Presentation on theme: "Evidence of NFIP Flood Insurance and Documenting Grandfathering"— Presentation transcript:
1 Evidence of NFIP Flood Insurance and Documenting Grandfathering AgendaIntroductionsOverviewLender PerspectiveGSE PerspectiveAgency PerspectiveWYO PerspectiveFEMA PerspectiveFuture PossibilitiesSummaryQuestionsNFC 2010 Workshop | Apr. 12, | San Diego, CA
2 Our Panelists Lauri Lydecker – People’s United Bank IntroductionsOur PanelistsLauri Lydecker – People’s United BankBob Cope – Freddie MacDebbie Freeman – Gambrell & Sturges LLCPatricia Latshaw – American Bankers Insurance Company of FLBarry Thomas – State Farm InsuranceTuula Young – FEMA/NFIPLinda Mackey – IIABA2
3 OverviewEvidence of NFIP Flood Insurance and Documenting NFIP Grandfathering EligibilityThe necessary evidence of NFIP flood insurance raises many questions.We’ll be discussing the current options, plus some possibilities for the future.
4 What defines acceptable evidence for lenders? Lender PerspectiveWhat defines acceptable evidence for lenders?Mandatory Purchase of Flood Insurance Guidelines (pg 26),Flood Insurance Application and premium payment, orDeclarations PageSpecifically excludes Binders and Certificates of InsuranceVery few lenders or regulators are familiar with the Flood Insurance Manual or its 2008 amendment regarding Certificates.Interagency Q&As Regarding Flood InsuranceGrandfather Rule eligibility must be substantiated (Question #71)
5 Lender Challenges Regulator scrutiny and fines Lender PerspectiveLender ChallengesRegulator scrutiny and finesOver $4,900,000 in regulator penalties since Katrina*Loan officer knowledge of the flood law and NFIPProgram complexitiesRequests for RCBAP to reflect lender, in errorBalance between a customer service focus and regulatory compliance* Per BankersOnline.com “Flood Penalties Watch”5
6 Lender Challenges Agent knowledge of the flood law and NFIP Lender PerspectiveLender ChallengesAgent knowledge of the flood law and NFIP434,800 insurance agents*Unfamiliarity with FEMA’s April 2008 letter W-08021Claims of Grandfather Rule eligibility without supportCertificates of Insurance with unreliable information* Per the Bureau of Labor Statistics – 20086
7 Freddie Mac Best Practices Government Sponsored Entity PerspectiveFreddie Mac Best PracticesCurrent evidence of flood insurance via a copy of the insurance declaration page. The declaration page should include the following key data elements:Address of the property insuredName of borrower insured (if not a condominium policy)Effective dates of the policy coverage periodAmount of coverage on the structureDeductible amount on the structureReplacement cost would be nice, but istypically not a data element provided7
8 Freddie Mac Best Practices - Condos Government Sponsored Entity PerspectiveFreddie Mac Best Practices - CondosNumber of units in the complex (or each building if buildings are insured separately)Amount of coverage per building if coverage is so structuredReplacement cost value (by building or complex) based on how coverage is structuredThe original flood zone determination form used at origination to determine the plotting of the property and if insurance is required. If a subsequent FZD was performed, that determination will be needed as well.Evidence of the current unpaid principal balance (UPB) of the loan. This is normally provided as a "screenshot" from the Lender's servicing system.8
9 Freddie Mac Remediation of Noncompliance Issues Government Sponsored Entity PerspectiveFreddie Mac Remediation of Noncompliance IssuesIf the noncompliance issue results from the testing of individual loans and results in inadequate coverage, lapsed, or non-existing coverage, the Servicer will be required to obtain and provide evidence that insurance has been obtained (either by the borrower or the Servicer) to bring the coverage in line with our requirements.9
10 Agency Lender - Coordination Insurance Agency PerspectiveAgency Lender - CoordinationBasic PremiseMajority of agents want to provide correct info 1st time.Most lenders want to resolve documentation 1st time.Property Insurance Appraisal Information Often Available. Ask agency for copies.Lenders need to centralize information gatheringAt least 3 have different processing centers for Flood & HazardCurrently require borrowers/agents to provide 2 COIsNeed to share information not ask for duplicate COIs10
11 Agency Lender - Coordination Insurance Agency PerspectiveAgency Lender - CoordinationLender/Agency Liaison needed at processing centersResolve issues when COIs have been sent 3+ timesTechnology system updatesNeed ability to identify & update all condo unit owners at one time.Large commercial properties often have multiple carriers; need ability to document multiple property/flood carriers.11
12 The WYO Company – How can they help? WYO PerspectiveThe WYO Company – How can they help?Acceptable Evidence of Flood InsuranceDeclarations PageGrandfatheringNew Business: Provided on Declarations Page – Yes/NoExisting Business: Update declarations page to show Grandfathering if supporting documentation is in file for “built in compliance” or “continuous coverage”12
13 FEMA Concerns Incorrect forms used FEMA PerspectiveFEMA ConcernsIncorrect forms usedUnit owner’s lender insisting to be added as a mortgagee on the RCBAP
14 FEMA PerspectiveFEMA ConcernsIncorrect information on Certificates of Property Insurance inadvertently misrepresenting the NFIP coverage.Misleading because a Certificate of Property Insurance is only information about the coverage at that point in time and is not binding.Information on a Certificate of Property Insurance must mirror the information on the declarations page, but often does not.
15 Given these problems, FEMA is considering FEMA PerspectiveGiven these problems, FEMA is consideringRemoval of the optional use of Certificates at NFIP policy renewal and accept only the use of copies of the Declarations Page or copies of the SFIP application and proof of payment;orKeeping Certificates available “at renewal” with conditions to assist all the stakeholders.15
16 FEMA PerspectivePossible ConditionsCertificates of Property Insurance, mirroring the information on the applicable NFIP Declarations PageMust include:Insured’s name and address;Location;Mortgagee;Policy Number;Policy Form (PRP, GP, DP, RCBAP, GFIP);Policy Term;Coverage A &/or B Limits;Deductibles;Flood Hazard Zone;NFIP Grandfathering – Yes/No (documentation required);Annual PremiumIf an RCBAP:the number of units; andBuilding RCV16
17 Future PossibilitiesACORD WorkgroupDrafting an Evidence of Flood Insurance form – ACORD 29Why?When?17
18 Future PossibilitiesOptional UseCertificates of Property Insurance “at NFIP policy renewal” as a matter of information (a snapshot) of what the coverage is on the date the Certificate is completed. The insured or mortgagee may require a copy of the policy Declaration Page at policy renewal since Certificates of Property Insurance do not bind coverage under the NFIP. The Certificate of Liability is not acceptable for the NFIP policies.18
19 SummaryEvidence of NFIP Flood Insurance and Documenting NFIP Grandfathering EligibilityProperly documenting evidence of flood insurance is a key component of a lender’s compliance obligations.Our discussion has reviewed the current options available to lenders, plus some possibilities for the future.