FLOOD INSURANCE SPECIAL CREDIT UNION EDITION ANNE LOLLEY and Total Training Solutions CALL ME! QUESTIONS? CALL OR E MAIL ANNE 877 778 5192 x4 alolley@cox.net 1
THE NEW STUFF Detached structure exemption... A structure is exempt if: Part of a residential property Detached from primary residence Does not serve as a residence page 3 2
Detached structures effective date... Regulation effective October 1, 2015 Part of Homeowner Flood Insurance Affordability Act of 2014 Effective on March 21, 2014 Detached structures more... Only exempt if used primarily for: Personal Family Household Detached if no structural connection Lender determines whether used as residence 3
Detached structures more... Lender may require insurance No duty to monitor Re examine when triggering event: Increase Renew Extend New escrow rules... page 4 Escrow required if loan is: Made, increased, extended or renewed on or after January 1, 2016 Secured by residential real estate or mobile home 4
New escrow rules exempt loans... Exempt loans: Business, commercial, agricultural Subordinate lien insurance already in place Insurance already provided by condo, cooperative HELOC Non performing loan 12 months or less New escrow rules exempt lenders... Small lenders are exempt if: Assets under $1 billion Prior to July 6, 2012: No law required escrow for entire term; and No policy requiring escrow 5
New escrow rules - option... Must offer option to escrow if loan: Outstanding on January 1, 2016 Secured by residential real estate or mobile home Must offer by June 30, 2016 New Appendix B model option form Requirement does not apply if: Loan or lender is exempt from escrow requirements Lender is already escrowing Enhanced force-placement procedures... No notice until lapse (expiration date) Earlier notices may be sent as a courtesy Lender can force place when coverage lapses If overlapping coverage, within 30 days: Notify insurance company Refund premiums for overlap period Accept declarations page as confirmation of insurance page 5 6
Revised Special Flood Hazard Notice... New regulation revises Notice to include: Private insurance availability Same coverage Encouragement to compare Effective January 1, 2016 New model notice (Appendix A) FLOOD! page 6 page 7 THE NCUA REGULATIONS 7
YOUR ESSENTIAL REFERENCE TOOL page 17 Applicability MAKE INCREASE EXTEND RENEW page 17 LOAN SECURED BY BUILDING/MANUFACTURED HOME 8
Definitions page 17 Building WALLED AND ROOFED STRUCTURE Above ground Includes buildings under construction 9
Manufactured home ONLY IF PERMANENT FOUNDATION If it can t be hauled away to avoid flood waters... assume it s subject to flood insurance rules. Special Flood Hazard Area SFHA 1% flood chance in any given year (26% for 30 year loan) Zones A and V 10
Participating Community page 17 Contracts with FEMA reduce flood damage restrict development in SFHA NFIP FLOOD INSURANCE IS AVAILABLE NATIONAL FLOOD INSURANCE PROGRAM Designated Loan 1. Secured by building/manufactured home 2. Located in SFHA 3. Participating community FLOOD INSURANCE IS REQUIRED AND AVAILABLE 11
National Flood Insurance Program (NFIP) Congress first authorized in 1968 Funded by government, offset by premiums First voluntary, but mandated in 1973 Now required for loans: page 17 Secured by building/manufactured home SFHA + participating community Originally only purchased through federal government In 1983 partnered with private insurance carriers page 18 Credit Union Responsibilities 12
1 The Determination MAKE/INCREASE/EXTEND/RENEW LOAN SECURED BY BUILDING/MANUFACTURED HOME Must determine if building is in SFHA MAPS ON-LINE SERVICE 1 The Determination STANDARD FLOOD HAZARD DETERMINATION FORM Whether building is in SFHA Whether community participates FOR THE CREDIT UNION, NOT THE BORROWER 13
2 The Notice IF BUILDING IS IN SFHA PROVIDE NOTICE Building is in SFHA Whether flood insurance is available 2 The Notice Reasonable time before closing 10 days Must be signed or acknowledged 14
3 The Insurance Secured by building/manufactured home SFHA Participating community CANNOT MAKE/INCREASE/EXTEND/RENEW WITHOUT FLOOD INSURANCE 3 The Insurance Insurance must be in place before the loan is made/increased/extended/renewed! 15
Note: Non Participating Community SFHA COMMUNITY DOES NOT PARTICIPATE Flood insurance not required Can make conventional loan without flood insurance Government guaranteed loans not permitted Required Amount of Insurance page 19 LESSER OF OUTSTANDING PRINCIPAL BALANCE OF THE LOAN OR INSURABLE VALUE OF THE STRUCTURE INSURABLE VALUE OVERALL VALUE OF PROPERTY LESS: VALUE OF LAND Includes repair or replacement cost of foundation and supporting structures CAPS ON INSURABLE VALUE RESIDENTIAL $250,000 NON-RESIDENTIAL $500,000 16
Required Amount of Insurance LESSER OF $300,000 HOME LOAN OR $320,000 INSURABLE VALUE Exemptions page 19 Loans of $5,000 or less with term of one year or less Detached structures on residential property 17
Disputes page 19 1. Determination Disputed Letter of Determination Review (LODR) CREDIT UNION/BORROWER JOINTLY SUBMIT REQUEST WITHIN 45 DAYS FEE INVOLVED BOUND BY DETERMINATION 18
2. Above Base Flood Elevation Letter of Map Amendment (LOMA) NATURAL ISLAND INADVERTENTLY INCLUDED IN SFHA PROPERTY OWNER MAKES REQUEST BOUND BY DETERMINATION 3. Site Graded and Filled Letter of Map Revision Based on Fill (LOMR F) (ARTIFICIAL IMPROVEMENT NOT NATURAL ISLAND) BOUND BY DETERMINATION 19
More Dispute Situations FOR MORE DISPUTE INFORMATION FEMA S Flood Insurance Guidelines (Pages 14 18) Previous Determinations page 20 20
Previous Determinations Okay to use if: Not more than 7 years old No map changes Increasing/extending/renewing Consider recertification Cannot use if: New loan Refinancing Fees page 20 21
Fees Determination only Not included in finance charge Life of Loan Monitoring Include in finance charge Force Placement page 20 22
Force Placement TRIGGER Credit union discovers anytime during life of loan: Insurance is not in place Less than required amount Monitoring is not required but be prudent Force Placement INSURANCE LAPSES / INSUFFICIENT AMOUNT NOTIFY BORROWER IF NO INSURANCE IN 45 DAYS, CREDIT UNION MUST PURCHASE INSURANCE (AND MAY CHARGE BORROWER). NEW RULE CREDIT UNION IS PERMITTED TO OBTAIN INSURANCE AT LAPSE, AND MAY IMMEDIATELY CHARGE BORROWER. 23
Escrowing page 20 Escrowing page 20 Currently... must escrow flood insurance premium if: Residential real estate loan and Credit union requires escrow of other taxes and insurance 24
Escrowing page 20 If made, increased, extended or renewed on or after January 1, 2016, lender must escrow If outstanding on January 1, 2016, lender must offer option to escrow Neither required if exempt loan or lender page 21 INTERAGENCY QUESTIONS AND ANSWERS 25
page 21 I. DESIGNATED LOANS Non participating communities Insurance not required Conventional loan okay No SBA/VA/FHA Consider risk Purchase of loan Not a trigger Due diligence required Participation Each lender responsible Compliance duties may be assigned to one lender Restructure/modification Question is whether loan is increased, extended or renewed Performing reviews Not specifically required But sound risk management may require scheduled periodic reviews page 23 II. APPROPRIATE AMOUNT Required coverage Required insurance amount Caps Insurable value Examples Residential/Nonresidential buildings Distinction essential for escrow rules Multiple buildings Determining amount of insurance Allocating insurance Examples Additional flood insurance Permitted Not required Maximum Deductable Permissible 26
page 25 III. EXEMPTIONS $5,000 or less / 1 year or less Does not yet discuss detached structures page 26 IV. CONSTRUCTION LOANS Property to be developed Insurance not required if loan is only secured by land Building in course of construction Flood insurance is applicable Gives specific detail 27
page 27 V. NON RESIDENTIAL BUILDINGS Structures with limited value Insurance required Can carve out... but may not be able to market if foreclosed Multiple buildings Consider each building page 27 VI. CONDOMINIUMS Not reprinted in booklet Available upon request 28
page 27 VII. HOME EQUITY LOANS / LINES OF CREDIT / SECOND MORTGAGES / OTHER LIENS Home equity loans Usual rule Lien priority irrelevant Lines of credit Requirements not triggered by a draw Second mortgages Special rules for determining amount of insurance Examples page 27 VII. OTHER LIENS Inventory stored in unsecured building Flood insurance not required Building and contents both secured Flood insurance required for building and contents Example Abundance of caution Reason irrelevant Insurance required Personal guarantees If secured by structure, flood insurance may apply 29
page 30 VIII. SALE / TRANSFER OF LOAN Notify FEMA FEMA designated insurance company to receive notice Mergers and acquisitions page 32 IX. ESCROW REQUIREMENTS Defining residential real estate Multi family buildings Mixed use properties Voluntary escrow accounts Escrow of flood insurance not triggered Premiums for credit life, disability insurance Escrow of flood insurance not triggered Does not yet discuss new rules 30
page 33 X. FORCE PLACEMENT Explanation of requirement Does not yet discuss new rule page 34 XI. PRIVATE INSURANCE POLICIES Relying on private insurance policy Policy not meeting FEMA criteria 31
page 34 XII. DETERMINATION FORM Whether to provide Not required to provide May give, but does not replace notification Electronic format Permitted Previous determination Rules for using Can never use when making a new loan Refi by new lender is new loan page 35 XIII. FEES Determination fees Four instances when fees are permitted Life of loan review Generally permitted If RESPA loan, can only charge if loan closes (otherwise would be unearned fee) 32
page 36 XIV. FLOOD ZONE DISCREPANCIES Discrepancy in insurance policy / determination Compare documents Resolve discrepancies page 36 XV. NOTICE OF FLOOD HAZARD Multiple borrowers Only need to give to one borrower Mobile homes If not certain of final location, give at earliest possible time Previous notice Irrelevant... give new notice Sample form (in FEMA Guidelines) Not mandatory May personalize, change format, add information Does not yet discuss new form 33
page 38 XVI. MANDATORY PENALTIES Penalties Mandatory penalty if pattern or practice of violations Does not yet discuss new penalties [now $2,000 / no limit] Pattern or practice Repeated Intentional Regular Usual Deliberate List of considerations 34
Thanks for participating! Anne Lolley 877 778 5192 x4 alolley@cox.net TTS 800 831 0678 info@ttstrain.com CUWebinars.com 2015 CUWebinars October 1 st - Best-Ever Compliance Checklists for Consumer Loans October 5 th - Stress Testing 101 October 8 th - Optimizing Your Loan Review Process October 14 th - 10 Lessons Learned When Your Member Dies October 21 st - Understanding the Residential Mortgage Application 35