Flood Compliance: Final Rules in 60! A RULE-BY-RULE APPROACH FOR LENDERS Presented by: 1 Flood Compliance: Final Rules in 60! A RULE-BY-RULE APPROACH FOR LENDERS Rich Slevin Flood Compliance & Education Division H2O Partners, Inc. 2 1
http://www.h2opartnersusa.com/lender/final.pdf Topic 1: Escrows Small lender exception Loan exceptions Option to escrow Here s our agenda for today Topic 2: Detached Structures Exemption Three required components Applies only to residential property Topic 3: Force Placement Define date of lapse Other final components Topic 4: Private Flood Insurance Quick update Clock ticking 3 Topic 1 ESCROWS 4 http://www.h2opartnersusa.com/lender/final.pdf 2
Case Study 1 Escrows http://www.h2opartnersusa.com/lender/final.pdf Ask The Expert Escrows Good Morning, I attended your flood seminar last Thursday in Columbia, Mo. It was very informative and full of valuable information which I will share! We do not escrow at the bank for either hazard or flood! I want to verify that if the bank <$1 billion in assets we would be a small lender exception and not have to escrow for flood insurance as of the implementation date of 1/1/16. Just want to make sure before sharing with other compliance people at the bank. Thank you again for your presentation.. 10/21/2015 5 5 Case Study 1: Talking Points Reform Legislation Escrows Escrows: Final Joint Regulatory Guidance (June 2015) HFIAA escrow requirement implementation date - 1/1/16 Applies to residential improved real estate or mobile homes Will affect designated loans with triggering events only Made, Increased, Extended, Renewed (pipeline) Map changes are not triggering events Small lender exception < $1 billion in total assets Until 1/1/16, current escrow provision remains in place 6 3
Poll Question # 1 Which statement best describes your knowledge of the lending institution where you are employed? a. I know it definitely has less than $1 billion in assets b. I know it definitely has more than $1 billion in assets c. I am not sure if it has < or > $1 billion in assets d. By next year it will have more than $1 billion in assets e. I do not work for a lending institution 7 Small Lender Exception 1 Less than $1 billion in assets AND On or before July 6, 2012: Not required under Federal or State law and: Did not have a policy of consistently and uniformly requiring: The deposit of taxes, insurance premiums, fees, or any other charges in an escrow account for the entire term of loans secured by residential improved real estate or a mobile home. 2 3 Less than $1 billion in assets: Either of prior two calendar years as of 12/31: Less than $1 billion on 12/31/14 More than $1 billion on 12/31/15 Small lender exception applies on 1/1/16 If still more than $1billion on 12/31/16: Lose small lender exception (2 prior years > $1B) Change in Status: More than $1 billion in assets (2 prior years): Effective July 1 First calendar year of changed status Must escrow flood insurance premium and fees Designated loans: Made, Increase, Renewed or Extended On or after July1 8 4
EXCEPTIONS Reform Legislation Escrows Escrows: Final Joint Regulatory Guidance (June 2015) Six 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 9 EXCEPTION 1 Reform Legislation Escrows Escrow Exceptions: Final Joint Regulatory Guidance (June 2015) Loan primarily for business, commercial or agricultural purpose: Residential improved real estate or mobile home Portion of collateral Escrow requirement does not apply 10 5
EXCEPTION 2 Reform Legislation Escrows Escrow Exceptions: Final Joint Regulatory Guidance (June 2015) Subordinate liens when flood insurance is provided at time of loan origination: No requirement to monitor lien position prospectively If lender determines the exception no longer applies Receives notice senior lien paid off Determines at subsequent triggering event (NOTE: Lien change not tripwire event) Must begin escrowing premium and fees Subordinate loan documents should permit later escrow, if necessary 11 EXCEPTION 3 Reform Legislation Escrows Escrow Exceptions: Final Joint Regulatory Guidance (June 2015) Condominiums, cooperatives, homeowner associations, etc.: Flood insurance meets mandatory purchase requirements Is provided and premium paid for by: Condominium Association Cooperative Homeowner Association or other applicable group Escrows required if: Borrower purchases own coverage 12 6
EXCEPTION 4 Reform Legislation Escrows Escrow Exceptions: Final Joint Regulatory Guidance (June 2015) Home equity lines of credit: Statute does not include any exclusion to the HELOC exception Fully drawn HELOCs included Escrows are not required 13 EXCEPTION 5 Reform Legislation Escrows Escrow Exceptions: Final Joint Regulatory Guidance (June 2015) Non-performing loans (90 or more days past due): Remains non-performing unless: Permanently modified Entire past due amount collected or discharged Principal Accrued interest Penalty interest 14 7
EXCEPTION 6 Reform Legislation Escrows Escrow Exceptions: Final Joint Regulatory Guidance (June 2015) Short-term loans: Must be no longer than 12 months to qualify Extensions of 12 month or less Exception applies Triggering event 15 EXCEPTIONS Reform Legislation Escrows Escrow Exceptions: Final Joint Regulatory Guidance (June 2015) Loan status subject to change Non-performing Subordinate liens Must determine exception no longer applies Similar to force placement criteria No duty to monitor No escrow requirement for reverse mortgages Duration of Exception 16 8
Case Study 1: Talking Points Reform Legislation Escrows Escrows: Final Joint Regulatory Guidance (June 2015) Escrow Notice Mail or deliver notice to borrower that escrow of all premiums and fees is required Provide the escrow notice as part of Notice of Special Flood Hazards and Availability of Federal Disaster Relief Sample notice provided by regulators in Appendix A of bulletin 17 Case Study 1: Talking Points Reform Legislation Escrows Escrows: Final Joint Regulatory Guidance (June 2015) Escrow Notice Clarification Notice required for excepted loans May lose exception during term of loan Will be informed escrows may be required Federal law may require a lender or its servicer to escrow all premiums and fees for flood insurance that covers any residential building or mobile home securing a loan that is located in an area with special flood hazards. If your lender notifies you that an escrow account is required for your loan, then you must pay your flood insurance premiums and fees to the lender or its servicer with the same frequency as you make loan payments for the duration of your loan. 18 9
Option to Escrow (01/16) Required lenders to offer and make available to borrower the option to escrow Option does not apply to: Loans or lenders excepted as of 01/01/16 Loans already escrowing for flood insurance Deliver notice to borrowers by June 30, 2016 Change of status lenders: September 30 th First calendar year of status change Can be separate notice or added to another disclosure, eg. Periodic statements When requested, begin escrow as soon as reasonably practicable 19 Case Study 1 CASE FILE 20 10
1. HFIAA escrow implementation date is 1/1/16 2. Escrows affect residential improved real estate or mobile homes with triggering event 3. A small lender exception applies to regulated lending institutions with total assets < $1 billion CASE FILE NOTES 21 Topic 2 DETACHED STRUCTURES 22 11
Case Study 2 Detached Structures Ask The Expert Detached Structures I am hoping you can answer a question for me. We attended a webinar today and were given information concerning exclusion from mandatory purchase requirement. It stated The act authorizes the exclusion of detached structures that are not used for residential purposes from the mandatory purchase of flood insurance requirement we currently have a loan that has the dwelling in zone X but the barn is in zone AE. Do we have to have flood insurance for the barn? 23 10/21/2015 Case Study 2: Talking Points Detached Structures Exemption - HFIAA Profile of Issue: HFIAA allows mandatory purchase exemption for certain detached structures (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. Three Components Required: Applies to Residential Property Detached from primary residential structure Does not serve as a residence 24 12
Case Study 2: Talking Points Final Joint Regulatory Guidance (June 2015): Although you may not be required to maintain flood insurance on all structures, you may still wish to do so, and your mortgage lender may still require you to do so to protect the collateral securing the mortgage. If you choose not to maintain flood insurance on a structure and it floods, you are responsible for all flood losses relating to the structure. Detached Structures Exemption - HFIAA Regulators agree exemption became effective upon enactment. Exemption addresses concerns on low-value structures Provides discretionary authority to require coverage Notice of Special Flood Hazards amended 25 3 Components Detached Structures Exemption 1 Applies to a residential property Purpose of loan is immaterial when residence secures a loan Broadly defined to include any residential building A structure that is part of a residential property: Refers to a property used primarily for personal, family or household purposes Not commercial, agricultural or other business use 2 Applies to a detached structure Detached from the primary residential structure Detached is defined as a building that stands alone Not joined by any structural connection to the residential structure 3 Does not serve as a residence No single bright line test; Focus on structure s intended use Rely on good faith determination of lender Could serve as residence if it generally includes sleeping, bathroom or kitchen facilities 26 13
Case Study 2: Talking Points Detached Structures Exemption - HFIAA Final Joint Regulatory Guidance (June 2015): Further Clarification on serves as a residence : Detached structures can vary greatly Sleeping, bathroom and kitchen all three not necessary to serve as a residence No duty to monitor status of detached structure Must re-examine on future triggering event Send borrower notice if lender determines building becomes subject to mandatory purchase 27 Poll Question #2 The e-mailer writes that the dwelling is in Zone X but the barn is in Zone AE. Can the barn be excluded from the mandatory purchase requirement? a. Yes, the dwelling is in Zone X; no flood insurance is required b. No, buildings in Zone AE cannot use the exemption c. Yes, the loan meets all three required components of the exemption d. No, only residential buildings with sleeping, kitchen and bathroom facilities can use the exemption e. I don t have enough information 28 14
Case Study 2 CASE FILE 29 1. The detached structures exemption became effective on date of enactment. 2. Applies to property used primarily for personal, family or household purposes. 3. Lenders can exercise discretion in their use of the exemption. CASE FILE NOTES 30 15
Topic 3 FORCE PLACEMENT 31 Case Study 3 Force Placement Ask The Expert Force Placement Question I am confused about when I can force place flood insurance and when I have to send the notice. Seems like every time I think I have it down, something else comes along that seems to change what I think I know. When I determine that my borrower s flood coverage has lapsed and I send out the 45-day notice, can I force place the coverage right away so there s not any interruption in the coverage? 32 10/21/2015 16
Force Placement Overview 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? 33 Impact of Biggert-Waters Reform Act Sec. 100244 Force Placement Final Rule Required 45-day notice must be sent: Upon receipt of a notice of cancellation or expiration from an insurance provider or internal flood monitoring system When lender learns a property is now a designated loan due to a map change FINAL RULE Clarifies that the required notice must be sent following the date of lapse or insufficient coverage notification. Only courtesy notice prior. 34 17
Impact of Biggert-Waters Reform Act Sec. 100244 Force Placement 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 FINAL RULE Lapsed date = policy expiration date or effective date the policy is cancelled 35 Impact of Biggert-Waters Reform Act Sec. 100244 Force Placement Final Rule clarifies a lender or servicer may force place coverage: Any time during 45-day notice period Do not have to wait 45 days after providing notice to force place Force placing prior to expiration of 45-day notice period may create additional work effort NOTE There can be a distinction made between when a policy is put in place and when it is effective. Consider force placing effective the day after expiration. 36 18
Impact of Biggert-Waters Reform Act Sec. 100244 Force Placement Requires lender or servicer within 30 days of: Receiving confirmation of borrower s coverage Notify insurer to terminate force-place insurance Refund all force-placed premium and fees paid by borrower During any overlap in coverage FINAL RULE Lender required to notify insurer to cancel. 37 Impact of Biggert-Waters Reform Act Sec. 100244 Force Placement Requires lender or servicer to: Accept borrower s existing policy declarations page as confirmation Declarations page must include: Identity/Contact information for insurance company or agent Existing policy number Lender may accept alternative evidence FINAL RULE Lender responsible for determining sufficiency of coverage. If insufficient, notify borrower. 38 19
Case Study 3 CASE FILE 39 1. Can charge force place premium and fees from date of lapse 2. Date of lapse equals the policy s expiration date or the effective date the policy is cancelled 3. Notify insurer to terminate force placed policy within 30 days of confirmation of borrower s existing flood insurance coverage CASE FILE NOTES 40 20
Topic 4 PRIVATE FLOOD INSURANCE 41 Private Flood Insurance Talking Points Private Flood Insurance History of Private Flood Insurance: Suggested guidelines appeared in Mandatory Purchase booklet for years March 2012: FEMA clarified its position (advisory, not regulatory) July 2012: BW-12 enacted (Sec. 100239 defined components) October 2013: Joint Notice of Proposed Rulemaking (Safe harbors) March 2014: HFIAA enacted No private flood insurance amendment June 25, 2015: H.R. 2901 & S. 1679 introduced in Congress Identical bills focus on Federal & Private Flood Insurance Private Flood Insurance & Federal Flood Insurance defined 42 21
Wrapup RESOURCES 43 National Flood Insurance Program Home Page www.fema.gov/national-flood-insurance-program 44 22
NFIP Flood Insurance Manual Access the NFIP Flood Insurance Manual: Online at the Flood Insurance Library: http://www.fema.gov/flood-insurance-manual 45 Links to Final Rule Loans in Areas Having Special Flood Hazards (June 2015) http://www.occ.gov/news-issuances/news-releases/2015/nr-ia- 2015-89a.pdf 46 23
Links to Interagency Q&As Interagency Q & As Regarding Flood Insurance (July 2009) http://edocket.access.gpo.gov/2009/pdf/e9-17129.pdf Interagency Q & As Regarding Flood Insurance (October 2011) http://www.gpo.gov/fdsys/pkg/fr-2011-10-17/pdf/2011-26749.pdf 47 Reform Act Legislation and more Online at: www.nfipiservice.com 48 24
Visit the Map Service Center www.msc.fema.gov 49 Training Information Like us on Facebook at: www.facebook.com/floodcomplianceforum Dorothy Martinez dorothy@h2opartnersusa.com Rich Slevin rich@h2opartnersusa.com Sonja Wood sonja@h2opartnersusa.com Aaron Montanez producer@h2opartnersusa.com 50 25
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. 51 26