NFIP Lender Basics. A Novice s Checklist National Flood Insurance Program

Transcription

1 NFIP Lender Basics A Novice s Checklist National Flood Insurance Program 1 Welcome to NFIP Lender Basics! We will get started in a few minutes. Meanwhile, let s perform a warm up exercise. 2 1

2 3 Training Agenda Basic Compliance Issues Flood 101 Overview Lender Responsibilities a checklist Step-by-step look at a lender s role in flood compliance Special Compliance Issues Home Equities and Seconds Buildings in course of construction Land only loans Condominiums Manufactured (Mobile) homes Personal Property/Contents Multiple loans Compliance issues wrap-up Regulators Civil money penalties Resources 4 2

3 Seminar Resources National Flood Insurance Program Home page: NFIP Flood Insurance Manual: Interagency Q & As Regarding Flood Insurance (2009 & 2011) Interagency Statement on the Impact of Biggert-Waters Act (March 2013) Joint Notice of Proposed Rulemaking on Loans in Areas Having Special Flood Hazards (October 2013) Basic Compliance Issues Flood 101 Overview 6 3

4 Who Can Buy Flood Insurance? Community Participation All Zones 7 Who Must Buy Flood Insurance? Buildings/Mobile Homes in Special Flood Hazard Areas A Zone V Zone 8 4

5 Who Must Buy Flood Insurance? Buildings/Mobile Homes in Special Flood Hazard Areas Used as security for a loan Designated Loan 9 How do Borrowers buy Flood Insurance? Write Your Own (WYO) insurance companies NFIP Servicing Agent Written by licensed property/casualty insurance agents 10 5

6 Availability of Flood Insurance to Property Owners Department of Homeland Security DHS Federal Emergency Management Agency FEMA Mitigation Division National Flood Insurance Program NFIP NFIP Servicing Agent WYO Companies 11 When do flood insurance policies become effective? Waiting period and exceptions There is a 30 day waiting period before any new or modified flood insurance policies go into effect. Exceptions are provided for: Insurance in connection with a loan transaction. (MIRE) Insurance purchased within 13 months of a map revision (1 day wait). Wildfire exception For detailed information, please see the General Rules section of the Flood Insurance Manual 12 6

7 How Much Flood Insurance Coverage is Available? Residential (1-4 family) Building Contents Other Residential Emergency Program $35,000 $10,000 Regular Program $250,000 $100,000 Building $100,000 $250,000* Contents $ 10,000 $100,000 Non-Residential Building Contents $100,000 $500,000 $100,000 $500,000 *Effective 06/01/14, Other Residential building coverage will increase to $500, What is Mandatory Purchase? 1973 Flood Disaster Protection Act Established mandatory purchase of flood insurance Tied to federally regulated lending 14 7

8 What is Mandatory Purchase? 1994 Reform Act Responded to low participation level Strengthened compliance requirements Aimed at flood insurance purchase at loan origination Maintaining coverage for term of loan 15 Basic Compliance Issues Lender Responsibilities 17 8

9 Lender Responsibilities Determines if structure in high-risk zone (SFHA) Documents determination on standard form - SFHDF If in SFHA, notifies borrower that flood insurance is required If in SFHA, requires adequate flood insurance is obtained Requires escrow of flood insurance premiums, as required Ensures flood insurance coverage is maintained/obtained Force places flood insurance as appropriate 18 Lender Responsibility #1 Determine if structure is in high-risk zone (SFHA) 19 9

10 Determining the Flood Zone 20 What is a Designated Loan? Designated Loan: 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. Please note: Emphasis on a building or mobile home as collateral

11 What is a Designated Loan? Designated Loan: 1. A building/mobile home as collateral 2. The building must be located in a SFHA 3. It must be where flood insurance is available under the Act Please note: Emphasis on a building or mobile home as collateral Components of a Designated Loan. A building or mobile home that is security for a loan 23 11

12 Insurable Property - What is a Building? 2 Rigid Walls and a Secured Roof Principally Above Ground Permanent Site Manufactured Homes/Travel Trailers 24 3 Components of a Designated Loan. A building or mobile home that is security for a loan The building is in a special flood hazard area

13 SFHAs and Non-SFHAs SFHAs (High Risk) AE (replaces A1-A30) A, AH, AO, A99, AR VE (replaces V1-V30) V, VO Non-SFHAs (Low to Moderate) B, C, X 26 SFHAs appear as dark shading on a Flood Insurance Rate Map (FIRM)

14 28 Significance of the Building Location AE AE River AE River Street 29 14

15 3 Components of a Designated Loan. A building or mobile home that is security for a loan The building is in a special flood hazard area... Located where flood insurance is available under the Act 30 Participating Communities FEMA agrees to make flood insurance available within a community when that community agrees to adopt and enforce floodplain management regulations

16 Finding participating communities in the NFIP Community Status Books/Lists How to Obtain: Contact FEMA Map Information Exchange at (877- FEMA MAP) Community Status Book

17 Community Status List 34 Community Participation Participation Insurance available Federal backed loans available Disaster Assistance available Non-Participation Insurance not available Conventional loans only in SFHAs Disaster Assistance limitations 35 17

18 Mandatory Purchase Tripwires M-I-R-E Making Increasing Renewing Extending 36 Lender Responsibilities Determines if structure in high-risk zone (SFHA) Documents determination on standard form - SFHDF If in SFHA, notifies borrower that flood insurance is required If in SFHA, requires adequate flood insurance is obtained Requires escrow of flood insurance premiums, as required Ensures flood insurance coverage is maintained/obtained Force places flood insurance as appropriate 38 18

19 Lender Responsibility #2 Documents determination on standard form - SFHDF 39 Standard Flood Hazard Determination Form (SFHDF) New Form effective May Year Phase-in Period FEMA Form replaces FEMA Form

20 SFHDF Purpose Not a substitute for the borrower notification form Documents the flood zone status Providing copy to borrower is encouraged to reduce zone discrepancies Can also be used in event of other disputes Electronic form is acceptable 41 Can the SFHDF be Reused? May re-use when increasing, extending, renewing or purchasing a loan IF less than 7 years old NO new or revised maps issued since Cannot be reused when making a new loan Exceptions: Refinancing or assumption by same lender who obtained original determination and multiple loans to the same borrower only if: IF less than 7 years old NO new or revised maps issued since 42 20

21 Flood Zone Discrepancies SFHDF s Zone = Flood Insurance Policy s Zone Documentation Grandfather Rating Rule PRP Eligibility Extension Mistakes Investigation High-risk (A & V) vs. Low-to- Moderate Risk (B, C, D or X) 43 Map Grandfather Rule Allows a property owner to: Lock in a previous flood zone Lock in a previous Base Flood Elevation 44 21

22 PRP Eligibility Extension Summary Effective January 2011 Buildings newly designated within the SFHA due to a map revision on or after October 1, 2008, are eligible for coverage under the PRP until further notice Properties in B, C and X zones Must meet specific loss eligibility requirements. Gone from a B, C, D or X zone on the old map to a SFHA on a new map 45 Rated Zone/Current Zone 46 22

23 Flood Zone Discrepancies SFHDF s Zone = Flood Insurance Policy s Zone Documentation Grandfather Rating Rule PRP Eligibility Extension Mistakes Investigation High-risk (A & V) vs. Low-to- Moderate Risk (B, C, D or X) 47 LODR - Letter of Determination Review 45 DAYS 49 23

24 Letter of Determination Review AE AE River AE River Road 50 Letter of Determination Review AE 45 DAYS AE River AE River Road 51 24

25 LOMA - Letter of Map Amendment 52 LOMA - Letter of Map Amendment 53 25

26 Lender Responsibilities Determines if structure in high-risk zone (SFHA) Documents determination on standard form - SFHDF If in SFHA, notifies borrower that flood insurance is required If in SFHA, requires adequate flood insurance is obtained Requires escrow of flood insurance premiums, as required Ensures flood insurance coverage is maintained/obtained Force places flood insurance as appropriate 54 Lender Responsibility #3 Notifies borrower that flood insurance is required 55 26

27 Notification Requirements Prior to Loan Closing 1. A warning that the building is in a special flood hazard area. 2. A description of the mandatory purchase requirement. 3. A statement that flood insurance coverage is available through the NFIP and may also be available from private insurers. 4. An explanation of the eligibility requirements to receive disaster relief. 56 Notice Requirements When a bank Makes, Increases, Renews or Extends, a loan secured by a building or mobile home located or to be located in a special flood hazard area. Designated Loan M-I-R-E Making Increasing Renewing Extending 57 27

28 Notice Requirements When a bank Makes, Increases, Renews or Extends, a loan secured by a building or mobile home located or to be located in a special flood hazard area the bank shall mail or deliver a written notice to the borrower and servicer in all cases whether or not flood insurance is available under the Act for the collateral securing the loan. 58 Notice Requirements Making Reasonable Notice Time cannot before Closing REUSED 10 Days Increasing Renewing Extending 59 28

29 Notice Requirements Note from Interagency Q&A Preamble: What constitutes reasonable notice will necessarily vary according to the circumstances of particular transactions. Regulated lending institutions should bear in mind, however, that a borrower should receive notice timely enough to ensure that: 1. The borrower has the opportunity to become aware of his/her responsibilities under the NFIP 2. The borrower can purchase flood insurance before completion of the loan transaction. 60 Lender Responsibilities Determines if structure in high-risk zone (SFHA) Documents determination on standard form - SFHDF If in SFHA, notifies borrower that flood insurance is required If in SFHA, requires adequate flood insurance is obtained Requires escrow of flood insurance premiums, as required Ensures flood insurance coverage is maintained/obtained Force places flood insurance as appropriate 62 29

30 Lender Responsibility #4 Requires that adequate flood insurance is obtained 64 Notification Requirements Prior to Loan Closing Proof of Insurance Correct Amount of Insurance 65 30

31 How much coverage? Least of the following: Outstanding Principle Loan Balance Maximum available through the NFIP Insurable value of the building 66 How Much Flood Insurance Coverage is Available? Residential (1-4 family) Building Contents Other Residential Emergency Program $35,000 $10,000 Regular Program $250,000 $100,000 Building $100,000 $250,000* Contents $ 10,000 $100,000 Non-Residential Building Contents $100,000 $500,000 $100,000 $500,000 *Effective 06/01/14, Other Residential building coverage will increase to $500,

32 Lender Case Study: Coverage for Multiple Buildings Lender makes a loan in the principal amount of $150,000 secured by five nonresidential buildings, only 3 of which are located in SFHAs within participating communities and the insurable value of each is $100,000. Outstanding Loan Balance $150,000 Maximum amount of insurance under NFIP, lesser of Maximum limit available: $500,000 Insurable Value: $100,000 per building (Total $300,000) Amount Required? 68 What is acceptable proof of coverage? Copy of flood insurance application AND premium payment or a copy of the declarations page NOTE: The NFIP does not recognize binders. However, it does recognize certificates of property insurance or evidence of insurance forms provided for renewal policies that meet specific criteria

33 Certificates of Property Insurance/Evidence of Insurance Forms Acceptable for renewals if they include: Policy Form/Type (GP, DP, RCBAP, PRP) Policy Term Policy Number Insured s Name and Mailing Address Property Location Flood Risk Zone Grandfathered Y/N Mortgagee Name and Address Coverage Limits, Deductibles Annual Premium For RCBAP include number of units and RCV of building Source: NFIP Flood Manual, pages GR (October 2013 version) 72 Lender Responsibilities Determines if structure in high-risk zone (SFHA) Documents determination on standard form - SFHDF If in SFHA, notifies borrower that flood insurance is required If in SFHA, requires adequate flood insurance is obtained Requires escrow of flood insurance premiums, as required Ensures flood insurance coverage is maintained/obtained Force places flood insurance as appropriate 73 33

34 Lender Responsibility #5 Escrows flood insurance premiums, as required 74 Escrow Requirements Lenders are required to escrow flood insurance premium and fees for mandatory flood insurance - if the lender requires the escrow of taxes, hazard insurance premiums or any other charges for residential improved real estate Exception: Voluntary Escrow The 2012 Reform Act contains a provision on escrows that is due for implementation effective July 6, It will be implemented through notice and comment rulemaking. Regulators intend to publish escrow regulations in time to implement prior to July 2014* *Interagency Statement of the Impact of Biggert-Waters Act March 29,

35 Lender Responsibilities Determines if structure in high-risk zone (SFHA) Documents determination on standard form - SFHDF If in SFHA, notifies borrower that flood insurance is required If in SFHA, requires adequate flood insurance is obtained Requires escrow of flood insurance premiums, as required Ensures flood insurance coverage is maintained/obtained Force places flood insurance as appropriate 76 Lender Responsibility #6 Ensures coverage is maintained/obtained, as required 77 35

36 Maintaining Designated Loans Lender determines at any time during the life of the loan that property securing the loan is located in SFHA; Flood insurance is available; Flood insurance is inadequate or does not exist; and After required notice, borrower fails to purchase appropriate amount of coverage. Send 45 day Letter Allow time for borrower to purchase flood insurance Force Place? 78 Notice Requirement for Existing Designated Loans Notice to borrower must state: Borrower should obtain required amount at borrower s expense If not obtained within 45 days... Lender will purchase on behalf of borrower May charge borrower for cost of premium and fees Which are likely more expensive than if borrower purchased 79 36

37 Map Changes and Designated Loans 80 Map Changes and Designated Loans Existing loan becomes Designated Loan, e.g. map change Once lender determines Must send 45-day notice to borrower Send Notice of Special Flood Hazards Prior to map revision: No requirement No prior notice 81 37

38 Lender Responsibilities Determines if structure in high-risk zone (SFHA) Documents determination on standard form - SFHDF If in SFHA, notifies borrower that flood insurance is required If in SFHA, requires adequate flood insurance is obtained Requires escrow of flood insurance premiums, as required Ensures flood insurance coverage is maintained/obtained Force places flood insurance as appropriate 83 Lender Responsibility #7 Force places flood insurance as appropriate 84 38

39 When Should Force Placement Occur? Lender or servicer shall force place upon expiration of 45-day notice period Agencies expect lenders to provide reasonable explanation for any brief delays, e.g. batch processing Biggert-Waters Force Placement Provisions Premium and fees a lender or servicer may charge include: Premium or fees incurred for coverage Beginning on the date flood insurance coverage lapsed or, Did not provide sufficient coverage amount 86 39

40 Biggert-Waters Force Placement Provisions Requires lender or servicer within 30 days of: Receiving confirmation of borrower s coverage Terminate force-place insurance Refund all force-placed premium and fees paid by borrower During any overlap in coverage 87 Biggert-Waters Force Placement Provisions Requires lender or servicer to: Accept borrower s existing policy declarations page as confirmation Declarations page must include: Existing policy number Identity/Contact information for insurance company or agent 88 40

41 Lender Responsibilities Determines if structure in high-risk zone (SFHA) Documents determination on standard form - SFHDF If in SFHA, notifies borrower that flood insurance is required If in SFHA, requires adequate flood insurance is obtained Requires escrow of flood insurance premiums, as required Ensures flood insurance coverage is maintained/obtained Force places flood insurance as appropriate 89 Special Compliance Issues Lender Responsibilities 90 41

42 Home Equity and Second Mortgages The mandatory requirements apply with equal force regardless of lien priority Negligence by Primary Lienholder requires Secondary Lienholder to obtain ENTIRE outstanding loan balance. Primary Lienholder Borrower Secondary Lienholder 91 Buildings in the Course of Construction What are the Guidelines? If structure is or will be built in an SFHA, Flood Insurance may be purchased: Option 1: At time loan is made Option 2: When actual construction begins 92 42

43 Buildings in the Course of Construction What are the Guidelines? Can be insured before construction begins Elevation certificate is based on construction drawings (blueprints) Once the lowest floor for rating is in place, a new elevation certificate must be obtained 93 Land NOT Insurable 94 43

44 Low-Value Building on High-Value Land Value of land alone sufficient to secure the loan If the land has a building on it, lender must require insurance Cannot insure in excess of the value of the insurable building 95 What about Manufactured Homes? Are or will be located in a SFHA Placement of Manufactured Home is unknown Borrower notice requirements do not apply Upon placement Determination must be made Borrower must then be notified If in a SFHA, flood insurance must be required 96 44

45 Multiple Buildings Separate determinations for multiple buildings? One policy per building EXCEPTION: Dwelling Policy coverage form allows an insured to extend up to 10% of the building coverage from the main dwelling to the detached garage at time of loss. ** Seek implementation guidance from your regulator 97 Personal Property / Contents Contents is not required unless in addition to building, contents secures the loan Residential mortgages contents not required Commercial Inventory only if building is in SFHA and building is used as security 98 45

46 Condominiums Associations Residential Condominium Building Association Policy Evidence of compliance Coverage Coinsurance Provision 100 Condos and Coverage Forms

47 Residential Condominium Building Association Policy (RCBAP) Insures a residential condominium building owned by a condominium association. Replacement cost loss settlement applies to buildings other than manufactured homes or travel trailers If insured to at least 80% of its replacement cost value at the time of loss or max limit there is no coinsurance penalty. 102 RCBAP Maximum Amount of Insurance The maximum available building coverage is the replacement cost value of the building and its supporting structure or up to $250,000 per unit times the number of units, whichever is less. $250,000 x 10 Units = $2,500,000 $250,000 x 100 Units = $25,000,

48 Residential Condominium Building Association Policy (RCBAP) Insures a residential condominium building owned by a condominium association. Replacement cost loss settlement applies to buildings other than manufactured homes or travel trailers If insured to at least 80% of its replacement cost value at the time of loss or max limit there is no coinsurance penalty. 104 RCBAP Dec Page Document Number of units in structure Statement of Replacement Cost

49 4/11/2014 NFIP Lender Basics Applies ToCo-Insurance The Building Coverage Limit RCBAP Penalty Applies to Building Coverage Limit NFIP Lender Basics Applies ToCo-Insurance The Building Coverage Limit RCBAP Penalty Applies to Building Coverage Limit 49

50 4/11/2014 NFIP Lender Basics Applies ToCo-Insurance The Building Coverage Limit RCBAP Penalty Applies to Building Coverage Limit NFIP Lender Basics Dwelling Policy Form Covers the Residential Unit Owner Insures a single family dwelling unit in a condominium building or a non-condominium 1-4 family dwelling. Maximum limits - $250,000 building & $100,000 contents

51 General Property Form Covers Non-Residential Condo Associations Occupied less than 75% residential and not eligible for RCBAP. Maximum limit of $500,000 per Building. Can only be written in the name of the condo association 110 Co-ops and Timeshares Cooperatives Ownership is not shared -not eligible for the RCBAP Owner purchases General Property Policy Co-ops with at least 75% residential square footage are considered residential buildings -can be insured under the General Property Policy for a max building limit of $250,000. Timeshares Fee or real-estate ownership - condominium form of ownership Eligible for the RCBAP Non-fee interest, such as right-to-use Not Eligible for the RCBAP General Property Policy form Coverage Limit to $250,000 for Building

52 Compliance Issues Wrap-up Regulators, Resources and More 113 F Federal Entities for Lending Regulation Government Sponsored Enterprises Office of the Comptroller of the Currency (OCC) Federal Deposit Insurance Corporation (FDIC) Federal Reserve Board National Credit Union Administration (NCUA) Farm Credit Administration (FCA) Fannie Mae (FNMA) Freddie Mac (FHLMC)

53 Regulatory Examinations Review an institution s practices dealing with flood insurance Proof of the Notice to Borrower form Observe timing requirements of notices Verify if the proper amount of coverage Check map change procedures Confirm force placement methods 115 Civil Monetary Penalties Original: Not to exceed $350 per violation, with a ceiling of $100,000 during a calendar year. Biggert-Waters Reform Act increases CMPs to $2,000 per violation and eliminates the annual cap. Looking for a pattern or practice of committing violations Lender s Failure to: 1. Place Insurance 2. Escrow flood insurance premium 3. Force place insurance 4. Provide notice requirements

54 Resources 117 National Flood Insurance Program Home Page

55 NFIP Flood Insurance Manual Access the NFIP Flood Insurance Manual: Online at the Flood Insurance Library: 4/11/ Links to Interagency Q&As Interagency Q & As Regarding Flood Insurance (July 2009) Interagency Q & As Regarding Flood Insurance (October 2011)

56 Reform Act Legislation and more Online at: 4/11/ Evaluations - Online All attendees will be receiving an with a link to a survey and feedback form. Please take time to complete and help us improve our training effort! THANKS 56

57 Social Media - Online Follow us on twitter: Like us on Facebook at: LIKE. FOLLOW. LEARN. 123 Training Information B a s i c G u i d e t o F l o o d C o m p l i a n c e Melanie Graham [email protected] Dorothy Martinez [email protected] Rich Slevin [email protected] Sonja Wood [email protected] Rich Waalkes [email protected] Aaron Montanez [email protected]

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