Flood

What are the flood insurance amounts under the emergency program phase?

$35,000 for single-family and two-to-four family dwellings and other residential structures $100,000 for nonresidential structures

What is insurable value?

Value of a building minus the land on which the property is located

When must the flood notice be delivered?

Within a "reasonable time" before the completion of the transaction The agencies consider 10 days "reasonable" notice

Can financial institutions exercise discretion in accepting flood insurance coverage issued by mutual aid societies?

Yes. Provided that certain criteria are met

What are residential buildings?

- 1-4 family dwellings - Apartment or other residential buildings containing more than 4 dwelling units - Condos and co-ops in which at least 75% of the square footage is residential - Hotels/motels where the normal occupancy of a guest is 6 months or more - Rooming houses that have more than 4 roomers

When can borrowers be charged a specific fee for flood determination?

- In connection with a MIRE event - When the determination is prompted by a revision or updating by FEMA of floodplain areas or flood-risk zones - 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 - when the determination results in force placement of insurance

If the initial purchase of flood insurance is made during the 13-month period following revision or update of a flood insurance rate map for the community, what is the waiting period?

1 day

If there is a flood map change, how long is the waiting period? what are the other waiting periods?

1 day MIRE event immediately 30 days if not issued in conjunction with a MIRE event

The flood insurance purchase requirements do not apply to what three loan situations?

1. Loans on state-owned property covered under an adequate policy of self-insurance satisfactory to the administrator of FEMA 2. Loans with an original principal balance of $5,000 or less, and having an original repayment term of one year or less 3. Any structure that is a part of any residential property but is detached from the primary residential structure of such property and does not serve as a residence

Institutions must terminate force-placed insurance within ________ days of receipt of confirmation of a borrowers existing flood insurance coverage

30 days

How many days written notice does an insurer need to give before cancellation or non-renewal of flood insurance coverage?

45 days

What are the potential civil money penalties for institutions patterns practices of flood violations?

Agencies are required to assess civil money penalties in an amount not to exceed $2,000 PER VIOLATION Note: No penalty may be imposed after the expiration of four years beginning on the date of the occurrence of the violation

When should a lender be concerned about a discrepancy on the SFHDF and the flood insurance policy?

If the discrepancy is between a high-risk zone (A or V) and a low- or moderate-risk zone (B, C, D, or X)

What structures are covered by the NFIP?

Improved real property or mobile homes located or to be located in an area identified by FEMA as having special flood hazards

Will escrow-type accounts for commercial loans, secured by multi-family residential buildings, trigger the escrow requirement for flood insurance premiums?

It depends. Escrow-type accounts established in connection with the underlying agreement between the buyer and seller, or that relate to the commercial venture itself, such as "interest reserve accounts," "compensating balance accounts," "marketing accounts," and similar accounts are not the type of accounts that constitute escrow accounts for the purpose of the Regulation. However, escrow accounts established for the protection of the property, such as escrows for hazard insurance premiums or local real estate taxes, are the types of escrow accounts that trigger the requirement to escrow flood insurance premiums

What should an institution do if there is no RCBAP?

Obtain a dwelling policy or if the RCBAP coverage is less than 100 percent of the RCV of the building

How do examiners evaluate whether a mutual aid society plan qualifies as flood insurance.

On a case-by-case basis relying on the requirements of individual states' laws and the financial institutions due diligence when assessing compliance with the final rules first criterion

What are the two ways flood insurance may be provided?

The NFIP Private Insurance

True or False: An institution or servicer must offer and make available to borrowers the option to escrow flood insurance premiums and fees for loans secured by residential improved real estate or a mobile home that are outstanding as of January 1, 2016.

True

True or False: If an institution accepts private flood insurance policies, the policy must contain, "This policy meets the definition of private flood insurance contained in 42 USC 4012a(b)(7) and the corresponding regulation;" or (b) the policy meets the definition of "private flood insurance" as set forth in the regulation

True

True or False: If an institution no longer qualifies for the small lender exception, verify that the institution started requiring escrow on designated loans MIRE'd on or after July 1 of the first calendar year of changed status

True

True or False: NFIP flood insurance policies that are not issued in conjunction with MIRE events have a 30-day waiting period

True

Does flood apply where a security interest in improved real property is taken only out of an abundance of caution?

Yes

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

Will institutions that provide table funding to close loans originated by a mortgage broker or mobile home dealer be considered to be "making" a loan for purposes of the flood insurance requirements

Yes

The amount of insurance for three buildings is $150,000. Can the amount of required flood insurance be allocated among the three buildings in varying amounts, so long as each is covered by flood insurance?

Yes!

Can an institution rely on a prior flood determination?

Yes, if the previous determination is not more than 7 years old and the basis for the determination was recorded on the SFHDF

Can a bank stop escrowing flood insurance upon request for loan originated prior to 1/1/16? A residential borrower has a loan secured by a building that is located in a special flood hazard area where flood insurance is available (designated loan). The designated loan is not a HPML but was outstanding prior to January 1, 2016 and has been escrowing flood insurance premiums. Can a financial institution honor a residential borrower's request to stop escrowing flood insurance premiums if there has been no MIRE event on or after January 1, 2016, and where none of the specific exemptions apply, and still be in compliance with the federal flood insurance laws and regulations?

Yes, the financial institution would be in compliance with federal flood insurance laws and regulations if it honored this type of request. The federal escrow requirement for regulated lenders, as amended by the Biggert Waters Act and the Homeowner Flood Insurance Affordability Act, applies only to loans with a triggering event on or after January 1, 2016. However, financial institutions should consider the risks associated with allowing a borrower to not escrow flood insurance premiums. Financial institutions should also be mindful of any escrow requirements under state law, as well as those that may be in the mortgage contract.

Can a lender require private flood insurance when making a loan in a nonparticipating community?

Yes.

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 in the course of construction that have yet to be walled and roofed are eligible for coverage except when construction has been halted for more than 90 days and/or if the lowest floor used for rating is below the Base Flood Elevation. Note: Materials/supplies are not insurable.

What pattern or practice violations trigger mandatory CMPs?

- purchase of flood insurance where available - escrow of flood insurance premiums - force placement of flood insurance - notice of special flood hazards and the availability of federal disaster relief assistance - notice of servicer and any change of servicer

What are the limits of coverage for flood policies?

-250,000 residential property structures and 100,000 for personal contents -500,000 non-residential structures and 500,000 for contents -500,000 non-condominium residential buildings of 5 units or greater and 100,000 for personal contents

Standard Flood Insurance Policies (SFIP)s must at a minimum:

-Define the term flood to include the events defined as flood in an SFIP -Contain the coverage specified in an SFIP including that relating to building property coverage, personal property coverage, other coverages, and increased cost of compliance coverage -contain deductibles no higher than the specified maximum -provide coverage for direct physical loss caused by a flood and may only exclude other causes of loss that are excluded in an SFIP -not contain conditions that narrow the coverage provided in an SFIP

What types of structures are eligible for coverage?

-Residential, industrial, commercial, and agricultural buildings that are walled and roofed structures that are principally above ground -Buildings under construction where a development loan is made to construct insurable improvements on the land. Insurance can be purchased to keep pace with the new construction -Mobile homes that are affixed to a permanent site, including mobile homes that are part of a dealers inventory and affixed to permanent foundations -Condos -Co-operative buildings -Flood insurance coverage is also available for personal property and other insurable contents contained in real property or mobile homes located in SFHAs. The property must be insured in order for the contents to be eligible.

The FDPA provides penalties for violations of (4)

-mandatory flood purchase requirement -escrow requirements -notice requirements -force placement requirements

What are the exemptions from mandatory flood insurance requirements?

-state owned property covered under a policy of self-insurance satisfactory to the Director of FEMA - If the original principal balance of the loan is $5,000 or less, and the original repayment term is one year or less

What structures are not eligible for flood insurance under the NFIP?

-unimproved land -mobile homes not affixed to a permanent site -travel trailers and campers -converted buses or vans -buildings entirely in, on, or over water into which boats are floated buildings newly constructed or substantially improved on or after 10/1/83 in an area designated as an undeveloped coastal barrier with the Coastal Barrier Resource System established by the Coastal Barrier Resources Act

Notice of the identity of the servicer will enable FEMAs designee to provide notice to the servicer of a loan _____ days before the expiration of a flood contract

45 days Note: Notice is required to be sent within 60 days of the effective date of the transfer of servicing *Notice to the Administrator of FEMA Pg. 10

Does Part 339 apply to letters of credit collateralized by real estate?

A letter of credit (LOC) is an unfunded loan. If the borrower meets all the conditions of the LOC, then the bank is obligated to advance the funds. At the time funds are advanced, the bank has a designated loan that would require flood insurance. The bank has two options. First, it may require flood insurance at time of closing. Second, it may require flood insurance before the payment of funds under the LOC is made. However, the latter option may put the bank in breach of the LOC contract language, unless such requirement is included in the contract language.

If we do not take a UCC filing into account when determining the need for flood contents coverage if there is a signed security instrument that secures the contents as collateral, then how would we require a Bank to remedy a loan in which contents are held via a security instrument when the Bank does not want to require contents coverage?

A2: If the loan is secured by the both the building (i.e., commercial) and contents (i.e., inventory) then contents insurance is required. On the other hand, flood insurance is not required for a loan financing inventory where the secured collateral is stored in a building located in an SFHA and the building is not security for the loan.

What are the record keeping requirements for SFHDFs?

As long as the institution owns the loan

Some private flood insurers offer flood insurance policies that feature a deductible based on a percentage of the coverage amount, which can be much higher than the National Flood Insurance Program (NFIP) deductible. Can a lender allow a borrower to use a private flood insurance policy where the deductible is higher than that allowed under the NFIP?

As of April 1, 2015, the NFIP instituted a residential flood insurance policy that permits a deductible up to $10,000. The July 6, 2020 Proposed Interagency Flood Insurance Questions and Answers - Amount 9, address the use of the maximum deductible to reduce the cost of flood insurance. It states that a lender should determine the reasonableness of the deductible on a case-by-case basis, taking into account the risk that such a deductible would pose to the borrower and lender. Moreover, in the case of flood insurance policies issued under the NFIP, the policies include a written statement explaining the effect of a high loss deductible and the extent of the insured's responsibility for out of pocket losses in the event of an insured loss. Banks should not be cited for a violation of the flood insurance regulations in cases involving the acceptance of private flood insurance policies with a deductible that is higher than the maximum deductible currently allowed under the NFIP, except for the circumstance mentioned in the Interagency Flood Insurance Q&A noted above, which states that a lender may not allow the borrower to use a deductible amount equal to the insurable value of the property to avoid the mandatory purchase requirement for flood insurance.

If the bank makes a loan to a commercial borrower and takes a security interest in the building and contents, but later vacates the building and leases the space to another tenant - how does this affect the bank's original security interest in the contents? Further, could the bank be entitled to the "new" tenants contents?

Assuming that the original loan was secured by both the building and contents through a security agreement and that a UCC was filed to perfect the interest in the contents, if the borrower no longer has their contents in the building and the bank's collateral has been reduced (contents), then the bank is not legally entitled to the tenant's contents should the loan go in default. In this case it would appear that contents insurance is no longer required unless the original owner left equipment or continued to store their inventory when the new tenants began their occupancy. The bank would have to find out what contents remain and if the level of contents insurance needs to be reduced or eliminated.

True or False: When an institution MIRES any loan secured by residential real estate OR by a mobile home, it MUST use the SFHDF to determine whether the building or mobile home offered as security property is or will be located in a SFHA

True

What does RCBAP cover?

Both the common and individually owned building elements within the units, improvements within the units, and contents owned in common

What constitutes a pattern or practice of violations for which CMPs must be imposed under the act?

By weighing individual facts and circumstances of each case using guidance and experience with determinations of pattern or practice under other regulations such as ECOA and TIL

We have a bank where the examiners have determined that flood insurance is not being escrowed when required by the regulation. How does the bank remedy the violation? Should the flood insurance premium be included in the escrow at the next annual escrow analysis? It seems that it would be too difficult to try and make the correction during the current escrow cycle. By adding the flood insurance premium at the annual analysis, this would allow the shortage to be collected over a 12 month period. Is there any guidance on remedying this type of violation?

Corrective action may vary for violations of the Flood Insurance escrow requirement, as the regulation does not specifically address this area. The bank may establish the escrow during the annual flood insurance renewal period or could issue a short year escrow statement and start escrowing flood insurance immediately. Either way, the bank should be encouraged to contact the borrower and consider what is less burdensome for them. We believe either method would be appropriate corrective action. In egregious cases, the FDIC may want to consider CMPs against the bank as a remedy for a bank failing to properly establish the required escrow accounts.

What is the maximum amount of building coverage that can be purchased under an RCBAP?

Either 100% of the RCV of the building or replace the foundation and its supporting structures or the total number of units in the condo building times $250,000, whichever is less.

What is the maximum amount of building flood insurance coverage that can be purchased under an RCBAP policy?

Either 100% of the replacement cost value of the building OR the total number of units in the condominium buildings times $250,000, whichever is less Note: The amount of coverage under a dwelling policy required to be purchased by the individual unit owner would be the difference between the condominium policy's coverage allocated to that unit and the mandatory flood insurance purchase requirements

What is the start of construction?

Either the first placement of permanent construction of a building on site, such as the pouring of a slab or footing, installation of piles, construction of columns, or any work beyond the stage of excavation or the placement of a manufactured home on a foundation

Scenario A: Loan amount - $800,000 Real Estate Insurable Value - $600,000 Contents Insurable Value - $600,000 Maximum Available Coverage - $500,000 for CRE, $500,000 for contents (in accordance with NFIP) Would the bank be required to obtain $400,000 policies on both CRE and Contents, or could the insurance be 'split' (separate policies of course)? The Q&A of 10/12/10 on the Compliance Discussion Board appears to indicate that separate $400,000 policies would be required for both the CRE and for contents.

FEMA's guidelines state that in order to meet the minimum compliance requirements, a lender must ensure that flood insurance coverage on a building is at least the lowest of the following: the maximum amount of NFIP flood insurance coverage available; or the outstanding principal balance of the loan(s); or the insurable value (RCV) of the building. Therefore, in the Q&A example #39 the bank insured the building for the lowest of the three items previously mentioned, the insurable value (RCV) of the building, and the difference was applied to the contents coverage. FEMA's guidelines imply that you start with the building coverage first and then apply any difference to the contents coverage. However, if a loan requires flood insurance and is secured by a building and its contents, then both the building and its contents must have flood insurance. In Scenario A - the lowest of the minimum compliance requirement is the maximum amount of NFIP flood insurance coverage available ($500,000), and the difference between the loan amount and the maximum coverage available is applied to the contents coverage ($800,000 - $500,000 = $300,000). The contents coverage should be insured for $300,000 since it is below the maximum amount available for contents insurance under the NFIP ($500,000 is the maximum). Also, only one flood policy is issued that will cover both the building and its contents, and not two separate policies as your question implies.

Does a bank need to maintain flood insurance on charged off loans?

Flood insurance is required for designated loans, which are defined in Part 339.2(e) as follows: ​Designated loan means a loan secured by a building or mobile home that is located or to be located in a special flood hazard area in which flood insurance is available under the Act. If a loan is charged off, that is a bank action invisible to the borrower and the loan is still a designated loan as long as the borrower retains an interest in the collateral. Once the bank forecloses on the property and transfers the property into OREO, then it is a bank owned asset and no longer a designated loan for flood insurance purposes. However, lenders with OREO located in standard flood hazard areas should, as a prudent practice, purchase flood insurance policies on its OREO property, although it is not required (Compliance Examination Manual, V-6.6)

In the past, the 30-day waiting period for flood insurance has not applied when flood insurance was force placed using the Mortgage Portfolio Protection Program (MPPP). As of October 1, 2013, the "no wait" provision for force placed policies was removed, thereby delaying when coverage takes effect. In addition, some banks have advised us that elevation certificates are now being required before they can force place flood insurance, even further delaying when effective coverage is in place. As a result of these changes, and to protect both the bank and the borrower from potential losses, should banks revise their force place flood insurance procedures by starting the process of obtaining coverage sooner, for example, on day one of the lapse?

For MPPP requirements, refer to the FEMA Flood Insurance Manual, Chapter 3. How To Write - Section VIII, Mortgage Portfolio Protection Program Policy. As noted in this setion, the MPPP requires lenders to send 3 notification letters to the borrower. Additionally, ​the NFIP waiting period and effective date rules apply to the MPPP. There is a 30-day waiting period if the premium payment is received greater than 30 days but less than 90 days following the expiration date. However, if the premium is received within 30 days of the expiration date, there is no waiting period. (See FEMA Flood Insurance Manual, Chapter 3, III. D) https://www.fema.gov/flood-insurance/work-with-nfip/manuals#flood-insurance

CMPs are being pursued against a bank for violations involving a pattern or practice of inadequate flood insurance. One of the loans in violation is secured by three properties, all of which are located in a Special Flood Hazard Area (SFHA). All three properties are under-insured. When assessing CMPs, should this be considered as one violation or three separate violations?

For multiple properties securing a single loan, FEMA requires the lender to ensure that each property has a separate flood insurance policy. The NFIP allows one policy per building. Regarding CMPs, examiners should count this as one violation for inadequate insurance since the regulations are based on a per loan requirement to have adequate flood insurance. For additional guidance on Flood CMPs, see RD Memo 2020-006-DCP

When can an institution NOT rely on a previous determination?

If FEMAs map revisions or updates show that the security property has been remapped into an SFHA OR if the lender contacts FEMA and discovers that map revisions or updates affecting the security property have been made after the date of the previous determination Note: A new determination is required when a loan refinancing or assumption is made by a lender different from the one who obtained the original determination because this constitutes a new loan.

If a dwelling has been severely damaged, uninhabitable and declared a total loss, what are the flood insurance requirements when reconstruction has not been scheduled to commence for several months.

If a home has been destroyed, flood insurance will not be required until the time of reconstruction. Once the walls and roof are constructed, a new policy would be required. As with other construction projects requiring flood insurance, the status of the building progression requires close attention to ensure that insurance is in place once this phase of construction has been completed. For more information, see Proposed Interagency Flood Insurance Q&A, Construction 1.

Is it allowed under federal flood insurance requirements to split the amount of required coverage between the real estate and the contents? I am aware of the ability of coverage to be split among multiple buildings (under separate policies as required by the NFIP), but I am unaware that the same can be applied to contents coverage.

If the bank takes a security interest in both the building and the contents located in that building, flood insurance must be obtained on both the building and contents. Refer to Proposed Interagency Flood Questions and Answers (IQ&As) Other Security Interests 7. Additionally, here are two more examples. Keep in mind, in both scenarios, the borrower and lender are able to contractually negotiate for a higher level of flood insurance coverage for both building and contents, than the minimum that the federal flood insurance law requires. Also, only one flood policy is issued that will cover both the building and its contents, and not two separate policies, as indicated in the question. Scenario A: Loan amount - $800,000 Real Estate Insurable Value - $600,000 Contents Insurable Value - $600,000 Maximum Available Coverage - $500,000 for commercial real estate ("CRE"), $500,000 for contents (in accordance with NFIP). Answer: The lesser of the three items is the loan amount of $800,000: Loan amount = $800,000 Maximum coverage available = $1,000,000 ($500,000 building/$500,000 contents) Insurable value = $1,200,000 ($600,000 building/$600,000 contents) The bank may apply any reasonable approach to cover both the building and contents, for a total amount of $800,000. Therefore, any of the following examples would be considered sufficient coverage (this list is not all-inclusive): $400,000 building/$400,000 contents $500,000 building/$300,000 contents $300,000 building/$500,000 contents

A commercial building has a replacement cost of $700,000; however, the loan amount at origination was only $300,000 so the bank required a $300,000 flood insurance policy at the time the loan closed. (Note: The $300,000 is the lesser of the replacement cost ($700,000) and maximum under the NFIP ($500,000)). The interesting twist with the flood insurance policy is that the insurance coverage and premium decline as the loan balance declines, much like the declining balance PMI products used. If the loan is paid down by $100,000 during the year and the loan is NOT increased, extended or renewed, is it permissible for the flood insurance policy to be reduced to $200,000 at it annual policy renewal? (Note: The commercial loan in question is an amortizing loan and NOT a line of credit).

If the loan balance is $200,000 now, the loan would be compliant if the flood insurance amount is also $200,000. 339.3, it states the "outstanding principal balance of the designated loan." While the bank is in technical compliance, it is probably not a prudent risk management approach for management to adopt. The borrower, who pays the premium, may not realize that his/her financial interests are not being protected in either case. If the lender is going to allow a reduction in the flood insurance amount, hopefully it will not tell the borrower he/she "needs" only $200,000. Instead, the lender should advise the borrower that the current coverage amount meets minimum requirements, but is not an adequate flood risk management strategy, and does not protect the borrower's equity. The lender should advise the borrower that he/she is being given the option to further reduce the flood insurance amount (so that it continues to protect the lender) and assume more exposure.

Scenario B: Loan amount - $250,000 Real Estate Insurable Value - $300,000 Contents Insurable Value - $150,000 Maximum Available Coverage - $250,000 (loan amount) As the real estate value exceeds the loan amount, it would be expected that the flood insurance on the real estate would be $250,000. How should contents coverage be handled in this scenario (keeping in mind Final Interagency Q&A #39)?

In Scenario B - A borrower and lender are at perfect liberty to contractually negotiate for a higher level of flood insurance coverage for both contents and building than what the federal flood insurance law requires. However, we will address this question from what is the minimum amount required by law. If a bank takes a commercial building and contents as collateral for a loan and both are located in a special flood hazard area, flood insurance must be obtained on the building and contents. The amount of flood insurance required by the Act and regulation is: · The outstanding principal balance of the loan ($250,000) or · Maximum amount of coverage available under NFIP, which is the lesser of: o Maximum limit available for building and contents ($500,000 for each category) o Insurable value of the building ($300,000 for commercial and $150,000 for contents). In this case, even though the minimum amount of flood insurance required is less than the insurable value of the commercial building, both the building and the contents must be covered by flood insurance. While there is no prescribed formula the lender must use, the lender may apply any reasonable approach to cover both the real estate and contents for a total value of $250,000, which is the minimum amount of flood insurance required by the Act and regulation.

When may a lender rely on a private insurance policy that does not meet the criteria set forth by FEMA?

In limited circumstances. For example when a flood insurance policy has expired and the borrower 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

If the borrower has their own flood insurance policy in place, I understand that the bank cannot send the borrower the 45-day force-placement notice until after the borrower's flood insurance policy expires. However, if the bank has force-place insurance through a Mortgage Portfolio Protection Program (MPPP) policy, I understand the MPPP requires the first renewal MPPP letter be sent at least 45 days prior to the renewal/expiration of the MPPP policy, and a final notice be sent out as part of the renewed MPPP policy. Question 1: How does one determine if a force-placed policy is a MPPP policy? Question 2: Is a renewed force-placed Standard NFIP Policy or renewed force-placed Private Flood Insurance Policy subject to these same MPPP notification requirements?

In response to the first question, Secction 10 in FEMA's Flood Insurance Manual outlines the requirements for force placing flood insurance through the MPPP. Within this section, it lists the requirements for the Policy Declarations Page Notification for a MPPP policy. These notification requirements should make it easy to identify a MPPP policy. For example, one part of the declarations page for a MPPP states "Since your mortgage company has not received proof of flood insurance coverage on your property in response to those notices, we provide this policy at their request." The issues raised by the second question have been brought up in the past, but unfortunately there is not a clearly defined answer. The FEMA Flood Insurance Manual only addresses the notification factors to consider when force placement occurs through the MPPP. If insurance is force-placed through a private policy, it would be a best practice for the bank to follow the MPPP guidelines before the force placed policy expires; however, we cannot require that those notification methods be followed. We should expect that there would be some notification made to the borrower though because a lender should not assume that just because a person didn't renew a policy once that they will never renew again. Every situation is case-specific, but it could possibly be considered an unfair practice for a lender to keep renewing a force-placed policy without notice.

The bank has life of loan ("LOL") monitoring for all loans where flood determinations were obtained. During an examination, examiners determined some properties that were not originally in flood zones are now in flood zones due to map revisions. Because the bank was not monitoring these properties and was not notified by the flood servicing company that the flood zone had changed, these properties did not have flood insurance. However, force placement notices and procedures were initiated immediately upon examiner notification. There is no evidence that the bank knew about these map changes or received notification from the LOL company. Since the bank had life of monitoring service, should a violation be cited because the bank failed to obtain flood insurance when the flood zone changed?

In this situation, a violation should not be cited, but the bank should be informed of any weaknesses in its CMS that contributed to not identifying the flood map changes, some of which may have been contributed by weaknesses in third-party oversight of the LOL company. It may be helpful to review the contract with the LOL Company to see if it addresses how notifications of map changes are to be provided, which may give insight into where weaknesses are present. The goal is to ensure that enhancements to the CMS are initiated going forward to prevent such an issue from occurring again

Is there a required minimum deductible amount for flood insurance on a commercial property?

Information regarding deductibles can be found in the FEMA Flood Insurance manual that is published primarily for insurance agents. According to the Ratings section of the manual, the minimum deductible for commercial properties is $1,000.

What are flood insurance escrow requirements?

Institutions that MIRE a loan after January 1, 2016 must escrow for flood insurance premiums and fees unless the loan qualifies for one of the exceptions or the institution qualifies for the small lender exception

What cost value should be used for calculating appropriate coverage? The Mandatory Purchase of Flood Insurance Guidelines talks about using the replacement cost value (RCV) in calculating the appropriate amount of coverage. However, Part 339.3(a) states that "Flood insurance coverage under the Act is limited to the overall value of the property securing the designated loan minus the value of the land on which the property is located." Is it appropriate to use the appraised value minus site value in determining the coverage, or should it always be the RCV from the hazard policy?

It depends. A Standard Flood Insurance Policy is a single-peril (flood) policy that pays for direct physical damage to an insured property up to the RCV or actual cash value (ACV) of the actual damages or the policy limit of liability, whichever is less. RCV is the cost to replace that part of a building that is damaged (without depreciation). ACV is the RCV at the time of loss, less the value of its physical depreciation. The Standard Flood Insurance Policy Dwelling Form (Dwelling Form) is used to insure one to four family residential buildings and single family dwelling units in a condominium building. The value of flood damage in the Dwelling Form is based on either the RCV or ACV. There are also two other policy forms, the General Property Form, which is used to insure five or more family residential buildings and non-residential buildings, and the Residential Condominium Building Association Policy Form, which is used to insure residential condominium association buildings. Therefore, in determining the RCV when a loan is first originated and the appraisal is current, it would seem reasonable to use the appraised value minus the site value in determining the appropriate coverage. However, when a loan has been refinanced, has an old appraisal in the bank file or is not available, it may be more appropriate to use the hazard policy in determining the appropriate coverage, as this would give a more accurate RCV.

Lender A makes a first mortgage with a principal balance of $100,000, but improperly 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. What should Lender B do?

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 (50k), 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 it principal balance of $100,000 while Lender B would receive only $25,000 of the loss payment toward its principal balance of $50,000.

What is RCBAP?

Master policy for residential condominiums issued by FEMA.

Can a lender make a government-guaranteed loan in a community that does not participate in the NFIP?

No

Can an institution rely on a previous determination that is more than 7 years old?

No

Does a dwelling policy extend RCBAP limits or enable condo associations to fill in gaps in coverage?

No

Is there a waiting period when an additional amount of NFIP insurance is required in connection with a MIRE event?

No

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 because there was no MIRE event. Note: If there was request made for an increase in an approved line of credit may require a new determination, depending on whether a previous determination was done.

Are lenders required to perform a review of its existing loan portfolio for compliance with the flood insurance requirements under the Act and Regulation?

No except for MIRE events

Is land value included in the NFIP calculation?

No! An NFIP policy will not cover an amount exceeding the "insurable value" of the structure

Can 45-day notice be sent 45 days prior to the expiration of the policy? I am examining a bank that provides the 45-day notice prior to the policy expiration, then force-places the insurance at expiration of the policy. Is it permissible to send the 45-day notice 45 days prior to the policy expiration date?

No, it is not permissible to send the 45-day notice prior to the policy expiration date. Assuming that the flood policy is adequate, a force placement notification should not be provided until the policy has expired. If the bank wishes to send an advance notice stating that the policy is about to expire as a courtesy, it may do so, but that courtesy notice would not replace the 45-day force placement notice that is required by the flood regulations.

Are institutions required to monitor for map changes?

No. And flood determinations are not required to be made at any time other than a MIRE event

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

Will federal agency lenders such as the FHA, SBA, and VA subsidize, insure, or guarantee any loan if the property securing the loan is in a SFHA of a community not participating in the NFIP?

No. Also, Fannie Mac and Fannie Mae will not purchase mortgages secured by improved properties located in SFHA's in nonparticipating communities

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. Any loan secured only by land that is located in a SFHA in which flood insurance is not available is not a designated loan since it is not secured by a building or mobile home

Are non-residential condominium buildings eligible for coverage under the RCBAP?

No. That would be $500,000 building coverage

Does the 30-day waiting period apply when the purchase of the flood insurance policy is deferred in connection with a construction loan?

No. The NFIP will rely on an insurance agents 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

True or False: A lender can rely on a previous notice if it is less than seven years old, same property, same borrower, and same lender.

No. The lender must provide a new notice, even if a new determination is not required.

Are loans on multi-family dwellings with 5 or more units covered by RESPA requirements?

No; Only 1-4 family

CMPs for merger situations or changes in flood zone status from life of loan monitoring When a bank acquires loans as a result of a merger, this is not a triggering event for the regulatory requirements of Flood Insurance. However, if a regulated lender becomes aware at any point during the life of a designated loan that flood insurance is required, then the regulated lender must comply with the Regulation, including force placing insurance, if necessary. Can the FDIC cite pattern violations and assess CMPs for these loans, when examiners determine there is inadequate, or no insurance, or lapsed policies? The statement "becomes aware" is not defined, and would be subject to argument by the bank. In conjunction with this question, if a bank purchases life-of-loan flood determinations, and the collateralized property is determined to be in SFHA several years after loan closing, would this be a case of "should have known or becomes aware", which would trigger a flood notice and flood insurance purchase or force placement? Again, would this lack of insurance be subject to CMPs?

Per guidance from legal, both scenarios presented in the question would be instances where violations can be cited and CMPs could be assessed. In a merger situation, the surviving institution is generally understood to have stepped into the shoes of its predecessor(s). That is, the surviving institution takes the same legal posture held by previous holders of the acquired assets and liabilities. If loans that were acquired as a result of a merger are non-compliant with flood insurance requirements, they will continue to be in violation after the merger. The surviving institution will be potentially subject to liability unless steps are taken to cure or mitigate the lack of compliance. An institution seeking to acquire or merge into another institution should take this aspect of compliance into account when performing due diligence prior to the merger.

What are the two types of escrow requirement exceptions?

Small lender exception Loan-type exception If an institution has total assets of less than $1 billion as of 12/31/12 for the prior two years, they are not required to escrow In addition, the escrow requirement does not apply to the following types of loans: • Extensions of credit primarily for business, commercial, or agricultural purposes even if secured by residential real estate; Loans in a subordinate position to a senior lien secured by the same property upon which the borrower has obtained sufficient flood insurance; • Loans secured by a property that is covered by a flood insurance policy with sufficient flood insurance coverage, which is provided by a condominium, cooperative, or homeowners association; • Home equity lines of credit; • Nonperforming loans; or • Loans with a term of no longer than 12 months.

For purposes of requiring contents coverage, does a bank have to file a UCC or does a general security agreement satisfy the bank having a security interest in the collateral? I thought the general security agreement was all that was needed to require flood insurance but the UCC simply solidified the lien position for the institution.

That is technically correct. The Uniform Commercial Code (UCC) is a comprehensive code addressing most aspects of commercial law. The UCC is a model code, so it does not have legal effect in a jurisdiction unless UCC provisions are enacted by the individual states as statutes. The UCC of a particular state will regulate how a bank's security interest can be perfected. Therefore, contents insurance is required when a loan is secured (the security agreement establishes the interest but the UCC of the state will perfect that interest) by a building and by the contents located in that building.

True or False: For institutions that no longer qualify for the small lender exception, the institution must mail or deliver, for any loan covered by flood insurance and outstanding on July 1 of the first calendar year in which the institution no longer qualifies for the small lender exception, the notice of the option to escrow by September 30 of that year.

True Note: Examiners need to verify that institutions started escrowing as soon as reasonably practicable after receiving a borrowers request to escrow

Will a bank lose the small lender exemption if they require escrows for a portion of the loan term? A bank has less than $1 billion in assets and was not required by law to escrow for the entire term of the loan on or before July, 6, 2012. However, the institution does require escrows for residential loans over 80% LTV that have PMI. The bank requires an escrow account while PMI is in effect. As soon as the LTV drops to the point that PMI is no longer required, the bank discontinues the escrow account and the borrower begins paying taxes and other insurance premiums outside of escrow. Does requiring escrow for a portion of the loan term for loans with LTVs above 80% equate to the institution having a policy of consistently and uniformly requiring escrow, therefore disqualifying the institution from the small lender exception? Does the "for the entire term of the loan" condition only apply to the state/federal law requirement, or does it also apply in determining if an institution consistently and uniformly requires escrow?

The Flood Insurance final rule has an escrow exemption for small banks (less than $1 billion in total assets) if on or before July 6, 2012 the bank: (a) was not required under Federal or State law to deposit taxes, insurance premiums, fees or any other charges in an escrow account for the entire term of the loan secured by residential improved real estate or a mobile home; and, (b) did not have a policy of consistently and uniformly requiring the deposits of taxes, insurance premiums, fees or any other charges in an escrow account for any loans secured by residential improved real estate or a mobile home. The "entire term of the loan" standard only applies to the Federal/State portion of the rule, while the "uniformly and consistently" standard applies only to the second prong of the exception. These two standards should be kept separate similar to how they are listed in the final rule. Therefore, in this case, requiring escrows for the portion of the loan during PMI phase would eliminate the bank from the escrow exception unless there is a state law requiring the PMI.

Should examiners cite violations if bank is not using RCV for non-residential properties? Would examiners cite violations in instances where the bank got actual cost value (ACV) as opposed to replacement cost value (RCV) for a property other than a single-unit primary dwelling (e.g. commercial building, second home, rental home, etc.)?

The definition of insurable value is addressed in the 2011 Interagency Q&As, Question # 9. When calculating the required amount of insurance, the lender and borrower may choose from a variety of approaches or methods to establish a reasonable valuation, or insurable value. They may use an appraisal based on a cost-value approach (not market-value), a construction-cost calculation, or the insurable value used in a hazard insurance policy. But, if an institution uses the insurable value from a hazard insurance policy, it is important to recognize that adjustments may be necessary. For example, some hazard policies do not cover foundations. The institution can use any other reasonable approach to determine insurable value, as long as it is consistently used by the institution and can be properly supported. Generally speaking, residential properties should be insured at RCV, while commercial and agricultural properties should be insured at ACV. Actual cash value is defined as replacement cost value, less depreciation. Under no circumstances should the institution require more insurance on a property than FEMA would pay out in the event of a flood loss. FEMA pays benefits on flood insurance policies differently based on whether the property is a primary residence, a different type of residential building, or a commercial or agricultural property. For primary residences, the payout will be based on the replacement cost value. For all other properties, including vacation and second homes, FEMA will pay benefits based on actual cash value.

Can a bank renew a force placed flood policy without providing notice? Say the bank force placed in 2009. Upon expiration of that policy in 2010, would the lender have to provide notice of expiration to the borrower and give the borrower 45 days to obtain their own insurance or can the bank automatically renew its force placed policy?

The following excerpt is from the FEMA/Federal Insurance Administration manual for the Mortgage Portfolio Protection Program (the MPPP), the vehicle for force placement of flood insurance through the National Flood Insurance Program. With respect to renewal of a force placed MPPP policy, the manual states: "The first MPPP Renewal/Expiration Notification Letter will be sent to the insured/mortgagor at least 45 days prior to the renewal/expiration of the MPPP policy." Based on this response, we believe that upon expiration of a force placed MPPP policy in 2010, the lender would be required pursuant to the terms of that policy to provide notice of expiration to the borrower 45 days prior to that event. Pursuant to the manual, among other requirements, the notice must inform a borrower that he or she may obtain flood insurance at a lower cost. In other words, a bank cannot automatically renew its force placed policy when this is done through the MPPP. It must instead comply with the 45-days prior notice and other requirements which are imposed by the terms of the MPPP.

What is a lenders responsibility if a particular building or 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. Note:For risk management purposes, a lender may, by contract, continue to require flood insurance coverage

What should a lender do if there us no RCBAP coverage?

The lender must require the individual unit owner/borrower to obtain a dwelling policy in an amount sufficient to meet the minimum coverage requirements

Loan amount - $250,000 Real Estate Insurable Value - $300,000 Contents Insurable Value - $150,000 Maximum Available Coverage - $250,000 (loan amount) How is the flood insurance amount allowed to be split?

The lesser of the three items is the loan amount of $250,000: Again, the bank may apply any reasonable approach to cover both the building and contents, for a total amount of $250,000. The bank must obtain some amount of coverage on both; therefore, it would not be appropriate to only obtain $250,000 in building coverage. Any of the following examples would be considered sufficient coverage (this list is not all-inclusive): $200,000 building/$50,000 contents $125,000 building/$125,000 contents $100,000 building/$150,000 contents

What is the amount of flood insurance coverage that a lender must require with respect to residential condominium units?

The lesser of: - Outstanding principal balance of the loans OR - maximum amount of insurance available under the NFIP which is the lesser of the maximum limit available for the residential condo unit or the insurable value allocated to the residential condo unit which is the RCV of the condo building divided by the number of units

True or False: RCBAP coverage is available only for residential condominium buildings in Regular Program Communities

True

True or False: The fee for the original flood determination is excluded from the finance charge

True

True or False: Under the NFIP, FEMA generally requires one policy per building but also permits borrowers to insure non-residential buildings using one policy with a schedule separately listing each building

True

Proper violation code when a loan is secured by multiple structures but flood insurance is only obtained on one building A loan is secured by a property with multiple structures in a special flood hazard area. Only one of the buildings has insurance, but all of the other buildings have no coverage. We understand that FEMA requires all buildings to have some form of coverage. So, would we cite this violation as having no insurance at origination [150101] or having inadequate insurance [150103]?

To protect collateral interests, a lender should consider whether its collateral is adequately insured against flood damage. In the case of multiple buildings, the lender must ensure that there is separate flood insurance coverage for each building requiring coverage. Question 14 of the Interagency Questions and Answers Regarding Flood Insurance provides additional guidance: Is flood insurance required for each building when the real estate security contains more than one building located in a special flood hazard area? Yes. The amount of total required flood insurance can be allocated among the secured buildings in varying amounts, but all buildings in a special flood hazard area must have some coverage. Assuming that flood insurance was obtained at loan origination in the required amount and allocated to only one building, it appears that the other buildings would be insufficiently covered. Therefore, citing violation code 150103 would be most appropriate

What is the purpose of the NFIP?

To reduce the impact of flooding by providing affordable insurance to property owners and by encouraging communities to adopt and enforce floodplain management regulations

Would fake buildings from a movie set that secures a loan in a flood hazard area require flood insurance under Part 339?

To require flood insurance pursuant to Part 339 the structure must: 1) meet the definition of a "building," 2) be used as collateral, and 3) be situated in a flood zone. Part 339.9(2) of the FDIC's Flood Insurance regulation defines a building as: "Building means a walled and roofed structure, other than a gas or liquid storage tank, that is principally above ground and affixed to a permanent site, and a walled and roofed structure while in the course of construction, alteration, or repair." FEMA's definition of "building" and "building in the course of construction" can be found here: https://www.fema.gov/pdf/nfip/manual201105/content/22_definitions.pdf. Assuming that the structure meets all of these criteria, flood insurance would be required.

True or False: If a borrower fails to purchase flood insurance in the appropriate amount within 45 days, the lender must purchase insurance on the borrowers behalf.

True Note: If there is a brief delay in force placing coverage, the agencies expect the lender to be able to provide a reasonable explanation. For example, becasue the lender uses batch processing when purchasing force-placed flood insurance policies

True or False: Flood insurance applies when an institution MIREs a designated loan

True: Make, Increase, Renew, Extend

Does flood 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?

Yes but the lender doesnt need to require borrowers to obtain flood insurance for a home located in a community that doesnt participate. Note: The lender must still determine whether the home is located in a SFHA and notify the borrower

Do the Flood Insurance Civil Money Penalties (CMPs) come under the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (2015 Adjustment Act)? If so, what is the maximum amount of CMPs for flood insurance violations adjusted for inflation?

Yes, flood insurance CMPs are covered by the 2015 Adjustment Act. Since 1990, Congress has required federal agencies with authority to impose CMPs to periodically adjust the maximum CMP amounts these agencies are authorized to impose. In 2015, Congress passed the 2015 Adjustment Act, Pub. L. No. 114-74, § 701, 129 Stat. 584, which revised the process by which federal agencies adjust CMPs for inflations. Under the 2015 Adjustment Act, the FDIC is required to make annual adjustments to the maximum CMPs that we can impose on an annual basis. These adjustments are to be published on or before January 15th of each year, and are to be imposed in connection with violations "occurring on or after November 2, 2015." 12 C.F.R. 308.132(d)(2)(2019). The 2020 maximum violation of $2,226 for each violation of the Flood Act. The maximum violation amounts are released annually in the Federal Register through a separate release. The 2020 amount is what can now be assessed for all violations that occurred after Nov. 2, 2016. As such, if during a 2019 examination examiners noted 10 violations occurring in 2017, 10 violations that occurred in 2018, and 10 violations that occurred in 2019, the maximum CMP that could now be assessed would be: $66,780 (i.e., 30 x $2,226). For violations occurring prior to November 2, 2016, examiners should consult with the Legal Division to determine the maximum amount of CMPs in effect at that time.

Can a lender allow the borrower to use the maximum deductible to reduce the cost of flood insurance?

Yes, however it is not a sound business practice. Lenders should determine the reasonableness of the deductible on a case-by-case basis, taking into account the risk that such a deductible would pose to the borrower and lender

Are lenders required to escrow flood insurance premiums and fees for mandatory flood insurance for such loans if the lender requires the escrow of taxes, hazard insurance premiums or any other charges for loans secured by residential improved real estate

Yes. Note: Lenders are not requires to escrow flood insurance premiums and fees for a particular loan if it does not require escrowing any other charges for that loan

Are table funded loans treated as new loan originations?

Yes. As defined under RESPA 12 CFR, a settlement at which a loan is funded by a contemporaneous advance of loan funds and the assignment of the loan to the person advancing the funds.

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. Therefore a lender must always make a flood determination prior to loan origination to determine whether a building to be constructed that is security for the loan is located or will be located in an SFHA in which flood insurance is available under the Act.

Are financial institutions required to accept a private insurance policy to satisfy the flood insurance purchase requirements?

Yes. If the policy meets the definition of private flood insurance

Can a lender require more flood insurance than the minimum required by the regulation?

Yes. Lenders are permitted to require more insurance. Each lender has the responsibility to tailor its own flood insurance policies and procedures to suit its business needs and protect its ongoing interest in the collateral. HOWEVER, lenders should avoid creating situations where a building is "over-insured"

Can FI's make loans in nonparticipating communitites?

Yes. They must notify the borrower that flood insurance coverage under the NFIP is not available because the community does not participate in the NFIP Note: If the nonparticipating community community has been identified for at least one year as containing an SFHA, properties located in the community will not be eligible for federal disaster relief assistance in the event of a federally declared disaster.

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. Under the regulation, lenders must require flood insurance on real estate improvements when those improvements are part of the property securing the loan and are located in an SFHA and in a participating community.