OCC Issues Guidance on FEMA/Flood Insurance Force-Place Requirements

The Office of the Comptroller of the Currency on Wednesday provided guidance to the Mortgage Bankers Association, addressing conflicts between a recent Federal Emergency Management Agency memo and banking agency flood insurance rules.

The FEMA memo temporarily extends the grace period for National Flood Insurance Program payments to 120 days due to the COVID-19 emergency. Under OCC’s flood insurance regulations, when a bank makes a determination that a loan is not sufficiently covered by flood insurance, it must notify the borrower and then must force place flood insurance. Under the OCC guidance, banks can recognize the 120 day grace period and not force-place insurance.

“The OCC recognizes the serious impact the COVID-19 emergency may have on consumers and on the operations of many supervised entities,” the guidance said. “The OCC does not expect to take supervisory or enforcement action against a bank for reasonable delays in complying with the requirements of 12 CFR 22.7 in connection with the 120-day grace period provided that the bank made good faith efforts to support borrowers and comply with the flood insurance force placement requirements, as well as responded to any needed corrective action identified in supervisory feedback.”

For example, the guidance noted, a bank may provide the notice required by § 22.7 to the borrower after determining the policy has expired informing the borrower they should obtain sufficient flood insurance, which also includes an indication that the NFIP grace period has been extended for 120 days, or a bank may delay providing the required notice until 45 days before the end of the 120-day grace period. At the end of the 120-day grace period, the bank must force place flood insurance on the borrower’s behalf if the borrower has not obtained flood insurance.

“Banks should be aware that if they force place flood insurance for NFIP policies that expire during the FEMA emergency period prior to the expiration of the 120-day grace period and the borrower pays the premium by the end of the 120-day grace period, then consistent with the OCC’s flood insurance regulatory requirements in 22.7(b), the bank would be required to refund the borrower for any overlapping flood insurance coverage,” the guidance said.

Kelly Hamill, MBA Associate Director for Commercial/Multifamily, said without the new guidance, OCC regulations could require banks to force place insurance during the grace period, at a time when the borrower is fully covered by flood insurance.

“MBA will continue to advocate for comparable guidance from the other prudential regulators,” Hamill said.