much insurance is required on a

building located in an SFHA in a participating

community?

Answer: The amount of insurance required by the Act and

Regulation is the lesser of:

• The outstanding principal balance of the loan(s); or

• The maximum amount of insurance available under the

NFIP, which is the lesser of:

o The maximum limit available for the ty p e

of structure; or

o The “insurable value” of the structure.87

Example: (Calculating insurance required

on a non-residential building): Loan

security includes one equipment shed

12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a)

(FDIC); 12 CFR 614.4930(a) (FCA); and 12 CFR 760.3(a) (NCUA).

V. Lending — Flood Insurance Questions & Answers

FDIC Consumer Compliance Examination Manual – November 2023 V - 6.35

located in an SFHA in a p articipating

community under the Regular Program.

• Outstanding loan principal balance is $300,000.

• Maximum amount of insurance available under the

NFIP:

o M aximum limit available for typ e of

structure is $500,000 per building (non-

residential building).

o Insurable value of the equipment shed is

$30,000.

The minimum amount of insurance required by the

Regulation for the equipment shed is $30,000.

68. AMOUNT 6. Is flood insurance required for each building

when the real estate security contains more than one

building located in an SFHA in a participating

community? If so, how much coverage is required?

Answer: Yes. The lender must determine the amount of

insurance required on each building and add these

individual amounts together.

The total amount of

required flood insurance is the lesser of:

• The outstanding principal balance of the loan(s); or

• The maximum amount of insurance available under the

NFIP, which is the lesser of:

o The maximum limit available for the ty p e

of structures; or

o The “insurable value” of the structures.

The amount of total required flood insurance can be

allocated among the secured buildings in varying

amounts, but all buildings in an SFHA must be covered in

accordance with the statutory requirement.

Example: Lender makes a loan in the principal amount of

$150,000 secured by five non-residential buildings, only

three of which are located in SFHAs within particip ating

communities.

• Outstanding loan principal is $150,000.

• Maximum amount of insurance available under the

NFIP.

o M aximum limit available for the typ e of

structure is $500,000 per building for non-

residential buildings (or $1.5 million total);

o Insurable value ($100,000 for each non-

residential building for which insurance is

required, or $300,000 total).

Amount of insurance required for the three buildings is

$150,000. This amount of required flood insurance could

be allocated among the three buildings in varying

amounts, so long as each is covered in accordance with

the statutory requirement.

12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a)

(FDIC); 12 CFR 614.4930(a) (FCA); and 12 CFR 760.3(a) (NCUA).

See 42 U.S.C. 4012a; 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board);

12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) (FCA); and 12 CFR 760.3(a)

(NCUA).

12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a)

69. AMOUNT 7. If the insurable value of a building or mobile

home securing a designated loan is less than the

outstanding principal balance of the loan, must a lender

require the borrower to obtain flood insurance up to the

balance of the loan?

Answer: No. The Regulation provides that the amount of

flood insurance must be at least equal to the lesser of the

outstanding principal balance of the designated loan or the

maximum limit of coverage available for a p articular ty pe

of property under the Act.

The Regulation also provides

that flood insurance coverage under the Act is limited to

the building or mobile home and any personal property

that secures a loan and not the land itself.

Since the

NFIP policy does not cover land value, lenders determine

the amount of insurance necessary based on the insurable

value of the building.

70. AMOUNT 8. Can a lender require more flood insurance

than the minimum required by the Regulation?

Answer: Yes. Lenders are permitted to require more than

the minimum amount of flood insurance required by the

Regulation, taking into consideration applicable State and

Federal law and safe and sound banking practices, as

appropriate. However, the borrower or lender may have to

seek such coverage outside the NFIP. Although a lender

has the responsibility to tailor its own flood insurance

policies and procedures to suit its business needs and

protect its ongoing interest in the collateral, it should

consider the extent of recovery allowed under the NFIP or

a private policy for the type of property being insured to

assist the borrower in avoiding paying for coverage that

exceeds the amount the insured would recover in the

event of a loss.

71. AMOUNT 9. Can a lender allow the borrower to use the

maximum deductible to reduce the cost of flood

insurance?

Answer: Yes. However, it may not be a sound business

practice for a lender, as a matter of p olicy , to always

allow the borrower to use the maximum deductible. A

lender should determine the reasonableness of the

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

risk that such a deductible would pose to the borrower and

lender. A lender may not allow the borrower to use a

deductible amount equal to the insurable value of the

property to avoid the mandatory purchase requirement for

flood insurance.

72. AMOUNT 10. Can a lender accept a blanket flood

insurance policy or blanket multi-peril policy covering

multiple buildings that includes a per-occurrence

deductible, regardless of whether any single building

(FDIC); 12 CFR 614.4930(a) (FCA); and 12 CFR 760.3(a) (NCUA).

12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a)

(FDIC); 12 CFR 614.4930(a) (FCA); and 12 CFR 760.3(a) (NCUA).

12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a)

(FDIC); 12 CFR 614.4930(a) (FCA); and 12 CFR 760.3(a) (NCUA).

V. Lending — Flood Insurance Questions & Answers

V - 6.36 FDIC Consumer Compliance Examination Manual – November 2023

covered by the policy has an insurable value lower than

the amount of the deductible?

Answer: Yes, a lender may accep t a blanket flood

insurance policy or blanket multi-peril policy covering

multip le buildings that includes a per-occurrence

deductible, regardless of whether any single building

covered by the policy has an insurable value lower than

the amount of the deductible. A blanket flood insurance

policy or blanket multi-peril p olicy that includes a p er-

occurrence deductible provides coverage for each

building covered by such a policy, regardless of whether

any individual building covered under the policy has an

insurable value that may be lower than the amount of the

deductible. However, a lender may not allow the borrower

to use a deductible amount equal to the aggregate

insurable value of the property to avoid the mandatory

purchase requirement. A lender should determine the

reasonableness of the deductible on a case-by-case basis,

taking into account the risk that such deductible would

pose to the borrower and lender. See Q&A Amount 9.

Flood insurance requirements for construction loans

(CONSTRUCTION)

73. CONSTRUCTION 1. Is a loan secured only by land,

which is located in an SFHA in which flood insurance is

available under the Act and that will be developed into

buildable lot(s), a designated loan that requires flood

insurance?

Answer: No. A designated loan is a loan secured by a

building or mobile home that is located or to be located in

an SFHA in which flood insurance is available under the

Act.

Any loan secured only by land that is located in an

SFHA in which flood insurance is available is not a

designated loan since it is not secured by a building or

mobile home.

74. CONSTRUCTION 2. Is a loan secured or to be secured by

a building in the course of construction that is located or

to be located in an SFHA in which flood insurance is

available under the Act a designated loan?

Answer: Yes. A lender must always make a flood

determination prior to loan origination to determine

whether a building to be constructed that is security for

the loan is located or will be located in an SFHA in which

flood insurance is available under the Act.

If the

building or mobile home is located or will be located in an

SFHA, then the loan is a designated loan and the lender

must provide the requisite notice to the borrower prior to

loan origination.

The lender must then comply with the

12 CFR 22.2(e) (OCC); 12 CFR 208.25(b)(5) (Board); 12 CFR 339.2

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

12 CFR 22.6(a) (OCC): 12 CFR 208.25(f)(1) (Board); 12 CFR 339.6(a)

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

12 CFR 22.9(a) (OCC); 12 CFR 208.25(i) (Board); 12 CFR 339.9(a)

(FDIC); 12 CFR 614.4955(a) (FCA); and 12 CFR 760.9(a) (NCUA).

mandatory purchase requirement under the Act and

Regulation.

75. CONSTRUCTION 3. Is a building in the course of

construction that is located in an SFHA in which flood

insurance is available under the Act eligible for coverage

under an NFIP policy?

Answer: Yes. The NFIP will insure a building in the

course of construction before it is walled and roofed using

the NFIP-issued rates based on the construction designs

and the intended use of the building. However, buildings

in the course of construction that are not walled and

roofed are not eligible for coverage when construction

stops for more than 90 days and/or if the lowest floor for

rating purposes is below the Base Flood Elevation. The

NFIP will not insure materials or supplies intended for use

in such construction, alteration, or repair unless they are

contained within an enclosed building on the premises or

adjacent to the p remises. (See NFIP Flood Insurance

Manual; the NFIP Dwelling Form for an SFIP).

The NFIP Flood Insurance Manual defines “start of

construction” in the case of new construction as “either

the first placement of permanent construction of a

building on site, such as the pouring of a slab or footing,

the installation of piles, the construction of columns, or

any work beyond the stage of excavation; or the

placement of a manufactured (mobile) home on a

foundation.”

Although an NFIP policy may be purchased prior to the

start of construction, as a practical matter, coverage under

an NFIP policy is not effective until actual construction

commences or when materials or supplies intended for use

in such construction, alteration, or repair are contained in

an enclosed building on the premises or adjacent to the

premises.

76. CONSTRUCTION 4. When must a lender require the

purchase of flood insurance for a loan secured by a

building in the course of construction that is located in an

SFHA in which flood insurance is available?

Answer: Under the Act, as implemented by the

Regulation, a lender may not make, increase, extend, or

renew any loan secured by a building or a mobile home,

located or to be located in an SFHA in which flood

insurance is available, unless the property is covered by

adequate flood insurance for the term of the loan.

The

NFIP provides that lenders may comply with the

mandatory purchase requirement for a loan secured by a

building in the course of construction that is located in an

SFHA by requiring borrowers to have a flood insurance

policy in place at the time of loan origination. Such a

12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a)

(FDIC); 12 CFR 614.4930(a) (FCA); and 12 CFR 760.3(a) (NCUA).

12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a)

(FDIC); 12 CFR 614.4930(a) (FCA); and 12 CFR 760.3(a) (NCUA).

V. Lending — Flood Insurance Questions & Answers

FDIC Consumer Compliance Examination Manual – November 2023 V - 6.37

policy is issued based upon the construction designs and

intended use of the building. A borrower should obtain a

provisional rating (available only if certain criteria are

met) to enable the placement of coverage p rior to receip t

of the Elevation Certificate (EC). In accordance with the

NFIP requirement, it is expected that an EC will be

secured and a full-risk rating completed within 60 days of

the policy effective date. Failure to obtain the EC could

result in reduced coverage limits at the time of a loss. (See

NFIP Flood Insurance Manual).

Alternatively, a lender may allow a borrower to defer the

purchase of flood insurance until either after a foundation

slab has been poured and/or an Elevation Certificate has

been issued or, if the building to be constructed will have

its lowest floor below the Base Flood Elevation, when the

building is walled and roofed. However, in order to

comply with the Regulation,

the lender must require the

borrower to have flood insurance for the security property

in place before the lender disburses funds to pay for

building construction (except for funds to be used to pour

the slab or perform preliminary site work, such as laying

utilities, clearing brush, or the purchase and/or delivery of

building materials). If the lender elects this approach and

does not require the borrower to obtain flood insurance at

loan origination, then it should have adequate internal

controls in place at origination to ensure that the borrower

obtains flood insurance no later than 30 days prior to

disbursement of funds to the borrower in light of the NFIP

30-day waiting period requirement. (See NFIP Flood

Insurance Manual). See also Q&A Construction 5.

77. CONSTRUCTION 5. Does the NFIP 30-day waiting

period apply when the purchase of the flood insurance

policy is deferred in connection with a construction loan?

Answer: Yes. A 30-day waiting p eriod will app ly if a

lender allows a borrower to delay the purchase of flood

insurance in connection with a construction loan after

making, increasing, renewing, or extending the loan. A

borrower must apply for flood insurance on or before the

closing date of a loan transaction for the NFIP 30-day

waiting period to be waived. See NFIP Flood Insurance

Manual. See also Q&A Construction 4.

78. CONSTRUCTION 6. If a lender allows a borrower to

defer the purchase of flood insurance until either a

foundation slab has been poured and/or an Elevation

Certificate has been issued, or if the building to be

constructed will have its lowest floor below Base Flood

Elevation when the building is walled and roofed, when

must the lender begin escrowing flood insurance

premiums and fees?

Answer: If the lender allows a borrower to defer the

purchase of flood insurance until either the foundation

12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a)

(FDIC); 12 CFR 614.4930(a) (FCA); and 12 CFR 760.3(a) (NCUA).

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

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

slab has been poured and/or an Elevation Certificate has

been issued, or if the building to be constructed will have

its lowest floor below Base Flood Elevation when the

building is walled and roofed, a lender must escrow flood

insurance premiums and fees at the time of purchase of

the flood insurance, unless one of the escrow exceptions

app lies.

Flood insurance requirements for residential condominiums

and co-ops (CONDO AND CO-OP)

79. CONDO AND CO-OP 1. Are residential condominiums,

including multi-story condominium complexes, subject to

the statutory and regulatory requirements for flood

insurance?

Answer: Yes. The mandatory flood insurance purchase

requirements under the Act and Regulation apply to loans

secured by individual residential condominium units,

including those located in multi-story condominium

complexes, located in an SFHA in which flood insurance

is available under the Act.

100

The mandatory purchase

requirements also apply to loans secured by other

residential condominium property, such as loans to a

developer for construction of the condominium or loans to

a condominium association.

80. CONDO AND CO-OP 2. What is an NFIP Residential

Condominium Building Association Policy (RCBAP)?

Answer: The RCBAP is a master policy for residential

condominiums issued by FEMA. A residential

condominium building is defined as having 75 percent or

more of the building’s floor area in residential use. It may

be purchased only by condominium owners associations.

The RCBAP covers both the common and individually

owned building elements within the units, improvements

within the units, and contents owned in common (if

contents coverage is purchased). The maximum amount of

building coverage that can be purchased under an RCBAP

is either 100 percent of the replacement cost value of the

building, including amounts to repair or replace the

foundation and its supporting structures, or the total

number of units in the condominium building times

$250,000, whichever is less. RCBAP coverage is

available only for residential condominium buildings in

Regular Program communities.

81. CONDO AND CO-OP 3. What is the amount of flood

insurance coverage that a lender must require with

respect to residential condominium units, including those

located in multi-story residential condominium

complexes, to comply with the mandatory purchase

requirements under the Act and the Regulation?

(NCUA).

100

12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a)

(FDIC); 12 CFR 614.4930(a) (FCA); and 12 CFR 760.3(a) (NCUA).

V. Lending — Flood Insurance Questions & Answers

V - 6.38 FDIC Consumer Compliance Examination Manual – November 2023

Answer: To comply with the Regulation, the lender must

ensure that the minimum amount of flood insurance

covering the condominium unit is the lesser of:

• The outstanding principal balance of the loan(s); or

• The maximum amount of insurance available under the

NFIP, which is the lesser of:

o The maximum limit available for the

residential condominium unit; or

o The “insurable value” allocated to the

residential condominium unit, which is the

replacement cost value of the condominium

building divided by the number of units.

101

FEMA requires agents to provide on the declarations page

of the RCBAP the replacement cost value of the

condominium building and the number of units. Lenders

may rely on the replacement cost value and number of

units on the RCBAP declarations page in determining

insurable value unless they have reason to believe that

such amounts clearly conflict with other available

information. If there is a conflict, the lender should notify

the borrower of the facts that cause the lender to believe

there is a conflict. If the lender determines that the

borrower is underinsured, it must require the purchase of

sup plemental coverage.

102

However, coverage under the

supplemental policy may be limited depending on other

coverage that may be applicable including the RCBAP

insuring the condominium building and the terms and

conditions of the policy.

Assuming that the maximum amount of coverage

available under the NFIP is less than the outstanding

principal balance of the loan, the lender must require a

borrower whose loan is secured by a residential

condominium unit to either:

• Ensure the condominium owners association has

purchased an NFIP RCBAP covering either 100 percent

of the insurable value (replacement cost) of the

building, including amounts to repair or replace the

foundation and its supporting structures, or the total

number of units in the condominium building times

$250,000, whichever is less; or

• Obtain flood insurance coverage if there is no RCBAP,

as explained in Q&A Condo and Co-Op 4, or if the

RCBAP coverage is less than 100 percent of the

replacement cost value of the building or the total

number of units in the condominium building times

$250,000, whichever is less, as explained in Q&A

Condo and Co-Op 5.

Example: Lender makes a loan in the principal amount of

$300,000 secured by a condominium unit in a 50-unit

condominium building, which is located in an SFHA

within a participating community, with a replacement cost

of $15 million and insured by an RCBAP with $12.5

million of coverage.

101

12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a)

(FDIC); 12 CFR 614.4930(a) (FCA); and 12 CFR 760.3(a) (NCUA).

102

12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a)

• Outstanding principal balance of loan is $300,000.

• M aximum amount of coverage available under the

NFIP, which is the lesser of:

o M aximum limit available for the residential

condominium unit is $250,000; or

o Insurable value of the unit based on 100

percent of the building’s replacement cost

value ($15 million ÷ 50 = $300,000).

The lender does not need to require additional flood

insurance since the RCBAP’s $250,000 per unit coverage

($12.5 million ÷ 50 = $250,000) satisfies the Regulation’s

mandatory flood insurance purchase requirement. (This is

the lesser of the outstanding principal balance ($300,000),

the maximum coverage available under the NFIP

($250,000), or the insurable value ($300,000)). See NFIP

Flood Insurance Manual.

The requirement discussed in this Q&A applies to any

loan that is made, increased, extended, or renewed after

October 1, 2007. This requirement does not apply to any

loans made prior to October 1, 2007, until a triggering

event occurs (that is, the loan is refinanced, extended,

increased, or renewed) in connection with the loan.

Absent a new triggering event, loans made prior to

October 1, 2007, will be considered compliant if the

lender complied with the Agencies’ previous guidance

that an RCBAP with 80 percent RCV coverage was

sufficient. FEMA issued guidance effective October 1,

2007, requiring NFIP insurers to add the RCV of the

condominium building and the number of units to the

RCBAP declarations page of all new and renewed

policies.

82. CONDO AND CO-OP 4. For residential condominiums

with no RCBAP coverage, what action must a lender take

for an individual unit owner?

Answer: If there is no RCBAP on the residential

condominium building, then the lender must require the

individual unit owner to obtain coverage in an amount

sufficient to meet the requirements outlined in Q&A

Condo and Co-Op 3.

103

Under the NFIP, a Dwelling Policy is available for

condominium unit owners’ purchase when there is no or

inadequate RCBAP coverage.

Example: The lender makes a loan in the principal amount

of $175,000 secured by a residential condominium unit in

a 50-unit residential condominium building, which is

located in an SFHA within a participating community,

with a replacement cost value of $10 million; however,

there is no RCBAP.

• Outstanding principal balance of loan is $175,000.

• M aximum amount of coverage available under the

NFIP, which is the lesser of:

(FDIC); 12 CFR 614.4930(a) (FCA); and 12 CFR 760.3(a) (NCUA).

103

12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a)

(FDIC); 12 CFR 614.4930(a) (FCA); and 12 CFR 760.3(a) (NCUA).

V. Lending — Flood Insurance Questions & Answers

FDIC Consumer Compliance Examination Manual – November 2023 V - 6.39

o M aximum limit available for the residential

condominium unit is $250,000; or

o Insurable value of the unit based on 100

percent of the building’s replacement cost

value ($10 million ÷ 50 = $200,000).

The lender must require the individual unit owner to

purchase flood insurance coverage in the amount of at

least $175,000, since there is no RCBAP, to satisfy the

Regulation’s mandatory flood insurance purchase

requirement. (This is the lesser of the outstanding

principal balance ($175,000), the maximum coverage

available under the NFIP ($250,000), or the insurable

value ($200,000).)

83. CONDO AND CO-OP 5. What action must a lender take

if the RCBAP coverage is insufficient to meet the

Regulation’s mandatory purchase requirements for a loan

secured by an individual residential condominium unit?

Answer: If the lender determines that flood insurance

coverage purchased under the RCBAP is insufficient to

meet the Regulation’s mandatory purchase requirements,

then the lender should request that the individual unit

owner ask the condominium association to obtain

additional coverage that would be sufficient to meet the

Regulation’s requirements. See Q&A Condo and Co-Op

If the condominium association does not obtain sufficient

coverage, then the lender must require the individual unit

owner to purchase supplemental coverage in an amount

sufficient to meet the Regulation’s flood insurance

requirements.

104

The amount of supplemental coverage

required to be purchased by the individual unit owner

would be the difference between the RCBAP’s coverage

allocated to that unit and the Regulation’s mandatory

flood insurance purchase requirements. See Q&A Condo

and Co-Op 4.

Example: Lender makes a loan in the principal amount of

$300,000 secured by a condominium unit in a 50-unit

condominium building, which is located in an SFHA

within a p articip ating community, with a rep lacement cost

value of $10 million; however, the RCBAP is at 80

percent of replacement cost value ($8 million or $160,000

per unit).

• Outstanding principal balance of loan is $300,000.

• M aximum amount of coverage available under the

NFIP, which is the lesser of:

o M aximum limit available for the residential

condominium unit ($250,000); or

o Insurable value of the unit based on 100

percent of the building’s replacement value

($10 million ÷ 50 = $200,000).

The lender must require the individual unit owner to

purchase supplemental flood insurance coverage in the

104

12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a)

(FDIC); 12 CFR 614.4930(a) (FCA); and 12 CFR 760.3(a) (NCUA).

105

12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) (Board); 12 CFR 339.7(a)

amount of $40,000 to satisfy the Regulation’s mandatory

flood insurance purchase requirement of $200,000. (This

is the lesser of the outstanding principal balance

($300,000), the maximum coverage available under the

NFIP ($250,000), or the insurable value ($200,000).) The

RCBAP fulfills only $160,000 of the Regulation’s flood

insurance requirement.

While the individual unit owner’s purchase of a separate

policy that provides for adequate flood insurance

coverage under the Regulation will satisfy the

Regulation’s mandatory flood insurance purchase

requirements, the lender and the individual unit owner

may still be exposed to additional risk of loss. Lenders are

encouraged to apprise borrowers of this risk. For example,

the NFIP Dwelling Policy provides individual unit owners

with supplemental building coverage that is in excess to

the RCBAP. The policies are coordinated such that the

Dwelling Policy purchased by the unit owner responds to

shortfalls on building coverage pertaining either to

improvements owned by the insured unit owner or to

assessments. However, the Dwelling Policy does not

extend the RCBAP limits, nor does it enable the

condominium association to fill in gaps in coverage.

84. CONDO AND CO-OP 6. What must a lender do when a

loan secured by a residential condominium unit is in a

complex whose condominium association allows its

existing RCBAP to lapse?

Answer: If a lender determines at any time during the

term of a designated loan that the loan is not covered by

flood insurance or is covered by such insurance in an

amount less than that required under the Act and the

Regulation, the lender must notify the individual unit

owner of the requirement to maintain flood insurance

coverage sufficient to meet the Regulation’s mandatory

requirements.

105

The lender should encourage the

individual unit owner to work with the condominium

association to acquire a new RCBAP in an amount

sufficient to meet the Regulation’s mandatory flood

insurance purchase requirement. See Q&A Condo and Co-

Op 3. Failing that, the lender must require the individual

unit owner to obtain a flood insurance policy in an amount

sufficient to meet the Regulation’s mandatory flood

insurance purchase requirement. See Q&As Condo and

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

condominium association fails to purchase flood

insurance sufficient to meet the Regulation’s mandatory

requirements within 45 days of the lender’s notification to

the individual unit owner of inadequate insurance

coverage, the lender must force place the necessary flood

insurance on the borrower’s behalf.

106

85. CONDO AND CO-OP 7. How does the RCBAP’s co-

insurance penalty apply in the case of residential

(FDIC); 12 CFR 614.4945(a) (FCA); and 12 CFR 760.7(a) (NCUA).

106

12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) (Board); 12 CFR 339.7(a)

(FDIC); 12 CFR 614.4945(a) (FCA); and 12 CFR 760.7(a) (NCUA).

V. Lending — Flood Insurance Questions & Answers

V - 6.40 FDIC Consumer Compliance Examination Manual – November 2023

condominiums, including those located in multi-story

condominium complexes?

Answer: In the event the RCBAP’s coverage on a

condominium building at the time of loss is less than 80

percent of either the building’s replacement cost or the

maximum amount of insurance available for that building

under the NFIP (whichever is less), then the loss payment,

which is subject to a coinsurance penalty, is determined as

follows (subject to all other relevant conditions in the

policy, including those pertaining to valuation,

adjustment, settlement, and payment of loss):

A. Divide the actual amount of flood insurance carried

on the condominium building at the time of loss by

80 percent of either its replacement cost or the

maximum amount of insurance available for the

building under the NFIP, whichever is less.

B. M ultiply the amount of loss, before application of

the deductible, by the figure determined in A above.

C. Subtract the deductible from the figure determined in

B above.

The policy will pay the amount determined in C above, or

the amount of insurance carried, whichever is less.

Example 1: (Inadequate insurance amount to avoid

penalty).

Replacement value of the building: $250,000.

80% of replacement value of the building: $200,000.

Actual amount of insurance carried: $180,000.

Amount of the loss: $150,000.

Deductible: $ 500.

Step A: 180,000 ÷ 200,000 = .90

(90% of what should be carried to avoid coinsurance

penalty)

Step B: 150,000 x .90 = 135,000

Step C: 135,000 - 500 = 134,500

The policy will pay no more than $134,500. The

remaining $15,500 is not covered due to the co-insurance

penalty ($15,000) and application of the deductible

($500).

Example 2: (Adequate insurance amount to avoid

penalty).

Replacement value of the building: $250,000.

80% of replacement value of the building: $200,000.

Actual amount of insurance carried: $200,000.

Amount of the loss: $150,000.

Deductible: $ 500.

Step A: 200,000 ÷ 200,000 = 1.00 (100% of what should

be carried to avoid coinsurance penalty)

Step B: 150,000 x 1.00 = 150,000

Step C: 150,000 - 500 = 149,500

In this example there is no co-insurance p enalty, because

the actual amount of insurance carried meets the 80

percent requirement to avoid the co-insurance penalty.

The p olicy will p ay no more 218 than $149,500 ($150,000

amount of loss minus the $500 deductible). This example

also assumes a $150,000 outstanding principal loan

balance.

86. CONDO AND CO-OP 8. What are the major factors

involved with the individual unit owner’s NFIP Dwelling

Policy’s coverage limitations with respect to the

condominium association’s RCBAP coverage?

Answer: The following examples demonstrate how the

unit owner’s NFIP Dwelling Policy may cover in certain

loss situations:

Example 1: RCBAP

If the unit owner purchases building coverage under the

Dwelling Policy and if there is an RCBAP covering at

least 80 percent of the building replacement cost value,

the loss assessment coverage under the Dwelling Policy

will pay that part of a loss that exceeds 80 percent of the

association’s building replacement cost allocated to that

unit.

The loss assessment coverage under the Dwelling Policy

will not cover the association’s policy deductible

purchased by the condominium association.

If building elements within units have also been damaged,

the Dwelling Policy pays to repair building elements after

the RCBAP limits that apply to the unit have been

exhausted. Coverage combinations cannot exceed the total

limit of $250,000 per unit.

Example 2: No RCBAP

If the unit owner purchases building coverage under the

Dwelling Policy and there is no RCBAP, the Dwelling

Policy covers assessments against unit owners for

damages to common areas up to the Dwelling Policy

limit.

However, if there is damage to the building elements of

the unit (e.g., inside the individual unit) as well, the

combined payment of unit building damages, which

would apply first, and the loss assessment may not exceed

the building coverage limit under the Dwelling Policy.

87. CONDO AND CO-OP 9. What are the flood insurance

requirements for a residential condominium unit or a non-

residential condominium unit located in a non-residential

condominium building? What are the flood insurance

requirements for a non-residential condominium unit

located in a residential condominium building?

Answer: Coverage is not available under the NFIP for an

individual residential condominium unit or a non-

residential condominium unit located in a non-residential

condominium building. NFIP coverage is also not

available for a non-residential condominium unit located

in a residential condominium building. Therefore, a loan

secured by one of these types of units is not a designated

loan under the Regulation, and the mandatory flood

insurance requirement does not apply. The Agencies note,

however, that contents coverage is available through the

V. Lending — Flood Insurance Questions & Answers

FDIC Consumer Compliance Examination Manual – November 2023 V - 6.41

NFIP for these types of units. See NFIP Flood Insurance

Manual.

88. CONDO AND CO-OP 10. What flood insurance

requirements apply to a loan secured by a share in a

cooperative building that is located in an SFHA?

Answer: It is important to recognize the difference

between ownership of a condominium and a cooperative.

Although an owner of a condominium owns title to real

property, a cooperative unit holder holds stock in a

corporation with the right to occupy a particular unit, but

owns no title to the building. As a result, a loan to a

cooperative unit owner, secured by the owner’s share in

the cooperative, is not a designated loan that is subject to

the Act or the Regulation.

Although there is no requirement under the Act or

Regulation to purchase flood insurance on the cooperative

building if the loan is secured by the unit owner’s share in

the cooperative, for safety and soundness purposes,

residential or non-residential cooperative buildings may

be insured by the association or corporation under the

General Property Form. The entity that owns the

cooperative building, not the individual unit members, is

the named insured.

Flood insurance requirements for home equity loans, lines of

credit, subordi nate l i ens, and other security i nterests i n

collateral (contents) located in an SFHA (OTHER

SECURITY INTERESTS)

89. OTHER SECURITY INTERESTS 1. Is a home equity loan

considered a designated loan that requires flood

insurance?

Answer: Yes. A home equity loan is a designated loan,

regardless of the lien priority, if the loan is secured by a

building or a mobile home located in an SFHA in which

flood insurance is available under the Act.

107

90. OTHER SECURITY INTERESTS 2. Does a draw against

an approved line of credit secured by a building or mobile

home, which is located in an SFHA in which flood

insurance is available under the Act, require a flood

determination under the Regulation?

Answer: No. While a line of credit secured by a building

or mobile home located in an SFHA in which flood

insurance is available under the Act is a designated loan

and, therefore, requires a flood determination before the

loan is made, draws against an approved line do not

require further determinations.

108

However, a request

made for an increase in an approved line of credit may

107

12 CFR 22.2(e) (OCC); 12 CFR 208.25(b)(5) (Board); 12 CFR 339.2

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

108

12 CFR 22.2(e) and 22.3(a) (OCC); 12 CFR 208.25(b)(5) and (c)(1)

(Board); 12 CFR 339.2 and 339.3(a) (FDIC); 12 CFR 614.4925 and

614.4930(a) (FCA); and 12 CFR 760.2 and 760.3(a) (NCUA).

109

12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a)

require a new determination, depending upon whether a

previous determination was done. See Q&A SFHDF 4.

91. OTHER SECURITY INTERESTS 3. What is the amount of

flood insurance coverage required on a line of credit

secured by a residential improved real estate?

Answer: A lender may take the following alternative

app roaches:

• For administrative convenience in complying with the

flood insurance requirements, upon origination, a lender

may require the purchase of flood insurance for the total

amount of all loans or the maximum amount of flood

insurance coverage available, whichever is less;

109

• A lender may actively review its records throughout the

year to determine whether the appropriate amount of

flood insurance coverage is maintained, considering the

draws made against the line or rep ayments made to the

account. In those instances in which there is no policy

on the collateral at time of origination, the borrower

must, at a minimum, obtain a policy as a requirement

for drawing on the line. Lenders that choose to actively

review the line should inform the borrower that this

option may have more risks, such as inadequate flood

insurance coverage during the 30-day waiting period for

an NFIP flood policy to become effective. Lenders

should be prepared to initiate force placement

procedures if at any time the lender determines a lack of

adequate flood insurance coverage for a designated line

of credit, as required under the Regulation.

110

92. OTHER SECURITY INTERESTS 4. When a lender makes,

increases, extends or renews a second mortgage secured

by a building or mobile home located in an SFHA, how

much flood insurance must the lender require?

Answer: The lender must ensure that adequate flood

insurance is in p lace or require that additional flood

insurance coverage be added to the flood insurance policy

in the amount of the lesser of either the combined total

outstanding principal balance of the first and second loan,

the maximum amount available under the Act (currently

$250,000 for most residential buildings and $500,000 for

other buildings), or the insurable value of the building or

mobile home.

111

The junior lienholder should also have

the borrower add the junior lienholder’s name as

mortgagee/loss pay ee to the existing flood insurance

policy. Given the provisions of NFIP policies, a lender

cannot comply with the Act and Regulation by requiring

the purchase of an NFIP flood insurance policy only in the

amount of the outstanding principal balance of the second

mortgage without regard to the amount of flood insurance

coverage on a first mortgage.

(FDIC); 12 CFR 614.4930(a) (FCA); and 12 CFR 760.3(a) (NCUA).

110

12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) (Board); 12 CFR 339.7(a)

(FDIC); 12 CFR 614.4945(a) (FCA); and 12 CFR 760.7(a) (NCUA).

111

12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a)

(FDIC); 12 CFR 614.4930(a) (FCA); and 12 CFR 760.3(a) (NCUA).

V. Lending — Flood Insurance Questions & Answers

V - 6.42 FDIC Consumer Compliance Examination Manual – November 2023

A junior lienholder should work with the senior

lienholder, the borrower, or with both of these parties, to

determine how much flood insurance is needed to cover

improved real estate collateral. A junior lienholder should

obtain the borrower’s consent in the loan agreement or

otherwise for the junior lienholder to obtain information

on balance and existing flood insurance coverage on

senior lien loans from the senior lienholder.

Junior lienholders also have the option of pulling a

borrower’s credit report and using the information from

that document to establish how much flood insurance is

necessary upon increasing, extending, or renewing a

junior lien, thus protecting the interests of the junior

lienholder, the senior lienholder(s), and the borrower. In

the limited situation in which a junior lienholder or its

servicer is unable to obtain the necessary information

about the amount of flood insurance in place on the

outstanding balance of a senior lien (for example, in the

context of a loan renewal), the lender may presume that

the amount of insurance coverage relating to the senior

lien in p lace at the time the junior lien was first

established (provided that the amount of flood insurance

relating to the senior lien was adequate at the time)

continues to be sufficient.

Example 1: Lender A makes a first mortgage with a

principal balance of $100,000, but improperly requires

only $75,000 of flood insurance coverage, which the

borrower satisfied by obtaining an NFIP policy. Lender B

issues a second mortgage with a p rincip al balance of

$50,000. The insurable value of the residential building

securing the loans is $200,000. Lender B must ensure that

flood insurance in the amount of $150,000 is purchased

and maintained. If Lender B were to require additional

flood insurance only in an amount equal to the principal

balance of the second mortgage ($50,000), its interest in

the secured property would not be fully protected in the

event of a flood loss because Lender A would have prior

claim on $100,000 of the loss payment towards its

principal balance of $100,000, while Lender B would

receive only $25,000 of the loss payment toward its

principal balance of $50,000.

Example 2: Lender A, who is not directly covered by the

Act or Regulation, makes a first mortgage with a principal

balance of $100,000 and does not require flood insurance.

Lender B, who is directly covered by the Act and

Regulation, issues a second mortgage with a principal

balance of $50,000. The insurable value of the residential

building securing the loans is $200,000. Lender B must

ensure that flood insurance in the amount of $150,000 is

purchased and maintained. If Lender B were to require

flood insurance only in an amount equal to the principal

balance of the second mortgage ($50,000) through an

NFIP policy, then its interest in the secured property

112

12 CFR 22.3(a), 22.6(a) (OCC); 12 CFR 208.25(c)(1) and (f)(1) (Board);

12 CFR 339.3(a), 339.6(a) (FDIC); 12 CFR 614.4930(a), 614.4940(a) (FCA);

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

would not be protected in the event of a flood loss

because Lender A would have prior claim on the entire

$50,000 loss payment towards its principal balance of

$100,000.

Example 3: Lender A made a first mortgage with a

principal balance of $100,000 on improved real estate

with a fair market value of $150,000. The insurable value

of the residential building 224 on the improved real estate

is $90,000; however, Lender A improperly required only

$70,000 of flood insurance coverage, which the borrower

satisfied by purchasing an NFIP policy. Lender B later

takes a second mortgage on the property with a principal

balance of $10,000. Lender B must ensure that flood

insurance in the amount of $90,000 (the insurable value)

is purchased and maintained on the secured property to

comply with the Act and Regulation. If Lender B were to

require flood insurance only in an amount equal to the

principal balance of the second mortgage ($10,000), its

interest in the secured property would not be protected in

the event of a flood loss because Lender A would have

prior claim on the entire $80,000 loss payment towards

the insurable value of $90,000.

93. OTHER SECURITY INTERESTS 5. If a borrower

requesting a loan secured by a junior lien provides

evidence that flood insurance coverage is in place, does

the lender have to make a new determination? Does the

lender have to adjust the insurance coverage?

Answer: It depends. Assuming the requirements in

Section 528 of the Act (42 U.S.C. 4104b) are met and the

same lender made the first mortgage, then a new

determination may not be necessary when the existing

determination is not more than seven years old, there have

been no map changes, and the determination was recorded

on an SFHDF. If, however, a lender other than the one

that made the first mortgage loan is making the junior lien

loan, a new determination would be required because this

lender would be deemed to be “making” a new loan.

112

either situation, the lender will need to determine whether

the amount of insurance in effect is sufficient to cover the

lesser of the combined outstanding principal balance of all

loans (including the junior lien loan), the insurable value,

or the maximum amount of coverage available on the

improved real estate. This will hold true whether the

subordinate lien loan is a home equity loan or some other

type of junior lien loan.

94. OTHER SECURITY INTERESTS 6. If the loan request is

to finance inventory stored in a building located within an

SFHA, but the building is not security for the loan, is

flood insurance required?

Answer: No. The Act and the Regulation provide that a

lender shall not make, increase, extend, or renew a

designated loan, that is, a loan secured by a building or

V. Lending — Flood Insurance Questions & Answers

FDIC Consumer Compliance Examination Manual – November 2023 V - 6.43

mobile home located or to be located in an SFHA, “unless

the building or mobile home and any personal property

securing the loan is covered by flood insurance for the

term of the loan.”

113

In this example, the loan is not a

designated loan because it is not secured by a building or

mobile home; rather, the collateral is the inventory alone.

95. OTHER SECURITY INTERESTS 7. Is flood insurance

required if a building and its contents both secure a loan,

and the building is located in an SFHA in which flood

insurance is available?

Answer: Yes. Flood insurance is required for the building

located in the SFHA and any personal property securing

the loan.

114

The method for allocating flood insurance

coverage among multip le buildings, as described in Q&A

Amount 6, would be the same method for allocating flood

insurance coverage among contents and buildings. That is,

both contents and building will be considered to have a

sufficient amount of flood insurance coverage for

regulatory purposes so long as some reasonable amount of

insurance is allocated to each category .

Example: Lender A makes a loan for $200,000 that is

secured by a warehouse with an insurable value of

$150,000 and inventory in the warehouse worth $100,000.

The Act and Regulation require that flood insurance

coverage be obtained for the lesser of the outstanding

principal balance of the loan or the maximum amount of

flood insurance that is available under the NFIP. The

maximum amount of insurance that is available for both

building and contents is $500,000 for each category. In

this situation, Federal flood insurance requirements could

be satisfied by placing $150,000 worth of flood insurance

coverage on the warehouse, thus insuring it to its

insurable value, and $50,000 worth of contents flood

insurance coverage on the inventory, thus providing total

coverage in the amount of the outstanding principal

balance of the loan. Note that this holds true even though

the inventory is worth $100,000.

96. OTHER SECURITY INTERESTS 8. If a loan is secured by

Building A, which is located in an SFHA, and contents

located in Building B where building B does not secure

the loan, is flood insurance required on the contents

securing the loan?

Answer: No. If collateral securing the loan is stored in

Building B, where Building B does not secure the loan,

then flood insurance is not required on those contents

whether or not Building B is located in an SFHA.

97. OTHER SECURITY INTERESTS 9. Does the Regulation

apply when the lender takes a security interest in

113

12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a)

(FDIC); 12 CFR 614.4930(a) (FCA); and 12 CFR 760.3(a) (NCUA).

114

12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a)

(FDIC); 12 CFR 614.4930(a) (FCA); and 12 CFR 760.3(a) (NCUA).

115

12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a)

(FDIC); 12 CFR 614.4930(a) (FCA); and 12 CFR 760.3(a) (NCUA).

improved real estate and contents located in an SFHA

only as an “abundance of caution”?

Answer: Yes. The Act and Regulation look to the

collateral securing the loan. If the lender takes a security

interest in improved real estate and contents located in an

SFHA, then flood insurance is required.

115

The language in the loan agreement or security instrument

determines whether the improved real estate and contents

are taken as security for the loan. If a lender intends to

take a security interest in the imp roved real estate and

contents, the loan agreement or security instrument should

include language indicating that the improved real estate

and contents are security for the loan. If the lender does

not intend to take a security interest in either the improved

real estate and/or contents, the loan agreement or security

instrument should not include language to this effect,

including language inserted out of an “abundance of

caution.”

98. OTHER SECURITY INTERESTS 10. Is flood insurance

required if the lender takes a security interest in contents

located in a building in an SFHA securing the loan but

does not perfect the security interest?

Answer: Yes, flood insurance is required. The language in

the loan agreement or security instrument determines

whether the contents are taken as security for the loan. If

the lender takes a security interest in contents located in a

building in an SFHA securing the loan, flood insurance is

required for the contents, regardless of whether that

security interest is p erfected.

116

99. OTHER SECURITY INTERESTS 11. If a borrower offers

a note on a single-family dwelling as collateral for a loan

but the lender does not take a security interest in the

dwelling itself, is this a designated loan that requires

flood insurance?

No. A designated loan is a loan secured by a building or

mobile home that is located or to be located in an SFHA

in which flood insurance is available under the Act.

117

this example, the lender did not take a security interest in

the building; therefore, the loan is not a designated loan.

100. OTHER SECURITY INTERESTS 12. If a lender makes a

loan that is not secured by real estate, but is made on the

condition of a personal guarantee by a third party who

gives the lender a security interest in improved real estate

owned by the third party that is located in an SFHA in

which flood insurance is available, is it a designated loan

that requires flood insurance?

Answer: Yes. In this scenario, a loan is made on condition

of a personal guarantee by a third party and further

secured by improved real estate, which is located in an

116

12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a)

(FDIC); 12 CFR 614.4930(a) (FCA); and 12 CFR 760.3(a) (NCUA).

117

12 CFR 22.2(e) (OCC); 12 CFR 208.25(b)(5) (Board); 12 CFR 339.2

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

V. Lending — Flood Insurance Questions & Answers

V - 6.44 FDIC Consumer Compliance Examination Manual – November 2023

SFHA and owned by that third party. Under these

circumstances, the security of improved real estate in an

SFHA is so closely tied to the making of the loan that it is

considered a designated loan that requires flood

insurance.

118

Requirements to escrow flood insurance premiums and fees -

General (ESCROW)

101. ESCROW 1. When must escrow accounts be established

for flood insurance purposes?

Answer: A lender, or a servicer acting on its behalf, must

escrow all premiums and fees for any flood insurance

required under the mandatory purchase of flood insurance

requirement for any designated loan secured by residential

improved real estate or a mobile home that is made,

increased, extended, or renewed on or after January 1,

2016. The escrow must be payable with the same

frequency as payments on the designated loan are required

to be made for the duration of the loan, unless the loan or

lender is subject to one of the exceptions.

119

A lender is not required to escrow for flood insurance if it

qualifies for the small lender exception

120

or the loan

qualifies for one of the following loan-related

exceptions

121

in the Regulation:

• A loan that is an extension of credit primarily for

business, commercial, or agricultural purposes;

• A loan that is in a subordinate position to a senior lien

secured by the same property for which the borrower

has obtained adequate flood insurance coverage;

• A loan that is covered by a condominium association,

cooperative, homeowners association or other

applicable group’s adequate flood insurance policy;

• A loan that is a home equity line of credit;

• A loan that is a nonperforming loan that is 90 or more

days past due; or

• A loan that has a term not longer than 12 months.

If a lender no longer qualifies for the small lender

exception, it must escrow all premiums and fees for any

flood insurance required under the mandatory purchase of

flood insurance requirement for any designated loan

secured by residential improved real estate or a mobile

home that is made, increased, extended, or renewed on or

118

12 CFR 22.2(e) (OCC); 12 CFR 208.25(b)(5) (Board); 12 CFR 339.2

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

119

12 CFR 22.5(a) (OCC); 12 CFR 208.25(e)(1) (Board); 12 CFR 339.5(a)(1)

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

120

12 CFR 22.5(c) (OCC); 12 CFR 208.25(e)(3) (Board); 12 CFR 339.5(c)

(FDIC); 12 CFR 614.4935(c) (FCA); and 12 CFR 760.5(c) (NCUA).

121

12 CFR 22.5(a)(2) (OCC); 12 CFR 208.25(e)(1)(ii) (Board); 12 CFR

339.5(a)(2) (FDIC); 12 CFR 614.4935(a)(2) (FCA); and 12 CFR 760.5(a)(2)

(NCUA).

122

12 CFR 22.5(c)(2) (OCC); 12 CFR 208.25(e)(3)(ii) (Board); 12 CFR

339.5(c)(2) (FDIC); 12 CFR 614.4935(c)(2) (FCA); and 12 CFR 760.5(c)(2)

(NCUA).

after July 1 of the first calendar year in which a lender has

a change in status, unless a loan qualifies for another

exception.

122

If a lender, other than a lender that qualifies

for the small lender exception, determines at any time

during the term of a designated loan secured by residential

improved real estate or a mobile home that an exception

from the escrow requirement that previously applied to a

particular loan no longer applies to the loan, the lender

must escrow flood insurance premiums and fees as soon

as reasonably practicable.

123

102. ESCROW 2. If a lender does not escrow for taxes or

homeowner’s insurance, is it required to escrow for flood

insurance under the Regulation? If yes, is the lender

obligated to escrow for taxes and other insurance because

it escrows for flood insurance pursuant to the rule?

Answer: If a lender or its servicer is required to escrow

for flood insurance under the Regulation, it must do so

even if it does not escrow for taxes or other insurance.

124

A lender or servicer is not, however, obligated to escrow

for taxes and other insurance solely because it must

escrow for flood insurance pursuant to the Regulation,

though there may be other laws or regulations that require

that additional escrow.

103. ESCROW 3. Are lenders required to escrow force-placed

insurance?

Answer: Yes, the Regulation requires lenders or their

servicers to escrow flood insurance premiums for any

residential designated loan made, increased, extended, or

renewed on or after January 1, 2016, unless the lender or

the loan qualifies for an exception from the escrow

requirement.

125

The Act and Regulation do not include an

exception to the escrow requirement for force-placed

insurance.

104. ESCROW 4. Does the requirement to escrow flood

insurance premiums and fees apply when a loan does not

experience a triggering event?

Answer: No, subject to certain exceptions. The Regulation

provides that a lender or its servicer is required to escrow

flood insurance premiums and fees when a designated

loan is made, increased, extended, or renewed (a

triggering event), unless either the lender or the loan is

excepted from the escrow requirement.

126

Until the loan

experiences a triggering event, the lender is not required

to escrow flood insurance premiums and fees, unless: (i) a

123

12 CFR 22.5(a)(3) (OCC); 12 CFR 208.25(e)(1)(iii) (Board); 12 CFR

339.5(a)(3) (FDIC); 12 CFR 614.4935(a)(3) (FCA); and 12 CFR 760.5(a)(3)

(NCUA).

124

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

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

(NCUA).

125

12 CFR 22.5(a) (OCC); 12 CFR 208.25(e)(1) (Board); 12 CFR 339.5(a)(1)

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

126

12 CFR 22.5(a) (OCC); 12 CFR 208.25(e)(1) (Board); 12 CFR 339.5(a)

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

V. Lending — Flood Insurance Questions & Answers

FDIC Consumer Compliance Examination Manual – November 2023 V - 6.45

borrower requests the escrow in connection with the

requirement that the lender provide an option to escrow

for outstanding loans;

127

or (ii) the lender determines that

a loan exception to the escrow requirement no longer

app lies.

128

105. ESCROW 5. Are multi-family buildings or mixed-use

properties included in the definition of “residential

improved real estate” under the Regulation for which

escrows are required (unless an exception applies)?

Answer: Yes. For the purposes of the Act and the

Regulation, the definition of residential improved real

estate does not make a distinction between whether a

building is single- or multi-family, or whether a building

is owner- or renter-occup ied.

129

Single-family dwellings

(including mobile homes), two-to-four family dwellings,

and multi-family properties containing five or more

residential units are considered residential improved real

estate.

However, with regard to mixed-use properties, the lender

should look to the primary use of a building to determine

whether it meets the definition of “residential improved

real estate.” See Q&As Amount 3 and 4 for guidance on

residential and non-residential buildings. A loan secured

by residential improved real estate is not subject to the

escrow requirement if the loan is an extension of credit

primarily for business, commercial or agricultural

purposes.

130

106. ESCROW 6. If a borrower obtains a second mortgage

loan for a property located in an SFHA, and it is

determined that the first lienholder does not have

sufficient flood insurance coverage for both liens and is

not currently escrowing for flood insurance, does the

junior lienholder have to escrow for the additional

amount of flood insurance coverage?

Answer: Under the Regulation, for a closed-end second

mortgage loan, junior lienholders are not required to

escrow for flood insurance as long as the borrower has

obtained flood insurance coverage that meets the

mandatory purchase requirement. Thus, the junior lender

or its servicer must ensure that adequate flood insurance is

in p lace. See Q&A Other Security Interests 4 for junior

lienholder requirements.

131

Q&A Other Security Interests

4 explains the requirements for junior lienholders. If

127

12 CFR 22.5(d) (OCC); 12 CFR 208.25(e)(4) (Board); 12 CFR 339.5(d)

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

128

12 CFR 22.5(a)(3) (OCC); 12 CFR 208.25(e)(1)(iii) (Board); 12 CFR

339.5(a)(3) (FDIC); 12 CFR 614.4935(a)(3) (FCA); and 12 CFR 760.5(a)(3)

(NCUA).

129

12 CFR 23.2(j) (OCC); 12 CFR 208.25(b)(8) (Board); 12 CFR 339.2

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

130

12 CFR 22.5(a)(2)(i) (OCC); 12 CFR 208.25(e)(1)(ii)(A) (Board); 12 CFR

339.5(a)(2) (FDIC); 12 CFR 614.4935(a)(2) (FCA); and 12 CFR 760.5(a)(2)

(NCUA).

131

12 CFR 22.5(a)(2)(ii) (OCC); 12 CFR 208.25(e)(1)(ii)(B) (Board); 12 CFR

339.5(a)(2) (FDIC); 12 CFR 614.4935(a)(2) (FCA); and 12 CFR 760.5(a)(2)

(NCUA).

adequate flood insurance has not been obtained by the

first lienholder and insurance must be purchased in

connection with the second mortgage loan to meet the

mandatory purchase requirement, the junior lender or its

servicer would need to escrow the insurance obtained in

connection with the second mortgage loan.

132

However,

the escrow requirements do not apply to a junior lien that

is a home equity line of credit (HELOC) since HELOCs

have a sep arate escrow exception under the Act and

Regulation.

133

107. ESCROW 7. Does a lender or servicer have to escrow for

loans when the security property is not located in an

SFHA, but the borrower chooses to buy flood insurance?

Answer: Under the Regulation, lenders and servicers are

only required to escrow for loans that are secured by

residential improved real estate or a mobile home located

or to be located in SFHAs where flood insurance is

available under the NFIP and that experience a triggering

event (made, increased, extended, or renewed) on or after

January 1, 2016, unless either the lender or the loan

qualifies for an exception.

134

If the property securing the

loan is not located in an SFHA, it is not a designated loan,

and the lender or its servicer is not required to escrow,

although the lender or servicer may offer escrow service

to the borrower.

Requirement to escrow flood insurance premiums and fees –

Escrow small lender exception (ESCROW SMALL LENDER

EXCEPTION)

108. ESCROW SMALL LENDER EXCEPTION 1. Is the $1B

small lender exception for the mandatory escrow of flood

insurance premiums at the lending institution level or

bank holding company level?

Answer: By its own terms, the small lender exception to

the flood insurance escrow requirement app lies to lenders

rather than holding companies.

135

Therefore, the $1 billion

requirement is calculated based on the assets held at the

lending institution level, rather than at the holding

company level.

109. ESCROW SMALL LENDER EXCEPTION 2. If a lender

was required to escrow for taxes and hazard insurance

solely under the (a) Higher-Priced Mortgage Loan

132

12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a)

(FDIC); 12 CFR 614.4930(a) (FCA); and 12 CFR 760.3(a) (NCUA).

133

12 CFR 22.5(a)(2)(iv) (OCC); 12 CFR 208.25(e)(1)(ii)(D) (Board); 12

CFR 339.5(a)(2) (FDIC); 12 CFR 614.4935(a)(2) (FCA); and 12 CFR

760.5(a)(2) (NCUA).

134

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

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

(NCUA).

135

12 CFR 22.5(c)(1) (OCC); 12 CFR 208.25(e)(3)(i) (Board); 12 CFR

339.5(c) (FDIC); 12 CFR 614.4935(c) (FCA); and 12 CFR 760.5(c) (NCUA).

V. Lending — Flood Insurance Questions & Answers

V - 6.46 FDIC Consumer Compliance Examination Manual – November 2023

(HPML) rules or (b) U.S. Department of Agriculture

(USDA) or Federal Housing Administration (FHA) 130

131 234 programs on or before July 6, 2012, is such a

lender, who otherwise qualifies for the small lender

exception, required to escrow the premiums and fees for

flood insurance?

Answer: The Act and Regulation provide that a small

lender is eligible for the exception only if, on or before

July 6, 2012, the lender: (1) was not required under

Federal or State law to deposit taxes, insurance premiums,

fees, or any other charges in an escrow account for the

entire term of any loan secured by residential improved

real estate or a mobile home; and (2) did not have a policy

of consistently and uniformly requiring the deposit of

taxes, insurance premiums, fees, or other charges in an

escrow account for any loans secured by residential

improved real estate or a mobile home.

136

• With respect to an HPM L, Federal law in effect on or

before July 6, 2012, permitted a borrower to request

cancellation of the escrow rather than have it apply for

the entire term of the loan. Therefore, HPML escrow

requirements would not result in the loss of the escrow

exception for a small lender that made an HPML-

covered loan prior to July 6, 2012, because the lender

was not required under Federal law to escrow for the

entire term of the loan. Note that the phrase “entire

term” app lies only with resp ect to the Federal or State

law requirements criterion of the exception. In addition,

if a lender required escrow for an HPM L solely to

comply with Federal law, a lender complying with that

law would not be considered to have its own separate

policy of consistently and uniformly requiring escrow.

• With respect to loans under the USDA or FHA

programs, under Federal law, such loans require the

deposit of taxes, insurance premiums, fees and other

charges in an escrow account for the entire term of the

loan. Therefore, the first criterion of the exception

would not be met and would disqualify the lender from

the small lender exception under the Act and the

Regulation.

110. ESCROW SMALL LENDER EXCEPTION 3. Is a lender

disqualified from the small lender escrow exception if it is

required to collect escrowed funds on a mortgage loan on

behalf of a third party?

Answer: To qualify for the small lender exception, one

requirement is the lender must not have had a policy on or

before July 6, 2012, of consistently and uniformly

requiring the deposit of taxes, insurance premiums, fees,

or any other charges in an escrow account for any loans

secured by residential improved real estate or a mobile

home.

137

136

12 CFR 22.5(c)(1) (OCC); 12 CFR 208.25(e)(3)(i) (Board); 12 CFR

339.5(c) (FDIC); 12 CFR 614.4935(c) (FCA); and 12 CFR 760.5(c) (NCUA).

137

12 CFR 22.5(c)(1)(ii)(B) (OCC); 12 CFR 208.25(e)(3)(i)(B)(2) (Board); 12

CFR 339.5(c)(1)(ii)(B) (FDIC); 12 CFR 614.4935(c)(1)(ii)(B) (FCA); and 12

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

• With regard to mortgage loans for which the lender had

a policy on or before July 6, 2012, of collecting escrow

funds at closing and the lender maintained servicing of

the loan, the lender would not qualify for the exception

because the lender established an individual escrow

account for the loan it would then service.

• With regard to mortgage loans for which the lender did

not have a policy on or before July 6, 2012, of

collecting the escrow funds on its own behalf at closing,

but escrowed funds on behalf of a third party and then

transferred those escrow funds to the third party

servicing that loan, the lender would be able to qualify

for the small lender exception provided the lender did

not establish an individual escrow account and the

lender transferred the funds to the third party as soon as

reasonably p racticable. The small lender must also

satisfy the other requirements for the exception, but

because no individual escrow account was established

for the loan whose servicing rights were transferred

pursuant to a third party’s requirements, the lender

would not have had a policy of consistently and

uniformly requiring the deposit of funds in an escrow

account.

111. ESCROW SMALL LENDER EXCEPTION 4. Is a lender

eligible for the small lender exception if, on or before July

6, 2012, it offered escrow accounts only upon a

borrower’s request?

Answer: Yes. If, on or before July 6, 2012, a lender

offered escrow accounts only upon the request of

borrowers, this practice did not constitute a consistent or

uniform policy of requiring escrow and the lender is

eligible for the exception, provided all other conditions

for the exception are met. The small lender exception does

not apply if, on or before July 6, 2012, the lender had a

policy of consistently and uniformly requiring the deposit

of taxes, insurance premiums, fees, or any other charges

in an escrow account for a loan secured by residential

improved real estate or a mobile home.

138

112. ESCROW SMALL LENDER EXCEPTION 5. Is the option

to escrow notice required for all outstanding loans

secured by residential real estate that are not excepted

from the escrow requirement? What about outstanding

loans that are not secured by buildings located in SFHAs?

Answer: Under the Regulation, lenders or their servicers

are required to offer and make available the option to

escrow flood insurance premiums and fees for all

outstanding designated loans secured by residential

improved real estate or a mobile home located in an

SFHA as of January 1, 2016, or July 1 of the first calendar

year in which the lender no longer qualifies for the small

138

12 CFR 22.5(c)(1)(ii)(B) (OCC); 12 CFR 208.25(e)(3)(i)(B)(2) (Board); 12

CFR 339.5(c)(1)(ii)(B) (FDIC); 12 CFR 614.4935(c)(1)(ii)(B) (FCA); and 12

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

V. Lending — Flood Insurance Questions & Answers

FDIC Consumer Compliance Examination Manual – November 2023 V - 6.47

lender exception to the escrow requirement.

139

With the

expiration of the June 30, 2016, deadline to comply with

the option to escrow notice requirement for outstanding

loans as of January 1, 2016, that requirement currently

applies only to lenders who have a change in status and no

longer qualify for the small lender exception.

140

Such

lenders will be required to provide the option to escrow

notice by September 30 of the first calendar year in which

the lender has had a change in status pursuant to the

Regulation.

141

The requirement to provide the option to

escrow notice does not apply to outstanding loans or to

lenders that are excep ted from the general escrow

requirement under the Regulation. The option to escrow

notice requirement also does not apply to loans that are

not subject to the mandatory flood insurance purchase

requirement.

113. ESCROW SMALL LENDER EXCEPTION 6. If the

borrower has waived escrow of flood insurance premiums

and fees, does the lender or its servicer still need to send

a notice to offer the ability to escrow for the flood

insurance?

Answer: Yes, if the small lender exception no longer

app lies. See Q&A Escrow Small Lender Exception 5. The

Regulation does not exclude loans for which borrowers

have previously waived escrow from the requirement to

offer and make available the option to escrow flood

insurance premiums and fees. Consequently, lenders or

their servicers must send a notice of the option to escrow

flood insurance premiums and fees to borrowers who have

previously waived escrow or for whom lenders previously

offered an option to escrow.

142

Although a borrower may

have previously decided to waive escrow or been offered

an option to escrow, it is possible that the borrower’s

circumstances have changed, and if offered another

chance to escrow, the borrower may desire to do so.

114. ESCROW SMALL LENDER EXCEPTION 7. Is it correct

that lenders that qualify for the small lender exception are

not required to provide borrowers the escrow notice or

the option to escrow notice?

Answer: Yes. Lenders that qualify for the small lender

exception are not required to provide borrowers either the

escrow notice or the option to escrow notice unless the

lender ceases to qualify for the small lender exception.

143

139

12 CFR 22.5(d) (OCC); 12 CFR 208.25(e)(4) (Board); 12 CFR 339.5(d)

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

140

12 CFR 22.5(c)(2) (OCC); 12 CFR 208.25(e)(3)(ii) (Board); 12 CFR

339.5(c)(2) (FDIC); 12 CFR 614.4935(c)(2) (FCA); and 12 CFR 760.5(c)(2)

(NCUA).

141

12 CFR 22.5(d)(2) (OCC); 12 CFR 208.25(e)(4)(ii) (Board); 12 CFR

339.5(d)(2) (FDIC); 12 CFR 614.4935(d)(2) (FCA); and 12 CFR 760.5(d)(2)

(NCUA).

142

12 CFR 22.5(d)(2) (OCC); 12 CFR 208.25(e)(4)(ii) (Board); 12 CFR

339.5(d)(2) (FDIC); 12 CFR 614.4935(d)(2) (FCA); and 12 CFR 760.5(d)(2)

(NCUA).

143

12 CFR 22.5(d)(1) (OCC); 12 CFR 208.25(e)(4)(i) (Board); 12 CFR

Requirement to escrow flood insurance premiums and fees –

Escrow loan exceptions (ESCROW LOAN EXCEPTIONS)

115. ESCROW LOAN EXCEPTIONS 1. Are escrow accounts

for flood insurance premiums and fees required for

commercial loans that are secured by residential

property?

Answer: No. Extensions of credit primarily for business,

commercial or agricultural purposes are not subject to the

escrow requirement for flood insurance premiums and

fees, even if such loans are secured by residential

improved real estate or a mobile home.

144

See Q&A

Exemptions 1 for further information on the definition of

residential property.

116. ESCROW LOAN EXCEPTIONS 2. Are escrow accounts

for flood insurance premiums and fees required for loans

secured by particular units located in multi-family

buildings?

Answer: The escrow requirements in the Regulation

would not apply to a loan secured by a particular unit in a

multi-family residential building if a condominium

association, cooperative, homeowners association, or

other applicable group provides an adequate policy and

pays for the insurance as a common expense.

145

See Q&A

Exemptions 1. Otherwise, the escrow requirements

generally would apply to loans for particular units in

multi-family residential buildings.

117. ESCROW LOAN EXCEPTIONS 3. Which requirements

for an escrow account apply to a property covered by an

RCBAP?

Answer: An RCBAP (Residential Condominium Building

Association Policy) is a policy purchased by the

condominium association on behalf of itself and the

individual unit owners in the condominium. Typically, a

portion of the periodic dues paid to the association by the

condominium owners applies to the premiums on the

policy. When a lender makes, increases, renews, or

extends a loan secured by a condominium unit that is

adequately covered by an RCBAP and RCBAP premiums

are paid by the condominium association as a common

expense, an escrow account is not required.

146

However, if

the RCBAP coverage is inadequate and the unit is also

covered by a flood insurance policy for supplemental

coverage, premiums for the supplemental policy would

339.5(d)(1) (FDIC); 12 CFR 614.4935(d)(1) (FCA); and 12 CFR 760.5(d)(1)

(NCUA).

144

12 CFR 22.5(a)(2) (OCC); 12 CFR 208.25(e)(1)(ii) (Board); 12 CFR

339.5(a)(2) (FDIC); 12 CFR 614.4935(a)(2) (FCA); and 12 CFR 760.5(a)(2)

(NCUA).

145

12 CFR 22.5(a)(2)(iii) (OCC); 12 CFR 208.25(e)(1)(ii)(C) (Board); 12

CFR 339.5(a)(2)(iii) (FDIC); 12 CFR 614.4935(a)(2)(iii) (FCA); and 12 CFR

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

146

12 CFR 22.5(a)(2)(iii) (OCC); 12 CFR 208.25(e)(1)(ii)(C) (Board); 12

CFR 339.5(a)(2)(iii) (FDIC); 12 CFR 614.4935(a)(2)(iii) (FCA); and 12 CFR

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

V. Lending — Flood Insurance Questions & Answers

V - 6.48 FDIC Consumer Compliance Examination Manual – November 2023

need to be escrowed, provided the lender or the loan did

not qualify for any other exception from the Regulation’s

escrow requirement.

147

Lenders should exercise due

diligence with respect to continuing compliance with the

insurance requirements on the part of the condominium

association.

118. ESCROW LOAN EXCEPTIONS 4. Do construction-

permanent loans qualify for the 12-month exception if one

phase of the loan is for 12 months or less?

Answer: Generally, no. Construction-permanent loans (or

C-P loans) are loans that have a construction phase of

approximately one year before the loan converts into

permanent financing. During the construction phase, the

loan is ty p ically interest-only, so the borrower does not

start paying principal until the permanent phase. After the

construction phase, the borrower generally comes in to

sign papers to start the permanent phase, but this is not a

true closing. Given that C-P loans are generally 20- to 30-

year term loans, a C-P loan would not qualify for the 12

month-exception from escrow, even if one phase of the

loan is for 12 months or less.

119. ESCROW LOAN EXCEPTIONS 5. Although a lender is

not required to monitor whether a subordinate lien moves

into first lien position for the purpose of the mandatory

escrow requirement, if the lender becomes aware that the

subordinate lien exception no longer applies, when must

the lender begin to escrow?

Answer: If at any time during the term of the loan a lender

determines that a subordinate lien exception no longer

applies, the lender must begin escrowing flood insurance

premiums and fees as soon as reasonably p racticable

(unless another exception applies).

148

Lenders should

ensure that the loan documents for the subordinate lien

permit the lender to require an escrow if the loan takes a

first lien position.

Force placement of flood insurance (FORCE

PLACEMENT)

120. FORCE PLACEMENT 1. What is the requirement for the

force placement of flood insurance under the Act and the

Regulation?

Answer: When a lender makes a determination that the

collateral securing the loan is uninsured or underinsured,

it must begin the force p lacement p rocess. Specifically,

the Act and the Regulation provide that if a lender, or a

servicer acting on its behalf, determines at any time

during the term of a designated loan that a building or

mobile home and any personal property securing the loan

is not covered by flood insurance or is covered by flood

insurance in an amount less than the amount required

147

12 CFR 22.5(a) (OCC); 12 CFR 208.25(e)(1) (Board); 12 CFR 339.5(a)(1)

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

148

12 CFR 22.5(a)(3) (OCC); 12 CFR 208.25(e)(1)(iii) (Board); 12 CFR

339.5(a)(3) (FDIC); 12 CFR 614.4935(a)(3) (FCA); and 12 CFR 760.5(a)(3)

under the Regulation, the lender or its servicer must notify

the borrower that the borrower must obtain flood

insurance, at the borrower’s expense, in an amount at least

equal to the minimum amount required under the

Regulation. If the borrower fails to obtain flood insurance

within 45 days of the lender’s notification to the borrower,

the lender must purchase flood insurance on the

borrower’s behalf at that time. The lender must force

place flood insurance for the full amount required under

the Regulation, or if the borrower has purchased flood

insurance that otherwise satisfies the flood insurance

requirements but in an insufficient amount, the lender

would be required to force place only for the “insufficient

amount,” that is, the difference between the amount the

borrower insured and the required amount of flood

insurance. The Act and the Regulation also provide that

the lender or its servicer may purchase insurance on the

borrower’s behalf and may charge the borrower for the

cost of premiums and fees incurred in purchasing the

insurance beginning on the date on which flood insurance

coverage lapsed or did not provide a sufficient coverage

amount. See also Q&A Force Placement 8.

149

A lender or its servicer may include in the force

placement notice the amount of flood insurance needed.

By providing this information, the lender or its servicer

can help ensure that a borrower obtains the appropriate

amount of insurance. In addition, before the lender or

servicer must force place flood insurance, if the lender or

servicer is aware that a borrower has obtained insurance

that otherwise satisfies the flood insurance requirements

but in an insufficient amount, the lender or servicer should

inform the borrower an additional amount of insurance is

needed in order to comply with the Regulation.

121. FORCE PLACEMENT 2. When must a lender provide the

force placement notice to the borrower?

Answer: The Regulation requires the lender, or its

servicer, to send notice to the borrower upon making a

determination that the building or mobile home and any

personal property securing the designated loan is not

covered by flood insurance or is covered by flood

insurance in an amount less than the amount required

under the Regulation. The Agencies expect that such

notice will be provided to the borrower at the time of

determination of no or insufficient coverage. If there is a

brief delay in providing the notice, the Agencies will

expect the lender or servicer to provide a reasonable

explanation for the delay. For example, there may be brief

delays due to various lender processes, including but not

limited to, batch processing and manual exception

processing.

(NCUA).

149

12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) (Board); 12 CFR 339.7(a)

(FDIC); 12 CFR 614.4945(a) (FCA); and 12 CFR 760.7(a) (NCUA).

V. Lending — Flood Insurance Questions & Answers

FDIC Consumer Compliance Examination Manual – November 2023 V - 6.49

122. FORCE PLACEMENT 3. May a servicer force place on

behalf of a lender?

Answer: Yes. Assuming the statutory prerequisites for

force placement are met, and subject to the servicing

contract between the lender and its servicer, the Act

authorizes servicers to force place flood insurance on

behalf of the lender, following the procedures set forth in

the Regulation.

150

123. FORCE PLACEMENT 4. May a lender satisfy its notice

requirement by sending the force placement notice to the

borrower prior to the expiration of the flood insurance

policy?

Answer: No. The Act specifically provides that the lender

or servicer for a loan must send a notice upon its

determination that the collateral property securing the

loan is either not covered by flood insurance or is covered

by flood insurance in an amount less than the amount

required.

151

Although a lender may send notice prior to

the expiration date of the flood insurance policy as a

courtesy, the lender or servicer is still required to send

notice upon determining that the flood insurance policy

actually has lapsed or is insufficient in meeting the

statutory requirement. The lender may purchase insurance

on the borrower’s behalf beginning on the date of the

lapse.

152

124. FORCE PLACEMENT 5. When must the lender have

flood insurance in place if the borrower has not obtained

adequate insurance within 45 days after notification?

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.

153

If the borrower fails to obtain

flood insurance and the lender does not force place flood

insurance by the end of the force placement notification

period, the Agencies will exp ect the lender to provide a

reasonable explanation for the brief delay, for example,

that a lender uses batch processing to purchase force-

placed flood insurance policies.

125. FORCE PLACEMENT 6. Once a lender makes a

determination that a designated loan has no or

insufficient flood insurance coverage and sends the

borrower a force placement notice, may a lender make a

subsequent determination in connection with the initial

notification period that the designated loan has no or

insufficient coverage and send another force placement

150

42 U.S.C. 4012a(e); 12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) (Board);

12 CFR 339.7(a) (FDIC); 12 CFR 614.4945(a) (FCA); and 12 CFR 760.7(a)

(NCUA).

151

12 U.S.C. 4012a(e)(1). See also 12 CFR 22.7(a) (OCC); 12 CFR

208.25(g)(1) (Board); 12 CFR 339.7(a) (FDIC); 12 CFR 614.4945(a) (FCA);

and 12 CFR 760.7(a) (NCUA).

152

12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) (Board); 12 CFR 339.7(a)

(FDIC); 12 CFR 614.4945(a) (FCA); and 12 CFR 760.7(a) (NCUA).

153

12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) (Board); 12 CFR 339.7(a)

(FDIC); 12 CFR 614.4945(a) (FCA); and 12 CFR 760.7(a) (NCUA).

notice, effectively providing more than 45 days for the

borrower to obtain sufficient coverage?

Answer: No. The Act and Regulation state that once a

lender makes a determination that a designated loan has

no or insufficient flood insurance coverage, the lender

must notify the borrower and, if the borrower fails to

obtain sufficient flood insurance coverage within 45 days

after that notice, the lender must purchase coverage on the

borrower’s behalf.

154

For examp le, if in response to a

force placement notice, the borrower obtains flood

insurance that is insufficient in amount, there is no

extension of the time period by which the lender must

force place flood insurance.

126. FORCE PLACEMENT 7. May a lender commence a

force-placed insurance policy on the day the previous

policy expires, or must the new policy begin on the day

after?

Answer: The Regulation provides that the lender or its

servicer may charge the borrower for the cost of

premiums and fees incurred in purchasing the insurance,

including premiums or fees incurred for coverage,

beginning on the date on which flood insurance lapsed or

did not provide a sufficient coverage amount.

155

A lender, however, may not require the borrower to pay

for double coverage. The Regulation requires the lender

or its servicer to refund to the borrower all premiums paid

by the borrower for any force-placed insurance p urchased

by the lender or its servicer during any period in which

the borrower’s flood insurance coverage and the force-

placed insurance p olicy were each in effect.

156

For example, if the previous policy expires at 12:01 am,

the lender’s new force-placed policy should not begin to

provide coverage until 12:01 am of the same day. If the

lender did force p lace at a date and time that would result

in the force-placed policy providing overlapping

coverage, the lender should not charge the borrower for

the period of overlapping coverage.

127. FORCE PLACEMENT 8. When force placement occurs,

what is the amount of insurance required to be placed?

Answer: The Regulation states that the minimum amount

of flood insurance required “must be at least equal to the

lesser of the outstanding principal balance of the

designated loan or the maximum limit of coverage

available for the particular typ e of property under the

Act.”

157

Therefore, if the outstanding principal balance is

154

12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) (Board); 12 CFR 339.7(a)

(FDIC); 12 CFR 614.4945(a) (FCA); and 12 CFR 760.7(a) (NCUA).

155

12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) (Board); 12 CFR 339.7(a)

(FDIC); 12 CFR 614.4945(a) (FCA); and 12 CFR 760.7(a) (NCUA).

156

12 CFR 22.7(b)(1)(ii) (OCC); 12 CFR 208.25(g)(2)(i)(B) (Board); 12 CFR

339.7(b)(1)(ii) (FDIC); 12 CFR 614.4945(b)(1)(ii) (FCA); and 12 CFR

760.7(b)(1)(ii) (NCUA).

157

12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a)

(FDIC); 12 CFR 614.4930(a) (FCA); and 12 CFR 760.3(a) (NCUA).

V. Lending — Flood Insurance Questions & Answers

V - 6.50 FDIC Consumer Compliance Examination Manual – November 2023

the basis for the minimum amount of required flood

insurance, the lender must ensure that the force-p laced

policy amount covers the outstanding principal balance

plus any additional force-p laced p remium and fees

capitalized into the outstanding principal balance.

158

To illustrate this point, assume that there is a loan with an

outstanding principal balance of $200,000, secured by a

residential property located in an SFHA that has an

insurable value of $350,000. The borrower has a $200,000

flood insurance policy for that property, reflecting the

minimum amount required under the Regulation. If the

$200,000 flood insurance policy lapses, the lender or its

servicer must notify the borrower of the need to obtain

adequate flood insurance. If the borrower fails to obtain

adequate flood insurance within 45 days after notification,

then the lender or its servicer must purchase insurance on

the borrower’s behalf.

159

If the lender intends to capitalize

the premium for the force-placed p olicy into the

outstanding principal balance, the lender must ensure that

the policy is issued in an amount sufficient to cover the

anticipated higher outstanding principal balance,

including the force-p laced p olicy premium, even if the

capitalization of the force-p laced p remium is not

considered a triggering event. See also Q&A Force

Placement 10. In this scenario, if the cost of the force-

placed policy is $2,000, the coverage amount of the force-

placed policy must be at least $202,000.

128. FORCE PLACEMENT 9. When may a lender or its

servicer charge the borrower for the cost of force-placed

insurance?

Answer: A lender, or a servicer acting on its behalf, may

force place flood insurance and charge the borrower for

the cost of premiums and fees incurred by the lender or

servicer in purchasing the flood insurance on the

borrower’s behalf at any time starting from the date on

which flood insurance coverage lapsed or did not provide

a sufficient coverage amount. The lender or servicer

would not have to wait 45 days after providing

notification to force place insurance.

160

Lenders that

monitor loans secured by property located in an SFHA for

continuous flood insurance coverage can minimize any

gaps in coverage and any charge to the borrower for

coverage for a timeframe prior to the lender’s or its

servicer’s date of discovery and force placement. If a

lender or its servicer, despite its monitoring efforts,

discovers a loan with no or insufficient coverage, for

example, due to a remapping, it may charge the borrower

for premiums and fees incurred by the lender or servicer

for a force-placed flood insurance policy purchased on the

borrower’s behalf, including premiums and fees for

158

12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) (Board); 12 CFR 339.7(a)

(FDIC); 12 CFR 614.4945(a) (FCA); and 12 CFR 760.7(a) (NCUA)

159

12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) (Board); 12 CFR 339.7(a)

(FDIC); 12 CFR 614.4945(a) (FCA); and 12 CFR 760.7(a) (NCUA).

160

12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) (Board); 12 CFR 339.7(a)

(FDIC); 12 CFR 614.4945(a) (FCA); and 12 CFR 760.7(a) (NCUA).

coverage, beginning on the date of no or insufficient

coverage, provided that the policy was effective as of the

date of the insufficient coverage. When a lender or its

servicer purchases a policy on the borrower’s behalf, the

lender or its servicer may not charge for premiums and

fees for coverage beginning on the date of lapse or

insufficient coverage if that policy purchased on the

borrower’s behalf did not provide coverage for the

borrower prior to purchase. A lender’s or servicer’s

frequent need to purchase policies on a borrower’s behalf

having coverage that precedes the date of purchase may ,

depending upon the facts and circumstances, indicate that

there are weaknesses within the lender’s or servicer’s

compliance management sy stem.

129. FORCE PLACEMENT 10. Does capitalizing the flood

insurance premium into the outstanding principal balance

constitute a triggering event - an “increase” that would

trigger the applicability of flood insurance regulatory

requirements?

Answer: The Act and the Regulation require a lender to

notify the borrower that the borrower should obtain

adequate flood insurance when the lender determines that

a building or a mobile home located or to be located in an

SFHA is not covered by any or adequate flood

insurance.

161

If the borrower fails to obtain adequate flood

insurance within 45 days, then the lender must purchase

insurance on the borrower’s behalf. The lender may

charge the borrower for the premiums and fees incurred

by the lender in purchasing the force-placed flood

insurance.

162

Among the various methods that a lender might use to

charge a borrower for force-placed flood insurance are:

(1) capitalizing the premium and fees into the outstanding

principal balance; (2) adding the premium and fees to a

separate account; (3) advancing funds from the escrow

account to pay for the premiums and fees of the force-

placed flood insurance; or (4) billing the borrower directly

for the premiums and fees of the force-placed flood

insurance policy. The treatment of force-placed flood

insurance premiums and fees depends on the method the

lender chooses for charging the borrower.

Premium and fees capitalized into outstanding principal

balance

If the lender’s loan contract with the borrower includes a

provision permitting the lender or servicer to advance

funds to pay for flood insurance premiums and fees as

additional debt to be secured by the building or mobile

home, such an advancement would be considered part of

the loan. As such, the capitalization of the flood insurance

161

12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) (Board); 12 CFR 339.7(a)

(FDIC); 12 CFR 614.4945(a) (FCA); and 12 CFR 760.7(a) (NCUA).

162

12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) (Board); 12 CFR 339.7(a)

(FDIC); 12 CFR 614.4945(a) (FCA); and 12 CFR 760.7(a) (NCUA).

V. Lending — Flood Insurance Questions & Answers

FDIC Consumer Compliance Examination Manual – November 2023 V - 6.51

premiums and fees into the outstanding principal balance

is not considered an “increase” in the loan amount, and

thus would not be considered a triggering event. If,

however, there is no explicit provision permitting this

type of advancement of funds in the loan contract, the

capitalization of flood insurance premiums and fees into

the borrower’s outstanding principal balance would be

considered an “increase” in the loan amount, and,

therefore is considered a triggering event because no

advancement of funds was contemplated as part of the

loan. See also Q&A Force Placement 8.

Premium and fees added to an account

If the lender accounts for and tracks the amount owed on

the force-placed flood insurance premium and fees in a

separate account, this approach does not result in an

increase in the loan balance and, therefore, is not

considered a triggering event.

Premium and fees advanced from the borrower’s escrow

account

If the lender’s loan contract with the borrower permits the

lender to advance the premiums and fees for the force-

placed flood insurance from the borrower’s escrow

account, this approach does not increase the outstanding

principal balance and is not considered a triggering event.

Premium and fees billed directly to borrower

If the lender bills the borrower directly for the cost of the

force-placed flood insurance, this approach does not

increase the outstanding principal balance and is not

considered a triggering event.

130. FORCE PLACEMENT 11. What documentation is

sufficient to demonstrate evidence of flood insurance in

connection with a lender’s refund of premiums paid by a

borrower for force-placed insurance during any period of

overlap with borrower-purchased insurance?

Answer: With respect to when a lender is required to

refund premiums paid by a borrower for force-p laced

insurance during any period of overlap with borrower-

purchased insurance, the Regulation specifically addresses

the documentation requirements. The Regulation provides

that, for purposes of confirming a borrower’s existing

flood insurance coverage, a lender must accept from the

borrower an insurance policy declarations page that

includes the existing flood insurance policy number and

the identity of, and contact information for, the insurance

company or its agent.

163

The Regulation does not require

that the declarations page contain any additional

information in order to ascertain whether the policy meets

the mandatory flood insurance purchase requirement to

determine whether a refund is required. See Q&A Private

Flood Compliance 5 for further guidance regarding

163

12 CFR 22.7(b)(2) (OCC); 12 CFR 208.25(g)(2)(ii) (Board); 12 CFR

339.7(b)(2) (FDIC); 12 CFR 614.4945(b)(2) (FCA); and 12 CFR 760.7(b)(2)

(NCUA).

164

12 CFR 22.7(b)(1) (OCC); 12 CFR 208.25(g)(2)(i) (Board); 12 CFR

339.7(b)(1) (FDIC); 12 CFR 614.4945(b)(1) (FCA); and 12 CFR 760.7(b)(1)

evaluation under the private flood insurance requirements

of the Regulation.

In situations not involving a lender’s refund of premiums

for force-placed insurance, the Regulation does not

specify what documentation would be sufficient.

Generally, it is appropriate, although not required by the

Regulation, for lenders to accept a copy of the flood

insurance application and premium payment as evidence

of proof of purchase for new policies.

131. FORCE PLACEMENT 12. If a lender receives a

confirmation, consistent with the Regulation, of a

borrower’s existing flood insurance coverage evidencing

an overlap with a force-placed flood insurance policy, but

the lender does not receive a refund from the insurance

provider of the force-placed flood insurance policy in a

timely manner, is the lender still required to refund any

premiums for overlapping coverage to the borrower

within 30 days?

Answer: Yes. The Regulation specifically requires the

refund of force-placed insurance premiums and any

related fees charged to the borrower for any overlap

period within 30 days of receipt of a confirmation of a

borrower’s existing flood insurance coverage without

exception.

164

132. FORCE PLACEMENT 13. Is a lender permitted to

increase, renew, or extend a designated loan that is

currently insured by force-placed insurance? More

specifically, if the borrower is undergoing a refinance or

a loan modification, can the lender rely on the existing

force-placed insurance to meet the mandatory purchase

requirement?

Answer: A lender can rely on existing force-placed

insurance to satisfy the mandatory flood insurance

purchase requirement if the borrower does not purchase

his or her own policy. The Regulation states that a lender

“shall not make, increase, extend or renew any designated

loan unless the building or mobile home and any personal

property securing the loan is covered by flood insurance

for the term of the loan.”

165

Assuming the force-p laced

policy is in effect and otherwise satisfies the regulatory

coverage standards, then that policy may satisfy the

mandatory purchase requirement.

A refinance is the “making” of a loan, and a loan

modification that increases, renews, or extends a loan is a

triggering event for the flood insurance requirements. See

Applicability 6 and Applicability 13. Therefore, when a

lender refinances, increases, renews, or extends an

existing loan, the lender is required to provide the Notice

of Special Flood Hazards, which details the borrower’s

obligation to obtain a flood insurance policy for any

(NCUA).

165

12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a)

(FDIC); 12 CFR 614.4930(a) (FCA); and 12 CFR 760.3(a) (NCUA).

V. Lending — Flood Insurance Questions & Answers

V - 6.52 FDIC Consumer Compliance Examination Manual – November 2023

building in an SFHA securing the loan.

166

At that time, the

lender, at its discretion, could encourage the borrower to

purchase his or her own policy, which may be available

for a lower premium amount.

133. FORCE PLACEMENT 14. If a borrower’s force-placed

flood insurance expires, is the lender required to send a

force placement notification to the borrower prior to

renewing the force-placed flood insurance coverage?

Answer: No. The Regulation does not require the lender

to send a notice to the borrower prior to renewing a force-

placed policy. However, the lender or its servicer, at its

discretion, may notify the borrower that the lender is

planning to renew or has renewed the force-placed p olicy .

Such a notification may encourage the borrower to

purchase his or her own policy, which may be available

for a lower premium amount.

134. FORCE PLACEMENT 15. Are lenders required to have

in place “Life-of-Loan” monitoring for continuous

coverage of designated loans?

Answer: Although there is no explicit duty to monitor

flood insurance coverage over the life of the loan in the

Act or Regulation, for purposes of safety and soundness,

many lenders monitor the continuous coverage of flood

insurance for the building or mobile home and any

personal property securing the loan. Such a practice helps

to ensure that lenders complete the force placement of

flood insurance in a timely manner upon lapse of a policy,

that there is continuous coverage to protect both the

borrower and the lender, and that lenders are promptly

made aware of flood map changes.

135. FORCE PLACEMENT 16. If a lender or its servicer

receives a notice of remapping that states that a property

has been or will be remapped into an SFHA, what do the

Act and Regulation require the lender or its servicer to

do?

Answer: The Act and Regulation provide that if a lender,

or its servicer, determines at any time during the term of a

designated loan, that a building or mobile home and any

personal property securing a loan is uninsured or

underinsured, the lender or its servicer must begin the

notice and force p lacement process, as detailed in Q&A

Force Placement 1.

167

A loan that is secured by property

that was not located in an SFHA does not become a

designated loan until the effective date of the map change

that remaps the property into an SFHA. Therefore, when a

lender or its servicer receives advance notice that a

property will be remapped into an SFHA, the effective

166

12 CFR 22.9(a) (OCC); 12 CFR 208.25(i) (Board); 12 CFR 339.9(a)

(FDIC); 12 CFR 614.4955(a) (FCA); and 12 CFR 760.9(a) (NCUA).

167

12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) (Board); 12 CFR 339.7(a)

(FDIC); 12 CFR 614.4945(a) (FCA); and 12 CFR 760.7(a) (NCUA).

168

12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) (Board); 12 CFR 339.7(a)

(FDIC); 12 CFR 614.4945(a) (FCA); and 12 CFR 760.7(a) (NCUA).

169

12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) (Board); 12 CFR 339.7(a)

(FDIC); 12 CFR 614.4945(a) (FCA); and 12 CFR 760.7(a) (NCUA).

date of the remapping becomes the date on which the

lender or its servicer must determine whether the property

is covered by sufficient flood insurance. If the borrower

does not purchase a flood insurance policy that begins on

the effective date of the map change, the lender or its

servicer must send the force placement notice to the

borrower to purchase adequate flood insurance.

168

Similar

to the guidance set forth in Q&A Force Placement 4, a

lender also may send notice prior to the effective date of

the map change as a courtesy .

In addition, as of the effective date of the remapping, if

the lender makes a determination that the property

securing a designated loan is not covered by sufficient

flood insurance, the lender or servicer must begin the

force placement process and may charge the borrower for

the force-p laced insurance.

169

However, if the borrower

purchases an adequate flood insurance policy, the lender

or servicer would need to reimburse the borrower for

premiums and fees charged for the force-placed coverage

during any period of overlapping coverage.

170

If the lender or its servicer receives notice after a p rop erty

has been remapped into an SFHA, then the lender or its

servicer must determine whether the property securing the

loan is covered by sufficient flood insurance. The lender

or its servicer must begin the notice and force placement

process, as detailed in Q&A Force Placement 1, if the

property is uninsured or underinsured.

171