OCC Mission and Vision

Transcription

1 FLOOD DISASTER PROTECTION ACT 12 C.F.R. 22 Michelle Mitchell, NBE Comptroller of the Currency Little Rock, Arkansas 1 OCC Mission and Vision Mission To ensure that national banks and federal savings associations operate in a safe and sound manner, provide fair access to financial services, treat customers fairly, and comply with applicable laws and regulations. Vision The OCC is a preeminent prudential supervisor that adds value through proactive and risk-based supervision; is sought after as a source of knowledge and expertise; and promotes a vibrant and diverse banking system that benefits consumers, communities, businesses, and the U.S. economy. 2 1

2 OCC Core Values Integrity Firm adherence to a code or standard. We do the right thing by acting in accordance with law and applicable policies and applying the highest ethical standards in our conduct. Expertise Mastery in one s field; unique or specialized knowledge or skill. We continuously enhance our skills and experience, act on careful analysis, and apply our knowledge and capabilities to achieve the agency s mission. Collaboration Working together in a joint effort, sharing a common goal. We include diverse stakeholders in our decisionmaking process, seek alternative perspectives, and excel in a team environment. Independence Freedom from undue influence or control of others. We act without undue external influences and exercise our own judgment in a manner consistent with the agency s mission and vision. 3 Topics Covered Basic Information on the FDPA Replacement Cost Value (RCV) vs Actual Cost Value (ACV) Detached Structure Rules Force Placement Insurance Private Policies 4 2

3 5 Flood Damage July 2016 Baton Rouge, LA 6 3

4 Basics of the FDPA The FDPA was enacted in 1994 Prohibits lenders from extending credit secured by properties in flood-prone areas without proper flood insurance Key Testing Elements: Flood Zone Determinations Timing Delivery of disclosures 7 Flood Insurance Requirements Flood insurance is required on improved real property when all three factors are present: The bank makes, increases, extends, or renews any loan, whether commercial or consumer, secured by improved real property, or a mobile home that is affixed to a permanent foundation. The property securing the loan is or will be located in a Special Flood Hazard Area (SFHA) as identified by FEMA. The community participates in the NFIP administered by the Flood Insurance Administration (FIA). 8 4

5 Nonparticipating Community Banks are not restricted from making, increasing, extending, or renewing a loan if the community in which the property is located does not participate in the NFIP. (Exception: Prohibited from making Gov t Guaranteed loans if community does not participate) Federal flood insurance is not available for flood prone areas located in nonparticipating communities 9 Participating Community A bank may not make, increase, extend, or renew any loan secured by improved real property located or to be located in a special flood hazard area within a participating community, unless the improved real property is covered for the term of the loan by flood insurance. 10 5

6 Excluded Property Unimproved land, bridges, dams, and roads. Mobile homes not affixed to a permanent site (anchored) to resist flotation, collapse, or lateral movement by providing over-the-top and frame ties to ground anchors. Travel trailers and campers. Converted buses or vans. Buildings entirely in, on, or over water into which boats are floated. Buildings newly constructed or substantially improved on or after October 1, 1983, in an area designated as an undeveloped coastal barrier. 11 Exemptions Flood insurance is not required on: State-owned property covered under an adequate policy of self-insurance satisfactory to the director of FEMA. Property securing any loan with an original principal balance of $5,000 or less AND with a repayment term of one year or less. 12 6

7 Flood Insurance Determination Banks may contract with outside sources to determine whether the property is located in a SFHA only to the extent that the outside source guarantees the accuracy of the information. Regardless of who actually makes the determination, they must follow the SFHA designations delineated by the director of FEMA and they must complete the standard flood hazard form. 13 Special Flood Hazard Determination Form Bank must determine whether the improved real property is or will be located in a SFHA as defined by FEMA. Since January 2, 1996, this determination requires the use of the Standard Flood Hazard Determination Form (SFHDF*). *All fields on the form are required, except those designated optional 14 7

8 Special Flood Hazard Determination Form For renewals, extensions, and increases, banks may use an existing SFHD, not more than 7 years old and only if lender verifies that a map revision has not occurred changing the status of the property & structure. 15 Notice of Special Flood Hazard The OCC s regulation requires banks to notify the borrower if: The improved real estate or mobile home that will secure the loan is or will be located in a SFHA. Federal disaster relief assistance will be available for such property in the event of damage to the property caused by flooding in a federally declared disaster area. 16 8

9 Notice of Special Flood Hazard More requirements The notice should be provided to the borrower within a reasonable time before the transaction is completed. If the property is in a SFHA, the notice must be given regardless of whether the community participates or does not participate in the NFIP. 17 The bank must retain: Record Keeping Completed standard flood hazard determination form (hardcopy or electronic form) for as long as the bank owns the loan. Records of customers signed acknowledgement of receipt of the notice of special flood hazard, if appropriate. Proof of insurance coverage in the required amounts. 18 9

10 Insurance Coverage Amount of flood insurance required must be at least equal to the: outstanding loan amount, or the maximum amount available under NFIP program whichever is less Coverage under the NFIP is limited to the value of the improved property less the land. 19 Maximum coverage amounts $250,000 for residential property structures and $100,000 for contents. $500,000 for non-residential and small business property and $500,000 for contents

11 Clarifications Security interests of improved real property taken solely out of an abundance of caution are subject to flood insurance requirements Flood insurance does not include contents coverage unless the personal property is taken as security in addition to improved property. 21 RCV vs ACV RCV is the cost to replace the property on the same premises with other property of comparable material and quality used for the same purpose ACV is the cost to replace with new property of like kind and quality, less depreciation 22 11

12 RCV vs ACV Use FEMA guidelines in providing that the full insurable value of a building is the same as 100% RCV of the insured building. Lenders have flexibility in determining RCV of a building by providing that lenders could consider permissible methods, such as RCV used in a hazard insurance policy. 23 Force-Placed Provisions Statutory requirement since 9/23/94 Notice to borrower is required 45 days after notice, bank must purchase insurance if borrower does not

13 Biggert-Waters Insurance Act of Biggert-Waters Flood Insurance Act of Put into effect due to the NFIP program being $19 billion in debt as a result of the 2005 hurricane season (Katrina, Rita, & Wilma) Ensures ongoing funding of the program and long-term authorization for the program through September 30, Biggert-Waters Insurance Act of Biggert-Waters required FEMA to take immediate steps to eliminate a variety of existing flood insurance subsidies Flood insurance premium rates on properties in special flood hazard areas were expected to increase dramatically 26 13

14 Biggert-Waters Insurance Act of Changes to force-placed insurance: Beginning on the date coverage lapsed or became insufficient, a lender or servicer may charge the borrower for premiums & fees incurred in purchasing force-placed coverage The regulation provides that the lender or its servicer shall purchase insurance on the borrower s behalf if the borrower fails to obtain flood insurance within 45 days after notification 27 Biggert-Waters Insurance Act of This is an important clarification since the OCC & other banking agencies took the position that lenders/servicers could not charge borrowers or force-placed insurance charges that occurred prior to the end of the 45 days after a borrower received the required notification of lapse/inadequate insurance 28 14

15 Biggert-Waters Insurance Act of The Act required federal banking regulators to adopt rules to ensure the escrowing of funds to pay flood insurance premiums for most residential mortgage loans. The Affordability Act delayed the escrow requirement until January 1, 2016 & limits the requirement to residential mortgage loans that are originated, refinanced, increased, extended, or renewed after that date. 29 Biggert-Waters Insurance Act of For outstanding loans that would have been subject to the escrow requirement if they had been made on or after January 1, 2016, the borrower must be offered the option of escrowing. Institutions with assets of less than $1 billion are excepted from the requirements if, as of July 6,, they were not required by law to escrow for taxes, insurance, or other charges and did not have a policy for escrowing for such items

16 Biggert-Waters Insurance Act of The Act resulted in higher CMP limits for financial institutions that engage in a pattern or practice of violating certain flood insurance requirements. Violations can now result in CMPs up to $2,000 per violation with no annual aggregation cap. This change will lead to significantly higher CMPs 31 Biggert-Waters Insurance Act of The mandatory purchase requirement has been amended to require lenders to accept private flood insurance policies as satisfaction of the mandatory purchase requirement if the coverage provided by the private flood insurance satisfies the standards specified in the Act

17 Biggert-Waters Insurance Act of In addition, regulated lenders are required to disclose to borrowers that: Flood insurance under the NFIP is available from private companies or from the NFIP directly; Flood insurance that provides the same level of coverage as an NFIP policy may be available from private insurance companies; and Borrowers are encouraged to compare policies. 33 HFIAA Homeowner Flood Insurance Affordability Act of 2014 went into effect on March 21, Amends certain provisions of the Biggert-Waters Act The affordability act generally prevents FEMA from raising the average rates for a class of properties above 15% per year and Raising rates on individual policies above 18% per year 34 17

18 HFIAA The detached structure provision took effect immediately. Detached structures include: Detached garages Barns and sheds that do not have living quarters 35 QUESTIONS? 36 18