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FEDERAL RESERVE BANK
OF NEW YORK
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April'4, 19 96
LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS
Forced Placement of Flood Insurance
Civil Money Penalty Provisions
To All State Member Banks and Domestic Bank Holding
Companies in the Second Federal Reserve District:
The
Riegle
Community
Development
and
Regulatory
Improvement Act ("Act"), which was enacted on September 23, 1994,
comprehensively revised the Federal flood insurance statutes.
Proposed changes to the Board of Governors'
Regulation H,
"Membership of State Banking Institutions in the Federal Reserve
System," to implement the Act were distributed with our Circular
No. 10811, dated November 15, 1995. The purpose of this letter is
to focus special attention on provisions of the Act that became
effective on the date of enactment, including provisions concerning
mandatory forced placement of flood insurance under certain
circumstances, and the imposition of civil money penalties.
Specifically, with respect to loans secured by buildings
or mobile homes for which flood insurance is required, the Act
requires the lender or loan servicer to notify the borrower if the
lender or servicer determines, at origination or at any time during
the term of the loan, that the building or mobile home is not
covered by flood insurance, or is covered for less than the
required amount. If the borrower fails to purchase the required
flood insurance within 45 days after such a notification, the
lender or servicer must purchase the insurance on behalf of the
borrower. The lender or servicer may charge the borrower for the
cost of premiums and fees incurred by the lender or servicer in
purchasing the insurance.
The Act also mandates civil money penalties against any
regulated lender found to have a pattern or practice of failing to
require
flood
insurance
or to provide
borrowers
with
the
notification specified above.
(Over)
Accordingly, an
institution's
failure
to
provide
notification to borrowers of the lapse of required flood insurance,
or to ensure that the flood insurance is renewed or replaced in the
required amount,
may subject the institution to civil money
penalties of as
much as $350 for each violation, for a total
maximum amount of $100,000.
Finally, in determining the amount of flood insurance
required for a building or mobile home, institutions should be
aware of the increased maximum coverage amounts that were made
available as ofMarch 1,
1995.
These amounts include the
following:
Residential property
$250,000.
(including single family):
Residential property contents:
$100,000.
Nonresidential property (including churches) and
contents: $500,000 for each structure, and $500,000
for any contents related to each structure.
Compliance
Questions regarding this matter may be directed to our
Examinations
Department
(Tel.
No.
212-720-5914).
James
K . H odgetts
Vice President
@FedFRASER