Banking Agency Issues Guidance on Flood Insurance

As NAHBNow previously reported, the Federal Emergency Management Agency (FEMA) extended the grace period for renewing flood insurance policies from 30 days to 120 days because of the COVID-19 pandemic. The extension of the grace period applies to policies expiring between Feb. 13, 2020, to June 15, 2020.

On April 15, 2020, the Office of the Comptroller of the Currency (OCC) issued a statement in response to the FEMA extension to provide guidance to the financial institutions it regulates, and address conflicts between the FEMA rule and banking agency flood insurance rules.

The guidance specifically addresses how financial institutions can address requirements under OCC’s flood insurance force placement regulations. When a bank determines that a designated loan is not covered by flood insurance or is not covered by a sufficient amount of flood insurance, it must notify the borrower that they should obtain sufficient flood insurance at the borrower’s expense for the remaining term of the loan. If the borrower does not provide evidence of sufficient coverage within 45 days after notification, the bank must force placement of flood insurance in an amount that will satisfy the regulatory requirements.

In recognition of the serious impact the COVID-19 emergency may have on consumers, OCC’s statement indicates that it will not take enforcement or supervisory action against banks for “reasonable delays in complying with” the OCC’s force placement of flood insurance regulations. OCC further states that banks could provide notification to borrowers 45 days prior to the end of the 120-day extended grace period concerning the need for sufficient coverage. Additionally, banks are reminded that if flood insurance is force placed during the extended grace period, the banks must refund the cost of the overlapping coverage to the borrower.

Without OCC’s clarification, the extension of the NFIP grace period could have resulted in a borrower being forced placed during the grace period when the borrower is fully covered by flood insurance. OCC is one of several financial regulating agencies, and additional guidance will be need from those agencies to fully address the issue.

For more information, contact Tamra Spielvogel at 800-368-5242 x8327.