Under the Flood Disaster Protection Act (FDPA), 42 USC 4002, federal financial institution regulators are directed to issue regulations prohibiting institutions under their jurisdictions from extending credit secured by improved real property in certain areas unless the property has flood hazard insurance. The OCC’s implementing regulation under the FDPA is 12 CFR 22. The bank inquires whether loans funded with trust assets and made through a national bank’s trust department are subject to the FDPA.
As your letter points out, the OCC’s regulations apply to “certain loans secured by improved real estate made by banks . . .” (emphasis added). The term “bank” is defined to mean a national banking association, with no reference to the bank as trustee. Based on this plain language reading of the regulation, and in view of the congressional concern expressed over the extent to which the assets of federally regulated or insured financial institutions consist of loans made in flood hazard areas, we agree that this regulation does not reach loans funded from individual trusts. See 42 USC 4002(a)(4) — Congressional Finding. However, in order for the bank to comply with its fiduciary obligations as trustee, it may still be necessary for the bank to require flood insurance coverage for property that secures loans extended from individual trusts.