Key Fundamentals of Flood Compliance!

Transcription

1 a Welcome to Key Fundamentals of Flood Compliance! An entry-level approach for lenders [Photo credit: Oliver Gruener] We will get started in a few minutes. Presented Meanwhile, by: let s perform a warm up exercise. 1 Training Agenda Here s our agenda for today Top Ten Topics Buying flood insurance Requiring flood insurance Maintaining flood insurance Flood Tools and Rules Flood zone discrepancies Grandfathered Rating Newly Mapped procedure LODRs & LOMAs Evidence of insurance Exams and CMPs Key Compliance Concerns Low-valued buildings Multiple buildings Mobile Homes Buildings in the course of construction Condominiums Contents 3 1

2 ? Top Ten Topics Your questions and more 5 #1 Buying Flood Insurance Who can buy it? 6 2

3 ? Who Can Buy Flood Insurance Community Participation All Zones 7 Participating Communities FEMA agrees to make flood insurance available COMMUNITY agrees to adopt and enforce floodplain management regulations 8 3

4 Community Status List Contact FEMA Map Information Exchange at (877- FEMA MAP) 9 Community Status Book

5 Community Status List 11? Who Can Buy Flood Insurance Community Participation All Zones 12 5

6 SFHAs and Non-SFHAs Special Flood Hazard Areas and Non-Special Flood Hazard Areas 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 13 SFHAs appear as dark shading on a Flood Insurance Rate Map (FIRM). 14 6

7 15 #2 Buying Flood Insurance Who must buy it? 16 7

8 ? Who MUST Buy Flood Insurance A or V Zones 17? Who MUST buy flood insurance Used as security for a loan 18 8

9 ? Who MUST buy flood insurance Designated Loan 19 Determining the Flood Zone 20 9

10 What 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 in which flood insurance is available under the Act. Please note: Emphasis on a building or mobile home as collateral 21 What is a designated loan? A building or mobile home as collateral Building must be located in a SFHA It must be where flood insurance is available under the Act Please note: Emphasis on a building or mobile home as collateral 22 10

11 3 Components of a Designated Loan. 1. A building or mobile home that is security for a loan 23 3 Components of a Designated Loan. 1. A building or mobile home that is security for a loan a. 2 rigid walls and a secured roof b. Principally above ground c. Permanent site d. Manufactured homes/travel trailers 24 11

12 3 Components of a Designated Loan. 1. A building or mobile home that is security for a loan a. 2 rigid walls and a secured roof b. Principally above ground c. Permanent site d. Manufactured homes/travel trailers 2. The building is in a Special Flood Hazard Area (SFHA) 25 Significance of the Building Location AE AE AE River Street 26 12

13 3 Components of a Designated Loan. 1. A building or mobile home that is security for a loan a. 2 rigid walls and a secured roof b. Principally above ground c. Permanent site d. Manufactured homes/travel trailers 2. The building is in a Special Flood Hazard Area (SFHA) 3. Located where flood insurance is available under the Act. 27 #3 Buying Flood Insurance How do borrowers buy it? 28 13

14 ? How do borrowers buy flood Insurance Write Your Own Company NFIP Direct Servicing Agent Licensed Property and Casualty Agent 29 When do flood insurance policies become effective? 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 30 14

15 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 $500,000 Contents $ 10,000 $100,000 Non-Residential Building Contents $100,000 $500,000 $100,000 $500, Top Ten Topics Buying Flood Insurance KEY TAKEAWAYS 33 15

16 Key Takeaways 1. A community must participate in the NFIP for federal flood insurance to be available to property owners. 2. If a building or any portion of it is in a high-risk flood zone, then the entire building is considered to be in the SFHA. 3. A 30-day waiting period exception applies to policies purchased in conjunction with a loan. 34 #4 Requiring Flood Insurance What is Mandatory Purchase? 35 16

17 What is mandatory purchase? 1973 Flood Disaster Protection Act Established mandatory purchase Tied to federally regulated lending 36 What is mandatory purchase? 1994 Flood Insurance Reform Act Responded to low participation Strengthened compliance requirements At loan origination and for term of loan 37 17

18 What is mandatory purchase? Federally regulated lending institutions can not make, increase, extend, or renew any loan secured by improved real property located in an SFHA in a participating community unless the secured building and any personal property securing the loan are covered for the life of the loan by a flood insurance policy. 38 Mandatory Purchase Tripwires (M-I-R-E) Making Increasing Renewing Extending 39 18

19 What is mandatory purchase? Self-insured state owned properties Small loans - $5,000 or less/1 year repayment term Detached structures residential properties 40 #5 Requiring Flood Insurance What is the SFHDF? 41 19

20 ? How do you document flood zone determinations Standard Flood Hazard Determination Form 42 SFHDF Purpose Not a substitute for the borrower notification form Documents the flood zone status Electronic form is acceptable 43 20

21 Can the SFHDF be re-used? Yes, but When increasing, extending, renewing or purchasing a loan IF less than 7 years old IF NO new or revised maps issued 44 Can the SFHDF be re-used? No, when Making a new loan 45 21

22 Can the SFHDF be re-used? Exception Refinancing or assumption by same lender who obtained original determination and multiple loans to the same borrower 46 #6 Requiring Flood Insurance What is the notification process? 48 22

23 What are the? notification requirements prior to loan closing Building is in a special flood hazard area Mandatory purchase requirement Flood insurance coverage is available through the NFIP Eligibility requirements to receive disaster relief Effective 1/1/16: Additional language on private flood insurance, detached structures exemption and escrows for residential loans See Appendix A Final Rule 49 When is notice required? M-I-R-E Making Increasing Renewing Extending Designated Loan 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

24 When is notice required? the bank shall mail or deliver a written notice to the borrower and to the servicer in all cases whether or not flood insurance is available under the Act for the collateral securing the loan. 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. 51 Notice Requirements LENDER Reasonable Making Notice Time cannot before Increasing Closing REUSED Renewing 10 Days Extending 52 24

25 What constitutes reasonable notice? 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. What constitutes reasonable notice will vary according to the circumstances of particular transactions. 53 #7 Requiring Flood Insurance How much coverage is required? 54 25

26 Notification Requirements Prior to Loan Closing Proof of insurance Correct amount of insurance Obtain policy for closing 55 How much coverage? Least of the following: Outstanding Principal Loan Balance Maximum available through the NFIP Insurable value of the building 56 26

27 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 Contents Non-Residential Building Contents $100,000 $500,000 $ 10,000 $100,000 $100,000 $500,000 $100,000 $500, Case Study: Coverage for Multiple Buildings You make a loan in the principal amount of $300,000. Loan is secured by five nonresidential buildings, only 3 of which are located in SFHAs within participating communities. The insurable value varies. Outstanding Loan Balance $300,000 Maximum amount of insurance under the NFIP, lesser of Maximum limit available: $500,000 per building ($1.5 million) Insurable value: Bldg 1-$200,000 Bldg 2-$100,000 Bldg 3-$100,000 (Total - $400,000) Amount Required? 58 27

28 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 Secondary Lienholder 60 Top Ten Topics Requiring Flood Insurance KEY TAKEAWAYS 61 28

29 Key Takeaways 1. A previous determination can be reused when increasing, extending, renewing or purchasing a loan if it is less than seven years old and if no new or revised map has been issued in the interim. 2. Notice to borrower must be sent when hitting a tripwire on a designated loan. That notice cannot be re-used. 3. Required amount of coverage is lowest of: 1. Outstanding principal balance of loan(s) 2. Maximum limit available in the NFIP 3. Insurable value of the building(s) 62 #8 Maintaining Flood Insurance When are flood premiums escrowed? 64 29

30 Revised Escrow Requirements Reform Legislation Escrows Revised escrow provisions effective 1/1/16 Applies to residential improved real estate with a triggering event only Escrow notification part of notice to borrower Notice of Special Flood Hazards updated Small lender and loan exceptions to escrow requirement Mandatory escrows in place since National Flood Insurance Reform Act of EXCEPTIONS Reform Legislation Escrows Small Lender Exception: < $1billion in assets Six loan exceptions to escrow requirement: 1. Loan primarily for business, commercial or agricultural purpose 2. Subordinate liens when flood insurance is provided at time of loan origination 3. Condominiums, cooperatives, homeowner associations, etc. 4. Home equity lines of credit 5. Non-performing loans (90 or more days past due) 6. Short-term loans (12 months or less) 66 30

31 #9 Maintaining Flood Insurance How are designated loans maintained? 68 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? 69 31

32 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 70 Map Changes and Designated Loans 71 32

33 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 72 #10 Maintaining Flood Insurance When is force placement necessary? 73 33

34 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 Lapse date = policy expiration date or effective date of cancellation 75 34

35 Biggert-Waters Force Placement Provisions Requires lender or servicer within 30 days of: Receiving confirmation of borrower s coverage Terminate force-placed flood insurance policy Refund all force-placed premium and fees paid by borrower During any overlap in coverage 76 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 77 35

36 Top Ten Topics Maintaining Flood Insurance KEY TAKEAWAYS 78 Key Takeaways 1. Implementation of the reform legislation escrow requirements was effective 1/1/ Notice to borrower is triggered at any time during the term of a loan if a designated loan is determined to be uninsured or underinsured. 3. Biggert-Waters allows borrowers to be charged for premium and fees related to force placement beginning on the date of flood insurance lapse or when sufficient coverage is not provided

37 Flood Tools and Rules To use and to live by 80 Flood Zone Discrepancies SFHDF s zone does not match flood policy s zone Flood zones are rating elements Not policy limits issue Claims paid based on limit in effect at time of loss Additional premium/policy reformation is from date of discovery; 30 days to pay additional premium Payment of claim is not delayed 81 37

38 Flood Zone Discrepancies SFHDF s Zone Flood Policy s Zone Documentation Grandfather Rule Newly Mapped Procedure Investigation Mistakes High-risk (A & V) vs. Low-to- Moderate Risk (B, C, D or X) 82 Map Grandfather Rule Allows a property owner to: Lock in a previous flood zone Lock in a previous Base Flood Elevation 83 38

39 Newly Mapped Procedure Effective April 2015 Newly Mapped Procedure Preferred Risk premium: B, C and X zones AR and A99 zones Meets specific loss eligibility requirements Properties in B, C, D, X, AR and A99 zones on the old map to an SFHA on a new map 84 Rated Zone/Current Zone 85 39

40 Flood Zone Discrepancies SFHDF s Zone Flood Insurance Policy s Zone Documentation Grandfather Rule Newly Mapped Procedure Investigation Mistakes High-risk (A & V) vs. Low-to- Moderate Risk (B, C, D or X) 86 LODR - Letter of Determination Review LENDER 45 DAYS 87 40

41 Letter of Determination Review AE AE River AE River Road 88 Letter of Determination Review AE 45 DAYS AE River AE River Road 89 41

42 LOMA - Letter of Map Amendment 90 LOMA - Letter of Map Amendment 91 42

43 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. 92 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, page GR 16 (April 2017 version) 93 43

44 Regulatory Examinations Review an institution s practices dealing with flood insurance Proof of the Notice to Borrower form Review timing of notices Verify proper coverage amounts Check procedures for map changes Confirm force placement procedures 94 Civil Monetary Penalties Biggert-Waters Reform Act increased 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 95 44

45 Flood Tools and Rules KEY TAKEAWAYS 97 Key Takeaways 1. The grandfather rating rules lock in flood zone and Base Flood Elevation information from prior maps for rating purposes only. 2. NFIP policy declaration pages display a rated zone and a current zone as well as a grandfather rating indicator. 3. Letters of Determination Review and Letters of Map Amendment can assist in settling flood zone disputes

46 Key Compliance Concerns Buildings, Buildings, Buildings 99 Land NOT Insurable

47 Low-Value Building on High-Value Land Value of land alone sufficient to secure the loan If building in SFHA is collateral, then it remains a designated loan Building must be eligible Do not insure building for more than its insurable value 101 Multiple Buildings Separate determinations for multiple buildings? One building per policy 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. (3) DETACHED STRUCTURES. Notwithstanding any other provision of this section, flood insurance shall not be required, in the case of any residential property, for any structure that is a part of such property but is detached from the primary residential structure of such property and does not serve as a residence. 102 Three Required Components for Exemption 47

48 3 Components Detached Structures Applies to residential property Used primarily for personal, family or household purposes Not commercial, agricultural or other business use Applies to a detached structure Detached from primary residential building Stands alone not connected Does not serve as a residence Is a non-residential building Relies on good faith determination of lending institution (3) DETACHED STRUCTURES. Notwithstanding any other provision of this section, flood insurance shall not be required, in the case of any residential property, for any structure that is a part of such property but is detached from the primary residential structure of such property and does not serve as a residence. 103 Three Required Components for Exemption? What about Manufactured Homes? Mandatory Purchase Requirements Apply If in a SFHA, flood insurance must be required

49 What are the? guidelines for buildings in the course of construction 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 Note: 30-day waiting period applies without a loan transaction 105 What are the? guidelines for the buildings in the course of construction 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

50 Condominiums Associations Residential Condominium Building Association Policy Evidence of compliance Coverage Coinsurance Provision 107 Condos and Coverage Forms

51 Residential Condominium Building Association Policy (RCBAP) Insures a residential condominium building owned by a condominium association. Replacement cost loss settlement applies to condos other than manufactured homes/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. 109 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,

52 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. 111 RCBAP Dec Page Document Number of units in structure Statement of Replacement Cost

53 RCBAP Co-Insurance Penalty Applies to Building Coverage Limit Amount of insurance at time of loss Amount of insurance required X Amount of loss (before deductible) = Limit of Recovery 113 RCBAP Co-Insurance Penalty Applies to Building Coverage Limit $8,000,000 Coverage Limit $20,000,000 X.80 = $16,000,000 X $7,000,000 loss (before deductible) =50% = $3,500,

54 RCBAP Co-Insurance Penalty Applies to Building Coverage Limit $7,000,000 - $3,500,000 = (-$3,500,000) (actual loss) (claim payment) = (unpaid deficit) 115 Dwelling Policy Form Covers the Residential Unit Owner Insures a single family dwelling unit in a condominium building or a noncondominium 1-4 family dwelling. Maximum limits - $250,000 building & $100,000 contents

55 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 117 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 $500,000. 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 $500,000 for Building

56 Personal Property / Contents Contents is not required unless in addition to building, contents secures the loan Residential mortgages contents typically not required Commercial Inventory only if building is in SFHA and building is used as security 119 Key Compliance Concerns KEY TAKEAWAYS

57 Key Takeaways 1. The Homeowner Flood Insurance Affordability Act contains a mandatory purchase exemption for certain detached structures on a residential property. 2. The Residential Condominium Building Association Policy calculates its maximum limit of coverage by multiplying the $250,000 single family dwelling maximum times the number of units in the building. 3. Flood insurance coverage for contents is not required under the Act unless personal property, in addition to a building, secures the loan. 122 Resources

58 National Flood Insurance Program Home Page NFIP Flood Insurance Manual Access the NFIP Flood Insurance Manual: Online at the Flood Insurance Library:

59 Links to Final Rule Loans in Areas Having Special Flood Hazards (June 2015) a.pdf 126 Links to Interagency Q&As Interagency Q & As Regarding Flood Insurance (July 2009) Interagency Q & As Regarding Flood Insurance (October 2011)

60 Reform Act Legislation and more Online at: 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! Presented by:

61 Contact Information Rich Slevin Melanie Graham Aaron Montanez 130 Any views or opinions presented in this webinar are solely those of the speakers. They do not represent the Federal Emergency Management Agency (FEMA), The National Flood Insurance Program (NFIP), any Federal Entity for Lending Regulation or Government Sponsored Enterprise (GSE). Always consult your regulatory entity for definitive guidance