Loans in Flood Hazard Areas

Question 1

What is considered a “designated loan?” What are the exceptions?

Answer 1

Loan secured by a building or mobile home (including manufactured homes) that is located or will be located in an SFHA within a community that participates in the NFIP.

EXCEPTIONS

• Any state-owned property covered under a policy of self-insurance satisfactory to the administrator of FEMA
• Property securing any loan with an original principal balance of $5,000 or less and a repayment term of one year or less
• Any structure that is part of any residential property but is detached from the primary residential structure and does not serve as a residence

Question 2

Under what circumstances is a credit union required to escrow for flood insurance premiums and fees?

Answer 2

• Require the escrow of all premiums and fees for flood insurance in connection with designated loans made, increased, extended or renewed ON or AFTER January 1, 2016.
• For loans made BEFORE January 1, 2016:
  
  • If it also escrows for taxes, insurance premiums, fees or other charges.
  • Credit unions must offer borrowers the option to escrow premiums and fees for flood insurance for loans made before January 1, 2016, that are not subject to mandatory escrow.

Question 3

Under which circumstances is a credit union required to provide the flood notice to borrowers? Be familiar with the exceptions.

Answer 3

When a credit union makes, increases, extends or renews a loan secured by a building or a mobile home located or to be located in a SFHA, it must provide a written notice of flood hazards to the borrower within a reasonable time before consummation of the loan.

• This notice is required regardless of whether the building or mobile home securing the loan is located in a community that participates in the NFIP.

EXCEPTIONS

• Not a MIRE event
• Not located in an SFHA

Question 4

When may a credit union rely on a past Standard Flood Hazard Determination form?

Answer 4

1. If the credit union increases, extends, renews or purchases a loan
2. If the credit union makes subsequent loans to the same borrower secured by the same building
3. If a loan refinancing or assumption is made by the same lender who obtained the original SFHDF on the same property, the lender may rely on the original SFHDF under the same conditions

• Determination is not more than 7 years old
• Basis for the determination was set forth on the SFHDF
• No map revisions or updates since that determination was made