Flood Insurance
What does MIRE stand for?
Make Increase Renew Extend
What does SFIP stand for?
Standard Flood Insurance Policy
Coverage Limits
$250K for residential structures and $100K for personal contents $500K for non-residential structures and $500K for contents $500K for non-condo residential buildings of 5 units or more and $100K for personal contents
What is the waiting period for NFIP flood polices that are not issued with a MIRE event?
30 days; HOWEVER, if the initial purchase is made during the 13-month period following a flood map change, there is a ONE day waiting period.
Loan-Type Exception for Escrow Requirements
>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; >Loans secured by a property that is covered by a flood insurance policy with sufficient flood insurance, which is provided by a condo, cooperative, or HOA; >HELOCs; >Nonperforming loans; or >Loans with a term of no longer than 12 months.
What are the exemptions to purchase requirement?
>Loans on state-owned property with an adequate self-insurance policy that FEMA will accept; >ORIGINAL PRINCIPAL BALANCE OF $5,000 OR LESS, AND AN ORIGINAL REPAYMENT TERM OF 1 YEAR OR LESS >Structure detached from the primary residential structure and doesn't serve as a residence
What are the objectives of the FDPA?
>Provide insurance to owners of improved real estate located in SFHAs of participating communities; >Require communities to enact measures to reduce or avoid future flood loss; >Require the agencies to adopt regulations prohibiting banks from MIREing a loan secured by IMPROVED real estate or a mobile home in a SFHA without insurance; >Requires agencies such as the FHA, SBA, and VA not to subsidize, insure, or guarantee any loan if the property securing the loan is in a SFHA of a non-participating community.
What is eligible for coverage?
>Residential, industrial, commercial, and agricultural buildings that are walled and roofed, principally above ground; >Buildings under construction >Mobile homes permanently attached >Condos >Co-operative buildings >Personal property/contents within the structure
What is NOT eligible for coverage?
>Unimproved land, bridges, dams, and roads >Mobile homes NOT affixed to a permanent site >Travel trailers/campers >Converted bus/van >Buildings entirely in, on, or over water where boats are floated >Buildings newly constructed in areas designated as undeveloped costal barrier
Flood insurance is required for the term of the loan on buildings or mobile homes when all three of the following factors are present EXCEPT: A. The community does not participate in the NFIP B. The community participates in the NFIP C. The property securing the loan is located in an SFHA as identified by FEMA D. The institution makes, increases, extends, or renews any loan(s) secured by improved real estate or a mobile home that is affixed to a permanent foundation
A
The Biggert-Waters Flood Insurance Reform Act of 2012 and the Homeowner Flood Insurance Affordability Act of 2014 updated existing flood insurance guidance. The final rule includes the exemption to the general mandatory flood insurance purchase requirement for any structure that is part of a residential property but is: A. Detached and does not serve as a residence B. Detached but does serve as a residence C. Attached but does not serve as a residence D. Attached but does serve as a residence
A
Which of the following is acceptable proof of the purchase of flood hazard insurance? a. Copy of the declarations page of the insurance policy b. A certificate of insurance c. Flood insurance binder d. Letter signed by the borrower agreeing to purchase the insurance
A
Which of the following loans requires a notice of special flood hazard? • Loan A is to be secured by a car-wash facility located in a special flood hazard area in a community where federal flood insurance is not available • Loan B is to be secured by a rental house not located in a special flood hazard area but in a community where flood insurance is available • Loan C is to be secured by a vacant lot located in a special flood hazard area in a community where federal flood insurance is available a. Loan A b. Loan B c. Loan C d. All the loans
A
_________ is FEMA's modification to an effective Flood Insurance Rate Map (FIRM), or Flood Boundary and Floodway Map (FBFM), or both. A. Letter of Map Revision B. Letter of Map Amendment C. Standard Flood Hazard Determination Form D. Notice of Special Flood Hazards
A
Other Real Estate Owned (OREO)
A bank with OREO in SFHAs should purchase flood insurance polices on these properties, but is not required to do so by the regulation.
Letter of Map Revision (LOMR)
A letter of map revision for manmade changes of which there are two types: adding fill to raise the ground up, and work that changes the physical characteristics of the floodplain (for physical changes, FEMA may choose to do a physical map revision that results in a new map rather than a LOMR).
Letter of Map Amendment (LOMA)
An amendment to the currently effective FEMA map which establishes that a property is not located in a SFHA (due to natural occurrences in the landscape). A LOMA is issued only by FEMA, and is the only way to remove a structure or parcel of land from the SFHA.
Mutual Aid Societies
An organization whose members share a common religious, charitable, educational, or fraternal bond; covers losses caused by damage to members' property pursuant to an agreement, including damages caused by flooding, in accordance with this common bond; and has a demonstrated history of fulfilling the terms of agreements to cover losses to members' property caused by flooding. The bank may accept this policy if the following are met: >the bank's primary Federal supervisory agency has determined that such plans qualify as flood insurance; >the plan provides coverage in the amount required under the regulation; >the plan covers both the mortgagor/mortgagee as loss payee; and >the plan provides sufficient protection of the designated loan, consistent with general safety and soundness principles
The purpose of flood insurance rules is to protect: A. Borrowers from excessive property loss when buying in flood areas B. Lenders from losses sustained when properties are destroyed by floods C. The federal government from paying out excessive disaster relief assistance payments D. Insurance companies from paying out excessive amounts in flood hazard areas
C
Drake Bank is making a loan to MTV Corporation to be secured by MTV's manufacturing plant. The outstanding loan amount is $1,000,000. The appraised value of the plant is $750,000. What is the LEAST amount of flood insurance that the bank must require under the Flood Regulations? A. $250,000 B. $500,000 C. $750,000 D. $1,000,000
B
What are banks prohibited from with a MIRE event?
Banks are prohibited from making, increasing, extending, or renewing a loan secured by IMPROVED real estate or a mobile home located, or to be located, in a SFHA without insurance in a community participating in the NFIP.
Ariana Grande runs a residential condominium building and would like to get adequate flood insurance for her and all her Side to Side peeps. She has been researching FEMA's Residential Condominium Building Association Policy (RCBAP). The building has 100 units and the replacement cost of the building was appraised at $20 million. How much flood insurance would Ariana Grande's condominium association need to be sufficiently insured? A. $250,000 B. $500,000 C. $20 million D. $25 million
C
If a property purchased 10 years ago has recently been remapped into a special flood hazard area, who is responsible for alerting the borrower that flood insurance must be obtained? A. Regulatory agency B. FEMA C. Lender D. Seller
C
What day is the bank expected by law to force place flood insurance on the borrower's property after discovery of deficient insurance? A. Immediately upon discovery B. On the 45th day after notification to the borrower C. On the 46th day after notification to the borrower D. On the 10th day after notification to the borrower
C
Table Funded Loans
Considered "made", rather than "purchased" by the one supplying the funds. Flood requirements may be completed by the broker/dealer, or split with the funding entity.
What is the maximum amount of coverage that can be purchased under an RCBAP?
Ether 100% of the replacement cost value of the building, or the total number of units in the condo building times $250K, whichever is LESS.
How are FDIC examiners expected to qualify a Mutual Aid Society?
Evaluated on a case-by-case basis. A plan can be deemed to qualify if either the: >mutual aid society issuing the plan is licensed, admitted, or otherwise approved to engage in the business of insurance by the insurance regulator of the state where the property is located; OR >mutual aid plan is considered and regulated as insurance by that state where the property is located.
Condominium Policies
FEMA's condo master policy is called a RCBAP, which covers the common and individually owned building elements within the units, improvements within the units, and contents owned in common if contents coverage is purchased. The bank must require a borrower whose loan is secured by a residential condo unit to either: >ensure the condo owners association has purchased an RCBAP; OR >obtain a dwelling policy if the condo owners association has not purchased flood insurance, or if the coverage is less than the RCBAP requirements
What does FEMA stand for?
Federal Emergency Management Agency
What does FDPA stand for?
Flood Disaster Protection Act
What if the property is only taken as an abundance of caution?
Flood insurance is still required.
How long must the bank maintain a copy of the SFHDF?
For as long as the bank owns the loan.
When does a bank lose the small lender exception?
If the bank exceeds the asset threshold for two consecutive calendar year ends, it must begin escrowing loans secured by residential properties located in a SFHA MIRE'd on or after 7/1 of the first calendar year of the changed status. If a bank provides escrow accounts ONLY upon requests from borrowers, this DOES NOT constitute a uniform or consistent policy of requiring escrows. Once the small lender exception is no longer valid, the bank must offer the option to escrow to all existing borrowers with loans outstanding as of 7/1 by 9/30 of that year.
Discretionary Acceptance
If the policy by the private insurer doesn't meet the definition of "private flood insurance", the bank may still accept the policy at its discretion. The policy MUST: >provide coverage in the amount required by the regulation >be issued by a licensed insurer >cover mortgagor/mortgagee as loss payee (except in the case of condo association, HOAs, etc.) >provides sufficient protection consistent with safety and soundness principles
Private Insurance Policies
Mandatory Acceptance Discretionary Acceptance Mutual Aid Societies
Multiple Structures
Multiple structures that secure a loan located in a SFHA must each be covered by flood insurance, even though the value of one structure may be sufficient to cover the loan amount. Generally, one policy per building.
Amount of Insurance Required
Must be at least equal to the lesser of the outstanding principal balance, maximum amount under NFIP, or the insurable value of the property. Coverage under NFIP is limited to the building/mobile home and contents securing the loan-NOT the land itself.
What federally-backed insurance programs are offered through FEMA?
NFIP Direct Program and the WYO
What does NFIP stand for?
National Flood Insurance Program
Mandatory Acceptance
Private Flood Insurance: >issued by insurance company that is licensed, approved to do insurance business by insurance regulator of the state where the property is located >provides coverage that is at least as broad as the NFIP's SFIP for the same type of property >insurer will give written notice 45 days before cancellation or non-renewal >includes information about the availability of coverage under the NFIP >includes mortgage interest clause >includes provision requiring insured to file suit 1 year or less after written denial of a claim >contains cancellation provisions as restrictive as the SFIP
What does WYO allow customers to do?
Purchase insurance through private carriers.
What does RCBAP stand for?
Residential Condominium Building Association Policy
What is the exceptions for the escrow requirements of flood insurance?
Small Lender Exception Loan-Type Exception
What does SFHA stand for?
Special Flood Hazard Area
Standard Flood Hazard Determination Form (SFHDF)
The bank MUST use the SFHDF developed by FEMA when the bank has a MIRE event to determine whether the building securing the loan is or will be located in a SFHA in which flood insurance is available.
Non-participating Communities
The bank can MIRE in these communities. ***Still must make a determination if the property is in a SFHA. ***Still must notify the borrower if they are in a flood zone. ***Still must notify the borrower that coverage under the NFIP is not available. Lenders may want to require the purchase of private insurance for non-participating communities. If a significant portion of the loan portfolio is located in these areas, the bank should establish procedures.
Biggert-Waters Act
The bank may force place and charge for insurance beginning on the date on which flood insurance coverage lapsed or did not provide a sufficient coverage amount. A bank must terminate force-placed insurance within 30 days of receipt of confirmation of a borrower's existing flood insurance coverage. The bank must refund all premiums and fees for force-placed insurance paid during any period of overlap between the borrower's policy and the force-placed policy.
Force Placement Requirements
The bank or a servicer acting on its behalf is required to purchase (force place) flood insurance for the borrower if the bank determines that coverage is inadequate. MUST provide notice to the borrower that the borrower should obtain flood insurance. If the borrower fails to purchase flood insurance in the appropriate amount within 45 days, the bank must purchase insurance on the borrower's behalf.
What if there is a second mortgage or HE?
The bank should have the borrower contact the insurance agent to: >inform the agent of the intention to obtain a loan involving a subordinate lien >obtain verification of the existence of a flood insurance policy; and >check whether the amount of insurance covers all loan amounts.
Reliance on Prior Determination
The original bank that generated the SFHDF may rely on a previous determination if: >the previous determination is not more than SEVEN year old; AND >the basis for the previous determination was recorded on the SFHDF However, the bank may NOT relay on a previous determination if map changes now have the property in a SFHA. CANNOT use a previous determination when MAKING a loan.
Small Lender Exception for Escrow Requirements
Total assets of less than $1 billion as of 12/31 of either of the two prior calendar years, and as of July 2012, the bank was not required by Federal or state law to escrow taxes, insurance premiums, fees, or any other charges for the term of the loan and the bank did not have a policy of uniformly and consistently escrowing the same.
Notice of Special Flood Hazards
When a bank MIREs a loan secured by property located in a SFHA, the bank must provide a WRITTEN notice of special flood hazards to the borrower. Delivery of the notice must take place within a "reasonable time" BEFORE the completion of the transaction. The agencies generally regard 10 days as a "reasonable" time interval.
What does WYO stand for?
Write Your Own