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Inactive Financial Institution Letters

Loans in Areas with Special Flood Hazards

February 5, 1998


SUBJECT: Designation of New Flood Hazard Zone by the Federal Emergency Management Agency

The Federal Emergency Management Agency (FEMA) on October 27, 1997, published the attached final rule implementing a new flood insurance rate zone, Zone AR, for areas designated as flood control restoration zones on the National Flood Insurance Program (NFIP) maps. The new rule took effect on November 26, 1997.

The AR designation on a community's Flood Insurance Rate Map (FIRM) indicates that the increased flood hazard is considered temporary until the original flood protection system can be restored to again provide base flood protection. Federal flood insurance purchase requirements for Special Flood Hazard Areas (SFHA) of an NFIP-participating community will apply to buildings and contents or mobile homes located within an AR designated zone.

Two large areas in California have received designations as AR zones because the existing flood protection systems no longer meet FEMA requirements. The changes to the NFIP map officially designating these areas as AR zones will take effect on July 6, 1998. At that time, the requirements for financial institutions to obtain flood insurance when making, increasing, extending or renewing a loan secured by a building or a mobile home located within the boundaries of the newly designated zones will also become effective.

The zone changes that become effective in July will affect the following communities within Los Angeles County: Bellflower, Carson, Compton, Downey, Gardena, Lakewood, Long Beach, Los Angeles City, Los Angeles County, Lynwood, Montebello, Paramount, Pico Rivera and South Gate. The changes will also affect some areas in Sacramento. FEMA will provide a list of those affected communities at a later date. Maps showing the affected areas are attached, including zip code areas within each community.

FEMA is undertaking an extensive public education program to inform residents and others within the areas encompassed by the new zones of the potential for higher risks associated with flooding and the need to purchase flood insurance. FEMA has announced that any flood insurance policies purchased in the newly designated zones before the July effective date would be permitted to obtain a lower non-SFHA rate as designated on the current FIRM.

While not a regulatory requirement, institutions with loans secured by buildings or mobile homes located within the areas around the newly designated AR zones may wish to review those loans to determine whether the revisions to the maps will place the security property within an SFHA. Institutions could then advise the property owners that insurance is currently available from the NFIP at reduced rates. If the insurance is not purchased before July 6, the property owner will have to obtain the insurance at a higher rate or the lending institution can purchase it on the borrower's behalf if the borrower does not voluntarily obtain the policy.

For further information, please contact the following at FEMA:

    NFIP information: Telephone Response Center at 1-800-427-4661
    AR mapping: Karl Mohr at (202) 646-2770
    Lender compliance: Lena Thompson at (202) 646-3441
    New zones: FEMA's Web site at

Questions may also be directed to Ken Baebel, Senior Review Examiner in the FDIC's Division of Compliance and Consumer Affairs, at (202) 942-3086 (Email: Jbaebel, or Mark Mellon, Counsel in the FDIC's Legal Division, at (202) 898-3854 (Email:

Carmen J. Sullivan


Distribution: FDIC-Supervised Banks (Commercial and Savings)

NOTE: Paper copies of FDIC financial institution letters may be obtained through the FDIC's Public Information Center, 801 17th Street, N.W., Room 100, Washington, D.C. 20434 ((703) 562-2200 or 800-276-6003).

Last Updated 07/17/1999

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