FRB: Consumer Affairs Letter CA 10 - 13 - Revised Interagency Examination Procedures for Regulation E

TO THE OFFICERS AND MANAGERS IN CHARGE OF CONSUMER AFFAIRS SECTIONS AND TO EACH DOMESTIC AND FOREIGN BANKING ORGANIZATION SUPERVISED BY THE FEDERAL RESERVE

SUBJECT: FEMA Preferred Risk Policies (PRP) - Two Year Extension of Eligibility for Purchasing a Preferred Risk Policy

The Federal Emergency Management Agency (FEMA) announced on July 15, 2010, that, effective January 1, 2011, Preferred Risk Policy (PRP) eligibility will be extended for two years beginning January 1, 2011, or the effective date of the flood map revision, whichever is later, for some policies covering buildings newly mapped within a Special Flood Hazard Area (SFHA) by a flood map revision effective on or after October 1, 2008. PRPs offer low-cost coverage to owners and tenants of eligible buildings located in National Flood Insurance Program (NFIP) Regular Program communities. FEMA's stated goal in providing this temporary extension of PRP eligibility is to reduce some of the financial burden on borrowers with collateral located in newly mapped SFHAs. FEMA states that insurance companies will be contacting policyholders who may potentially qualify for this extension at least ninety days before their policy expires.

The PRP two-year eligibility extension does not apply to properties that were already located in SFHAs prior to the map change. Residential condominium associations eligible for coverage under the Residential Condominium Building Association Policy (RCBAP) are not eligible for the PRP, and therefore, are not eligible for this two-year extension of PRP coverage.

Determining PRP Eligibility

The companies that write flood insurance policies, not the lender, will be responsible for determining and validating PRP extended eligibility. The NFIP Direct and all Write-Your-Own (WYO) companies will be required to display two flood zones (Current Flood Zone and Flood Risk/Rated Zone) on PRP declarations pages. The Current Flood Zone should match the flood zone identified on the lender's Standard Flood Hazard Determination Form (SFHDF).

Zone Discrepancy Issues

The lender should address flood zone discrepancies between the lender's SFHDF and the Current Flood Zone in accordance with the Revised Interagency Questions and Answers Regarding Flood Insurance. Lenders need not delay closings during this process. Differences between the Current Flood Zone and the Flood Risk/Rated Zone on these PRP policies or between the SFHDF and the Flood Risk/Rated Zone are not to be considered discrepancies.

Mandatory purchase requirement

Lenders remain responsible for making sure the amount of flood insurance meets the mandatory purchase requirements. The mandatory purchase amount is the lesser of:

Additional resources

FEMA has prepared a Frequently Asked Questions (FAQ) document to address lenders' questions. A link to the FAQ is attached. Also attached are links to FEMA memoranda dated August 23, 2010, and September 14, 2010, to its WYO companies and the lending community announcing this PRP eligibility extension.

For further information, lenders should contact the NFIP Help Center at (800) 427-4661, FEMA via email at [email protected], or their supervisory regulator. Please direct questions to Lanette Meister, Senior Supervisory Consumer Financial Services Analyst, at (202) 452-2705 or [email protected], or Vivian Wong, Counsel, at (202) 452-2876 or [email protected].

Sincerely,
(signed)

Sandra F. Braunstein
Director
Division of Consumer and Community Affairs