national flood insurance program - h2o partners, inc
TRANSCRIPT
10/28/2013
1
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved © FEMA 2009. All rights reserved
Demystifying the Lender Q&As
National Flood Insurance Program
© FEMA 2009. All rights reserved
1
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved © FEMA 2009. All rights reserved
Welcome to Demystifying the Interagency Q&A!
We will get started in a few minutes. Meanwhile, let’s perform a warm up exercise.
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
1. Federal Register- Interagency Q & As Regarding Flood Insurance (July 2009)
http://edocket.access.gpo.gov/2009/pdf/E9-17129.pdf
2. Federal Register- Interagency Q & As Regarding Flood Insurance (October 2011)
http://www.gpo.gov/fdsys/pkg/FR-2011-10-17/pdf/2011-26749.pdf
3. Interagency Statement on the Impact of Biggert-Waters Act (March 2013)
http://www.fdic.gov/news/news/financial/2013/fil13014.pdf
4. Joint Notice of Proposed Rulemaking on Loans in Areas Having Special Flood Hazards (October 2013)
http://www.fdic.gov/news/board/2013/2013-10-08_notice_dis_a_fr.pdf
Seminar Resources
Q.1 3
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
•Designated Loans
•Amount of Flood Insurance Required
•Flood Insurance Requirements for:
Construction Loans
Non-residential Buildings
Residential Condominiums
Home Equities/Seconds
Sale/Transfer Notices
Seminar Agenda
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
•Escrows
•Force Placement
•Private Flood Insurance
•Required Use of SFHDF
•Flood Determination Fees
•Flood Zone Discrepancies
•Notices to Borrower
•Mandatory CMPs
Seminar Agenda
5
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
I. Determining When Certain Loans are Designated
Demystifying the Q & As
(Questions 1-7)
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Designated Loan: What is a ‘designated loan’?
7
• A loan secured by a building or mobile home that is located or to be located in a “special flood hazard area” in which flood insurance is available under the Act.
Please note: Emphasis on a “building or mobile home” as collateral.
Q.1
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
•Loan purchase is not a tripwire
•No automatic requirement to make a new flood determination or require a borrower to purchase flood insurance
•However, if a lender becomes aware that flood insurance is required, lender must comply with the rules, including force placement, if necessary.
•Tripwires are…
Does loan purchase trigger any requirements under the regulation?
8 Q.3
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
M-I-R-E
Mandatory Purchase Tripwires
9
• Making
• Increasing
• Renewing
• Extending
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Loan Syndication/Participation
10
• Acquisition of an interest in a loan via participation or syndication post-origination is not a mandatory purchase trigger.
• But a group of lenders that are Making, Increasing, Renewing or Extending a loan by pooling or contributing funds are subject to mandatory purchase requirements.
• Each participating lender is responsible for ensuring compliance – even when a lead lender is designated to handle compliance duties.
Q.4
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
• Restructured or modified loans that are “designated loans”…
• Are subject to mandatory purchase regulations if…
• Lender increases the amount of loan, or
• Extends or renews term of original loan.
Restructured/Modified Loans
11 Q.5
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
II. Determining the Appropriate Amount of Flood Insurance
III. Exemptions from Mandatory Purchase
Demystifying the Q & As
(Questions 8-18)
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Amount of Flood Insurance
13
• Amount of Flood Insurance = lesser of:
• Outstanding principal balance of loan(s)
• Maximum amount of insurance available under the NFIP, which is the lesser of:
The maximum limit available for the type of structure; or
The insurable value of the structure
Q.8
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
NFIP Coverage Limits
Emergency Program Regular Program
Single Family
Building $35,000 $250,000
Contents $10,000 $100,000
Other Residential
Building $100,000 $250,000
Non-Residential
Building $100,000 $500,000
Contents $100,000 $500,000
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Residential Buildings
15
• 1 – 4 family dwellings
• Apartments with > than 4 units
• Condominiums & cooperatives in which at least 75% of square footage is residential
• Hotels or motels where normal occupancy is 6 months or >
• Rooming houses with more than 4 roomers
• Residential buildings permitted incidental non-residential occupancies of less than 25%; 50% for single-family dwellings
Q.11
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
• Small businesses, Churches,
• Schools, Farm buildings (including grain bins and silos),
• Pool house, clubhouses, recreational, mercantile buildings,
• Industrial structures, warehouses, nursing homes,
• Hotels (rental < 6 months)
• Mixed–use buildings with less than 75% residential square footage
Non-residential Buildings
16
Q.12
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
• Lender makes a loan in the principal amount of $150,000 secured by five nonresidential buildings, only 3 of which are located in SFHAs
Lender Case Study: Coverage for Multiple Buildings
Outstanding Loan Balance
• $150,000
Maximum amount of insurance under NFIP,
lesser of
• Maximum limit available: $500,000
• Insurable Value: $100,000 per building (Total $300,000)
Amount Required
Q.14
?
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
• Lender makes a loan in the principal amount of $150,000 secured by five nonresidential buildings, only 3 of which are located in SFHAs
Lender Case Study: Coverage for Multiple Buildings
Outstanding Loan Balance
• $150,000
Maximum amount of insurance under NFIP,
lesser of
• Maximum limit available: $500,000
• Insurable Value: $100,000 per building (Total $300,000)
Amount Required
• $150,000 (allocated amongst all 3 buildings)
Q.14
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
What is the “insurable value” of a building?
• RCV for certain residential and condo buildings
• RCV for non-residential buildings may not be practical
• Avoid creating situations where borrower is “over-insured”
• Functional/Demolition values
• Consider loss settlement provisions of NFIP policy
• Careful not to “under-insure”
Final Question and Answer #9
19
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
RCV vs. ACV
Replacement Cost Value
Cost to repair or replace a building
Material of similar kind and quality
No deduction for depreciation
RCV does not include land values
RCV is not “market value”
Final Question and Answer #9
20 Q.9* *Final
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
RCV vs. ACV
Actual Cash Value
Cost to replace an insured item of property at time of loss
Less the value of its physical depreciation
Based on age, wear and tear
Replacement cost less depreciation
Final Question and Answer #9
21 Q.9* *Final
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Final Answer
Insurable value approaches/methods
Appraisal based on cost-value approach
Construction-cost calculation
Insurable value used in hazard policy
Any other reasonable approach that can be supported
Final Question and Answer #9
22 Q.9* *Final
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Final Answer – Wrap-up
Note from preamble:
“It is important for lenders to recognize that insurable value is only relevant to the extent that it is lower than either the outstanding principal balance of the loan or the maximum amount of insurance available from the NFIP.”
Final Question and Answer #9
23 Q.9* *Final
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Are there alternative approaches to determining the insurable value of a building?
See alternatives suggested in Q. 9
Agencies withdraw question as no longer necessary
Proposed Question and Answer #10
24 Q.10*
*Withdrawn
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Amount of Flood Insurance
Insurable Value Alternatives
Functional Building Cost Value
Demolition/Removal Cost Value
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Dairy barn functions as storage building…
…Replaced by storage building
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Demolition/Removal Cost Value
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Key points to remember:
• An NFIP policy will not cover an amount exceeding a building’s insurable value.
• Lenders are permitted to require more flood insurance coverage than the minimum required.
• A lender may not allow a borrower to use a high deductible to avoid mandatory purchase.
• Exemptions:
State-owned properties
Original loan balance $5K or less and term one year or less
Amount of Flood Insurance
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Flood Insurance Purchase Requirements
IV. Constructions Loans
V. Non-Residential Buildings
Demystifying the Q & As
(Questions 19-25)
29
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
• Compliance options:
• Require purchase of policy at time development loan is made.
• Require flood insurance at time of specified drawdown of loan for actual construction.
Monitor for actual start of construction.
No 30-day waiting period with either option.
• Buildings eligible for coverage prior to walled and roofed
• Materials and supplies eligible for coverage
• Rates based on construction drawings
Construction Loans
30 Q.22
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
•Lenders are required to mandate flood insurance for buildings with limited utility or value if they comprise a “designated loan”.
•Lenders may consider “carving out” such buildings from the security it takes for loan.
•Be careful to analyze all risks of this option, e.g. ability to market property in event of foreclosure.
Non-Residential Buildings
31
Q.24
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Flood Insurance
Purchase Requirements
VI. Residential Condominiums
Demystifying the Q & As
(Questions 26-33)
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Lender Case Study
• You take a residential condominium unit located in a 5 story condo building as collateral for a loan.
• Unit is on 4th floor
• Building is within a SFHA
Since you feel it highly unlikely that the units on the fourth floor would ever be flooded, what, if anything must you do with regard to the mandatory purchase
requirements?
33
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
… (continued) But I Live On The Fourth Floor
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Condos and Coverage Forms
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Residential Condominium Building Association Policy
RCBAP
36
• Insures a residential condominium building owned by a condominium association.
• If insured to at least 80% of its replacement cost value at the time of loss or max limit there is no coinsurance penalty.
• RCBAP automatically provides Replacement Cost (RC) loss settlement for the building elements.
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Maximum Amount of Insurance
RCBAP
37
• The maximum available building coverage is the replacement cost value of the building and its supporting structure or up to $250,000 per unit times the number of units, whichever is less.
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Residential Condominium Building Association Policy
RCBAP
38
• Insures a residential condominium building owned by a condominium association.
• If insured to at least 80% of its replacement cost value at the time of loss or max limit there is no coinsurance penalty.
• RCBAP automatically provides Replacement Cost (RC) loss settlement for the building elements.
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Revisions to RCBAP Documentation as of 10/1/07
• Number of units in structure • Statement of Replacement Cost
RCBAP
39
• •
Other Residential Townhouse/Rowhouse No Basement 8 Units Replacement Cost:$939,000 Coverage Amount: $800,000
$800.000
$939,000
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Revisions to RCBAP Documentation – as of 10/1/10
• Agent must update RCV • information at least every 3
years
• RCV notification letter from carrier
RCBAP
40
•
“The letter is to inform you that the Replacement Cost Value (RCV) on file for the building referenced above, insured under the Residential Condominium Building Association Policy (RCBAP), must now be updated. The National Flood Insurance Program (NFIP) requires that the RCV be evaluated every 3 years; it has been at least 3 years since the RCV for the building has been updated.”
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Covers the Residential Unit Owner
Dwelling Policy Form
41
• Insures a single family dwelling unit in a condominium building or a non-condominium 1-4 family dwelling.
• A condominium unit in a townhouse, rowhouse, high-rise or low-rise building is considered to be a single family dwelling.
• Maximum limits - $250,000 building & $100,000 contents.
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Covers Other Residential Condo Associations
General Property Form
42
• Occupied less than 75% residential and not eligible for RCBAP.
• Maximum limit of $500,000 per building.
• The General Property Form provides Actual Cash Value coverage that includes a deduction for depreciation and Replacement Cost coverage is not available.
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Policy performance issue… …NOT compliance tool!
RCBAP Co-insurance penalty
43
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Compliant Loan Co-Insurance Penalty
• $1 million RCV
• $600K Cov. Limit (60%)
• 10 units
• Avg. Cov./unit = $60K
• Loan Amt. = $50K
Policy Performance vs. Compliance
44
Non-Compliant Loan No Co-Insurance Penalty
• $1 million RCV
• $800K Cov. Limit (80%)
• 10 units
• Avg. Cov./unit = $80K
• Loan Amt. = $90K
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Amount of insurance at time of loss Amount of insurance required
X Amount of Loss
(Before Deductible)
= Limit of Recovery
Applies To The Building Coverage Limit Applies to Building Coverage Limit RCBAP Co-Insurance Penalty
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
$600, 000 Coverage Limit $1 million X .80 = $800,000
X $250,000 loss
(Before Deductible)
= $187,500 (less deductible)
Applies To The Building Coverage Limit
=75.0%
Applies to Building Coverage Limit
RCBAP Co-Insurance Penalty
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Dwelling Policy
• Pays assessments resulting from “direct physical loss by or from flood” to building common elements.
• Loss assessment coverage responds if:
• No RCBAP
• RCBAP insured to at least 80% of RCV
• If not insured to at least 80%:
Available for loss assessments to cover building damage in excess of 80% required amount.
Will not pay co-insurance penalty/association’s deductible.
• Unit owner coverage is excess over RCBAP – see “Other Insurance” clause.
Unit Owner Coverage
47
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Flood Insurance Purchase Requirements
VII. Home Equities, Lines of Credit, Subordinate Liens and Other Security Interests
VIII. Event of Sale/Transfer of Designated Loans
Demystifying the Q & As
(Questions 34-50)
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
No significant changes…
Home equities, second mortgages and other junior liens are subject to mandatory purchase requirements for flood insurance
Determinations are required if there is a triggering event (make, increase, extend or renew)
Home Equities/Seconds
49
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
• Must obtain least of:
loan amount (including the 1st mortgage)
maximum available under the NFIP
the insurable value of the building
• Should ensure that borrower adds junior lien holder's name as mortgagee/loss payee to existing policy
• Lender has option to pull credit report to obtain balance of 1st mortgage
Home Equities/Seconds
50
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
• Lender A makes a first mortgage with a principal balance of $100,000, but improperly requires only $75,000
• Lender B makes a $50,000 equity loan
• Lender B must ensure that policy increased to $150,000, not to only require increase of $50,000
Home Equities/Second Mortgage
COMBINED
Outstanding Loan Balance
• $100,000 + $50,000 = $150,000
Maximum amount of insurance under NFIP, lesser of
• Maximum limit $250,000
• Insurable Value $200,000
Q.36
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
•Questions 38 – 41 ; Summary of Key Points
A loan that finances inventory in a building in a SFHA where the building is not security for the loan is NOT a “designated loan”.
A loan secured by both building and contents when building is in a SFHA requires flood insurance on both the building and its contents.
If loan is secured by a building in a SFHA and by contents in another building, flood insurance is not required on the contents.
The regulation applies even in circumstances involving “abundance of caution”.
Other Security Interests
52 Q.38-43
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
No significant changes…
• Notice of Servicer’s Identity:
• Lenders must notify the insurance provider/carrier in writing of the identity of the servicer of the loan and any change in servicer.
• Notice of change of servicer must be done within 60 days of change effective date.
Change notices may be sent directly to the insurance provider by the mortgagee.
• In the event of merger/acquisition, duty to provide notice falls to successor institution if not provided by the acquired institution
prior to effective date of merger/acquisition.
Event of Sale/Transfer of Loans
53 Q.36-43
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
IX. Escrow Requirements
X. Force Placement
XI. Private Flood Insurance
Demystifying the Q & As
(Questions 51-64)
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
•Lenders are required to escrow flood insurance premium and fees for mandatory flood insurance if the lender requires the escrow of taxes, hazard insurance premiums or any other charges for “residential improved real estate”
•Exception: Voluntary Escrow
Escrow Requirements
55 Q.52-53
The 2012 Reform Act contains a provision on escrows that is due for implementation effective July 6, 2014. It
will be implemented through notice and comment rulemaking. Regulators intend to publish escrow
regulations in time to implement prior to July 2014*
Interagency Statement of the Impact of Biggert-Waters Act – March 29, 2013
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Joint Notice of Proposed Rulemaking
Which loans affected?
• Required for loans secured by “residential improved” real estate of mobile homes
• Outstanding or entered into on or after 7/6/2014
When do escrows begin?
• Phased in beginning 7/6/2014:
Outstanding loans
New loans
Become designated loans, e.g. map changes
Proposed Escrow Requirements
56
Notice to borrowers?
• New loans
• Outstanding loans
• Loans that become designated loans, e.g. map changes
• Any Exceptions?
• Total assets < $1 billion
• Escrows not previously required under Federal/State law*
• No policy of requiring escrows*
*Loans secured by residential improved real estate or a mobile home
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
What is the requirement for the force placement of flood insurance under the Act and Regulation?
With revisions to proposed Q&As 60 and 62, the agencies are proposing
revisions to previously finalized Q&A
Revised Proposed Question and Answer #57
57 Q.57*
*Proposed
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Proposed Answer
Lenders are required to force place if all the following occur:
Lender determines collateral is in SFHA
Flood insurance is available under the Act
Lender determines coverage is inadequate or non-existent
After required notice, borrower fails to purchase appropriate amount
Revised Proposed Question and Answer #57
58
Force-Place
Allow time for borrower to purchase flood insurance
Send 45-day letter
Q.57* *Proposed
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Proposed Answer
Notice to borrower must state:
Borrower should obtain required amount at borrower’s expense
If not obtained within 45 days…
Lender will purchase on behalf of borrower
May charge borrower for cost of premium and fees
Which are likely more expensive than if borrower purchased
Revised Proposed Question and Answer #57
59 Q.57*
*Proposed
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Proposed Answer
Agencies “best practices” encourage lenders to:
Advise borrowers of high cost of force place flood insurance
Send borrowers “Notice of Special Flood Hazards “
When borrower not previously required to buy flood insurance, e.g. map change
Revised Proposed Question and Answer #57
60 Q.57*
*Proposed
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
When should a lender send the force placement notice to the borrower?
Issue Original proposed question addressed a lenders ability to accelerate notice
Revised Q&A focuses on the proper time to send notice
Revised Proposed Question and Answer #60
61 Q.60*
*Proposed
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Proposed Answer
To ensure adequate flood insurance coverage is maintained, lender must:
Send force placement notice upon determining:
Coverage is inadequate
Coverage is expired
Notice is required when lender learns: Collateral placed in SFHA due to map change
Agencies recommend lenders advise borrowers flood coverage is expiring
Revised Proposed Question and Answer #60
62 Q.60*
*Proposed
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
When must the lender have flood insurance in place if the borrower has not obtained adequate insurance within the 45-day notice period?
Declined to set an arbitrary number of days as requested
Lenders should have procedures in place to allow force placement to begin after 45-day notice expires
Final Question and Answer #61
63 Q.61* *Final
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Final Answer
Adopted with minor clarifications
Lender or servicer shall force place upon expiration of 45-day notice period
Agencies expect lenders to provide reasonable explanation for any brief delays, e.g. batch processing
Final Question and Answer #61
64 Q.61* *Final
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
When may a lender or its servicer charge a borrower for the cost of insurance that covers collateral during the 45-day notice period?
Issue Original proposed question asked does a lender or servicer have the “authority” to charge for flood insurance during the notice period
Revised Q&A clarifies when a lender may charge borrower
Revised Proposed Question and Answer #62
65
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Premium and fees a lender or servicer may charge include:
Premium or fees incurred for coverage
Beginning on the date flood insurance coverage lapsed or,
Did not provide sufficient coverage amount
Adopted 2012 Reform Act Force Placement Provisions
66
10/28/2013
34
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Requires lender or servicer within 30 days of:
Receiving confirmation of borrower’s coverage
Terminate force-place insurance
Refund all force-placed premium and fees paid by borrower
During any overlap in coverage
Adopted 2012 Reform Act Force Placement Provisions
67
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Requires lender or servicer to:
Accept borrower’s existing policy declarations page as confirmation
Declarations page must include:
Existing policy number
Identity/Contact information for insurance company or agent
Adopted 2012 Reform Act Force Placement Provisions
68
Agencies’ Position: Force placement provisions of the Act
became effective upon enactment Interagency Statement of the Impact of Biggert-Waters Act – March 29, 2013
10/28/2013
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Joint Notice of Proposed Rulemaking
Lenders must accept private flood insurance if:
• Insurer meets state department of insurance requirements
• Surplus Lines insurer must be recognized by state department of insurance
• Must be as broad as the NFIP policy
• 45-Day Cancellation/Non-Renewal Notice
• Information about availability of flood coverage under NFIP
• Must contain similar NFIP mortgage interest clause
• Provision requiring insured to file suit within one year after claim denied
• Cancellation provisions as restrictive as SFIP under NFIP
Proposed Private Flood Insurance Requirements
69
2012 Reform Act provision to be implemented through notice and comment rulemaking. Not effective until regulations are issued.
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Requires Notice to Borrower to include:
Flood insurance is available thru private
companies from the NFIP.
Available directly from the NFIP (via agent)
Flood insurance that provides the same level of coverage as an NFIP policy may be available from private insurance companies.
Encourages borrowers to compare and contrast NFIP and private insurance policies.
Proposed Private Flood Insurance Requirements
70
Joint Notice of Proposed Rulemaking
2012 Reform Act provision to be implemented through notice and comment rulemaking. Not effective until regulations are issued.
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
XII. Required use of SFHDF
XIII. Determination fees
XIV. Zone discrepancies
XV. Notice of flood hazards
XVI. Mandatory CMPs
Demystifying the Q & As
(Questions 65-82)
71
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Standard Flood Hazard Determination Form (SFHDF)
72
• New Form effective May 2012
• 3-Year Phase-in Period
• FEMA Form 086-0-32 replaces FEMA Form 81-93
• Not a substitute for the borrower notification form
• Providing copy to borrower is encouraged to reduce zone discrepancies
• Can also be used in event of other disputes like LODR
• Electronic form is acceptable
Q.65-67
10/28/2013
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
• May re-use when increasing, extending, renewing or purchasing a loan
• Cannot be reused when making a new loan
• Exceptions: Refinancing or assumption by same lender who obtained original determination and multiple loans to the same borrower only if:
It is less than 7 years old
No new or revised maps have been issued
Can the SFHDF be reused?
73 Q.68
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Flood Determination Fees
74
• When determination is made in connection with M – I – R – E initiated by borrower.
• Prompted by a revision or updating by FEMA of flood zones.
• Prompted by FEMA’s publication of notices that affect the area where collateral is located..
• The determination results in force
placement.
Q.69-70
10/28/2013
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
What is a zone discrepancy?
Is the discrepancy between high-risk and low- or moderate-risk zone?
Lender should determine whether a result of the “Grandfather Rule”
Result of a mistake? Letter of determination review.
Flood Zone Discrepancies
75 Q.71
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
• 3 Types of zone discrepancies:
Grandfather rating rule
Flood Zone Discrepancies
76
Q.72
10/28/2013
39
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
• Allows a property owner to:
1. “Lock” in a previous flood zone
2. “Lock” in a previous Base Flood Elevation
Map Grandfather Rule
77
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
• 3 Types of zone discrepancies:
Grandfather rating rule
Too Close to Call
Flood Zone Discrepancies
78
Q.72
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40
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
79
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
• 3 Types of zone discrepancies:
Grandfather rating rule
Too Close to Call
Purposeful manipulation
Flood Zone Discrepancies
80
Q.72
10/28/2013
41
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
• 3 Types of zone discrepancies:
Grandfather rating rule
Too Close to Call
Purposeful manipulation
• Remedies
Document use of grandfather rule
Flood Zone Discrepancies
81
Q.72
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
• 3 Types of zone discrepancies:
Grandfather rating rule
Too Close to Call
Purposeful manipulation
• Remedies
Document use of grandfather rule
See Administrator’s April 2008 bulletin
Flood Zone Discrepancies
82
Q.72
10/28/2013
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
83
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
84
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
• 3 Types of zone discrepancies:
Grandfather rating rule
Too Close to Call
Purposeful manipulation
• Remedies
Document use of grandfather rule
See Administrator’s April 2008 bulletin
Document file with actions taken
Resolve discrepancies to avoid possible violations
Flood Zone Discrepancies
85
Q.72
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
•Developed to address the financial burden of mandatory purchase requirements on policy holders in newly mapped areas
•Buildings newly designated within the SFHA due to a map revision on or after October 1, 2008, are eligible for coverage under the PRP “until further notice”.
•Loss history requirements must be met
PRP Eligibility Extension Summary
86
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
• Insurance Carrier, not lender, validates PRP extension eligibility
• Effective 10/1/2010, NFIP declarations pages will display two flood zones:
Current Flood Zone
Flood Risk/Rated Zone
• Current Flood Zone – flood zone of property on current (revised) Flood Insurance Rate Map (FIRM)
• Flood Risk/Rated Zone – flood zone from the previous map used to rate policy
• Lenders are not required to investigate or resolve differences between Current Flood Zone and Flood Risk/Rated Zone
PRP Eligibility Extension Summary (cont’d)
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Rated Zone/Current Zone
88
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
• If multiple borrowers, notice can provided to any one of the borrowers
•Records of receipt provided by the borrower must be maintained for the time that the lender owns the loan
Notice to Borrower
89 Q.73-78
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
•Unlike the re-use of the SFHDF, the lender must provide a new notice to the borrower, EVEN IF a new determination is not required.
•Neither the regulation nor the preamble addresses waiving the requirement to provide the notice to the borrower
Re-use of borrower notice?
90 Q.79
10/28/2013
46
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
•When a bank makes, increases, extends, or renews a loan secured by a building or mobile home located or to be located in a special flood hazard area…
•The bank shall mail or deliver a written notice to the borrower and servicer in all cases whether or not flood insurance is available under the Act for the collateral securing the loan.
•Notice to borrower cannot be re-used.
•Notice must be provided a “reasonable” time prior to closing.
Reasonable is generally regarded as 10 days
Notice to Borrower
91
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Note from Interagency Q&A Preamble:
•What constitutes reasonable notice will necessarily vary according to the circumstances of particular transactions. Regulated lending institutions should bear in mind, however, that a borrower should receive notice timely enough to ensure that:
1. the borrower has the opportunity to become aware of his/her responsibilities under the NFIP
2. the borrower can purchase flood insurance before completion of the loan transaction.
Notice Requirements
92
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D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
Original: Not to exceed $350 per violation, with a ceiling of $100,000 during a calendar year.
Biggert-Waters Reform Act increases CMPs to $2,000 per violation and eliminates the annual cap.
Looking for a “pattern or practice” of committing violations
Failure to:
• Place Insurance
• Escrow flood insurance premium
• Force place insurance
• Provide notice requirements
Mandatory civil money penalties
93 Q.81
D e m ys t i f y i n g t h e L e n d e r Q & A s
© FEMA 2009. All rights reserved
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Evaluations - Online
94
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Demyst i fy ing the Lender Q&As
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Lender Training
96
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D e m ys t i f y i n g t h e L e n d e r Q & A s
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