Recently the Office of the Comptroller of the Currency (OCC), Federal Reserve Board (FRB), and Federal Deposit Insurance Corporation (FDIC) (collectively referred to as “the agencies”) published a final rule containing questions and answers related to flood insurance. Interagency Questions and Answers regarding flood insurance were first published in 1997, revised and rearranged in 2009, and revised again in 2011. The existing interagency Q&A had 82 questions and answers covering topics such as whether flood insurance is required in specific scenarios, how much flood insurance is required in these scenarios, and possible exceptions to the requirements.
The agencies published proposed revisions to the existing interagency Q&A in July 2020, and another in March 2021, neither of which received separate final rules. This newly published final rule combines the existing Q&A’s, the July 2020 proposed revisions, and the March 2021 revisions, for a new combined total of 144 questions and answers. In addition to combining the existing published material, this new final rule expands on both existing and previously proposed questions, making this new publication from the agencies a fairly robust addition to the existing guidance.
There has also been changes made to the layout of the questions and answers. Many of the topics covered are the same, but categories have been renamed (e.g., from “…requirements for residential condominiums” to “…requirements for residential condominiums and co-ops”). In addition to this, new categories have been added (e.g., related to private flood insurance), and previously addressed topics have been expanded into more multiple categories (e.g., from “Escrow” to “Escrow: General,” “Escrow: Small Lender Exception,” and “Escrow: Loan Exceptions”).
Private flood insurance, a new topic, has questions and answers divided into three categories: general compliance, mandatory acceptance of private flood insurance, and discretionary acceptance of private flood insurance.
While we do not have space here to detail all of the changes made by this final rule, an example of a change made to an existing question involves whether flood insurance is required for loans that are restructured or modified. The existing answer explained that if the loan amount increased or the terms of the loan were renewed or extended, that flood insurance was required. The new answer to this question is more detailed and explains, for example, that if a modification or restructuring involves recapitalizing into the loan’s outstanding balance and delinquent payments and the maturity date of the loan otherwise stays the same, then the regulation would not apply because the modification or restructuring would not increase, extend, or renew the terms of the loan.
In contrast to that, the new answer also explains that if the loan modification or restructuring changes terms of the loan such as by increasing the outstanding principal balance beyond what was contemplated 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.
The above is but one example of the types of changes that has been made to the Interagency Q&A. Compliance Alliance will be publishing a summary of the final rule and changes to the interagency questions and answers, which will be published on our website as soon as it becomes available.