Hazard and Flood Insurance Policy

Transcription

1 Hazard and Flood Insurance Policy Effective August 1, Introduction All 1-4 family residential loans closed at Cherry Creek Mortgage Co. Inc. ( CCMC ) must have sufficient and acceptable property hazard insurance coverage (including HO-6 Walls-In for Condominiums and Conventional Attached PUD units) and flood insurance, if applicable, prior to disbursement of funds. Each borrower has the right to select his or her own insurance carrier providing the insurance for the security property meet CCMC requirements. Borrowers *Please Note* It is never acceptable for anyone other than the insurance agent or representative of the insuring company to make manual changes to any insurance document. Any changes made to an existing insurance policy must be completed directly by the insurance agent and/or insuring company with a copy to CCMC reflecting those changes. 2.1 Hazard Insurance 2.2 General Coverage Cherry Creek requires that the borrower(s) obtain hazard insurance as protection from loss should the property be damaged or destroyed in a disaster. Hazard insurance protects the borrower and CCMC from loss in the event of fire, theft, wind and/or other covered event that would reduce the property s actual value. Coverage must be that which provides for claims to be settled on a replacement cost basis. Hazard insurance policies that limit or exclude from coverage (in whole or in part) windstorm, hurricane, hail damages, or any other perils that normally are included under an extended coverage endorsement are not acceptable under CCMC policy. In California, separate earthquake and wildfire policies are either required or strongly recommended, depending on the investor. Another note on natural disasters: if CCMC is aware of an approaching disaster and the borrower doesn't yet have windstorm/flood/locust swarm insurance in place, closing may be delayed until after the disaster passes, and the borrower or investor may have the property reappraised to confirm that the value has not been negatively affected. Policies that settle losses on an actual cash value basis also are not acceptable forms of coverage. Insurance carriers/providers must meet a minimum rating requirement as determined by the following: 1. B or better Financial Strength rating as determined by A.M. Best Company 2. A or better Financial Strength rating as determined by Demotech 3. BBB or better Financial Strength rating as determined by Standard and Poor

2 2.3 Type of Insurance Forms Required: Homeowner s Policy HO-3 for primary residences Hazard Insurance Policy DP-3 for second or investment residences Master Condominium or Planned Unit Development Policy for all Condominiums & Attached PUD units Walls-In Loss Policy HO-6 for all Condominiums and Conventional Attached PUD units 2.4 Documentation Requirements: Each loan file submitted for underwriting must include a copy of the written evidence of hazard insurance or hazard insurance binder complete with the following items: Borrower Names should appear consistent within the loan file. Name variations will require closer to prepare Name Affidavit. Address of the property being secured by the loan matched to the appraisal Dates of coverage period i. Purchase loans- A minimum of 1 year coverage term is required with the effective date on or before closing date. ii. Refinance loans - A minimum of 45 days must be remaining on the current policy; otherwise, the full year s annual premium will be collected at closing to ensure no lapse in coverage on the insured property. Amount of coverage(s) including extended coverage or coverage limits (see coverage section) Annual premium, including proof of payment documented or evidence paid at closing via HUD Settlement Statement Insurance Agency name, address and phone number Hazard policy number (exception: purchase loan binders) Cherry Creek Mortgage Co. Inc. Loan Number & Loss Payee Clause (See section 6 ) Deductible amounts and/or percentages (See section(s) as applicable) Insurance Binders - An Insurance Binder is defined as immediate insurance coverage that is in written form. The binder provides temporary insurance coverage for a specified time until a formal policy is issued. CCMC will accept and fund loans on a binder provided the documentation requirements listed above are met AND include the insurance agent s signature as well as the name of the underwriting company. 2.5 Coverage Requirements The minimum amount of the hazard insurance coverage must equal 0% of the building s replacement value, and/or insurable value. The insurable value is established by the property insurer, not by the principal amount of the loan. If the minimum coverage is not met per the above, two additional and alternative methods for calculating minimum requirements are recognized.

3 First, the hazard insurance policy must state that the policy includes Guaranteed Replacement or have a Replacement Cost Endorsement. For example: Some hazard policies may state that the policy has dwelling replacement up to a certain percentage (ex: 125%). The dwelling coverage amount stated on this type of policy would be multiplied by the percentage factor provided. The result must be sufficient to cover the replacement of the property as stipulated above. Second, if the appraiser has completed the Cost Approach to Value Section of the appraisal with estimated cost to build new, we may use this figure to calculate minimum coverage. For example, if the cost to build new is $85,000 and policy coverage is $90,000 then the policy coverage is acceptable even if it does not equal or exceed the loan amount. **Special Note on Bond loans**--bond will not accept Guaranteed Replacement or Extended Replacement type policies. Homeowner s insurance policies on Bond loans must state a replacement value equal to the total of all loan balances or 0% of the insurable value Investment Properties - If the borrower is using rental income to qualify, the hazard policy must have a separate coverage included that covers rent loss incurred due to damage and/or loss of the property. Coverage must equal a minimum of 6 months of the gross monthly rent for that property. 2.5 Deductible Requirement: For all property types, the hazard insurance deductible may not exceed $1,000 OR 1% of the dwelling coverage, whichever is greater. On an exception basis, a higher deductible may be allowed but in no case may the deductible be greater than 5% of the face amount of the policy. The standard deductible requirement applies to all types of loss (theft, fire, wind, etc.). 3.1 Flood Insurance For properties determined to be located in a flood zone, as per a Flood Certificate issued by an approved CCMC vendor, flood insurance coverage is required. The National Flood Insurance Program (NFIP) is limited to a maximum coverage available for properties which CCMC currently extends credit. For any single family dwelling and 2-4 family dwelling, the maximum available coverage amount is $250,000. The amount of actual coverage may be less than $250,000 as determined in the Coverage section below. 3.2 Disclosure Requirement: It is required that all borrowers are provided the Notice to Borrower IN Special Flood Hazard Area disclosure. This disclosure should be sent to the borrowers when the

4 Flood Certificate is obtained and the property is determined to be in a flood zone. In all cases this disclosure must be signed and dated by the borrowers at least days prior to closing. A copy of the signed/dated disclosure must be in the credit file evidencing the borrowers received and acknowledged the disclosure. Closing may not occur within the days since the date the borrowers signed the disclosure. 3.3 Documentation Requirements: Each loan file submitted for underwriting must include a copy of the written evidence of flood insurance or flood insurance binder complete with the following items: Borrower Names should appear consistent within the loan file. Name variations will require closer to prepare Name Affidavit. Address of the property being secured by the loan matched to the appraisal Dates of coverage period i. Purchase loans - Must be a minimum 1 year coverage term; effective date on or before closing date.refinance loans - A minimum of 45 days must be remaining on the current policy; otherwise, the full year s annual premium will be collected at closing to ensure no lapse in coverage on the insured property. Amount of coverage(s) - Policy stated coverage amount (see coverage section) or maximum coverage of $250,000 as defined by FEMA Annual premium, including proof of payment documented or evidence paid at closing via HUD Settlement Statement Insurance Agency name, address and phone number Flood policy number (exception: purchase loan binders) Cherry Creek Mortgage Co. Inc. Loan Number & Loss Payee Clause (See section, page 4 below) Deductible amounts and/or percentages (see section(s) as applicable) 3.4 Coverage Requirement: The amount of flood insurance coverage provided by the NFIP must be the lowest of the following: 0% replacement cost of the insurable value of the improvements, including the replacement of the foundation and supporting structures. Resources such as the appraisal cost approach value, construction cost calculation, and insurable value used in the hazard insurance policy may be used to determine the amount of flood coverage required. The maximum insurance available for the NFIP, which is currently $250,000 per dwelling, or The loan amount. 3.5 Deductible Requirement: The Deductible requirement for Flood insurance is different than for standard Homeowner s

5 coverage and differs between conventional and government insured loans. The maximum deductibles for Flood insurance are as follows: For conventional: The deductible may not exceed the maximum deductible amount allowed under the National Flood Insurance Program, which is $5,000. For government loans (FHA & VA): The maximum deductible clause for a flood insurance policy must not exceed the greater of $1,000 or 1% of the face amount of the policy, unless a higher maximum is required by state law. Community participation in the National Flood Insurance Program is required. If the property improvements (buildings) are located within a Special Flood Hazard Area (SFHA) and insurance under NFIP is not available because the community does not participate in NFIP, the property is not eligible for financing including FHA mortgage insurance or VA guaranty. 3.6 New Construction Properties: New construction properties are eligible for flood insurance per lending guidelines, subject to the following special requirement. If a newly built property was completed less than one year prior to application and is located within a SFHA, the property is not eligible for FHA mortgage insurance or VA guaranty regardless of whether flood insurance is obtained, unless: a) A Letter of Map Amendment (LOMA) or Letter of Map Revision (LOMR) that removes the property from the SFHA location is obtained from FEMA or; b) A FEMA National Flood Insurance Program Elevation Certificate is obtained documenting that the lowest floor (including the basement) is at or above the 0- year flood elevation. Please note: If the flood elevation certificate documents eligibility per the guideline above, but the property remains located within the SFHA, minimum flood insurance coverage is required. 3.7 Non-Residential Out-Buildings: When the property securing the loan is located in an SFHA and in an NFIP participating community and the property consists of multiple buildings, flood insurance is required on each building. The total amount of required flood insurance is the lesser of: a) The outstanding principal balance of the loan(s); or b) The maximum amount of insurance available under NFIP (which is the lesser of the maximum limit available for the type of structures, or the insurable value of the structures). The amount of total required flood insurance can be allocated among the secured buildings in varying amounts but all buildings must have some level of flood insurance coverage.

6 4.1 Condominiums and Attached PUDS For all condominium and all attached planned unit development (PUD) properties financed with CCMC, it is required the building project in which the unit is located maintain a master/blanket insurance policy that provides the necessary property replacement coverage for loss events. The Condominium or Attached PUD project homeowner association administers the insurance with the premium being included as part of the common expense (HOA dues) charged to the unit owner. The policy covers all general and limited common elements, exterior building structure, building equipment, supplies used by the homeowner s association and in some cases, the fixtures within the interior of the individual units. 4.2 Documentation Requirements: In addition to the standard hazard insurance policy items, the following must be included on a master/blanket policy and in the file when the loan file is submitted for underwriting: Borrower Names should appear consistent within the loan file. Name variations will require closer to prepare Name Affidavit. Property address, including specific unit of the property being secured by the loan matched to the appraisal, located in the remarks section Dates of coverage period - must be a minimum 1 year coverage term; effective date on or before closing date. Insurance Agency name, address and phone number Hazard policy number Cherry Creek Mortgage Co. Inc. Loan Number & Loss Payee Clause (see section 6) Deductible amounts and/or percentages (see section(s) as applicable) General liability coverage (see section as applicable) Fidelity Coverage for Condo projects with over 20 units (see section as applicable) The number of the units within the project covered by the policy must be clearly listed on the declaration/evidence page. 4.3 Coverage Requirements: Insurance coverage must be for 0% of the current replacement of the project improvements including the individual units within the project. Coverage is not required for land, foundation or other excavations within the project. An insurance policy which includes either a Guaranteed Replacement or a Replacement Cost endorsement and will ensure full insurable value is acceptable. The policy must include two types of coverage that are specific to projects: 1. General Liability a) General liability coverage is required and must be a minimum of $1 million of coverage per occurrence for personal injury and/or property damage b) The coverage must provide for claim settlements on an occurrence basis. c) The coverage must prevent the insurer from rejecting a unit owner s claim because of

7 negligent acts of the homeowner s association or other unit owners. d) Provide at least ten days written notice to the homeowner s association before the insurer can cancel or modify the policy. 2. Fidelity coverage is required for Condominium units which consist of more than 20 units. This coverage covers losses resulting from dishonesty or fraudulent acts committed by an employee or affiliate of the homeowner s association. Minimum Fidelity coverage must be equal to three months of assessments on all units in the condominium project. 4.4 Deductible Requirements: The maximum deductible cannot exceed 5% of the individual unit coverage within the master/blanket policy. 5.1 Walls-In (HO-6) Insurance For all property types that are considered to be a Condominium and Conventional Attached PUD units, in addition to the standard master policy insurance, it is required to obtain evidence of insurance and documentation that the borrower has separate insurance coverage that covers and ensures replacement of interior fixtures, improvements (including upgrades), and/or add-on s that the standard insurance policy does not cover. If the Condominium project has a master insurance policy that includes the HO6 coverage, no separate policy is necessary provided that CCMC is the designated loss payee under both coverage types. 5.2 Coverage Requirements: The minimum coverage amount required by CCMC is equal to0% of the insurable value of the fixtures, improvements (including upgrades), and/or add-on s as determined by the insurer. If the policy does not clearly indicate that it covers 0% replacement of the Walls-In items so as to return the unit to its pre-loss state and the insurance agent is unable to provide written clarification to this effect, CCMC will follow FNMA s general guideline that the coverage must be at least 20% of the appraised value of the property. For example, if the property s appraised value is $0,000 then coverage must be at least $20,000 or the insurance company must state that the policy covers 0% of the replacement cost of the walls-in expenses for the unit. 5.3 Deductible Requirement: The deductible requirement for HO6 coverage will mirror the requirement we have for standard homeowner s insurance as noted in this policy. The HO6 deductible may not exceed $1,000 OR 1% of the dwelling coverage, whichever is greater. The deductible requirement applies to all types of loss (theft, fire, wind, etc.).

8 6.0 Standard Loss Payee Clause The standard loss payee mortgagee clause that must be used on and show clearly on all insurance policy declarations advice is: Cherry Creek Mortgage Co., Inc. Its successors and or assigns 7600 East Orchard Road, Suite 250-N Greenwood Village, CO **For any specific property insurance topics not addressed in this policy, CCMC will refer to the applicable agency guidelines.