Servicers' Guide to Flood Insurance Requirements

Transcription

1 Welcome to Servicers' Guide to Flood Insurance Requirements February 18, 2016 Moderated by: Sara Singhas, Policy Advisor, Residential Policy, Mortgage Bankers Association Presented by: Kathleen Dufraine, Executive Director, Insurance, JP Morgan Chase Scott Giberson, Compliance Manager, CoreLogic, NFDA Brandy Hood, Associate, BuckleySandler LLP Melissa Klimkiewicz, Partner, BuckleySandler LLP

2 Today s Discussion Servicing Life Cycle Applicability of Mandatory Purchase Requirements Flood Determination Standard Flood Hazard Determination Form (SFHDF) Borrower Notification Escrowing Premiums Ensuring Adequate Coverage Lender-Placed Insurance Particular Loan & Property Types What's Next Private Flood Insurance State Efforts NFIP Updates Mapping NFIP Reauthorization When things change Questions? 2

3 Servicing Life Cycle 3

4 Applicability of Mandatory Purchase Requirements Applicable requirements depend on entity that makes or owns loan and loan type: Federally regulated institutions are subject to federal banking agency regulations and requirements Loans owned by Fannie Mae or Freddie Mac, or insured or guaranteed by FHA, VA, or RHS, are subject to requirements of the applicable agency Insurance not required by Flood Act is subject to RESPA lenderplaced insurance requirements and restrictions Servicing agreement can require servicer to comply with requirements applicable to lender Today, we will focus primarily on the federal banking agencies requirements 4

5 Flood Determination MIRE: triggering events for requiring flood insurance Make, Increase, Renew, or Extend loan Terms are not defined Includes modification that increases the loan amount or extends the term of the loan Does not include purchasing loans or acquiring interest in loans via participation or syndication post-origination Determine whether the loan is a designated loan A loan secured by a building or mobile home that is located or to be located in a special flood hazard area (SFHA) in which flood insurance is available under the Flood Disaster Protection Act SFHA High-Risk Zone A or V Determine whether the property is in a participating community 5

6 Flood Determination Making the Flood Determination Graphics courtesy of National Flood Determination Association 6

7 Standard Flood Hazard Determination Form (SFHDF) Documents whether flood insurance is required and available at each MIRE event Reusing prior SFHDF permitted if: Loan involves increasing, extending, or renewing (including refinancing or assumption) by same lender who obtained original determination on same property not more than seven years before date of transaction; and No map revisions/updates affecting property since original determination made Flood zone differences between SFHDF and policy only significant if between high-risk zones and other zones 7

8 Borrower Notification If a MIRE event will occur and the loan is a designated loan, must notify borrower that flood insurance is required Notice must be provided to the borrower within a reasonable period before completion of transaction (i.e., within 10 days before loan closing) Use of sample Notice of Special Flood Hazards and Availability of Federal Disaster Relief Assistance form (found in Appendix A to the banking agency regulations) ensures compliance, but is not mandatory May not rely on previous notice, even if it is less than seven years old and it is the same property, same borrower, and same lender 8

9 Escrowing Premiums On or after January 1, 2016, escrow required after a MIRE event for consumer-purpose residential loans Map changes do not trigger escrow requirement Loan-based exceptions: Certain subordinate lien loans Loans on units in a condo association, HOA, or cooperative that have lending-institution approved master policy Commercial loans secured by residence HELOCs Nonperforming loans Loans with terms of 12 months or less Small lender exception If determine exception no longer applies, must start escrowing 9

10 Escrowing Premiums (Cont d) The option to escrow must be offered and made available to borrowers with outstanding designated loans as of January 1, 2016 or July 1st of the calendar year in which a lender loses its small lender status Offer must be made by: June 30, 2016, or September 30 of the first calendar year during which the lender or servicer loses its small lender status Option does not apply to: Loans already escrowing Loans or lenders who qualify for any of the exceptions If a borrower submits an escrow request, the lender or servicer must begin escrowing as soon as reasonably practicable 10

11 Ensuring Adequate Coverage General Requirements Coverage amount must be at least equal to lesser of: - Outstanding principal balance, or - Maximum limit of coverage under the NFIP, which is: Insurable value, or Maximum available for the type of structure o 1-4 unit residential properties: $250,000 o Other residential properties: $500,000 o Non-residential properties: $500,000 Must send 45-day notice upon making a determination that existing coverage has expired or is inadequate - Includes after a map change 11

12 Ensuring Adequate Coverage Multiple Structures Coverage must be maintained on each building in an SFHA However, there is a new detached structure exemption when all of the following apply: Residential property Structure that is part of the property that is: Detached from the primary residential structure, and, Does not serve as a residence No requirement to monitor structure, but must reevaluate at MIRE events Potential safety and soundness concerns if structure was considered of value in underwriting the loan 12

13 Lender-Placed Insurance Must send 45-day notice upon making a determination that existing coverage has expired or is inadequate If borrower fails to obtain flood insurance within 45 days after notification, flood insurance must be lender-placed Borrower may be charged beginning on date borrower s voluntary coverage lapses Must cancel lender-placed insurance and refund unearned premiums within 30 days of receipt of acceptable borrower-obtained flood insurance Must accept as proof of borrower purchased insurance a declarations page that includes the flood policy number, insurance company or agent, and contact number 13

14 Particular Loan & Property Types Construction loans If secured by land only: not a designated loan If secured by building in course of construction: may be designated loan Condo loans may be designated loans Home equity loans may be designated loans Draws against line of credit do not require flood determination Second mortgages Amount of coverage based on combined total outstanding balance of first and second loans 14

15 What s Next 15

16 Private Flood Insurance Regulators must implement regulations requiring lenders to accept private flood insurance policies that meet the following requirements: Insurance company must meet licensure/approval requirements Coverage must be at least as broad as NFIP Policy must include 45-day cancellation/nonrenewal notice, information about NFIP coverage, mortgage interest clause similar to SFIP, 1-year legal recourse clause, and cancellation provisions as restrictive as SFIP Potential Congressional action 16

17 State Efforts Hawaii H 2203 Would require 6- month notice prior to force-placement New York A 3337 Would limit amount of flood insurance required South Carolina H 4495 Would prohibit flood insurance if property not affected by disaster Vermont H 13 Would limit amount of flood insurance 17 required

18 NFIP Updates Implementation of BW 12 and HFIAA changes continue Increased rates, fees, and surcharges Transition of policies formerly written as PRPs due to Extension of Eligibility program to risk rates (Newly mapped into SFHA will be eligible for 1 year of PRP rate) Policyholders to be informed of flood zone on current map with each policy renewal ( Clear Communication ) Policy lapse may result in loss of subsidized rate for pre- FIRM properties (new questions about mandatory purchase on application) Flood Insurance Advocate office in place 18

19 Mapping FEMA s Risk MAP efforts continue including remapping of coastal communities President s FY 2017 budget calls for $311M for mapping Hearings and roundtable meetings on Capitol Hill focus on future of mapping FEMA s monthly report to Congress on mapping available Technical Mapping Advisory Council (TMAC) releases first reports Follow CoreLogic Insights blog at Image from FEMA s Risk MAP progress summary ( 19

20 NFIP Reauthorization NFIP authorization expires September 30, 2017 Campaigning and Presidential election dominate in 2016 New Congress will convene in 2017 What are your legislative priorities? March 20-22, Scottsdale, AZ Legislation is being drafted this year Opportunities to get involved Sign-up sheet available for MBA Flood Insurance Work Group Contact Sara Singhas of MBA at May 15-18, Washington D.C. More opportunities in 2016 to learn about and talk about the NFIP and flood insurance 20

21 When Things Change Change readiness Communication & Project Management Training Systems updates Form updates and approvals Borrower confusion Policies & Procedures Are you ready? o 21

22 Questions? 22

23 Contact Information Kathleen Dufraine Executive Director, Insurance, JP Morgan Chase Scott Giberson Compliance Manager, Corelogic Brandy Hood Associate, BuckleySandler LLP Melissa Klimkiewicz Partner, BuckleySandler LLP