Interagency guidance on issues related to lapse in federal flood insurance authority. (Announcements).

The Federal Reserve Board on December 23, 2002, announced the issuance of interagency guidance to assist borrowers and lenders in dealing with issues that might arise during a lapse in federal flood insurance authority that would begin January 1, 2003.

The Congress adjourned in November 2002 without extending the statutory authority to issue flood insurance policies under the National Flood Insurance Program (NFIP). As a result, the authority of the Federal Emergency Management Agency (FEMA) to issue new flood insurance policies, issue increased coverage on existing policies, and issue renewal policies expired on December 31, 2002.

The guidance provides that state member banks may make loans that are or will be secured by property located in a flood hazard area without flood insurance during the time the NFIP is not available. These banks will not be cited for violating federal flood insurance regulations. However, the lapse in the availability of NFIP coverage does not relieve lenders of any other obligations under federal flood insurance law or of their responsibility to prudently manage safety and soundness risks.

FEMA has indicated that it expects the new Congress to reauthorize the NFIP shortly after it convenes on January 7, 2003, and that the reauthorization will likely be made retroactive to January 1, 2003. The federal financial institution regulatory agencies will notify financial institutions of any congressional action to reauthorize the NFIP.