Flood Disaster Protection Act Flashcards
12 CFR 22; 12 CFR 208; 12 CFR 338; 12 CFR 614, Supbart S (Farm Credit Administration); 12 CFR 760 (National Credit Union Administration)
What do the flood rules cover (what’s a covered loan)?
Designated loans, or, all loans secured by a building or mobile home, including increases, extensions , refinances, and renewals located or to be located in a SFHA and a participating community
What is considered a “participating community” under the flood rules?
A community where federal flood insurance is available
Do the flood rules for covered property include the land itself?
No
When would an exemption to the flood rules apply?
- Loans that have an original principal balance of $5,000 or less AND an original repayment term of one year or less
- Any state-owned property covered under a policy of self0insurance satisfactory to the Director of FEMA
- Any structure that is part of a residential property but is detached from the primary residential structure, is not used for a commercial purpose, and does not serve as a residence
What are the acronyms MIRE, SFHA, NFIP, and FEMA?
MIRE: insurance is required whenever a covered loan is Made, Increased, Renewed or Extended
SFHA: Special Flood Hazard Area
NFIP: National Flood Insurance Program
FEMA: Federal Emergency Management Agency
What is the greatest difference, regarding coverage, when comparing the flood rules to any other consumer protection rules?
The coverage under flood rules is collateral-driven rather than purpose-driven.
What’s considered an insurable structure and when are such structures covered under the flood rules?
A building (most any type) where >50% of its value is above ground is an insurable structure. If that structure serves as collateral for a loan, it’s covered by the flood insurance rules.
When is a structure that’s under construction considered to be insurable?
A structure is considered insurable once construction rises above the slab stage (aka base flood elevation).
What is the general, mandatory flood insurance requirement?
Lenders must require food insurance when MIRE’ing (making, increasing, renewing or extending) a designated loan
If a lender is trying to correctly determine whether a structure is or is not in a SFHA, what map must be used?
NFIP map
What are the requirements for charging fees related to flood insurance determinations?
A reasonable fee may be charged for the determination itself and is not considered a finance charge. Life of loan MONITORING fees are considered finance charges, and therefore, if the monitoring fee is combined with the determination fee, it’s considered a finance charge.
What sort of documentation is required when a property is located in a SFHA and what should it include?
FEAM’s The Standard Flood Hazard Determination Form must be used to document SFHA and whether insurance is available or not.
What are the 3 requirements if a lender wants to reuse a previous flood determination?
- It’s less than 7 years old.
- There are no new or revised map updates.
- It was initially recorded on the SFHDF (Special Flood Hazard Determination Form)
How long must a lender retain Special Flood Hazard Determination Forms?
For as long as the lender owns the loan
What are the disclosure requirements when a property is determined to be in a SFHA?
The lender must notify the borrower that insurance is required, by providing the disclosure called Notice of Special Flood Hazards.
The disclosure must be acknowledged and signed by the borrower.
The disclosure must be provided within a reasonable time period prior to closing (suggested 10 days).
What are the steps that must be taken if a borrower disagrees with a flood zone determination?
Since the FEMA maps are the deciding factor, a request may be made to FEMA to obtain a LOMA (Letter of Map Addendum) or LOMR (Letter of Map Revision) on the FIRM (Flood Insurance Rate Map)
What is the other general flood requirement, other than that the property must be located in a SFHA, to require flood insurance?
The community in which the property sits must be a participant in the NFIP.
What is the flood requirement when a property sits in a flood zone in a non-participating community?
The Notice of Special Flood Hazard Determination must be provided, but the law does not require the lender to require flood insurance
What is the flood requirement when making a government-insured loan for a property that sits in a flood zone in a non-participating community
The Notice of Special Flood Hazard Determination must be provided and flood insurance will be required by the agencies (FHA,SBA, etc).
What must be provided in order to accept a private flood insurance policy?
- Mandatory acceptance provision (confirm that the policy contains all elements of an NFIP policy), OR
- Compliance aid provision statement from the insurance company (which certifies policy compliance), OR
- Mutual aid society (shared losses among a group of entities)
What are the insurance requirements for a condo that sits in a flood zone?
Confirm that the condo association obtained an RCBAP (Residential Condo Building Association Policy) and that it has adequate coverage or if supplemental coverage is needed to meet the minimum
Do contents of a building need to be insured if the building itself sits in a flood zone?
Yes, only if both the building and its contents are taken as collateral.
When must lenders require flood escrow?
Lenders must escrow for flood insurance premiums and fees for loans secured by residential improved real estate or a mobile home - there are a few exceptions
What are some of the exceptions to the escrow requirement for properties that reside in a flood zone?
- the lender has < $1billion in assets
- the loan is subordinate to a senior lien secured by the same property for which flood insurance is already provided
- the loan will be used primarily for business, commercial or agricultural purposes
- HELOCs
- < 12 months loan term
How long does a borrower have to provide evidence of flood insurance once a lender initiates force placement?
45 days from the initial notification, at which time, the lender may then charge the cost of insurance to the borrower
How much insurance is required under the flood rules?
At minimum, the least of:
1. 100% of the insurable value of the structure (does not include the land
2. The amount of the loan (including senior liens)
3. $250,000 per 1-4 family residential structure; $500,000 per commercial structure or 5+ family residential structure
