Section

[Code of Federal Regulations]
[Title 12, Volume 2]
[Revised as of January 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 12CFR208.25]

[Page 222-226]

TITLE 12--BANKS AND BANKING

CHAPTER II--FEDERAL RESERVE SYSTEM

PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL RESERVE SYSTEM (REGULATION H)--Table of Contents

Subpart B--Investments and Loans

Sec. 208.25 Loans in areas having special flood hazards.

(a) Purpose and scope. (1) Purpose. The purpose of this section is
to implement the requirements of the National Flood Insurance Act of
1968 and the Flood Disaster Protection Act of 1973, as amended (42
U.S.C. 4001-4129).
(2) Scope. This section, except for paragraphs (f) and (h) of this
section, applies to loans secured by buildings or mobile homes located
or to be located in areas determined by the Director of the Federal
Emergency Management Agency to have special flood hazards. Paragraphs
(f) and (h) of this section apply to loans secured by buildings or
mobile homes, regardless of location.
(b) Definitions. For purposes of this section:
(1) Act means the National Flood Insurance Act of 1968, as amended
(42 U.S.C. 4001-4129).
(2) Building means a walled and roofed structure, other than a gas
or liquid storage tank, that is principally above ground and affixed to
a permanent site, and a walled and roofed structure while in the course
of construction, alteration, or repair.
(3) Community means a State or a political subdivision of a State
that has zoning and building code jurisdiction over a particular area
having special flood hazards.
(4) Designated loan means a loan secured by a building or mobile
home that is located or to be located in a special flood hazard area in
which flood insurance is available under the Act.
(5) Director of FEMA means the Director of the Federal Emergency
Management Agency.
(6) Mobile home means a structure, transportable in one or more
sections, that is built on a permanent chassis and designed for use with
or without a permanent foundation when attached to the required
utilities. The term mobile home does not include a recreational vehicle.
For purposes of this section, the term mobile home means a mobile home
on a permanent foundation. The term mobile home includes a manufactured
home as that term is used in the National Flood Insurance Program.
(7) NFIP means the National Flood Insurance Program authorized under
the Act.
(8) Residential improved real estate means real estate upon which a
home or other residential building is located or to be located.

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(9) Servicer means the person responsible for:
(i) Receiving any scheduled, periodic payments from a borrower under
the terms of a loan, including amounts for taxes, insurance premiums,
and other charges with respect to the property securing the loan; and
(ii) Making payments of principal and interest and any other
payments from the amounts received from the borrower as may be required
under the terms of the loan.
(10) Special flood hazard area means the land in the flood plain
within a community having at least a one percent chance of flooding in
any given year, as designated by the Director of FEMA.
(11) Table funding 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.
(c) Requirement to purchase flood insurance where available. (1) In
general. A member bank 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. The amount of 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 the particular type of property
under the Act. Flood insurance coverage under the Act is limited to the
overall value of the property securing the designated loan minus the
value of the land on which the property is located.
(2) Table funded loans. A member bank that acquires a loan from a
mortgage broker or other entity through table funding shall be
considered to be making a loan for the purposes of this section.
(d) Exemptions. The flood insurance requirement prescribed by
paragraph (c) of this section does not apply with respect to:
(1) Any State-owned property covered under a policy of self-
insurance satisfactory to the Director of FEMA, who publishes and
periodically revises the list of States falling within this exemption;
or
(2) Property securing any loan with an original principal balance of
$5,000 or less and a repayment term of one year or less.
(e) Escrow requirement. If a member bank requires the escrow of
taxes, insurance premiums, fees, or any other charges for a loan secured
by residential improved real estate or a mobile home that is made,
increased, extended, or renewed after October 1, 1996, the member bank
shall also require the escrow of all premiums and fees for any flood
insurance required under paragraph (c) of this section. The member bank,
or a servicer acting on its behalf, shall deposit the flood insurance
premiums on behalf of the borrower in an escrow account. This escrow
account will be subject to escrow requirements adopted pursuant to
section 10 of the Real Estate Settlement Procedures Act of 1974 (12
U.S.C. 2609) (RESPA), which generally limits the amount that may be
maintained in escrow accounts for certain types of loans and requires
escrow account statements for those accounts, only if the loan is
otherwise subject to RESPA. Following receipt of a notice from the
Director of FEMA or other provider of flood insurance that premiums are
due, the member bank, or a servicer acting on its behalf, shall pay the
amount owed to the insurance provider from the escrow account by the
date when such premiums are due.
(f) Required use of standard flood hazard determination form. (1)
Use of form. A member bank shall use the standard flood hazard
determination form developed by the Director of FEMA when determining
whether the building or mobile home offered as collateral security for a
loan is or will be located in a special flood hazard area in which flood
insurance is available under the Act. The standard flood hazard
determination form may be used in a printed, computerized, or electronic
manner. A member bank may obtain the standard flood hazard determination
form by written request to FEMA, P.O. Box 2012, Jessup, MD 20794-2012.
(2) Retention of form. A member bank shall retain a copy of the
completed standard flood hazard determination form, in either hard copy
or electronic form, for the period of time the bank owns the loan.

[[Page 224]]

(g) Forced placement of flood insurance. If a member bank, or a
servicer acting on behalf of the bank, determines at any time during the
term of a designated loan 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 paragraph (c) of this section, then the bank or
its servicer shall notify the borrower that the borrower should obtain
flood insurance, at the borrower's expense, in an amount at least equal
to the amount required under paragraph (c) of this section, for the
remaining term of the loan. If the borrower fails to obtain flood
insurance within 45 days after notification, then the member bank or its
servicer shall purchase insurance on the borrower's behalf. The member
bank or its servicer may charge the borrower for the cost of premiums
and fees incurred in purchasing the insurance.
(h) Determination fees. (1) General. Notwithstanding any Federal or
State law other than the Flood Disaster Protection Act of 1973, as
amended (42 U.S.C. 4001-4129), any member bank, or a servicer acting on
behalf of the bank, may charge a reasonable fee for determining whether
the building or mobile home securing the loan is located or will be
located in a special flood hazard area. A determination fee may also
include, but is not limited to, a fee for life-of-loan monitoring.
(2) Borrower fee. The determination fee authorized by paragraph
(h)(1) of this section may be charged to the borrower if the
determination:
(i) Is made in connection with a making, increasing, extending, or
renewing of the loan that is initiated by the borrower;
(ii) Reflects the Director of FEMA's revision or updating of flood
plain areas or flood-risk zones;
(iii) Reflects the Director of FEMA's publication of a notice or
compendium that:
(A) Affects the area in which the building or mobile home securing
the loan is located; or
(B) By determination of the Director of FEMA, may reasonably require
a determination whether the building or mobile home securing the loan is
located in a special flood hazard area;
(iv) Results in the purchase of flood insurance coverage by the
lender or its servicer on behalf of the borrower under paragraph (g) of
this section.
(3) Purchaser or transferee fee. The determination fee authorized by
paragraph (h)(1) of this section may be charged to the purchaser or
transferee of a loan in the case of the sale or transfer of the loan.
(i) Notice of special flood hazards and availability of Federal
disaster relief assistance. When a member bank makes, increases,
extends, or renews a loan secured by a building or a mobile home located
or to be located in a special flood hazard area, the bank shall mail or
deliver a written notice to the borrower and to the servicer in all
cases whether or not flood insurance is available under the Act for the
collateral securing the loan.
(1) Contents of notice. The written notice must include the
following information:
(i) A warning, in a form approved by the Director of FEMA, that the
building or the mobile home is or will be located in a special flood
hazard area;
(ii) A description of the flood insurance purchase requirements set
forth in section 102(b) of the Flood Disaster Protection Act of 1973, as
amended (42 U.S.C. 4012a(b));
(iii) A statement, where applicable, that flood insurance coverage
is available under the NFIP and may also be available from private
insurers; and
(iv) 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.
(2) Timing of notice. The member bank shall provide the notice
required by paragraph (i)(1) of this section to the borrower within a
reasonable time before the completion of the transaction, and to the
servicer as promptly as practicable after the bank provides notice to
the borrower and in any event no later than the time the bank provides
other similar notices to the servicer concerning hazard insurance and
taxes. Notice to the servicer may be made electronically or may take the

[[Page 225]]

form of a copy of the notice to the borrower.
(3) Record of receipt. The member bank shall retain a record of the
receipt of the notices by the borrower and the servicer for the period
of time the bank owns the loan.
(4) Alternate method of notice. Instead of providing the notice to
the borrower required by paragraph (i)(1) of this section, a member bank
may obtain satisfactory written assurance from a seller or lessor that,
within a reasonable time before the completion of the sale or lease
transaction, the seller or lessor has provided such notice to the
purchaser or lessee. The member bank shall retain a record of the
written assurance from the seller or lessor for the period of time the
bank owns the loan.
(5) Use of prescribed form of notice. A member bank will be
considered to be in compliance with the requirement for notice to the
borrower of this paragraph (i) by providing written notice to the
borrower containing the language presented in appendix A of this section
within a reasonable time before the completion of the transaction. The
notice presented in appendix A of this section satisfies the borrower
notice requirements of the Act.
(j) Notice of servicer's identity. (1) Notice requirement. When a
member bank makes, increases, extends, renews, sells, or transfers a
loan secured by a building or mobile home located or to be located in a
special flood hazard area, the bank shall notify the Director of FEMA
(or the Director's designee) in writing of the identity of the servicer
of the loan. The Director of FEMA has designated the insurance provider
to receive the member bank's notice of the servicer's identity. This
notice may be provided electronically if electronic transmission is
satisfactory to the Director of FEMA's designee.
(2) Transfer of servicing rights. The member bank shall notify the
Director of FEMA (or the Director's designee) of any change in the
servicer of a loan described in paragraph (j)(1) of this section within
60 days after the effective date of the change. This notice may be
provided electronically if electronic transmission is satisfactory to
the Director of FEMA's designee. Upon any change in the servicing of a
loan described in paragraph (j)(1) of this section, the duty to provide
notice under this paragraph (j)(2) shall transfer to the transferee
servicer.

Appendix A to Sec. 208.25 Sample Form of Notice

Notice of Special Flood Hazards and Availability of Federal Disaster
Relief Assistance

We are giving you this notice to inform you that:
The building or mobile home securing the loan for which you have
applied is or will be located in an area with special flood hazards.
The area has been identified by the Director of the Federal
Emergency Management Agency (FEMA) as a special flood hazard area using
FEMA's Flood Insurance Rate Map or the Flood Hazard Boundary Map for the
following community: --------------------. This area has a one percent
(1%) chance of a flood equal to or exceeding the base flood elevation (a
100-year flood) in any given year. During the life of a 30-year mortgage
loan, the risk of a 100-year flood in a special flood hazard area is 26
percent (26%).
Federal law allows a lender and borrower jointly to request the
Director of FEMA to review the determination of whether the property
securing the loan is located in a special flood hazard area. If you
would like to make such a request, please contact us for further
information.
------ The community in which the property securing the loan is
located participates in the National Flood Insurance Program (NFIP).
Federal law will not allow us to make you the loan that you have applied
for if you do not purchase flood insurance. The flood insurance must be
maintained for the life of the loan. If you fail to purchase or renew
flood insurance on the property, Federal law authorizes and requires us
to purchase the flood insurance for you at your expense.
[sbull] Flood insurance coverage under the NFIP may be purchased
through an insurance agent who will obtain the policy either directly
through the NFIP or through an insurance company that participates in
the NFIP. Flood insurance also may be available from private insurers
that do not participate in the NFIP.
[sbull] At a minimum, flood insurance purchased must cover the
lesser of:
(1) the outstanding principal balance of the loan; or
(2) the maximum amount of coverage allowed for the type of property
under the NFIP.
Flood insurance coverage under the NFIP is limited to the overall
value of the property securing the loan minus the value of the land on
which the property is located.

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[sbull] Federal disaster relief assistance (usually in the form of a
low-interest loan) may be available for damages incurred in excess of
your flood insurance if your community's participation in the NFIP is in
accordance with NFIP requirements.
------Flood insurance coverage under the NFIP is not available for
the property securing the loan because the community in which the
property is located does not participate in the NFIP. In addition, if
the non-participating community has been identified for at least one
year as containing a special flood hazard area, properties located in
the community will not be eligible for Federal disaster relief
assistance in the event of a Federally declared flood disaster.

[Reg. H, 63 FR 37641, July 13, 1998, as amended at 64 FR 71274, Dec. 21,
1999]