OCC 96 - 53
Subject:  Loans in Areas Having Flood Hazards              Description: Final Rule

TO:  Chief Executive Officers and Compliance Officers of all
     National Banks, Department and Division Heads, and all
     Examining Personnel


OCC's Revised Rule on Flood Insurance

The attached joint final rule on loans in areas having special
flood hazards was published in the Federal Register on August 29,
1996.  The final rule revises 12 CFR Part 22 of the OCC's
regulations, effective October 1, 1996. 

The final rule implements the National Flood Insurance Reform Act
of 1994 (Reform Act).  The OCC issued this final rule jointly
with the Federal Reserve Board, the Federal Deposit Insurance
Corporation, the Office of Thrift Supervision, the Farm Credit
Administration, and the National Credit Union Administration. 
All six agencies issued uniform rules implementing the statutory
flood insurance provisions; thus all of the financial
institutions they supervise are subject to the new requirements.

Consistent with the Reform Act, the final rule requires the
purchase of flood insurance when a building or mobile home used
as collateral for a loan is located in a special flood hazard
area in a community participating in the National Flood Insurance
Program (NFIP).  The minimum amount of flood insurance required
is the lesser of the amount of the outstanding principal balance
of the loan, the value of the improved property, or the maximum
amount available under the NFIP.  Other significant provisions of
the final rule establish new escrow requirements for flood
insurance premiums, authorize and require regulated lenders to
"force place" flood insurance under certain circumstances, and
authorize regulated lenders to charge fees for making flood
hazard determinations and monitoring the flood hazard status of
the security property.

The final rule does not require regulated lenders to conduct
continuous monitoring or periodic reviews of their loan
portfolios to determine the current status of flood insurance
coverage, although regulated lenders are responsible for ensuring
that where flood insurance was required at loan origination, the
borrower renews the flood insurance policy and continues to renew
it for as long as flood insurance is required for the collateral
securing the loan.  The final rule also enhances the flood hazard
notification requirements.

The OCC and the other agencies plan to issue further informal
guidance on this final rule, addressing more technical compliance
issues.  Topics include the applicability of the flood insurance
rules with respect to condominiums, cooperatives, agricultural
buildings, manufactured homes, subordinate liens, home equity
lines of credit, fixtures, and residential and commercial
construction loans.

For further information, contact the appropriate district office;
Carol Workman, compliance specialist, Compliance Management (202)
874-4858; Margaret Hesse, senior attorney, Community and Consumer
Law (202) 874-5750; or Jacqueline Lussier, senior attorney,
Legislative and Regulatory Activities (202) 874-5090.



________________________________
Julie L. Williams
Chief Counsel
Date:     October 1, 1996
Attachment   61 FR 45683