1 Flood Insurance

2 Flood - History History of the Law –National Flood Insurance Act of 1968 Federally subsidized insurance became available Voluntary insurance –Flood Disaster Protection Act of 1973 Mandatory Insurance for federally regulated lenders –National Flood Insurance Reform Act of 1994 Force place insurance Mandatory escrow of payments

3 Flood - Terms Basic Terms Participating Community –Voluntarily elects to participate in the flood program by adopting and enforcing floodplain management –Emergency Program Phase one (FHBM map of community) Regular Program –Comprehensive flood plain management –FIRM (rate map) has been drawn Non-participating (no government insurance available)

4 Flood Requirements What type of loans are subject to flood insurance?

5 Flood - Requirements General Rule –Flood insurance is required for loans secured by buildings or mobile home located is an area designated by FEMA as having special flood hazards

6 Flood - Requirements Statutory Tripwires –Whenever a lender Makes Increases Renews or Extends a loan –Secured by improved real property or a mobile home –The lender must check for flood hazards

7 Flood - Requirements Insurance must be carried for term of loan Policy usually written for 1-3 year terms Check older loans for insurance renewals

8 Eligible Buildings

9 Improved Real Estate –Two or more outside rigid walls and a secured roof affixed to a permanent site Manufactured homes –Attached to a foundation support system Construction Loans –Covers materials and supplies intended for use in the construction contained within an enclosed building on the premises or adjacent to the premises

10 Eligible Buildings Condominiums –Covered by a RCBAP policy (Residential Condominium Association Policy) applies to all high-rise and low-rise residential condominium buildings –Covers common areas –Dwelling Policy available for individual unit if RCBAP is not sufficient coverage

11 Flood - Exceptions Any State-owned property covered under a policy of self-insurance satisfactory to the Director of FEMA, who publishes and periodically revises the list of States falling within this exemption; or Property securing any loan with an original principal balance of $5,000 or less and a repayment term of one year or less.

12 Pre-closing Rules What to do before closing the loan

13 Find the Flood Zone Complete Determination Form

14 Flood Zone What is a flood zone? –Your required to list it on the “Determination Form.”

15 Flood Zone Flood Maps –Flood Hazard Boundary Map (FHBM) Used for the initial review for communities in the Emergency program –Flood Insurance Rate Map (FIRM) Once developed communities can join the regular program Zones A & V – require flood insurance Chance of flooding –1 % in any given year –Based on the 100 year flood

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17 Flood Determination Form

18 Flood Determination Form Official Form –developed by FEMA –can use previous determinations within 7 years Format –paper or electronic (link)(link) –Copies can be obtained from FEMA Record retention –Copy of the form in the bank’s file –Copy kept for the time the lender owns the loan

19 Amount of Flood Insurance

20 Flood Insurance Amounts Amount –The lesser of: Outstanding Principal Loan Balance (less the value of the land), or The maximum limit available under the Act Coverage –Only includes the value of the improved property (Can not insure dirt)

21 Flood Insurance Amounts Building Coverage Emergency Program Regular Program Single Family$35,000$250, Family$35,000$250,000 Other Res$100,000$250,000 Nonresidential$100,000$500,000 Contents Residential$10,000$100,000 Nonresidential$100,000$500,000

22 Customer Notice

23 Customer Notice Flood Notice –The borrower & servicer must be provided a copy of the Flood Notice: When the bank makes, increases, extends, or renews a loan secured by a building or a mobile home located in a special flood hazard area

24 Customer Notice Contents (Link)(Link) –Warning that the building or mobile home is located in a special flood hazard area –Description of the flood insurance purchase requirements –Statement if flood insurance is available for NFIP –Statement whether federal disaster relief assistance is available if flooding occurs

25 Customer Notice Timing of Notice –Provided within reasonable time before completion of the transaction Ten Days is considered reasonable by the banking agencies Record of Receipt –Bank shall retain a record of the receipt of the notices by the borrower and the servicer for the time it owns the loan

26 Special Rules Government Guaranteed High Ground Areas

27 Special Rules Government Guaranteed Loan –A lender can not make a loan guaranteed by the SBA, VA or FRA on improved property in a SFHA in a non-participating community. Above the BFE (Natural Islands) –Occasionally, a flood map will show property as clearly being in an SFHA even though the building on the property is actually above the Base Flood Elevation (BFE). Until the map is physically revised, lenders are bound by the information shown on FEMA maps unless a valid Letter of Map Amendment (LOMA) or Letter of Map Revision (LOMR) has been issued by FEMA.

28 Special Rules Letter of Map Amendment (LOMA) –Customer initiated, a property owner can submit property and elevation materials to FEMA in support of a request for LOMAR removing the property from the SFHA Letter of Map Revision (LOMR) –Must be initiated or approved by the community

29 Closing - Flood Insurance

30 Escrow Requirements If bank regularly escrows taxes and insurance, – it must also escrow for flood insurance premiums –Subject to RESPA escrow rules Section 10 of RESPA & of HUD X Commercial loans not subject to rule Loans made after October 1, 1996

31 Post Closing - Flood Insurance

32 Forced Placement Provisions The act and regulation require a lender to force place flood insurance if all of the following circumstances occur: –If the lender determines at any time during the life of the loan that the property securing the loan is located in an SFHA –the community in which the property is located participates in the NFIP –flood insurance coverage is inadequate or does not exist –the borrower fails to purchase the appropriate amount of coverage

33 Forced Placement Provisions Notification of Force Placement –A lender must notify the borrower of: the required amount of flood insurance that must be obtained within 45 days after notification. State that if the borrower does not obtain the insurance within the 45-day period, the lender will purchase the insurance on behalf of the borrower and may charge the borrower the cost of premiums and fees to obtain the coverage.

34 Portfolio Monitoring Monitoring –Banks are encouraged to monitor flood insurance requirements through periodic portfolio reviews –While not required, failure to require insurance increases risk of loss to the bank Common Errors –Failure to ensure customer continue to purchase insurance policies at renewal –Failure to obtain sufficient insurance amounts at closing

35 Questions Thanks for your Time