Flood Insurance Flashcards
1
Q
What is the purpose of the Flood Disaster Protection Act (FDPA)?
A
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.
2
Q
What structures are eligible for flood insurance under NFIP? (6)
A
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
3
Q
What types of structures are not eligible for flood insurance? (6)
A
-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.
4
Q
What is the basic lending requirements regarding flood insurance? (3)
A
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.
5
Q
What are the lender requirements if the property is located in an area not covered by NFIP?
A
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.
6
Q
Are table funded loans subject to Flood insurance requirements?
If so, who is subject to fulfilling the requirements?
A
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.
7
Q
What three loan situations are exempt from the flood insurance purchase requirement even if the loan is in a flood zone?
A
-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.
8
Q
How to determine the amount of required flood insurance?
A
Lesser of:
-outstanding principal balance
-NFIP Max
-Replacement cost value/insurable value of property
9
Q
What are the coverage limits for residential property structures and personal contents?
A
Structure: $250,000
Contents: $100,000
10
Q
What are the coverage limits for non-residential structures and contents?
A
Structure: $500,000
Contents: $500,000
11
Q
What are the coverage limits for non-condominium residential buildings with 5+ units, and for personal contents?
A
Structure: $500,000
Contents: $100,000
12
Q
Are institutions required to accept private flood insurance policies? and in what situations?
A
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)
13
Q
What is required of a private flood policy, in order to meet the requirements for mandatory acceptance? (3)
A
-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.
14
Q
What must a private flood policy include regarding coverage for mandatory acceptance? (6)
A
-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
15
Q
When can a bank accept a private flood insurance policy without further review under mandatory acceptance guidelines?
A
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”
16
Q
What conditions must a private policy meet for discretionary acceptance? (4)
A
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.
17
Q
What should a bank consider when determining if a private flood policy provides sufficient protection for discretionary acceptance? (5)
A
-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.
18
Q
What is a mutual aid society? (3)
A
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.
19
Q
Can a bank accept a flood policy from a mutual aid society?
A
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.
20
Q
What requirements must a mutual aid society plan meet to be considered qualified by the FDIC?
A
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.
21
Q
What is the waiting period for NFIP flood insurance policies not purchased during a MIRE event?
What about for Flood map changes?
A
30 days unless its within 13 months of a flood map change, then it is 1 day.
22
Q
What is the waiting period for NFIP insurance in MIRE events for second mortgages, home equity loans, or refinances?
A
There is none.
23
Q
What should a borrower do when MIRE event for a second lien on a property that requires/already has flood insurance? (3)
A
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.
24
Q
How should a bank determined the required amount of insurance for subordinate lines of credit?
A
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.
25
What is a master condo policy called?
Residential Condominium Building Association Policy (RCBAP)
26
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.
27
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
28
What is the minimum amount of insurance required to cover a condominium unit?
Lesser of:
-Outstanding Principal
-RCV of building/#units
-$250,000
29
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
30
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)
31
What is the max NFIP coverage for non-residential condo buildings?
Building: $500M
Contents: $500M
Not eligible for coverage under a RCBAP.
32
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
33
Is flood insurance required for OREO properties located in flood zones?
No, but it is prudent practice.
34
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
35
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.
36
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.
37
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.
38
If a loan no longer qualifies for the loan-type exception to escrow, when must escrow begin?
As soon as reasonably possible.
39
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
40
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)
41
What must a creditor provide to borrowers to determine if the loan is in a flood zone?
The Standard flood hazard determination form (SFHDF)
42
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.
43
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.
44
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.
45
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.
46
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.
47
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.
48
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.
49
What should a bank do upon discovering a loan is underinsured?
Notify the borrower that they need to obtain flood insurance within 45 days.
50
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.
51
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.
52
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.
53
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.
54
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.
55
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.
56
Can a life of loan monitoring fee be charged as part of a flood determination?
Yes
57
What are the two disclosures banks must provide to customers in a flood zone?
SFHDF
SFHA notice
58
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)
59
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.
60
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)
61
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.
62
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.
63
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.
64
Which violations can result in CMPs? (4)
-Mandatory flood purchase requirements
-escrow requirements
-notice requirements
-force placement requirements.
65
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.
66
What is the maximum CMP amount?
$2,000 per violation.
67
What is the time period CMPs can be assessed?
Within 4 years of the date of the violation
68
Does the regulation apply to a loan where the building or mobile home securing such loan is located in a community that does not participate in the NFIP?
Exceptions?
Yes. The regulation does apply, but lenders need not require borrowers to obtain flood insurance in an area not covered by NFIP. Thus, lenders must still notify the borrower if they are in a flood zone according to the guidelines, but does not have to require flood insurance.
Exceptions: Lender may not make a government guaranteed loan (FHA, SBA, VA loans) secured by property in SFHA in a community without NFIP.
69
What is a lender’s responsibility if a particular building or mobile home that secures a loan, due to a map change, is no longer located within an SFHA?
The lender is no longer obligated to require
mandatory flood insurance; however, the borrower can
elect to convert the existing NFIP policy to a Preferred
Risk Policy.
70
Does a lender’s purchase of a loan, secured by a building or mobile home located in an SFHA in which flood insurance is available under the Act, from another lender trigger any requirements under the Regulation?
No purchasing a loan is not a triggering event. Only MIRE events trigger.
However, if the lender becomes aware at any point during the life of the loan that flood insurance is required they must comply with the regulation, force placing if needed.
71
How do the Agencies enforce the mandatory purchase requirements under the Act and Regulation when a lender participates in a loan syndication or participation?
Participations or syndications are not trigger events, only MIRE events trigger.
However, the loan is still subject to the requirements. Sometimes participations delegate compliance responsibilities to one party in the deal, but each participating lender remains individually responsible from the agencies.
Agency will insure the lender has performed due diligence to ensure both the lead lender and agent have taken necessary steps to ensure borrower obtains appropriate flood insurance. And ensure the lender in monitoring the loan.
72
Does the Regulation apply to loans that are being
restructured or modified?
It depends. If the loan otherwise meets the
definition of a designated loan and if the lender increases the amount of the loan, or extends or renews the terms of the original loan, then the Regulation applies.
73
Are table funded loans treated as new loan originations?
Yes, table funded loans as defined by RESPA are treated as though the party advancing the funds has originated the loan.
The funding party is required to comply with the regulation by requiring the party processing and underwriting the loan to perform administrative requirements.
74
Is a lender required to perform a review of its, or of its servicer’s, existing loan portfolio for compliance with the flood insurance requirements under the Act and Regulation?
No requirements are limited to MIRE events. However, periodic monitoring is considered a sound risk management practice.
75
The Regulation states that the amount of flood insurance required “must be at least equal to the lesser of the outstanding principal balance of the designated loan or the maximum limit of coverage available for the particular type of property under the Act.” What is meant by the “maximum limit of coverage available for the particular type of property under the Act”?
It depends on the secured collateral:
-Residential buildings $250K
-Non-Resi $500k
Flood insurance coverage is limited to the overall value of the property securing the loan minus the value of the land. INSURABLE VALUE
Lesser of the three:
NFIP max, insurable value, or outstanding principal balance.
76
What are the NFIP caps for communities under an emergency program phase?
Resi and non resi
Resi: $35k
Non-Resi: $100k
77
Is the insurable value used on a hazard insurance policy equivalent to the insurable value for a flood policy?
No. Flood RCV also includes the repair or replacement cost of the foundation and supporting structures.
78
If a bank takes a security interest in improved real estate, where the value of the land, excluding the value of the improvements, is sufficient collateral for the debt, does the lender have to require flood insurance if the property is in an SFHA?
Yes, the lender must cover the value of the structure if it is located in a participating community SFHA
79
What is Insurable value?
Overall value of property minus the land.
Same as 100% Replacement cost value. I.E. the cost to replace property with the same kind of material and construction without deduction for depreciation.
However, lenders should avoid creating a situation in which the insured pays for more coverage than the NFIP would pay in the event of a loss.
80
What is a dwelling policy, and how are losses settled for a dwelling policy vs. other residential properties?
What about for RCBAPs?
Single family dwelling including a condo is covered under a dwelling policy.
Dwelling: upon loss, payment is settled at RCV if the dwelling is insured for at least 80% of the RCV or the NFIP max.
Other residential properties are settled at actual cash value.
RCBAPs: settled at RCV, unless building coverage is less than the lesser of the 80% RCV or the NFIP max. In that case it is subject to a co-insurance penalty.
81
Should insurable value always be linked to RCV?
No because there are circumstances when the insurable value is less than the RCV. i.e. dwelling policies 80% RCV
82
What is actual cash value?
RCV less physical depreciation
ex: other residential properties loss payout
83
What methods can be used to determine insurable value? (4)
-Cost based appraisal
-construction cost calculation
-Hazard insurable value with adjustment for foundation
-or any other reasonable approach that can be supported.
84
What are examples of residential buildings?
-1-4 family dwellings
-apartments or other residential buildings with more than 4 units
-Condos/cooperatives where 75% square footage is residential
-long term stay hotels (more than 6 months)
-rooming houses with more than 4 roomers
-residential building with non-residential areas that do not exceed 25% of sqft or 50% for single family homes
85
What are examples of non-residential buildings? (13)
-small businesses
-churches
-schools
-farm activities (grain bins/silos)
-pool houses
-club houses
-recreation centers
-mercantile structures
-agricultural or industrial structures
-warehouses
-short term hotels and motels
-nursing homes
-mixed use buildings with less than 75% residential square footage.
86
How much insurance is required in the following scenario?
Loan security includes one equipment shed located in an SFHA in a participating community under the regular program.
• Outstanding loan principal is $300,000
• Maximum amount of insurance available under the NFIP:
o Maximum limit available for type of structure is
$500,000 per building (nonresidential building)
o Insurable value of the equipment shed is $30,000
The minimum amount of insurance required by the Regulation for the equipment shed is $30,000.
87
Is flood insurance required for each building when the
real estate security contains more than one building
located in an SFHA in a participating community? If so, how much coverage is required?
Yes. the lender must determined the amount of insurance required for each building.
Lesser of:
-NFIP max
-outstanding principal
-insurable value of all buildings total
The amount of total required flood insurance can be allocated among the secured building in varying amounts, but all buildings in an SFHA must have some coverage.
88
How much flood insurance is required in the following example:
Lender makes a loan in the principal amount of
$150,000 secured by five nonresidential buildings, only
three of which are located in SFHAs within participating
communities.
• Outstanding loan principal is $150,000
Maximum amount of insurance available under the
NFIP:
o Maximum limit available for the type of structure is $500,000 per building
(nonresidential buildings); or
o Insurable value (for each nonresidential building
for which insurance is required, which is $100,000, or $300,000 total)
Amount of insurance required for the three buildings is $150,000. This amount of required flood insurance could be allocated among the three buildings in varying amounts, so long as each is covered by flood insurance.
89
If the insurable value is less than the principal balance of the loan, is the insurer required to insure up to the principal balance?
No. The amount of coverage is the lesser of:
-NFIP Max
-Outstanding principal
-insurable value
90
Can a lender require more flood insurance then the minimum required by the reg?
Yes. But the lender should avoid creating situations where the building is "over-insured" meaning more than what the NFIP would pay out in the event of a loss.
91
Can a lender allow the borrower to use the maximum deductible to reduce the cost of flood insurance?
Yes, however this may not be a sound practice in every situation. The reasonableness of the deductible should be determined on a case by case basis. The lender may not allow a borrower to take a deductible equal to the insurable value of the building.
92
What are the two exemptions from flood insurance purchase requirements?
-state owned property covered under a policy of self-insurance satisfactory to the director of FEMA.
-BOTH Principal is $5k or less and repayment term is 1 year or less.
93
Is a loan secured only by land that is located in an SFHA in which flood insurance is available under the Act and that will be developed into buildable lot(s) a designated loan that requires flood insurance?
No. A designated loan is secured by a building or mobile home that is located or to be located in an SFHA in which flood insurance is available under the act.
A land secured loan is not a designated loan since it is not secured by a building or mobile home.
94
Is a loan secured or to be secured by a building in the course of construction that is located or to be located in
an SFHA in which flood insurance is available under the Act a designated loan?
Yes. A lender must make a flood determination prior to origination to determine if the building to be constructed will be located in a SFHA. If so, the lender must property notify the borrower prior to loan origination and require flood insurance.
95
Is a building in the course of construction that is located in an SFHA in which flood insurance is available under the Act eligible for coverage under an NFIP policy?
Yes. Buildings that are yet to be walled and roofed are eligible for coverage except when construction has been halted for more than 90 days or if the lowest floor is below the Base Flood Elevation.
Building materials are not insurable unless they are within an enclosed building on or near the premises.
The policy may be purchased in advance but, coverage does not start until the start of construction (first placement of permanent construction on a building site ex: foundation)
96
When must a lender require the purchase of flood insurance for a loan secured by a building in the course of construction that is located in an SFHA in which flood insurance is available?
Under the Act, as implemented by the Regulation, a lender may not make, increase, extend, or renew any loan secured by a building or a mobile home, located or to be located in an SFHA in which flood insurance is available, unless the property is covered by adequate flood insurance for the term of the loan. One way for lenders to comply with the mandatory purchase requirement for a loan secured by a building in the course of construction that is located in an SFHA is to require borrowers to have a flood insurance policy in place at the time of loan origination.
Alternatively, a lender may allow a borrower to defer the purchase of flood insurance until either a foundation slab has been poured and/or an elevation certificate has been issued or, if the building to be constructed will have its lowest floor below the Base Flood Elevation, when the building is walled and roofed.6 However, the lender must require the borrower to have flood insurance in place before the lender disburses funds to pay for building construction (except as necessary to pour the slab or perform preliminary site work, such as laying utilities, clearing brush, or the purchase and/or delivery of building materials) on the property securing the loan. If the lender elects this approach and does not require flood insurance to be obtained at loan origination, then it must have adequate internal controls in place at origination to ensure that the borrower obtains flood insurance no later than when the foundation slab has been poured and/or an elevation certificate has been issued.
97
Does the 30-day waiting period apply when the purchase of the flood insurance policy is deferred in connection with a construction loan?
Policies purchased not in the event of a MIRE event have a 30 day waiting period.
No. The NFIP will rely on an insurance agent’s representation on the application for flood insurance that the purchase of insurance has been properly deferred unless there is a loss during the first 30 days of the policy period. In that case, the NFIP will require documentation of the loan transaction, such as settlement papers, before adjusting the loss.
98
Some borrowers have buildings with limited utility or value and, in many cases; the borrower would not replace them if lost in a flood. Is a lender required to mandate flood insurance for such buildings?
Yes. Lenders must require insurance on RE improvements with those improvements are part of the property securing the loan and are located in a flood zone.
The lender can carve out buildings from the security of the loan. But lenders should consider the risks in this instance, such has zoning laws and challenges in the event of foreclosure.
99
What are a lender’s requirements under the Regulation for a loan secured by multiple buildings located
throughout a large geographic area where some of the buildings are located in an SFHA in which flood
insurance is available and other buildings are not?
What if the buildings are located in several jurisdictions or counties where some of the communities participate in the NFIP and others do not?
A lender is required to make a determination as to whether the improved real property securing the loan is in an SFHA. If secured improved real estate is located in an SFHA, but not in a participating community, no flood insurance is required, although a lender can require the purchase of flood insurance (from a private insurer) as a matter of safety and soundness.
Conversely, where secured improved real estate is located in a participating community but not in an SFHA, no insurance is required. A lender must provide appropriate notice and require the purchase of flood insurance for designated loans located in an SFHA in a participating community.
100
Are residential condominiums, including multi-story condominium complexes, subject to the statutory and regulatory requirements for flood insurance?
Yes. They apply to the purchase requirements under the reg.
101
What is an NFIP Residential Condominium Building
Association Policy (RCBAP)?
A master policy for residential condos issued by FEMA. (i.e. more than 75% of the building is residential use)
The RCBAP covers both the common and individually
owned building elements within the units, improvements within the units, and contents owned in common (if contents coverage is purchased).
102
What is the max building coverage that can be purchased under an RCBAP?
Lesser of:
-100% of the RCV, including foundation and supporting structures
-Total number of units x $250k
103
What is the amount of flood insurance coverage that a
lender must require with respect to residential
condominium units, including those located in multi- story
condominium complexes, to comply with the mandatory
purchase requirements under the Act and the Regulation?
Lesser of:
-outstanding principal balance
-NFIP max ($250K per unit)
-Insurable value of building divided by number of units.
104
What should a lender do if there is a conflict between the RCV on the RCBAP and other available info on the insurable value?
Notify the borrower of the reasons for the conflict. and if the borrower is underinsured, it should require the purchase of a dwelling policy for supplemental coverage.
105
How much flood insurance is required in this example:
Lender makes a loan in the principal amount of
$300,000 secured by a condominium unit in a 50-unit condominium building, which is located in an SFHA
within a participating community, with a replacement cost of $15 million and insured by an RCBAP with $12.5 million of coverage.
$250,000. Borrower does not need to purchase additional insurance. RCBAP provides required coverage.
• Outstanding principal balance of loan is $300,000
• Maximum amount of coverage available under the NFIP, which is the lesser of:
o Maximum limit available for the residential
condominium unit is $250,000; or
o Insurable value of the unit based on 100 percent of the building’s replacement cost value ($15 million ÷ 50 = $300,000).
106
What action must a lender take if there is no RCBAP
coverage?
They must required the borrower to obtain a dwelling policy for the sufficient amount.
Either for the full amount or for the amount needed to make up for the RCBAP shortfall.
107
What is the required amount of insurance in this example?
The lender makes a loan in the principal amount
of $175,000 secured by a condominium unit in a 50-unit condominium building, which is located in an SFHA
within a participating community, with a replacement cost value of $10 million; however, there is no RCBAP.
The lender must require the individual unit owner/ borrower to purchase a flood insurance dwelling
policy in the amount of at least $175,000, since there is no RCBAP, to satisfy the Regulation’s mandatory flood insurance requirement. (This is the lesser of the outstanding principal balance ($175,000), the maximum
coverage available under the NFIP ($250,000), or the
insurable value ($200,000).)
108
What action must a lender take if the RCBAP coverage is insufficient to meet the Regulation’s mandatory purchase requirements for a loan secured by an individual
residential condominium unit?
the lender should request that the individual unit
owner/borrower ask the condominium association to
obtain additional coverage that would be sufficient to
meet the Regulation’s requirements
If the condominium association does not
obtain sufficient coverage, then the lender must require
the individual unit owner/ borrower to purchase a dwelling policy in an amount sufficient (difference between RCBAP and required coverage)
109
How much flood insurance is required in the following example?
Lender makes a loan in the principal amount of $300,000 secured by a condominium unit in a 50-unit condominium building, which is located in an SFHA
within a participating community, with a replacement cost value of $10 million; however, the RCBAP is at 80 percent of replacement cost value ($8 million or $160,000 per unit)
The lender must require the individual unit owner/ borrower to purchase a flood insurance dwelling
policy in the amount of $40,000 to satisfy the
Regulation’s mandatory flood insurance requirement of $200,000.
(This is the lesser of the outstanding principal balance ($300,000), the maximum coverage available under the NFIP ($250,000), or the insurable value ($200,000).) The RCBAP fulfills only $160,000 of the Regulation’s flood insurance requirement.
110
What are the risks associated with a dwelling policy?
Lenders should apprise borrowers of this risk.
the individual unit owner’s
dwelling policy may contain claim limitations that prevent
the dwelling policy from covering the individual unit
owner’s share of the co-insurance penalty, which is
triggered when the amount of insurance under the RCBAP is less than 80 percent of the building’s replacement cost value at the time of loss.
In addition, following a major flood loss, the insured unit owner may have to rely upon the condominium association’s and other unit owners’ financial ability to make the necessary repairs to common elements in the building, such as electricity, heating, plumbing, and elevators. It is incumbent on the lender to understand these limitations.
111
What must a lender do when a loan secured by a
residential condominium unit is in a complex whose
condominium association allows its existing RCBAP to
lapse?
the lender must notify the individual unit owner/ borrower of the requirement to maintain flood insurance coverage sufficient to meet the Regulation’s mandatory requirements. The lender should encourage the individual unit owner /borrower to work with the
condominium association to acquire a new RCBAP in an
amount sufficient to meet the Regulation’s mandatory
flood insurance requirement
Failing that a dwelling policy is required. If a dwelling unit is not purchased in 45 days of the notification to the borrower, the lender must force place.
112
How does the RCBAP’s co-insurance penalty apply in the case of residential condominiums, including those located in multi-story condominium complexes? (3)
If RCBAP at time of loss is less than 80% RCV then the loss payment is subject to a co-insurance penalty. Which is determined by:
-divide flood insurance carried by 80% of either RCV or NFIP max, whichever is less.
-then multiply that number by the amount of loss (before applying the deductible)
-Then subtract the deductible from that amount.
The insurance will pay out the lesser of :
The final number from above or the amount of insurance carried.
113
Calculate how much the insurance will pay out:
(inadequate insurance amount to avoid penalty)
-Replacement value of the building $250,000
-80% of replacement value of the building $200,000
-Actual amount of insurance carried $180,000
-Amount of the loss $150,000
Deductible $ 500
The policy will pay no more than $134,500. The remaining $15,500 is not covered due to the co-insurance penalty ($15,000) and application of the deductible ($500). Unit owners’ dwelling policies will not cover any assessment that may be imposed to cover the costs of repair that are not covered by the RCBAP.
Step A: 180,000 ÷ 200,000 = .90 (90% of what should be carried to avoid co-insurance penalty)
Step B: 150,000 x .90 = 135,000
Step C: 135,000 – 500 = 134,500
114
Calculate how much the insurance will pay out?
(adequate insurance to avoid penalty)
Replacement value of the building $250,000
80% of replacement value of the building $200,000
Actual amount of insurance carried $200,000
Amount of the loss $150,000
Deductible $ 500
The policy will pay no more than $149,500 ($150,000
amount of loss minus the $500 deductible). This example also assumes a $150,000 outstanding principal loan balance.
Step A: 200,000 ÷ 200,000 = 1.00 (100% of what should be carried to avoid co-insurance penalty)
Step B: 150,000 x 1.00 = 150,000
Step C: 150,000 – 500 = 149,500 In this example there is no co-insurance penalty, because the actual amount of insurance carried meets the 80 percent requirement to avoid the co-insurance penalty.
115
What does an adequate dwelling policy cover in the following situation:
RCBAP insured to at least 80% of the RCV
-the dwelling policy will pay for the part of the loss that exceeds 80% of the RCV allocated to that unit
-will not cover the association's deductible
-will cover building elements after the RCBAP limits have been exhausted, but coverage combinations cannot exceed $250K per unit.
116
What does an adequate dwelling policy cover in the following situation:
(RCBAP insured to less than 80 percent of building replacement cost)
-does not cover reimbursement to the association for the co-insurance penalty
-loss assessment only covers building damages in excess of the 80%. Thus damages must exceed 80% before the dwelling policy is available.
117
What does an adequate dwelling policy cover in the following situation:
No RCBAP
-covers assessments against unit owners for damages to common areas up to the dwelling policy limit.
-if there are damage to building elements of the unit as well, dwelling policy covers those first but will not exceed the coverage limit under the policy.
118
Is a home equity loan considered a designated loan that requires flood insurance?
Yes. A home equity loan is a designated loan, regardless of the lien priority, if the loan is secured by a building or a mobile home located in an SFHA in which
flood insurance is available under the Act.
119
Does a draw against an approved line of credit secured by a building or mobile home, which is located in an SFHA in which flood insurance is available under the Act, require a flood determination under the Regulation?
No. A determination is required before the loan is made or may be required if there is a request to increase the line. But draws on the line do not require a determination.
120
When a lender makes, increases, extends, or renews a second mortgage secured by a building or mobile home located in an SFHA, how much flood insurance must the lender require?
The lender must ensure adequate flood insurance is in place or require coverage be added. Lesser of:
-combined total balance on first and second lien
-NFIP Max
-Insurable value
Both lienholders should work together with the borrower to determine how much flood insurance is needed to cover the collateral.
121
What if a junior lien holder is unable to obtain the necessary info about the amount of flood insurance in place on the outstanding balance on the senior lien?
lender may presume that the amount of insurance
coverage relating to the senior lien in place at the time the junior lien was first established continues to be sufficient. (assuming it was adequate at the time of origination)
122
How can a junior lender determine the amount of flood insurance on a loan held by a senior lender? (2)
-obtain borrower consent in the loan agreement to obtain info on the balance and flood insurance amounts from the senior lien holder
-pull a borrowers credit to establish how much flood insurance is required for increasing or renewing a junior lien.
123
How much flood insurance is required in the following example?
Lender A makes a first mortgage with a principal balance of $100,000, but requires only $75,000 of flood insurance coverage, which the borrower satisfied by obtaining an NFIP policy. Lender B issues a second mortgage with a principal balance of $50,000. The insurable value of the residential building securing the loans is $200,000.
Lender B must ensure that flood insurance in the amount of $150,000 is purchased and maintained. If Lender B were to require additional flood insurance only in an amount equal to the principal balance of the second mortgage ($50,000), its interest in the secured property would not be fully protected in the event of a flood loss because Lender A would have prior claim on $100,000 of the loss payment towards its principal balance of $100,000, while Lender B would receive only $25,000 of the loss payment toward its principal balance of $50,000.
124
How much flood insurance is required in the following example?
Lender A, who is not directly covered by the Act or Regulation, makes a first mortgage with a principal
balance of $100,000 and does not require flood insurance. Lender B, who is directly covered by the Act and Regulation, issues a second mortgage with a principal balance of $50,000. The insurable value of the residential building securing the loans is $200,000.
Lender B must ensure that flood insurance in the amount of $150,000 is purchased and maintained. If Lender B were to require flood insurance only in an amount equal to the principal balance of the second mortgage ($50,000) through an NFIP policy, then its interest in the secured property would not be protected in the event of a flood loss because Lender A would have prior claim on the entire $50,000 loss payment towards its principal balance of $100,000.
125
How much flood insurance is required in the following example?
Lender A made a first mortgage with a principal balance of $100,000 on improved real estate with a fair market value of $150,000. The insurable value of the residential building on the improved real estate is $90,000; however, Lender A required only $70,000 of flood insurance coverage, which the borrower satisfied by purchasing an NFIP policy. Lender B later takes a second mortgage on the property with a principal balance of $10,000.
Lender B must ensure that flood insurance in the amount of $90,000 (the insurable value) is purchased and maintained on the secured property to comply with the Act and Regulation. If Lender B were to require flood insurance only in an amount equal to the principal balance of the second mortgage ($10,000), its interest in the secured property would not be protected in the event of a flood loss because Lender A would have prior claim on the entire $70,000 loss payment towards the insurable value of $90,000.
126
If a borrower requesting a loan secured by a junior lien provides evidence that flood insurance coverage is in place, does the lender have to make a new determination?
Does the lender have to adjust the insurance coverage?
It depends.
If the same lender made the first mortgage a new determination is not needed if the old one is not more than 7 years old, no map changes, and it was recorded on a SFHDF. If the lenders are different you would need to get a new determination because this is a MIRE event.
In either situation, the lender would need to ensure the property was adequately covered.
127
If the loan request is to finance inventory stored in a building located within an SFHA, but the building is not security for the loan, is flood insurance required?
No because the collateral is not the type that would secured a designated loan as it does not include a building or mobile home. It is just inventory alone.
128
Is flood insurance required if a building and its contents
both secure a loan, and the building is located in an SFHA in which flood insurance is available?
Yes. Flood insurance is required for the building
located in the SFHA and any contents stored in that
building.
129
how much flood insurance is required in the following example?
Lender A makes a loan for $200,000 that is
secured by a warehouse with an insurable value of
$150,000 and inventory in the warehouse worth $100,000.
The maximum amount of insurance that is available for both building and contents is $500,000 for each category. In this situation, federal flood insurance requirements could be satisfied by placing $150,000 worth of flood insurance coverage on the warehouse, thus insuring it to its insurable value, and $50,000 worth of contents flood insurance coverage on the inventory, thus providing total coverage in the amount of the outstanding principal ($200,000).
balance of the loan.
130
If a loan is secured by Building A, which is located in an SFHA, and contents, which are located in Building B, is flood insurance required on the contents securing a loan?
No. If collateral securing the loan is stored in Building B, which does not secure the loan, then flood insurance is not required on those contents whether or not Building B is located in an SFHA.
131
Does the Regulation apply where the lender takes a security interest in a building or mobile home located in an SFHA only as an ‘‘abundance of caution’’?
Yes. The Act and Regulation look to the collateral securing the loan. If the lender takes a security interest in improved real estate located in an SFHA, then flood insurance is required.
132
If a borrower offers a note on a single-family dwelling as collateral for a loan but the lender does not take a security interest in the dwelling itself, is this a designated loan that requires flood insurance?
No. A designated loan is a loan secured by a building or mobile home. In this example, the lender did not take a security interest in the building; therefore, the loan is not a designated loan.
133
If a lender makes a loan that is not secured by real estate, but is made on the condition of a personal guarantee by a third party who gives the lender a security interest in improved real estate owned by the third party that is located in an SFHA in which flood insurance is available, is it a designated loan that requires flood insurance?
Yes. The making of a loan on condition of a personal guarantee by a third party and further secured by improved real estate, which is located in an SFHA, owned by that third party is so closely tied to the making of the loan that it is considered a designated loan that requires flood insurance
134
A regulated lender originates a designated loan secured by a building or mobile home located in an SFHA in which flood insurance is available under the Act. The regulated lender makes the initial flood determination, provides the borrower with appropriate notice, and flood insurance is obtained. The regulated lender initially services the loan; however, the regulated lender subsequently sells both the loan and the servicing rights to a nonregulated party.
What are the regulated lender’s requirements under the Regulation?
What are the regulated lender’s requirements under the Regulation if it only transfers or sells the servicing rights, but retains ownership of the loan?
If the lender sells the loan and servicing rights they must provide notice of the identity of the new servicer to FEMA then has no further obligations.
If ownership is maintained but servicing is transferred, the lender must notify FEMA of the new servicer. The servicing contract should require the servicer to comply with the regulation including escrow, force placement, and flood determination fees. However, as they are unregulated, it is the lenders ultimate responsibility to ensure the loan servicer maintains compliance as the lender remains ultimately liable.
135
A non-regulated lender originates a designated loan, secured by a building or mobile home located in an SFHA in which flood insurance is available
under the Act. The non-regulated lender does not make an initial flood determination or notify the borrower of the need to obtain insurance. The non-regulated lender sells
the loan and servicing rights to a regulated lender.
What are the regulated lender’s requirements under the Regulation?
What are the regulated lender’s requirements
if it only purchases the servicing rights?
The purchase of the loan and servicing rights is not a MIRE event. However, if the lender becomes aware at any point during the life of the loan that flood insurance is required they must comply with the regulation including force placement.
If the regulated lender just purchases the servicing rights, they are only obligated to follow the terms of its servicing contract with the owner of the loan. If the regulated lender sells or transfers the servicing rights, they must notify FEMA the identity of the new servicer, if that is included in the contract.
136
When a regulated lender makes a designated loan and will be servicing that loan, what are the requirements for notifying the Director of FEMA or the Director’s designee?
FEMA stated in a June 4, 1996, letter that the
Director’s designee is the insurance company issuing the flood insurance policy. The borrower’s purchase of a policy (or the regulated lender’s force placement of a policy) will constitute notice to FEMA when the regulated lender is servicing that loan. In the event the servicing is subsequently transferred to a new servicer, the regulated lender must provide notice to the insurance company of the identity of the new servicer no later than 60 days after the effective date of such a change.
137
Would a RESPA Notice of Transfer sent to the Director of FEMA (or the Director’s designee) satisfy the regulatory provisions of the Act to notify FEMA?
Yes. The delivery of a copy of the Notice of Transfer or any other form of notice is sufficient if the sender includes, on or with the notice, the following information that FEMA has indicated is needed by its designee:
24. Borrower’s full name;
25. Flood insurance policy number;
26. Property address (including city and state);
27. Name of lender or servicer making notification;
28. Name and address of new servicer; and
29. Name and telephone number of contact person at new servicer.
138
Can delivery of the notice to FEMA be made electronically, including batch transmissions?
Yes. The Regulation specifically permits
transmission by electronic means. A timely batch
transmission of the notice would also be permissible, if it is acceptable to the Director’s designee.
139
Is a regulated lender required to provide notice when the servicer, not the regulated lender, sells or transfers the servicing rights to another servicer?
No. After servicing rights are sold or transferred, subsequent notification obligations are the responsibility of the new servicer.
140
In the event of a merger or acquisition of one lending institution with another, what are the responsibilities of the parties for notifying the Director’s designee?
If an institution is acquired by or merges with another institution, the duty to provide notice for the loans being serviced by the acquired institution will fall to the successor institution in the event that notification is not provided by the acquired institution prior to the effective date of the acquisition or merger.
141
Are multi-family buildings or mixed-use properties included in the definition of “residential improved real estate” under the Regulation for which escrows are required?
Multifamily: Yes if the building is a home or other residential building located in a SFHA with NFIP available. However, the lender is not required to escrow if it does not require escrow for any other charges like Hazard or taxes.
Mixed use: Yes, if the building's primary use is residential.
142
True or False:
If a lender requires the escrow of taxes, insurance premiums, fees, or any other charges for a loan secured by residential improved real estate or a mobile home, the lender must also require the escrow of all flood insurance premiums and fees.
True
143
Do voluntary escrow accounts established at the request of the borrower trigger a requirement for the lender to escrow premiums for required flood insurance?
No, if escrow accounts for other purposes are established at the request of the borrower, the lender is not required to escrow for flood.
144
Will premiums paid for credit life insurance, disability insurance, or similar insurance programs be viewed as escrow accounts requiring the escrow of flood insurance premiums?
No
145
Will escrow-type accounts for commercial loans, secured by multi-family residential buildings, trigger the escrow requirement for flood insurance premiums?
It depends.
interest reserve accounts, compensating balance accounts, and marketing accounts do not count as escrow accounts.
But accounts for hazard and taxes would trigger the requirements.
146
Which requirements for escrow accounts apply to
properties adequately covered by RCBAPs?
If coverage is adequate escrow is not required.
However if RCBAP is inadequate and the unit is also covered by a dwelling policy, premiums for the dwelling policy would need to be escrowed if the lender requires escrow for other purposes.
147
Can a servicer force place on behalf of a lender?
Yes. Assuming the statutory prerequisites for force placement are met, and subject to the servicing contract between the lender and the servicer, the Act clearly authorizes servicers to force place flood insurance on behalf of the lender, following the procedures set forth in the Regulation.
148
Is a reasonable period of time allowed after the end of the 45-day notice period for a lender or its servicer to
implement force placement?
The Regulation provides that the lender or its servicer shall purchase insurance on the borrower’s behalf if the borrower fails to obtain flood insurance within 45 days after notification. However, where there is a brief delay in
force placing required insurance, the Agencies will expect the lender to provide a reasonable explanation for the delay, for example, where a lender uses batch processing to purchase force-placed flood insurance policies.
149
May a lender rely on a private insurance policy to meet its obligation to ensure that its designated loans are covered by an adequate amount of flood insurance?
It depends. A private insurance policy may be an adequate substitute for NFIP insurance if it meets the criteria set forth by FEMA in its Mandatory Purchase of Flood Insurance Guidelines. to the extent that a private policy differs from the NFIP Standard Flood Insurance Policy. The differences should be carefully examined before the policy is accepted as sufficient protection under the law.
150
When may a lender rely on a private insurance policy that does not meet the criteria set forth by FEMA?
A lender may rely on a private insurance policy that does not meet the criteria set forth by FEMA only in limited circumstances.
For example, when a flood insurance policy has expired and the borrower has failed to renew coverage, private insurance policies that do not meet the criteria set forth by FEMA, such as private insurance policies providing portfolio-wide blanket coverage, may be useful protection for the lender for a gap in coverage in the period of time before a force placed policy takes effect. However, the lender must still force place adequate coverage in a timely manner, as required, and may not rely on a private insurance policy that does not meet the criteria set forth by FEMA on an ongoing basis.
151
Does the SFHDF replace the borrower notification form?
No. Th SFHDF is used to determine if the building is in a flood zone. While the notification form is used to notify the borrower that the building is in a flood zone and to inform them of the requirements and availability of insurance.
152
May a lender provide the SFHDF to the borrower?
Yes. This is not required but is permitted.
Especially when the borrower wants to provide the SFHDF to the insurance company to avoid discrepancies.
Also, the lender would need to make the SFHDF available to the borrower in the case of a special flood hazard determination review.
153
May the SFHDF be used in electronic format?
Yes. In the final rule adopting the SFHDF, FEMA stated: “If an electronic format is used, the format and exact layout of the Standard Flood Hazard Determination Form is not required, but the fields and elements listed on the form are required. Any electronic format used by lenders must contain all mandatory fields indicated on the form.” It should be noted, however, that the lender must be able to reproduce the form upon receiving a document request by its federal supervisory agency.
154
May a lender rely on a previous determination for a
refinancing or assumption of a loan or multiple loans to
the same borrower secured by the same property?
It depends.
A lender can rely on a previous form when increasing, extending, renewing or purchasing a loan. Making a loan is not a permissible event that permits a lender to rely on a previous determination.
Additionally, if the refinance is with the same lender, the previous SFHDF cannot be more than 7 years from the date of the transaction.
If any map revisions, or updates have occurred to the secured property, or the refinance is with a new lender (making), then a new SFHDF is needed.
If there are multiple loans secured by the same property. the same SFHDF can be used, as long as its no more than 7 years old, there have been no map changes, or significant building changes.
155
May charges made for life-of-loan reviews by flood
determination firms be passed along to the borrower?
Yes, but only in same situations in which a lender can charge the flood determination fee.
30. When the determination is made in connection with the making, increasing, extending, or renewing of a loan that is initiated by the borrower;
31. When the determination is prompted by a revision or updating by FEMA of floodplain areas or flood-risk zones;
32. When the determination is prompted by FEMA’s publication of notices or compendia that affect the area in which the security property is located; or
33. When the determination results in force placement of insurance.
156
What should a lender do when there is a discrepancy
between the flood hazard zone designation on the flood determination form and the flood insurance policy?
Concern is only warranted if the discrepancy is in a flood zone (A or V). if there is a discrepancy the lender should first note:
-if this is from a "grandfather rule" all is well
-if its from a mistake then recheck the SFHDF with third party that provided it, then request FEMA review the determination to determine accuracy.
-if there is still an issue, inform the insurance company of their requirement to write a policy that covers flood zones and document communication in the file. (if this is done no violation will be cited if a discrepancy remains.)
157
What is the Grandfather rule?
This rule provides for the continued use of a rating
on an insured property when the initial flood insurance policy was issued prior to changes in the hazard rating for the particular flood zone where the property is located.
The Grandfather Rule allows policyholders who have maintained continuous coverage and/or who have built in compliance with the Flood Insurance Rate Map to continue to benefit from the prior, more favorable rating for particular pieces of improved property.
158
Does the Special flood hazard notice have to be provided to each borrower of a real estate loan?
No. In a transaction with multiple borrowers, this need only be provided to one of the borrowers.
And only if the property is in a SFHA.
159
Lenders making loans on mobile homes may not always know where the home is to be located until just prior to, or sometimes after, the time of loan closing. How is the SFH notice requirement applied in these situations?
When not possible to provide in advance of origination, the notice can be provided as soon as practicable after determination.
Mobile homes that will not be located on a permanent foundation are excluded from the definition of a mobile home under the reg and notice requirements wouldn't apply. However, if the home is later put on a foundation flood insurance is required.
At that time the lender would be responsible for ensuring the home is adequately insured or implement force place procedures.
160
When is the lender required to provide notice to the
servicer of a loan that flood insurance is required?
What will constitute appropriate form of notice to the servicer?
Because the servicer of a loan is often not identified prior to the closing of a loan, the Regulation requires that notice be provided no later than the time the lender transmits other loan data, such as information concerning hazard insurance and taxes, to the servicer.
Copy of the notice given to the borrower.
161
In the case of a servicer affiliated with the lender, is it
necessary to provide the flood notice?
Yes. The Act requires the lender to notify the servicer of special flood hazards and the Regulation reflects this requirement. Neither contains an exception for affiliates.
162
How long does the lender have to maintain the record of receipt by the borrower of the SFH notice?
For the time the lender owns the loan.
163
Can a lender rely on a previous notice if it is less than seven years old, and it is the same property, same borrower, and same lender?
No. This only applies to the determination.
A new notice is required even if a new determination is not.
164
Which violations of the Act can result in a mandatory civil money penalty?
A pattern or practice of violations of any of the following requirements of the Act and their implementing Regulation triggers a mandatory civil money penalty:
Failure to...
34. Purchase of flood insurance where available(42 U.S.C. 4012a(b));
35. Escrow of flood insurance premiums (42 U.S.C. 4012a(d));
36. Force placement of flood insurance (42 U.S.C. 4012a(e));
37. Notice of special flood hazards and the availability of Federal disaster relief assistance (42 U.S.C. 4104a(a)); and
38. Notice of servicer and any change of servicer (42 U.S.C. 4101a(b)).
165
What constitutes a “pattern or practice” of violations for which civil money penalties must be imposed under the Act?
The act does not define pattern or practice, but the FDIC policy is:
Isolated, unrelated, or accidental occurrences will not constitute a pattern or practice. However, repeated, intentional, regular, usual, deliberate, or institutionalized practices will almost always constitute a pattern or practice. The totality of the circumstances must be considered when assessing whether a pattern or practice is present.
166
In determining whether a financial institution has engaged in a pattern or practice of flood insurance violations, the Agencies’ considerations may include, but are not limited to, the presence of one or more of the following factors: (8)
• Whether the conduct resulted from a common cause or source within the financial institution’s control;
• Whether the conduct appears to be grounded in a written or unwritten policy or established practice;
• Whether the non compliance occurred over an extended period of time;
• The relationship of the instances of noncompliance to one another (for example, whether the instances of noncompliance occurred in the same area of a financial institution’s operations);
• Whether the number of instances of noncompliance is significant relative to the total number of applicable transactions. (Depending on the circumstances, however, violations that involve only a small percentage of an institution’s total activity could constitute a pattern or practice);
• Whether a financial institution was cited for violations of the Act and Regulation at prior examinations and the steps taken by the financial institution to correct the identified deficiencies;
• Whether a financial institution’s internal and/or external audit process had not identified and addressed deficiencies in its flood insurance compliance; and
• Whether the financial institution lacks generally effective flood insurance compliance policies and procedures and/or a training program for its employees.
