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F ederal Reserve Bank of Dallas
DALLAS, TEXAS
75222
Circular No. 77-50
April 26, 1977
A M E N D M E N T AND PROPOSED A M E N D M E N T T O R E G U LA TIO N H
T O A L L MEMBER BANKS IN T H E
E LE V E N TH FE DE RAL RESERVE D IS T R IC T :
T h e Board of G o v e rn o rs of the Fe dera l R e s e rv e System has
amended R egulation H , " M e m b e rs h ip of State B a n k in g Institutions in the
Federal R e s e rv e S y s te m ," e ffe ctive A p r i l 13, 1977, to make the re g u la tio n
conform to re ce n t changes in the Flood D is a s te r Protection A c t of 1973.
A copy of the am ended Section 2 0 8 . 8 ( e ) (5) is p r in te d on the
re v e r s e of this c i r c u l a r , w h ic h should be file d in y o u r Regulations B in d e r .
A d d itio n a l copies w i ll be fu r n is h e d upon re q u e s t to the S e c r e ta ry 's Office
of this B a n k , E x t. 6267. S lip sheets of amendments dated May 12, 1975,
Decem ber 30, 1975, and F e b r u a r y 26, 1976, should be removed from y o u r
b in d e r and d e s tro y e d .
A t the same time the Board proposed fo r comment an am endment
to R egulation H that w ould p r o h ib it State m em ber banks from p u rc h a s in g
loans on im proved real estate or m obile homes located in a flood h a z a rd
area if the p r o p e r ty is not c ove re d by flood in s u ra n c e .
Enclosed is a copy of the B o a rd 's press release and FEDERAL
R E G ISTE R docum ent.
T h o s e in te res te d p a rtie s who w is h to comment on the proposed
am endment should a d d res s t h e ir v iew s to the S e c r e t a r y , Board of G o v e r
nors of the F e d e ra l R e s e rv e S ystem , W a s h in g to n , D . C . 20551. Comments
should reach the Board no la te r than May 20, 1977. A ll m a teria l submitted
should in c lu d e the docket n u m b e r R -0 0 9 6 .
S in c e r e ly y o u r s ,
R obert H . B o y k in
F i r s t V ic e P re s id e n t
Enclosures
Banks and oihers are encouraged to use the follo win g to ll-fr e e incoming WATS numbers in contacting this Bank:
1 -8 0 0-492-4403 (intra s ta te ) and 1 -8 0 0 -52 7 -4 97 0 (in te rs ta te ). For c a lls placed loc a lly , please use 651 plus the
extension referred to above.
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
MEMBERSHIP OF STATE BANKING INSTITUTIONS
IN THE FEDERAL RESERVE SYSTEM
A M E N D M E N T TO R EG U LA TIO N H f
gram. Provided that the prohibition contained in
this secion shall n o t apply to (i) any loan made to
finance the acquisition of a residential dwelling
occupied as a residence prior to M arch 1, 1976, or
S EC T IO N 208.8 — B A N K IN G P R A C T IC E S
one year following identification of the area within
* * * * *
which such dwelling is located as an area contain
ing special flood hazards, whichever is later, or
(e) Loans by State member
banks in identified
made to extend, renew, or increase the financing
flood hazard areas.
in connection with such a dwelling; (ii) any loan,
* * *. * #
which does n o t exceed an am ount prescribed by
the Secretary o f Housing and U rb an Development,
(5) G race period. O n and after July 1, 1975, or
to finance the acquisition of a building or structure
after one year following the date of official notifica
completed and occupied by a small business con
tion to the chief executive officer o f a community
cern, as defined by the Secretary, prior to January
that the community is one containing special flood
1, 1976; (iii) any loan o r loans, which in the aggre
hazard areas, whichever is later, no State member
gate do not exceed $5,000, to finance improve
bank shall make, increase, extend, or renew any
ments to o r rehabilitation of a building o r structure
occupied as a residence prior to January 1, 1976;
loan secured by improved real estate or a mobile
hom e located or to be located in such a special
o r (iv) any loan o r loans, which in the aggregate
flood hazard area so identified by the Secretary of
do not exceed an am ount prescribed by the Secre
Housing and U rb a n Development unless the
tary, to finance nonresidential additions o r im
community in which such area is situated is then
provements to be used solely fo r agricultural pu r
participating in the national flood insurance pro
poses on a farm.
Effective April 13, 1977, § 208.8(e)(5) is am end
ed to read as follows:
t For this Regulation to be complete as amended effective April 13, 1977, retain:
1) Printed Regulation pamphlet as amended effective March 18, 1969;
2) Amendments to 1208.10(b) and (c) effective Decem ber 21, 1973;
3) Amendments adding a new §208.8 and renumbering succeeding section effective March 2, 1974;
4) Am endment effective September 16, 1974;
5) Amendment effective September 22, 1974;
6) Am endm ent effective October 17, 1975; and
7) This slip sheet.
4-13-77
2S&
FEDERAL
press
r e
RESERVE
ease
F o r im m e d ia te r e l e a s e
April 13, 1977
The Board of Governors of the Federal Reserve System today proposed
a regulatory amendment that generally would prohibit State member banks from
purchasing loans on improved real estate or mobile homes located in a flood
hazard area if the property is not covered by flood insurance.
The Board will receive comment through May 20, 1977.
At the same time the Board announced adoption of four technical
amendments to the flood insurance provisions of its Regulation H (State member
banks) to make the regulation conform to recent changes in the Flood Disaster
Protection Act of 1973 ("Flood Act").
Regulation H now provides, pursuant to the Flood Act, that State
member banks may not make, increase, extend or renew loans on property located
in areas identified by the Department of Housing and Urban Development as a
flood hazard area, unless the property is covered by Federally subsidized flood
insurance.
Under the proposed amendment, the prohibition would be extended to
the purchase of loans on property in flood hazard areas not covered by flood
insurance.
The prohibition on purchases of such loans would apply also to
participation in them.
The technical amendments to Regulation H adopted by the Board exempt
from the flood insurance requirements of the regulation:
--Loans secured by a dwelling occupied as
a residence before March 1, 1976.
2— Loans on an office or other building
of a small business occupied before
January 1, 1976, up to a dollar limit
to be established by the Secretary of
Housing and Urban Development. The
Secretary has proposed a $100,000
ceiling,
--Improvement or rehabilitation loans on
residences occupied before January 1, 1976
where such loans do not exceed $5,000.
— Loans to finance nonresidential additions
or improvements on a farm, up to a dollar
limit to be established by the Secretary of
Housing and Urban Development, The Secretary
has proposed a $25,000 ceiling.
The Board's proposal and its order in these matters are attached.
FEDERAL RESERVE SYSTEM
[12 C.F.R. Part 208]
[REG. H; DOCKET NO. R-0096]
MEMBERSHIP OP STATE BANKING INSTITUTIONS
IN THE FEDERAL RESERVE SYSTEM
Loans by State Member Banks in Flood-Prone Areas
AGENCY:
Board of Governors of the Federal Reserve System.
ACTION:
Proposed Rule.
SUMMARY:
Pursuant to its rulemaking authority under the Flood Disaster
Protection Act of 1973, as amended ("Act")
(42 U.S.C. § 4012a(b), 4104(b),
and 4128), the Board proposes to amend its Regulation H (12 C.F.R. 5 208)
in order to provide that State member banks may not purchase a loan
secured by improved real estate or by a mobile home located in an iden
tified flood hazard area when such property is not covered by flood
insurance (hereinafter an "uninsured loan").
(4)
Presently, sections 208.8(e)(1),
and (5) of Regulation H provide that no State member bank shall
"make, increase, extend or renew" an uninsured loan in a flood hazard
area.
The addition of the word "purchase" to these sections would further
implement the purposes of the Act and prevent possible circumvention
of its provisions by prohibiting State member banks from purchasing
an uninsured loan which, if directly made by the bank, would be required
to be accompanied by flood insurance.
DATE:
Comments must be received on or before May 20, 1977.
- 2 -
ADDRESS:
Secretary, Board of Governors of the Federal Reserve System,
Washington, D.C. 20551.
All material submitted should include the docket
number R-0096.
FOR FURTHER INFORMATION CONTACT:
Allen L. Raiken, Assistant General
Counsel, Legal Division, Board of Governors of the Federal Reserve System,
Washington, D. C. 20551,
((202) 452-3625).
SUPPLEMENTARY INFORMATION:
The Act provides for a national flood insurance
program generally administered by the Federal Insurance Administration
within the Department of Housing and Urban Development.
The principal
thrust of the program is to provide Federally-subsidized flood insurance
to owners of improved real property that is located in a flood hazard
area.
To accomplish this and to promote prudent land use techniques,
the Act requires State and local communities to participate in the flood
insurance program (through the adoption of adequate flood plain management
standards) before Federally-subsidized insurance is made available to
local property owners.
The subsidized flood insurance is issued and
sold by a pool of insurance companies that generally share in the risks
of the policies.
The purposes of the structure of the Federally subsidized
private insurance pool are, among other things, to provide a preventive
alternative to massive doses of Federal disaster relief funds that would
normally be made available in areas struck by floods and to promote
the financial stability of Federally insured financial institutions
whose assets include mortgage loans secured by property in flood-prone
areas.
- 3 -
Under the Act, federally regulated banks are generally prohibited
froiti "making, increasing, extending, or renewing" a loan not covered by
flood insurance that is secured by improved real estate or a mobile home
located in a flood hazard area.
The Act does not specifically mention
the "purchase" of a loan and the Board's flood insurance regulation does
not specifically include purchases of uninsured loans within its prohibi
tions.
However, Congress stated in the preamble of the Act that a purpose
of the statute is to require the purchase of flood insurance by property
owners who are assisted by Federally regulated or insured financial insti
tutions in acquiring property in a flood hazard area.
In light of this
and the other purposes of the Act, particularly the financial stability
of Federally insured financial institutions, it appears that a broad con
struction of the Act's provisions is appropriate to ensure, to the extent
possible, the lessening of financial losses that may be suffered by
property owners and others in flood-prone areas.
The Acting Administrator of the Federal Insurance Administration
has requested that the Board consider amending Regulation H to specifically
apply its requirements to loans purchased by member banks from third
parties.
In view of this request, the Board has reviewed this matter,
including previous opinions issued by the Board's staff, and believes
that its Regulation H should be amended to include loan purchases within
its flood insurance requirements.
The Board is of the opinion that
since the word "make" is not defined in the Act, it is appropriate in
order to carry out the underlying purposes of the Act to specifically
include the purchase of a loan in the Board's regulation.
The Board
believes that without such an amendment, the Act could easily be circum
vented and the Congressional purposes behind its enactment thwarted.
For example, under the present regulation a State member bank wishing
to avoid the Act's requirements could purchase an uninsured loan in
the secondary market which if directly made by the bank would be required
to be accompanied by flood insurance.
In the Board's opinion, to allow
such an obvious method for circumvention to exist is directly opposed
to the Congressional intent behind the Act.
The Board believes that in situations where a State member
bank purchases uninsured loans after they are originated, whether the
purchase is accomplished under a formal agreement or merely in the normal
course of business, or whether the purchaser is affiliated with the
seller of the loan, the loan should be deemed to have been "made" by
the bank for purposes of the Act.
Purchases covered by this amendment
may take the form of a direct purchase by a State member bank from a
mortgage broker of a small number and amount of loans, or it may involve
the purchase of a participation interest in one or more loans originated
by a lead bank, insurance company, or other financial corporation.
With respect to the effective date of
the amendments, it is
proposed
that the amendments apply to uninsured
loans purchased after
the date
of final publication of the amendments,
apply to
(a) such loans originated prior to the publication date or
but they would not
(b) loans purchased after the publication date that are purchased
-
5 -
pursuant to a contractual commitment existing prior to the publication
date.
The Board believes that "prospective" amendments are appropriate
since they represent an extension of the Board's regulation in this
area.
Accordingly, it is proposed to amend section 208.8(e) of Regu
lation H by adding the term "purchase" to paragraphs (1),
(4) and (5)
thereof, and by adding a new paragraph (6) to provide a "grandfather"
provision for the purchase of uninsured loans.
The provisions of Regu
lation H proposed to be amended would read as follows:
§ 208.8
BANKING PRACTICES
*
*
*
*
*
(e) Loans by State member banks in identified flood hazard areas.
(1) No State member bank shall make (including purchase, except
as provided in paragraph (6) of this subsection), increase, extend or
renew any loan
*
*
*
*
*
(4) Each State member bank shall as a condition of making
(including purchasing, except as provided in paragraph (6) of this
subsection), increasing, extending, or renewing any loan
*
*
*
*
*
(5) Except as provided in paragraph (6) of this subsection,
on and after one year following the date of official notification to the
chief executive officer of a community that the community is one containing
special flood hazard areas no State member bank shall make (including
-
6
-
purchase, except as provided in paragraph (6) of this subsection), increase,
extend, or renew any loan
*
(6)
*
*
*
Purchase of loans.
*
The provisions of this section do
not prohibit the purchase of a loan secured by improved real estate or
a mobile home located or to be located in an area that has been identi
fied by the Secretary as an area having special flood hazards without
compliance with the flood insurance requirements in said paragraphs
(1) and (5), if:
(i) With respect to paragraph (1), such loan was closed
before the effective date of this amendment, or was closed pursuant to
a loan commitment outstanding as of such date and such loan has not
thereafter been increased, extended, or renewed;
(ii) With respect to the first sentence of paragraph (5),
such loan was closed before the effective date of this amendment or one
year after notification that the community is one containing special
flood hazard areas, whichever is later, or was closed pursuant to a loan
Commitment outstanding as of the applicable date, and has not thereafter
been increased, extended, or renewed; or
(iii) Such loan qualifies for exemption pursuant to para
graph (5)(i),
(ii), (iii) or (iv) of this section.
To aid in the consideration of this matter by the Board, inter
ested persons are invited to submit relevant data, comments, views, or
arguments.
Any requests for a hearing on this matter should be accompanied
- 7 -
by a statement summarizing the evidence the person requesting the hearing
proposes to submit or to elicit at the hearing and a statement of the
reasons why this matter should not be resolved without a hearing.
Any views or requests for a hearing should be submitted in
writing to the Secretary, Board of Governors of the Federal Reserve
System, Washington, D. C. 20551, to be received not later than May 20,
1977.
All material submitted should include the docket number R-0096.
All views expressed in written comments on the proposal and received
by that date will be considered by the Board.
Such material will be
made available for inspection and copying upon request, except as provided
in the Board's Rules Regarding Availability of Information (12 C.F.R.
Part 261).
By order of the Board of Governors, April 13, 1977.
(Signed) Ruth A. Reister
Ruth A. Reister
Assistant Secretary of the Board
[SEAL]
E x tra c t From
FE D E R A L R E G IS T E R ,
V O L . 42, N O . 78,
F r i d a y , A p r i l 2 2, 1977
p . 20815
Title 12— Banks and Banking
CHAPTER II— FEDERAL RESERVE
SYSTEM
SUBCHAPTER A— BOARD OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM
[R eg. H ; D oe. No. R -0 0 9 5 |
PART 208— MEMBERSHIP OF STATE
BANKING
INSTITUTIONS
IN
THE
FEDERAL RESERVE SYSTEM
Loans by State Member Banks in
Flood-Prone Areas
AGENCY: Board of Governors of the
Federal Reserve System.
A C T I O N : Final rule.
SUMMARY: These am endm ents to the
flood insurance provisions of the B oard’s
Regulation H allow S tate member banks
to m ake certain real estate loans (on
residences, small business property and
farm buildings) in identified flood h az
ard areas of communities th a t are not
participating in the N ational Flood In
surance Program . This action, which
liberalizes the flood insurance purchase
requirem ents of the Board’s Regulation
H, is necessary to conform the Board’s
Regulation to legislative am endments to
th e Flood Disaster Protection Act of
1973.
EFFECTIVE DATE: Effective immedi
ately.
FOR FURTHER INFORMATION CON
TACT:
R obert E. Mannion, Assistant General
Counsel, Legal Division, Board of Gov
ernors of the Federal Reserve System,
W ashington, D.C. 20551, 202-452-3274.
SUPPLEMENTARY
INFORMATION;
The Flood D isaster Protection Act of
1973 (“Flood Act”) (42 U.S.C. 2001 et.
seq.) generally provides th a t federally
regulated lending institutions are pro
hibited from making loans not covered
by flood insurance on improved real
estate located in flood hazard areas.
Since its enactm ent in 1973, the Flood
Act has been am ended several times,
thereby
necessitating
conforming
am endm ents to the flood insurance por
tion of the Board’s Regulation H. D ur
ing 1976, Pub. L. No. 94-375 amended
section 202(b) of the Flood Act by add
ing the following four provisions liberal
izing the Flood Act’s insurance purchase
requirem ents:
1. Amended section 202(b) generally
perm its loans not covered by flood insur
ance to be made by federally chartered,
supervised or insured lending institutions
for the purchase of a residential dwell
ing th a t is located in an identified flood
hazard area and th a t was occupied as a
residence prior to M arch 1, 1976, or one
year following identification of the area
as containing special flood hazards,
whichever is later. This section previ
ously provided, among other things, th a t
such mortgage loans not covered by flood
insurance could only be made until
M arch 1, 1976 (or one year from the
date of notification th a t the area is
flood-prone, whichever is la te r). Thus,
the am endm ent liberalizes the flood in
surance program by exempting certain
loans from the Flood Act's insurance
purchase requirem ents, so long as the
relevant dwelling was occupied as such
prior to the M arch 1 date (or one year
from the notification date, whichever is
la te r).
2. The 1976 am endm ents also provide
th a t loans on a small business’ office or
other building occupied prior to Ja n u
ary 1, 1976 may be made w ithout flood
insurance coverage. This exemptive pro
vision provides th a t the Secretary of
Housing and Urban Development p re
scribe lim its for such loans and the Sec
retary has recently proposed th a t the
loans lim it be $100,000 (42 F*R 16254,
M arch 25, 1977). The provision is a new
exemption from the Flood Act’s insur
ance purchase requirements.
3. Another new exemptive provision
provides th a t improvement or rehabilita
tion loans on residences occupiei prior
to January 1, 1976 may be made w ithout
flood insurance coverage when such
loans in the aggregate do not exceed
$5,000.
4.
The last amendment, also a new
exemptive provision, provides th a t cer
tain loans to finance nonresidential ad
ditions or improvements on a farm may
be m ade without flood insurance cover
age. The Secretary of HUD has the au
thority to set lim its for such loans, com
parable to the Secretary’s authority re
garding small business property loans,
and has proposed th a t the loan lim it be
$25,000 (42 FR 16254, M arch 25, 1977).
The purpose of the am endm ents to
§ 208.8 is to conform the provisions of
existing Board regulations to the am end
m ents to the Flood Act. Accordingly, ef
fective immediately the last sentence of
§ 208.8(e) (5) of Regulation H shall be
amended by deleting the language th a t
follows “ * * * Provided,” and adding
the following:
§ 208.8
B a n k i n g practices.
*
*
*
*
*
(e)
Loans by S tate member banks in
identified flood hazard areas.
*
*
*
*
»
(5)
* * * th a t th e prohibition con
tained in this section shall not apply to
(i) any loan made to finance the acqui
sition of a residential dwelling occupied
as a residence prior to M arch 1, 1976, or
one year following identification of the
area w ithin which such dwelling is lo
cated as an area containing special flood
hazards, whichever is. later, or made to
extend, renew, or increase the financing
in connection w ith such a dwelling, (ii)
any loan, which does not exceed an
am ount prescribed by the Secretary of
Housing and Urban Development, to fi
nance the acquisition of a building or
structure completed and occupied by a
small business concern, as defined by the
Secretary, prior to January 1, 1976, (iii)
any loan or loans, which in the aggregate
do not exceed $5,000, to finance improve
m ents to o r rehabilitation of a building
or structure occupied as a residence prior
to January 1, 1976, or (iv) any loan or
loans, which in the aggregate do not ex
ceed an am ount prescribed by the Sec
retary, to finance nonresidential addi
tions or improvements to be used solely
for agricultural purposes on a farm .
*
*
*
*
*
The provisions of section 553 of Title
V, United States Code, relating to notice,
public participation and deferred effec
tive date were not followed in connec
tion with these amendments because the
am endm ents merely clarify Regulation
H by implementing a statutory provision
of Pub. L. 94-375 (August 3, 1976) w ith
out significant exercise of adm inistrative
discretion or interpretation.
By order of the Board of Governors,
effective April 13,1977.
R u t h A. R e is te r ,
Assistant Secretary of the Board.
[F R D oc.77-11698 F ile d 4 -2 1 -7 7 :8 :4 5 a m ]
@FedFRASER