Federal banking regulators, including the NCUA, are proposing arule aimed at encouraging flood insurance customers to buy privateflood insurance.

The rule is mandated by the Biggert-Waters Act of 2012.

Free market advocates, especially some members of the HouseFinancial Services Committee, point to the provision as one of themost important reforms imposed by the embattled new law.

The proposed rule would require regulated lending institutionsto accept private flood insurance as satisfying the B-W mandate that homebuyers in some areas purchase floodinsurance.

The proposal would clarify that regulated lending institutionshave the authority to charge a borrower for the cost offorce-placed flood insurance coverage beginning on the date onwhich the borrower's coverage lapsed or became insufficient, andwould stipulate the circumstances under which a lender mustterminate force-placed flood insurance coverage and refund paymentsto a borrower.

The proposed rule also asks interested parties to comment onwhether federal banking agencies should adopt additionalregulations dealing with the acceptance of flood insurance policiesissued by private insurers.

The proposed rule would also require regulated lendinginstitutions to escrow payments and fees for flood insurance forany new or outstanding loans secured by residential improved realestate or a mobile home, not including business, agricultural andcommercial loans, unless the institutions qualify for the statutoryexception.

The proposal includes new and revised sample notice forms andclauses concerning the availability of private flood insurancecoverage and the escrow requirement.

The proposed rule is being issued by the Board of Governors ofthe Federal Reserve System, the Farm Credit Administration, theFDIC, the NCUA and the Office of the Comptroller of theCurrency.

The comment period for the rule will end Dec. 10.