RegH2_20111229_omb

Supporting Statement for the
Recordkeeping and Disclosure Requirements Associated with Loans Secured by
Real Estate Located in Flood Hazard Areas Pursuant to Section 208.25 of
Regulation H (Reg H-2; OMB No. 7100-0280)
Summary
The Board of Governors of the Federal Reserve System, under delegated authority
from the Office of Management and Budget (OMB), proposes to extend for three years,
with revision, the Recordkeeping and Disclosure Requirements Associated with Loans
Secured by Real Estate Located in Flood Hazard Areas Pursuant to Section 208.25 of
Regulation H (Reg H-2; OMB 7100-0280). The Paperwork Reduction Act (PRA)
classifies recordkeeping or disclosure requirements of a regulation as an information
collection. The Federal Reserve proposes to revise, the recordkeeping and disclosure
requirements of Regulation H for loans secured by improved property in areas having
special flood hazards.1 Although state member banks have been required to comply with
Section 208.25 of Regulation H for some time, the current information collection does
not include disclosures related to ensuring maintenance of flood insurance over the life of
these loans. The Federal Reserve proposes to revise the information collection to account
for this statutory requirement.
In general, the Flood Act and Regulation H provide that a lender shall not make,
increase, extend, or renew a loan secured by a building or mobile home located in a
special flood hazard area unless the secured property is covered by flood insurance for
the term of the loan. With respect to the recordkeeping and disclosure provisions, the
regulation requires state member banks to:
 retain a completed copy of the Standard Flood Hazard Determination Form
developed by the Federal Emergency Management Agency (standard FEMA
form). The form is used by lenders to document their determination of whether
improved property securing a loan is in a special flood hazard area;


notify a borrower and servicer when loans secured by improved property are
determined to be in a special flood hazard area and notify them whether flood
insurance is available;



notify a borrower whose mandated flood insurance policy has expired of the
borrower’s obligation to obtain flood insurance. If the borrower fails to obtain the
flood insurance within 45 days of this notification, the state member bank or its
servicer must purchase insurance and charge the borrower for the cost of the
premiums; and,



notify the Federal Emergency Management Agency (FEMA) of the identity of,
and any change in, the servicer of a loan secured by improved property in a
special flood hazard area.

1
A special flood hazard area is defined by Regulation H as land in the flood plain within a community having at least a
1 percent chance of flooding in any given year, as designated by FEMA.

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The information collection requirements under the flood hazard provisions of
Regulation H are triggered by specific events in the lending process. The 824 state
member banks supervised by the Federal Reserve are deemed “respondents” that must
comply with these Regulation H requirements. The total current annual burden
associated with these requirements is estimated to be 28,840 hours for the 824 state
member banks.2 The Federal Reserve estimates that the proposed revisions would
increase the annual burden by 3,364 hours to 32,204 hours.
Background and Justification
Section 208.25 of Regulation H implements provisions of the National Flood
Insurance Act of 1968 (1968 Act) and the Flood Disaster Protection Act of 1973 (1973
Act), as amended by the National Flood Insurance Reform Act of 1994 (1994 Reform
Act).
The 1968 Act made federally subsidized flood insurance available to owners of
improved real estate or mobile homes located in special flood hazard areas if their
community participates in the National Flood Insurance Program (NFIP). A special flood
hazard area is an area within a floodplain having a 1 percent or greater chance of flooding
in any given year. These areas are delineated on maps FEMA issues for individual
communities. A community establishes its eligibility to participate in the NFIP by
adopting and enforcing floodplain management measures to regulate new construction
and by making substantial improvements within its special flood hazard areas to
eliminate or minimize future flood damage.
The 1973 Act amended the NFIP by requiring each federal agency responsible for
the supervision, approval, regulation, or insuring of banks, savings and loan associations,
or similar institutions to issue regulations to implement its provisions. Under these
regulations, lenders must require flood insurance on improved real estate or mobile
homes serving as collateral for a loan if the property is located in a special flood hazard
area in a participating community. To implement statutory amendments enacted in 1974,
the regulations required lenders to notify borrowers that property is located in a special
flood hazard area and that federal disaster assistance is available in the event of a flood.
The 1994 Reform Act comprehensively revised the federal flood insurance
statutes with the intention of increasing compliance with the flood insurance
requirements and increasing participation in the NFIP. The revisions were designed to
provide additional income to the National Flood Insurance Fund and to decrease the
financial burden of flooding on the federal government, taxpayers, and flood victims.
The 1994 Reform Act specifically required the federal financial regulatory agencies to
amend their regulations3 and require lenders to:4
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While FEMA is responsible for accounting for the paperwork burden associated with lenders’ completion of the
standard FEMA form, the Federal Reserve and other depository institution supervisory agencies account for the
paperwork burden associated with the disclosure and recordkeeping requirements.

3
The 1994 Reform Act was implemented through a joint final rule by the Board, the Office of the Comptroller of the
Currency, Federal Deposit Insurance Corporation, Office of Thrift Supervision, National Credit Union Administration,
and Farm Credit Administration.
4
Pursuant to Section 208.25(d) of Regulation H, the flood insurance requirement does not apply to: (1) any state-

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



use the standard form created by FEMA to determine whether property securing a
loan is in a special flood hazard area;5
notify borrowers and servicers when loans are secured by property in special
flood hazard areas; and
notify FEMA of the identity of, and any change in, the servicer of a loan.

Description of Information Collection
The information collection requirements under the Regulation H flood insurance
are as follows:
Recordkeeping Requirement - Records of compliance (Section 208.25(f)(2))
Regulation H requires a state member bank to retain a copy of the completed
FEMA standard flood hazard determination form. The records, which may be retained in
hard copy or electronic form, must be kept for the entire period of time that the bank
owns the loan.
Disclosure Requirement - Notice of special flood hazards and availability of
federal disaster relief assistance (Section 208.25(i))
When a state member bank makes, increases, extends, or renews a loan secured
by a building or a mobile home located or to be located in a special flood hazard area,
Regulation H requires that the bank mail or deliver a written notice to the borrower and to
the servicer in all cases, indicating whether flood insurance is available under the NFIP
for the collateral securing the loan. Specifically, the contents of the notice must include:
 a warning that the building or mobile home is or will be located in a special
flood hazard area;
 a description of the flood insurance purchase requirements;
 a statement, where applicable, that flood insurance coverage is available under
the NFIP and may also be available from private insurers; and,
 a statement whether federal disaster relief assistance may be available in the
event of damage to the building or mobile home caused by flooding in a
federally declared disaster.
Notice to the servicer may be made electronically or may take the form of a copy of the
notice to the borrower.

owned property covered under a policy of self-insurance satisfactory to the director of FEMA, who publishes and
periodically revises the list of states falling within this exemption; and (2) property securing any loan with an original
principal balance of $5,000 or less and a repayment term of one year or less.
5
Section 528 of the 1994 Reform Act directed FEMA to develop a standard form for determining whether a property
is located in an area that FEMA has identified as one having special flood hazards and in which flood insurance under
44 CFR 65 is available. Section 528 also requires the Board and other regulatory agencies to require, by regulation, the
use of the standard FEMA form. The Board adopted paragraph 208.25(f) of Regulation H to require state member
banks to use and retain the standard form developed by FEMA when making their flood hazard area determination.

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Disclosure Requirement – Forced placement of flood insurance (Section
208.25(g))
When a state member bank determines, during the term of a loan secured by
property located in a special flood hazard area, that the property is not adequately
covered by flood insurance, the bank is required to notify the borrower that the borrower
should obtain flood insurance at the borrower’s expense. If the borrower fails to obtain
flood insurance within 45 days after this notification, then the bank must purchase
insurance on the borrower’s behalf and charge the borrower for the insurance.
Disclosure Requirement - Notices to FEMA of servicer and change in
servicer (Section 208.25(j)(1) and (2))
When a state member bank makes, increases, extends, renews, sells, or transfers a
loan secured by a building or mobile home located or to be located in a special flood
hazard area, Regulation H requires the bank to notify the director of FEMA (or the
director’s designee) in writing of the identity of the servicer of the loan. The regulation
also requires a state member bank to notify the Director of FEMA (or the Director’s
designee) of any change in the servicer of a loan. (The Director of FEMA has designated
the insurance provider to receive the member bank’s notice of servicer’s identity.) These
notices may be provided electronically if electronic transmission is satisfactory to the
Director of FEMA’s designee.
Time Schedule for Information Collection
The recordkeeping and disclosure requirements of Regulation H that are imposed
on state member banks are triggered by specific events in the lending process. The
records are maintained at the state member banks and are not provided to the Federal
Reserve. Regulation H requires that the notice of special flood hazards be mailed or
delivered to (1) the borrower “within a reasonable time” before completion of the
transaction and (2) to the servicer “as promptly as practicable” after the bank provides
notice to the borrower and in any event no later than the time the bank provides other
similar notices to the servicer concerning hazard insurance and taxes (Section
208.25(i)(2)). In addition, Regulation H requires that the notice of change of servicer
must be made within sixty days after the effective date of the change (Section
208.25(j)(2)).
Legal Status
The Board’s Legal Division has determined that the Board is authorized to impose
the Regulation H requirements pursuant to Section 102 of the Flood Disaster Protection
Act of 1973, as amended (42 U.S.C. § 4012a) and Section 1364 of the National Flood
Insurance Act of 1968, as amended (42 U.S.C. § 4104a). The obligation of state member
banks to comply with the Regulation H requirements is mandatory. Because the Federal
Reserve does not collect any information, no issue of confidentiality would normally
arise. However, should the records required by the Regulation H requirements come into
possession of the Board during an examination of a state member bank, those records
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would be protected from disclosure by exemption 8 of the Freedom of Information Act
(FOIA). (5 U.S.C. § 552(b)(8)).
Consultation Outside the Agency
For the renewal of this information collection, the Federal Reserve consulted
with the Office of the Controller of the Currency (OCC) and the Federal Deposit
Insurance Corporation (FDIC). As required by the Flood Disaster Protection Act of
1973, these agencies have adopted substantially similar flood insurance regulations for
the financial institutions they supervise.
On September 19, 2011, the Federal Reserve published a notice in the Federal
Register (76 FR 58003) requesting public comment for 60 days on the extension, with
revision, of this information collection. The comment period for this notice expired on
November 18, 2011. The Federal Reserve did not receive any comments. On December
2, 2011, the Federal Reserve published a final notice in the Federal Register (76 FR
75547).
Sensitive Questions
This collection of information contains no questions of a sensitive nature, as
defined by OMB guidelines.
Estimate of Respondent Burden
The table below displays the burden estimates associated with both the current
and proposed Recordkeeping and Disclosures requirements of Regulation H. The
proposed section of the table includes information collections associated with the
requirements of lenders to ensure flood insurance is maintained over the life of certain
loans (secured by properties located in special flood hazard areas). Inclusion of these
additional requirements more accurately reflects respondent burden associated with
Regulation H. The total current annual burden for this information collection is estimated
to be 28,840 hours. With the proposed revisions the total annual burden is estimated to
increase by 3,364 hours to 32,204 hours.
The Federal Reserve has estimated, using as a proxy the Home Mortgage
Disclosure Act (HMDA) data for 2009, that the 496 HMDA-reporting state member
banks make approximately 685 loans that are secured by real estate per year. The Federal
Reserve estimates that the 328 non-HMDA reporting state member banks make
approximately 20 loans that are secured by real estate per year. For each of these loans,
the state member banks must comply with the recordkeeping requirement by retaining a
copy of the standard FEMA form used to determine if a loan is secured by property
located in a special flood hazard area.
The amounts in the following table reflect the burden estimated by the Federal
Reserve System for the state member banks under its supervision. These recordkeeping
and disclosure requirements represent less than 1 percent of total Federal Reserve System
paperwork burden.
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Number
of
respondents

Estimated
annual
frequency

Estimated
average
time per
response

Estimated
annual
burden
hours

824

420

2.5 minutes

14,420

824

84

5 minutes

5,768

824
824

84
42

5 minutes
5 minutes

5,768
2,884
28,840

Current
Recordkeeping
Retention of standard FEMA form
Disclosures
Notice of special flood hazards to
borrowers and servicers
Notice to FEMA of servicer
Notice to FEMA of change of servicer
Total
Proposed
Recordkeeping
Retention of standard FEMA form
Disclosures
Notice of special flood hazards to
borrowers and servicers

824

420

2.5 minutes

14,420

824

84

5 minutes

5,768

Notice to FEMA of servicer
Notice to FEMA of change of servicer

824
824

84
42

5 minutes
5 minutes

5,768
2,884

Notice to borrowers of lapsed mandated
flood insurance

824

17

5 minutes

1,167

Purchase of flood insurance on the
borrower’s behalf

824

4

15 minutes

824

Notice to borrowers of lapsed mandated
flood insurance due to remapping

824

8

5 minutes

549

Purchase of flood insurance on the
borrower’s behalf due to remapping

824

4

15 minutes

824

Total
Change

32,204
3,364

With the proposed revisions the total cost to the public is estimated to increase by
$145,998 from $1,251,656 to $1,397,654.6

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Total cost to the public was estimated using the following formula: percent of staff time, multiplied by
annual burden hours, multiplied by hourly rate (30% Office & Administrative Support @ $16, 45%
Financial Managers @ $50, 15% Legal Counsel @ $54, and 10% Chief Executives @ $80). Hourly rate
for each occupational group are the median hourly wages (rounded up) from the Bureau of Labor and

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Estimate of Cost to the Federal Reserve System
Since the Federal Reserve does not collect any information, the cost to the Federal
Reserve System is negligible.

Statistics (BLS), Occupational Employment and Wages 2010, www.bls.gov/news.release/ocwage.nr0.htm
Occupations are defined using the BLS Occupational Classification System, www.bls.gov/soc/

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