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The Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Farm Credit Administration, the National Credit Union Administration, and the Federal Deposit Insurance Corporation (collectively, the Agencies), recently issued an announcement regarding the implementation of new flood insurance laws under the new federal flood insurance regulations. Specifically, the statement sets forth the Agencies' expectations for supervised institutions regarding the availability of increased flood insurance coverage under the National Flood Insurance Program (NFIP) for "Other Residential Buildings."
The announcement provides guidance to financial institutions on the following issues:
• Under Section 100204 of the Biggert-Waters Flood Insurance Reform Act of 2012, the maximum limit of building coverage available for non-condominium residential buildings designed for use for five or more families has been increased from $250,000 per building to $500,000 per building. The NFIP classifies these types of buildings as Other Residential Buildings. The maximum contents coverage for all policies covering Other Residential Buildings will remain $100,000 per policy.
• New coverage limits are available for new policies, policy renewals, or existing policies with change endorsements effective as of June 1, 2014.
• If a financial institution or its servicer receives notification of the increased flood insurance limits available for an Other Residential Building securing a designated loan, the Agencies expect the financial institutions to take any steps necessary to determine whether the property will require increased flood insurance coverage.
• Although a lender is not required by the agencies to perform an immediate full file search of its loan portfolio, for safety and soundness purposes a lender may want to review its loan portfolio to determine whether additional flood insurance is required for certain loans in light of the availability of increased flood insurance coverage for Other Residential Buildings.
• If a lender or servicer determines that the building securing the designated loan is now covered by flood insurance in an amount less than required, it should take steps to ensure that the borrower obtains sufficient coverage.
While the Agencies did not mandate full portfolio reviews, they noted existing guidance in the Interagency Questions and Answers Regarding Flood Insurance may be necessary for safety and soundness purposes. It appears that financial institutions should give serious consideration to portfolio reviews.
- Marc D. Patterson
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