Flood Insurance Flashcards
What is the purpose of the Flood Disaster Protection Act (FDPA)?
regulate banks from making, increasing, extending, or renewing a loan secured by improved real estate or a mobile home located in the SFHA, unless the property is covered by flood insurance.
What structures are eligible for flood insurance under NFIP? (6)
Improved real property or mobile homes located in an area identified by FEMA as having special flood hazards. Each insurable structure requires a separate insurance policy.
- Residential, industrial, commercial, and ag buildings that are walled, roofed, and above ground.
- Buildings under construction with a development loan
- Mobile homes affixed to a permanent site
- Condos
- Co-operative buildings
- personal property and other insurable contents contained in real property insured under the reg
What types of structures are not eligible for flood insurance? (6)
- Unimproved land, bridges, dams, and roads
- Mobile homes not affixed to a permanent site
- Travel trailers and campers
- Converted buses or vans
- Buildings entirely on or over water
- Buildings newly constructed or improved in an area designated as an Undeveloped Costal Barrier.
What is the basic lending requirements regarding flood insurance? (3)
Insurance is required for the term of the loan on buildings or mobile homes in an SFHA when a bank Makes, Increases, Renews, or Extends credit. Meaning the loans meets all three factors:
- Loan is secured by improved RE/mobile home
- Property is in a SFHA designated by FEMA
- location participates in NFIP.
What are the lender requirements if the property is located in an area not covered by NFIP?
The lender is required to determine if the property is in a SFHA and if so, notify the borrower. Also, notify the borrower is NFIP insurance is not available.
A lender should evaluate the risk of making the loan, and determine if they wish to require private flood insurance.
Are table funded loans subject to Flood insurance requirements?
If so, who is subject to fulfilling the requirements?
Yes, table funded loans are considered to be “made” rather than purchased for the purpose of the FDPA.
The funding entity may require the broker or dealer to fulfil flood requirements or may otherwise divide the responsibilities. There is no need for duplication.
What three loan situations are exempt from the flood insurance purchase requirement even if the loan is in a flood zone?
- Loan on state owned property covered under a self-insurance policy approved by FEMA
- loans with an original balance of $5K or less and have a repayment of 1yr or less.
- Structure part of residential property (used for personal, family or household purposes) but is detached from the primary residence and does not serve as a residence.
How to determine the amount of required flood insurance?
Lesser of:
- outstanding principal balance
- NFIP Max
- Replacement cost value/insurable value of property
What are the coverage limits for residential property structures and personal contents?
Structure: $250,000
Contents: $100,000
What are the coverage limits for non-residential structures and contents?
Structure: $500,000
Contents: $500,000
What are the coverage limits for non-condominium residential buildings with 5+ units, and for personal contents?
Structure: $500,000
Contents: $100,000
Are institutions required to accept private flood insurance policies? and in what situations?
Yes, as long as the policy meets the definition of “private flood insurance” as defined by the reg.
If it doesn’t meet the definition the bank is not required to accept, but may choose to accept. (discretionary acceptance)
What is required of a private flood policy, in order to meet the requirements for mandatory acceptance? (3)
- policy is issued by an agency that is licensed and approved to engage in insurance by the state or other jurisdiction where the property is located
- insurer is recognized, or not disapproved as a surplus lines insurer by the state or jurisdiction where the property is located in the case of a policy difference in conditions, multiple peril, all risk or other blanket coverage insuring nonresidential commercial property.
- Policy provides coverage that is as broad as NFIP coverage, and must include
- -insurer will give written notice 45 days before cancellation to insured and servicer
- -includes info about NFIP availability
- -includes mortgage interest clause: insured files suit no later than 1yr after written denial of claim under policy
- -contains cancellation provisions that are as restrictive as the SFIP.
What must a private flood policy include regarding coverage for mandatory acceptance? (6)
- Policy provides coverage that is as broad as NFIP coverage, and must include:
- -define the term flood as in an SFIP
- -contain coverage specified in SFIP
- -deductibles less than max, with non-applicability provisions for any total policy coverage amount up to NFIP max
- -provide coverage for direct physical loss caused by flood. Without exclusions other than those in SFIP.
- -not contain conditions that narrow coverage
When can a bank accept a private flood insurance policy without further review under mandatory acceptance guidelines?
If the policy contains the statement “This policy meets the definition of private flood insurance contained in 42 U.S.C 4012a(b)(7) and the corresponding regulation”
What conditions must a private policy meet for discretionary acceptance? (4)
Policy must:
- Provide coverage in amount required
- Provided by licensed insurer in jurisdiction of property.
- covers both mortgagor and mortgagee as loss payees
- plan provides sufficient protection of designated loan consistent w/ S&S guidelines, and bank documents the protection in writing.
What should a bank consider when determining if a private flood policy provides sufficient protection for discretionary acceptance? (5)
- if deductibles are reasonable
- if insurer provides adequate notice of cancellation
- if terms and conditions for payment per occurrence, per loss, and aggregate limits are adequate to protect collateral
- if policy complies with state insurance laws
- Financial condition of insurance company.
What is a mutual aid society? (3)
Organization that:
- shares common religious, charitable, educational, or fraternal bond
- covers losses caused by damage to members’ property pursuant to an agreement including flooding
- has demonstrated a history of fulfilling the terms and agreements to cover losses caused by flooding.
Can a bank accept a flood policy from a mutual aid society?
Yes, at their discretion if the following conditions are met:
- if regulator has qualified the plan as flood insurance
- plan provides required coverage
- covers both mortgagor and mortgagee as loss payee
- provides sufficient protection of the designated loan.
What requirements must a mutual aid society plan meet to be considered qualified by the FDIC?
It must be:
- Licensed, admitted or approved by state or jurisdiction where property is located.
- The plan must be considered and regulated as insurance by the state where the property is located.
What is the waiting period for NFIP flood insurance policies not purchased during a MIRE event?
What about for Flood map changes?
30 days unless its within 13 months of a flood map change, then it is 1 day.
What is the waiting period for NFIP insurance in MIRE events for second mortgages, home equity loans, or refinances?
There is none.
What should a borrower do when MIRE event for a second lien on a property that requires/already has flood insurance? (3)
Because only one NFIP policy can be issued on a building:
- contact agent and inform them of intent to obtain a second lien
- verify current policy
- verify insurance covers all loan amounts.
Or obtain a private policy in appropriate amount.
How should a bank determined the required amount of insurance for subordinate lines of credit?
Either:
-Review records periodically to ensure as draws or repayments are made against the line that the appropriate amount of insurance coverage is maintained
-Upon origination, require insurance to cover total value of line, value of property, or max NFIP insurance available.
What is a master condo policy called?
Residential Condominium Building Association Policy (RCBAP)
What does a RCBAP cover?
Both the common and individually owned building elements within the units, improvements in the units, and contents owned in common areas if contents is included in the policy.
What is the max amount of flood insurance that can be purchased under a RCBAP?
Lessor of:
- 100% RCV of building
- Total number of units x $250,000
What is the minimum amount of insurance required to cover a condominium unit?
Lesser of:
- Outstanding Principal
- RCV of building/#units
- $250,000
How much flood insurance is required of loans covering condos in flood zones? (3 options)
Either:
- RCBAP that covers 100% of RCV of building
- RCBAP that covers $250M x total number of building units
- Borrower obtained a dwelling policy that covers the difference between the RCBAP/unit and mandatory flood insurance required
What is the maximum amount of coverage required in the following example?
- The condo complex has 50 units
- The RCV of the building is $10MM
The RCBAP max coverage should be $10MM because that is the lessor of the RCV and the NFIP max ($12,5MM)
What is the max NFIP coverage for non-residential condo buildings?
Building: $500M
Contents: $500M
Not eligible for coverage under a RCBAP.
What are the flood insurance requirements for properties with multiple structures?
Each must be covered by flood insurance if located in a flood zone. Either with one policy per building or a schedule listing each building.
Amount required depends on the type of loan but is typically the lessor of:
- NFIP max
- Outstanding Principal
- RCV
Is flood insurance required for OREO properties located in flood zones?
No, but it is prudent practice.
When is escrowing of flood insurance premiums required?
What are the two exceptions?
Escrow of premiums and fees for residential RE MIRE after 01/01/2016.
Additionally, banks must make escrow available to loans secured by resi RE that have an outstanding balance as of 01/01/2016.
The 2 exceptions are:
Small lenders
loan-type
What is the small lender exception for escrowing flood? (3)
Not required to escrow if:
- total assets less than $1MM as of Dec 31 of either of prior 2 calendar years
- and, as of July 6, 2012, the bank was not required by federal or state law to escrow or
- the bank does not have a policy of uniformly and consistently escrowing the same.
If a bank no longer qualifies for the small institution exception to escrow, when must they begin escrowing?
For any MIRE on resi RE on or after July 1 of the first calendar year of changed status.
What is the loan-type exception for escrowing? (6)
The escrow requirement does not apply to the following types of loans:
- loans primarily for business, commercial, or agricultural purposes even if secured by residential RE.
- Subordinate loans on a property that has sufficient flood insurance
- Condos covered by sufficient RCBAPs
- HELOCs
- Nonperforming loans
- Loans with terms less than a year.
If a loan no longer qualifies for the loan-type exception to escrow, when must escrow begin?
As soon as reasonably possible.
When must an institution provide the option to escrow?
What if they were exempt as a small servicer, but no longer are?
Option to escrow notice must have been provided by June 30, 2016.
A bank that no longer qualifies for the small lender exception must provide option to escrow notice by Sept 30 of the year status changes, to all loans with outstanding balance as of 01/01/2016
Does the option to escrow notice need to be separate?
No a bank may choose to provide a separate notice or add it to any other disclosure provided to the borrower. (ex: periodic statement)
What must a creditor provide to borrowers to determine if the loan is in a flood zone?
The Standard flood hazard determination form (SFHDF)
How can a bank provide the SFHDF?
and what are the record retention requirements?
Printed, computerized, or electronic
Must be retained for the period of time the bank owns the loan.
Can a bank determine the applicability of flood insurance based on elevations?
No elevation determinations can only be determined by FEMA, which can result in Letter of Map Revisions/Amendments.
What is a Letter of Map Amendment?
Removes a property from a SFHA after property owners submit elevation materials and an application to FEMA, who then determines if the property is actually in the SFHA or if it is above the base flood elevation.
Determination usually takes 4-6 weeks upon receiving an application.
Are lenders required to waive Flood insurance after a customer submits a LOMA or LOMR to the bank?
No, the lender has the discretion to continue the require insurance if they think it is prudent.
What is a Letter of Map Revision (LOMR)?
Request submitted to FEMA to revise a SFHA map after physical changes are made to raise the land above the base flood elevation. (Ex: property is graded and filled to raise the level of the land).
Request must be initiated and approved by the community since changes in land level may affect other property owners.
When can a bank rely on a previous flood determination for a MIRE event? (2)
Exceptions? (2)
- if the determination in no more than 7 years old
- if the previous determination was recorded on the SFHDF
Exceptions:
- If FEMA map revisions or updates show the property is not in a SFHA
- If FEMA indicates map revisions/updates have been made after the date of the previous determination.
In what circumstance are bank’s required to force place insurance?
If at any time during the life of the loan, the bank determines that required flood insurance is deficient.
What should a bank do upon discovering a loan is underinsured?
Notify the borrower that they need to obtain flood insurance within 45 days.
What should a lender do if a borrower does not purchase flood insurance within 45 days of sending a force placement notice?
Purchase insurance on the borrowers behalf.
What should a bank do if a borrower has a lapsed policy?
commence force placement procedures:
Send 45 day notice
force place if insurance is not purchased in 45 days.
Who pays for FP insurance?
when does payment start?
The bank may charge the customer to cover the insurance beginning on the date coverage lapsed or was underinsured.
What should a bank do if a force placed borrower provides the bank with confirmation of existing flood insurance? (2)
Terminate the force placed insurance within 30 days of receipt of confirmation of existing insurance.
Refund the borrower all force placed premiums and fees paid by the borrower during the overlap period.
When force placement is required, how much should a bank force place for?
lapsed coverage?
Underinsured?
Lapsed: the amount required under NFIP- lesser of NFIP max, principal balance or RCV
Underinsured: difference between the present amount of coverage and amount required under NFIP.
When can a bank charge a flood determination fee? (4)
A reasonable fee can be charged:
- for a MIRE event that triggers a flood determination
- if there is a revision or updating of floodplain areas or risk zones by FEMA
- the determination is because FEMA publishes a notice that affect the area where the loan is located
- the determination results in the purchase of force placed insurance.
Can a life of loan monitoring fee be charged as part of a flood determination?
Yes
What are the two disclosures banks must provide to customers in a flood zone?
SFHDF
SFHA notice
What is required to be included in the SFHA notice? (7)
- Warning that property is in a SFHA
- description of flood purchase requirements
- Statement, if applicable, that NFIP insurance is available and may also be available from private insurers.
- Statement that flood insurance is available from private companies that issue policies on behalf of NFIP.
- statement that flood insurance that provides the same level of coverage as an NFIP policy may also be available from a private insurance company that issues policies on behalf of the company.
- Statement that borrower is encouraged to compare NFIP and private policies, and borrower should inquires about the availability, cost, and comparisons of flood insurance to an insurance agent.
- Statement whether Federal Disaster relief assistance may be available in the event of flooding in a federally declared disaster.
- Escrow notice (if required)
When is the SFHA notice required to be provided?
Within a reasonable time before completion of the transaction.
This is typically considered 10 days prior to consummation.
When must creditors provide the borrowers flood notice to servicers of loans in flood areas?
As promptly as practicable after the bank provides notice to the borrower. But no later than when the lender transmits other loan data to the servicer (hazard or taxes)
If a loan is transferring servicers, when must the lender notify FEMA of the transfer?
Notice is required to be sent within 60 days of the date of transfer. That way FEMA can provide notice to the servicer 45 days before expiration of flood insurance.
What is required to be retained for record keeping under the reg? and for how long?
- Copies of SFHDFs for the life of the loan
- Records of receipt of the notice of special flood hazards to the borrowers and servicers for life of the loan.
What would be considered acceptable records of receipt for the special flood hazard notice? (3)
- Signed copy of notice
- borrower initialed list of documents and disclosures provided to the borrower
- electronic copy of receipt or other document signed by the borrower.
Which violations can result in CMPs? (4)
- Mandatory flood purchase requirements
- escrow requirements
- notice requirements
- force placement requirements.
When can agencies assess CMPs for flood? (4)
If there is a pattern or practice of any of the following violations:
- Mandatory flood purchase requirements
- escrow requirements
- notice requirements
- force placement requirements.
What is the maximum CMP amount?
$2,000 per violation.