RegH2_20151230_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.
In general, the federal flood insurance statutes 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 of the borrower’s obligation to obtain flood insurance if the lender
determines at any time during the term of the loan that the improved property securing
the loan is not covered by adequate 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 may 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.

The information collection requirements under the flood hazard provisions of
Regulation H are triggered by specific events in the lending process.
The Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal
Reserve System (Board), Federal Deposit Insurance Corporation (FDIC), the Farm Credit
Administration (FCA), and the National Credit Union Administration (NCUA) (collectively, the
agencies) are amending their regulations regarding loans in areas having special flood hazards to
implement certain provisions of the Homeowner Flood Insurance Affordability Act of 2014
(HFIAA), which amends some of the changes to the Flood Disaster Protection Act of 1973
mandated by the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters).

Specifically, the July 2015 final rule1 requires the escrow of flood insurance payments on
residential improved real estate securing a loan, consistent with the changes set forth in HFIAA.
The July 2015 final rule also incorporates an exemption in HFIAA for certain detached structures
from the mandatory flood insurance purchase requirement. Furthermore, the July 2015 final rule
implements the provisions of Biggert-Waters related to the force placement of flood insurance.
The 850 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 33,221 hours for the 850 state member
banks.2 The Federal Reserve estimates that the proposed revisions would impose a net burden
increase of 32,867 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 (FDPA), 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 FDPA amended the 1968 Act 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 when loans are secured by property located in a special flood hazard area and whether
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

1

See 80 FR 43216 (July 21, 2015).
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.
2

2

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





use the standard form created by FEMA to determine whether property securing a loan is
in a special flood hazard area;5
notify a borrower of the borrower’s obligation to obtain flood insurance if the lender
determines at any time during the term of the loan that the improved property securing
the loan is not covered by adequate 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 may charge the borrower for the cost of the premiums; 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;

3

The 1994 Reform Act was implemented through a joint final rule by the Board, the OCC, FDIC, Office of Thrift
Supervision, NCUA, and FCA.
4
Pursuant to Section 208.25(d) of Regulation H, the flood insurance requirement does not apply to (1) any stateowned 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 C.F.R. 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.

3




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.
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 Administrator of FEMA (or the Administrator’s
designee) in writing of the identity of the servicer of the loan. The regulation also requires a
state member bank to notify the Administrator of FEMA (or the Administrator’s designee) of any
change in the servicer of a loan. (The Administrator 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 Administrator of FEMA’s
designee.
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
may charge the borrower for the insurance.
Proposed Revisions
The agencies issued a July 2015 final rule to amend their regulations to implement certain
provisions enacted in HFIAA and Biggert-Waters. The July 2015 final rule sets forth a new
exemption to the mandatory flood insurance purchase requirement for any structure that is a part
of a residential property, but is detached from the primary residential structure and does not serve
as a residence.
The July 2015 final rule also requires regulated lending institutions, or servicers acting on
their behalf, to escrow premiums and fees for flood insurance for any loan secured by residential
improved real estate or a mobile home that is made, increased, extended, or renewed on or after
January 1, 2016, unless the institution or the loan is excepted from the escrow requirement.
Except as may be required under applicable State law, a regulated lending institution would not
be required to escrow if it has total assets of less than $1 billion and, as of the date of enactment
of Biggert-Waters, July 6, 2012, was not required by Federal or State law to escrow taxes or

4

insurance for the term of the loan and did not have a policy of uniformly and consistently
escrowing taxes and insurance. Moreover, the July 2015 final rule implements the following
additional exceptions from the escrow requirement, as amended by HFIAA for (1) loans that are
in a subordinate position to a senior lien secured by the same property for which flood insurance
is being provided; (2) loans secured by residential improved real estate or a mobile home that is
part of a condominium, cooperative, or other project development, provided certain conditions
are met; (3) loans that are extensions of credit primarily for a business, commercial, or
agricultural purpose; (4) home equity lines of credit; (5) nonperforming loans; and (6) loans with
terms not longer than 12 months.
The July 2015 final rule also implements the requirement under HFIAA that regulated
lending institutions not excepted from the escrow requirement offer and make available to a
borrower the option to escrow flood insurance premiums and fees for loans that are outstanding
as of January 1, 2016. Regulated lending institutions must mail or deliver information to
borrowers about the option to escrow by June 30, 2016. The agencies’ final rule also requires
regulated lending institutions that no longer qualify for the small lender exception to offer and
make available to a borrower the option to escrow flood insurance premiums and fees.
The July 2015 final rule includes new and revised sample notice forms and clauses.
Specifically, the final rule amends the current Sample Form of Notice of Special Flood Hazards
and Availability of Federal Disaster Relief Assistance, set forth as Appendix A in the agencies’
respective regulations, to add language concerning the escrow requirement, the exemption from
the mandatory flood insurance purchase requirement for certain detached structures, the
availability of private flood insurance coverage, and other technical changes. The July 2015
final rule also includes an additional sample clause, Sample Clause for Option to Escrow for
Outstanding Loans, as Appendix B, to assist institutions in complying with the requirement to
inform borrowers of outstanding loans about their option to escrow flood insurance premiums
and fees.
Furthermore, consistent with Biggert-Waters, the July 2015 final rule amends the force
placement of flood insurance provisions to clarify that a lender or its servicer has the authority to
charge a borrower for the cost of flood insurance coverage commencing on the date on which the
borrower’s coverage lapsed or became insufficient. The final rule also stipulates the
circumstances under which a lender or its servicer must terminate force-placed flood insurance
coverage and refund payments to a borrower. It also sets forth the documentary evidence a
lender must accept to confirm that a borrower has obtained an appropriate amount of flood
insurance coverage.
The escrow and option to escrow provisions in this final rule, as well as the revisions to
Appendix A and new Appendix B, will become effective on January 1, 2016, consistent with
HFIAA. All other provisions implemented in the July 2015 final rule will become effective on
October 1, 2015.

5

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)).
Furthermore, the July 2015 final rule amended Regulation H to require state member
banks that are not excepted from the escrow requirements to offer and make available to a
borrower the option to escrow flood insurance premiums and fees for loans that are outstanding
as of January 1, 2016, by June 30, 2016. A state member bank that no longer qualifies for the
small lender exception from the escrow requirements must offer and make available to a
borrower the option to escrow flood insurance premiums and fees by September 30 of the year
that it loses its exception.
Legal Status
The Board’s Legal Division has determined that Reg H-2 is authorized pursuant to section
102 of the FDPA, as amended (42 U.S.C. § 4012a) and section 1364 of the 1968 Act, as
amended (42 U.S.C. § 4104a). The obligation of state member banks to comply with these
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 Federal Reserve during
an examination of a state member bank, those records 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
The Board consulted with the other agencies on the rulemaking. In addition, the agencies
have coordinated and consulted with the Federal Financial Institutions Examination Council
(FFIEC), as required by certain provisions of the flood insurance statutes.6 The Agencies have
adopted substantially similar flood insurance regulations for the financial institutions they
supervise.
On October 30, 2013, the agencies jointly issued a proposed rule in the Federal Register
(78 FR 65108) to implement certain provisions of Biggert-Waters. In March 2014, the President
signed into law the HFIAA, which amends some of the changes made by Biggert-Waters to the
FDPA. On October 30, 2014, the agencies jointly issued a proposed rule (79 FR 64518) to
6

See 42 U.S.C. § 4012a(b)(1). Four of the five agencies (OCC, Board, FDIC, and NCUA) are members of the
FFIEC.

6

implement the provisions in HFIAA over which they have jurisdiction. The comment period for
this notice expired on December 29, 2014. The agencies did not receive any comments
regarding the PRA implications of this regulation. On July 21, 2015, the agencies published the
final rule in the Federal Register (80 FR 43216) and is effective on January 1, 2016.
Estimate of Respondent Burden
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.

Current
Recordkeeping
Retention of standard FEMA
form
(Section 208.25(f)(2))
Disclosures
Notice of special flood hazards
and availability of federal disaster
relief assistance
(Section 208.25(i))
Notice to FEMA of servicer
(Section 208.25(j)(1))
Notice to FEMA of change of
servicer
(Section 208.25(j)(2))
Notice to borrowers of lapsed
mandated flood insurance
(Section 208.25(g))
Purchase of flood insurance on
the borrower’s behalf
(Section 208.25(g))
Notice to borrowers of lapsed
mandated flood insurance due to
remapping
(Section 208.25(g)
Purchase of flood insurance on
the borrower’s behalf due to
remapping
(Section 208.25(g)
Total

Number
of
respondents

Annual
frequency

Estimated
average time
per response

Estimated
annual burden
hours

850

420

2.5 minutes

14,875

850

84

5 minutes

5,950

850

84

5 minutes

5,950

850

42

5 minutes

2,975

850

17

5 minutes

1,204

850

4

15 minutes

850

850

8

5 minutes

567

850

4

15 minutes

850
33,221

7

Proposed
Recordkeeping
Retention of standard FEMA
form
(Section 208.25(f)(2))
Disclosures
Notice of special flood hazards
and availability of federal disaster
relief assistance
(Section 208.25(i))
Notice to FEMA of servicer
(Section 208.25(j)(1))
Notice to FEMA of change of
servicer
(Section 208.25(j)(2))
Notice to borrowers of lapsed
mandated flood insurance
(Section 208.25(g))
Purchase of flood insurance on
the borrower’s behalf
(Section 208.25(g))
Notice to borrowers of lapsed
mandated flood insurance due to
remapping
(Section 208.25(g))
Purchase of flood insurance on
the borrower’s behalf due to
remapping
(Section 208.25(g))
One-time notice for any
designated loan outstanding on
January 1, 2016
(Section 208.25(e))
Total

Number
of
respondents

Annual
frequency

Estimated
average time
per response

Estimated
annual burden
hours

850

404

2.5 minutes

14,308

850

81

5 minutes

5,738

850

81

5 minutes

5,738

850

41

5 minutes

2,904

850

16

5 minutes

1,133

850

4

15 minutes

850

850

8

5 minutes

567

850

4

15 minutes

850

850

1

40 hours

Change

34,000
66,088
32,867

8

With the proposed revisions the total cost to the public is estimated to increase from $1,719,187
to $3,420,054.7
Sensitive Questions
This collection of information contains no questions of a sensitive nature, as defined by
OMB guidelines.
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.

7

Total cost to the public was estimated using the following formula: percent of staff time, multiplied by annual
burden hours, multiplied by hourly rates (30% Office & Administrative Support at $17, 45% Financial Managers at
$63, 15% Lawyers at $64, and 10% Chief Executives at $87). Hourly rates for each occupational group are the
(rounded) mean hourly wages from the Bureau of Labor and Statistics (BLS), Occupational Employment and Wages
May 2014, published March 25, 2015, www.bls.gov/news.release/ocwage.nr0.htm. Occupations are defined using
the BLS Occupational Classification System, www.bls.gov/soc/.

9