Flood Disaster Protection Act
What kinds of properties are exempt from the flood insurance purchase requirement?
-certain state-owned buildings published periodically by the administrator of FEMA -Secondary structures that is a part of any residential property but is detached from the primary residential structure and DOES NOT serve as a residence -Loans with an original balance of $5,000 or less AND with a repayment term of one year or less
What is the definition of "private flood insurance" in the FDPA?
-issued by an insurance company that is licensed/admitted/approved by the regulator of the state or is recognized as a surplus lines insurer by the regulator of the state -provides flood insurance coverage that is at least as broad as the coverage provided under the NFIP's Standard Flood Insurance Policy (SFIP)
What are the contents of the written notice of special flood hazards and availability of federal disaster relief assistance?
1. A warning that the property is in a SFHA 2. A description of the flood purchase requirements 3. A statement that flood insurance is available under the NFIP if applicable, and also that borrowers may purchase it from private insurers 4. A statement that flood insurance coverage is available from private insurers that issue policies on behalf of NFIP or directly from the NFIP 5. A statement that flood insurance that provides the same level of coverage as a standard flood insurance policy under the NFIP may also be available 6. A statement that the borrower is encouraged to compare flood insurance policies and acquire about the costs, availability, and comparisons of coverage 7. A statement whether federal disaster relief assistance may be available in the event of damage to the building
The FDIC generally regards _____ days before closing as a "reasonable" time period for the lender to provide the written notice of SFHA to the borrower
ten
What are the exceptions to the escrow requirement?
1. The small lender exception: total assets of less than $1 billion as of December 31 of either of the two prior calendar years (and not required or routinely escrowing anything else) 2. loan-type exception: -loans primarily for business, commercial, or agricultural purposes even if secured by residential real estate -loans in a subordinate position to a senior lien -loans secured by a property with sufficient coverage by the condo, co-op, or HOA -HELOCs -nonperforming loans -loans with a term no longer than 12 months 3. AND BORRROWER REQUESTS!!!
The NFIP maximum is ??? for residential properties and ??? for personal contents
250k 100k for contents
The NFIP maximum is ??? for non-condominium residential buildings of five units or greater and ??? for personal contents
500k 100k for contents non-condominium residential bldg= apartment complex?
The NFIP maximum is ??? for non-residential structures and ??? for contents
500k 500k for contents
3. 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 Loan B is not in a special flood hazard area. Loan C is a vacant lot, which is not insurable. ***remember that a notice still must be given to borrowers with properties in communities that do not participate in the NFIP
8. Flood insurance lapsed on a loan at First Bank on June 1. The bank sent the borrower a notice stating that flood insurance was required and giving the borrower 45 days (until July 15) to reinstate the policy or purchase a new one. If the borrower does not reinstate the flood insurance and the bank force places a policy and charges the borrower for the premium, what date should the force placed policy start coverage? a. June 1 b. June 30 c July 1 d. July 15
A.
which violations of the Act can result in a mandatory civil money penalty?
A pattern or practice of violations of any of the following requirements trigger mandatory CMPs: 1. Purchase of flood insurance where available 2. Escrow of flood insurance premiums 3. Force placement of flood insurance 4. Notice of Special Flood Hazards 5. Notice of Servicer and any change of Servicer
5. State National Bank is making a loan to the ACME Corporation to be secured by ACME's manufacturing plant. The bank's loan is for $250,000. The appraised value of the plant is $750,000. The maximum amount of flood insurance available for a commercial building is $500,000. What is the least amount of flood insurance the bank must require under the Flood Regulations? a. $250,000 b. $750,000 c. $500,000 d. None of the above
A.
6. 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. Although FEMA guidelines have been rescinded, they are still applicable and say that there are only two forms of proof of insurance. One is a copy of the declarations page of the policy. The other is the insurance application along with proof of payment. The NFIP does not recognize binders or certificates of insurance.
2. Which of the following loans does NOT require flood insurance? • Loan A is a commercial loan that has been on the books for two years and has been renewed twice. Flood insurance was legally required on the loan at the time it was made. There was a flood insurance policy in effect at the loan's inception, but it expired and was not renewed. • Loan B is a consumer loan secured by a mobile home that is located in a flood hazard area in which federal flood insurance is not available. • Loan C is a commercial loan that the bank would be willing to make on an unsecured basis, but the borrower has offered some commercial real estate property as collateral. The property has one vacant building on it, and it is in a flood hazard area in a community where federal flood insurance is available. a. Loan A b. Loan B c. Loan C d. None of the loans
B The properties securing Loans A and C are located in special flood hazard areas and in communities where federal flood insurance is available; therefore, flood insurance is required. Loan A is required to have flood insurance for the entire term. The bank must check at each renewal to make sure the insurance is still in effect.
1. Assume that the properties involved in the following loans are located in special flood hazard areas. Which loans would NOT require flood insurance as a condition of the loan? a. A mortgage loan made to a consumer secured by a residence in a community in which flood insurance is available b. A commercial loan secured by residential real estate located in a community in which flood insurance is available c. A consumer loan secured by a lake house located in a community in which flood insurance is not available d. A loan for the purpose of making investments secured by commercial rental property located in a community in which flood insurance is available
C Any loan secured by a building or mobile home located in a special flood hazard area where flood insurance is available must have flood insurance as a condition of making the loan.
9. Which one of the following descriptions is not included in the definition of private flood insurance? a. Is issued by an insurance company that is licensed, admitted, or otherwise approved to engage in the business of insurance by the insurance regulator of the State or jurisdiction in which the property to be insured is located b. Provides flood insurance coverage that is at least as broad as the coverage provided under an SFIP for the same type of property c. Includes a requirement for the insurer to give written notice 90 days before cancellation or non-renewal of flood insurance coverage d. Contains cancellation provisions that are as restrictive as the provisions contained in an SFIP
C. The definition of private flood insurance includes a requirement to give written notice 45 days (rather than 90 days) before cancellation or non-renewal of flood insurance coverage.
What is the certain criteria under discretionary acceptance of which a private flood insurance policy that does not meet the standard may still be accepted?
Criteria: -provides proper coverage -is issued by an insurer that is licensed/admitted/approved by the regulator of the state -covers both the mortgagor(s) and the mortgagee(s) as loss payees (except for a policy for condos or co-ops) -provides sufficient protection of the designated loan (for determining this lenders should consider the deductible amount, if there is adequate notice of cancellations, if the terms and conditions are reasonable, if it complies with applicable state insurance laws, if the company is financially strong enough to handle all potential claims)
4. When does a notice that the borrower's property is located in a special flood hazard area have to be given to the borrower? a. Before making a commitment to lend b. Within 10 days after closing c. At the time of the application d. Within a reasonable time before completion of the transaction, but no later than the bank sends other notices concerning insurance or taxes
D.
7. When is the purchase of flood insurance required on or before loan closing? a. Construction mortgage loan is to be secured by a single-family dwelling in a participating community b. Conventional mortgage loan is to be secured by an attached mobile home in a special flood hazard area of a nonparticipating community c. Conventional mortgage loan is to be secured by a vacant lot located in a special flood hazard area of a participating community d. Business mortgage loan is to be secured by a commercial building located in a special flood hazard area of a participating community
D. The other alternatives do not require flood insurance. Vacant lots are not covered. Property in nonparticipating communities does not require insurance. Construction loans require flood insurance if the building will be located in a special flood hazard area, but the insurance does not have to be in place on or before loan closing as long as the lender has reasonable controls in place to assure that the insurance will be purchased when walls and a roof are in place.
True or False: Buildings with four or more walls and a fully secured roof affixed to a permanent site are eligible for flood insurance
False 2 walls, not 4
True or False: If a property is located in a community that does not participate in the NFIP the borrower still must obtain flood insurance if it is located in a SFHA
False However, banks may still require the purchase of private flood insurance because: 1. properties in the nonparticipating community are not eligible for federal disaster relief assistance in the event of a federally declared disaster 2. Federal agency lenders (FHA, SBA, VA) will not subsidize, insure, or guarantee any loan if the property securing the loan is in a SFHA of a community not participating in the NFIP
True or False: It is a bank's option to escrow flood insurance premiums and fees.
False. The regulations require the escrowing of flood insurance premiums/fees for designated loans secured by residential real estate.
True or False: Lenders cannot reuse SFHDFs because FEMA may have revised its flood maps since the last determination.
It depends. Banks can use SFHDFs if they are not more than seven years old AND the basis for the previous determination was recorded on the SFHDF AND there were no map revisions affecting the property since the original determination
What is a LOMA? What is a LOMR?
LOMA= Letter of Map Ammendment (borrowers can submit a request to FEMA if they believe their property is above the base flood elevation even though the map shows its in a SFHA) LOMR= Letter of Map Revision (physical changes are necessary to raise the land above the base flood elevation 100-year flood level
Flood insurance is required for the term of the loan when an institution __________, _____________, ___________, or ___________ a designated loan that is secured by real estate for a property that is in a SFHA and the community participates in the NFIP.
Make Increase Renew Extend MIRE
What does NFIP stand for? What is the NFIP?
National Flood Insurance Program -a program that is administered under the National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973
Linda bought a house in 2015 from First Bank for $230,000. It was located in a SFHA so at the time of purchase she obtained flood insurance as required by her lender. The amount of the policy was for $230,000. In 2020, she decided to use to get a $30,000 HELOC on the same property with SunnySide Financial. The insurable value is $550,000. Is her flood insurance going to be the same? If not, what will be the minimum amount necessary for coverage?
No, it will change since she is adding a subordinate lien on the property. $250k will be the new required coverage Breakdown: The lesser of the outstanding balance (260k), insurable value (550k), and the NFIP maximum (250k).
Maria is applying for a refinance of her home mortgage from SunnySide Financial. SunnySide currently holds the mortgage on her home and originated the loan three years ago. When Maria secured her original mortgage, SunnySide obtained a SFHDF that indicated Maria was in a flood zone and she obtained sufficient insurance. SunnySide has verified the flood maps have not changed since three years ago and will be reusing the prior SFHDF. Since Maria has current and adequate flood insurance, there is nothing SunnySide needs to do prior to closing. Is SunnySide Financial in compliance with the FDPA?
No. Yes they can use the same SFHDF since it was less than seven years ago and the flood maps have not changed. HOWEVER, they still need to send Maria a Special Flood Hazards Notice and get a record of receipt prior to closing
Apple Bank consistently has total assets of $850k per year and decides to refuses a borrower who would like to escrow their flood insurance premiums. Is this in compliance with the FDPA?
No. Even though Apple Bank is under the small lender exception, it still has to provide the option to escrow flood insurance premiums after receiving a borrower's request
What are the flood zones where flood insurance is required by law? What are the low-to-moderate flood risk areas that are not required?
Required: A or V Optional: B, C, or X
What are the structures eligible for flood insurance? Are mobile homes eligible for flood insurance? How about buildings under construction?
The NFIP covers improved real property or mobile homes located or to be located in an area identified by FEMA as having special flood hazards -residential, industrial, commercial, agricultural buildings that are walled and roofed that are above ground -buildings under construction -mobile homes that are affixed to a permanent site -condos and co-ops -contents are also insurable
Is a residential building with 30 percent square feet commercial use considered a residential building?
no, since the commercial use is over 25 percent
The minimum amount of flood insurance required is the lesser of....?
The lesser of: 1. The maximum amount available under the NFIP 2. The outstanding principal balance of the loan 3. The replacement cost value/insurable value
True or False: 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
True
True or False: Generally, each insurable structure requires a separate insurance policy
True
True or False: If the property gets a LOMA or LOMR the lender can waive the requirement for flood insurance, even if the property is in a SFHA
True
True or False: NFIP flood insurance policies that are not issued in conjunction with the making, increasing, extending or renewing of a loan have a 30-day waiting period.
True The congressional intent behind this requirement was to prevent the purchase of flood insurance (and any direct loss to the U.S. government) in times of imminent loss. However, 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, there is a one-day waiting period. There is no waiting period when an additional amount of NFIP insurance is required in connection with the making, increasing, extending or renewing of a loan, such as a second mortgage, home equity loan, or refinancing.
True or False: Flood insurance coverage is required on ALL loans where structures securing the loan are located in high-risk flood loans
True confusing
True or False: A lender can accept a private flood insurance policy even if the policy does not meet the definition of "private flood insurance" as set forth in the regulation.
True, but only if the policy meets certain criteria (discretionary acceptance) *this also applies to mutual aid societies
True or False: Banks are not required to monitor for map changes.
True, however this is contradictory because banks are required to notify and force place flood insurance if the it lapses
True or False: The penalty for any practice or pattern of violating flood insurance requirements is adjusted annually for inflation
True, the penalty is levied for each violation, with no maximum confusing!
How many notices must be sent to the customer when flood insurance lapses? How long does the bank have to force place flood insurance?
Two If the borrower fails to purchase flood insurance within 45 days, the bank must force-place by the 46th day
Are table funded loans treated as new originations?
Yes, the party advancing the funds are usually the party to provide all disclosures. Therefore, they are considered to be responsible for FDPA purposes
What is the latest point that a lender can check the flood status of a secured structure and still be in compliance for a new loan? a. prior to closing b. within 30 days of closing c. anytime during the term of the loan
a. prior to closing
****Flood Break***** is the fee for the original flood determination a finance charge? is life of loan flood monitoring a finance charge?
apparently the original flood determination is not a finance charge. the life of loan monitoring is a finance charge
Is a hotel where the normal occupancy of guests is seven months considered residential or non-residential?
because guest occupancy is more than six months it is considered a residential building
What are the penalties if a pattern or practice is found of committing violations against the FDPA?
civil money penalties in an amount not to exceed $2,000 per violation ***no penalty may be imposed after the expiration of four years beginning on the date of the occurrence of the violation
What are the record-keeping requirements of the FDPA? Are there any records of receipt? If so, what are they?
copies of the SFHDFs and the notice of the SFHA must be kept for as long as the bank owns the loan records of receipt include a signed acknowledgement on a copy of a notice from the borrower, a borrower-initialed list of documents that the lender provided the borrower, and a scanned electronic image of a receipt or other document signed by the borrower
mandatory acceptance vs discretionary acceptance
mandatory: a private flood insurance policy that does meet the definition of "private flood insurance" discretionary: a private flood insurance policy that does not meet the definition as set forth in the regulation, but may be accepted if it meets certain other criteria
Are isolated or accidental occurrences considered a pattern or practice?
no pattern or practice violations are considered deliberate, repeated, regular, or institutionalized practices
What action must a lender take if the RCBAP coverage is insufficient for a loan secured by an individual condo unit?
the lender should request that the condo association obtain additional coverage. If not, the lender must require the borrower to purchase a dwelling policy in an amount sufficient to meet coverage requirements (the difference between the RCBAP's coverage and the required coverage)
Why does the federal government wat borrowers in SFHAs to have flood insurance so bad?
to reduce the cost to taxpayers for federal disaster assistance
