Summer is here, and around our community, everyone seems to have his or her jet skis, boats or canoes out in the water, whether they are fishing, tubing, canoeing, water skiing or jet skiing. One of the rules of the water is to ensure you have life jackets for every passenger on board the watercraft. Temenos Compliance Advisory Services wants to throw you a "life jacket" on Tuesday, June 25, with our free webinar, Flood Rules....Will You Sink or Swim? Here is a sneak peek as we skim over the flood waters of some of the areas we will cover.
When is Flood Insurance Required?
Flood insurance is generally required when making, increasing, refinancing or extending any loan secured by a building or mobile home that is or will be located in a SFHA (Special Flood Hazard Area). Commercial as well as consumer loans are covered under this rule and the requirement for flood insurance cannot be "waived" by the lender.
One of the areas that seems to confuse many is when to send the 45-day notification for renewing a force placed flood insurance policy. If your institution is not participating in the MPPP (Mortgage Portfolio Protection Program), then the 45-day notification letter must be sent when the existing force placed policy has lapsed. In the Section by Section Analysis of the Biggert Waters' Final Rule, the agencies define the date on which the insurance coverage lapsed as the expiration date or the date the policy is cancelled.
You've closed the loan and conduct a last review of the paperwork. Someone has missed the fact that the policy declarations page has a different Flood Zone hazard listed than what is listed on the Flood Determination Form. What do you do next? Take a look at the risk zones and determine whether the discrepancy occurs between high risk and low risk zone or between a subcategory of the high risk or low risk zone. If the discrepancy occurs between a high risk and low risk zone, you will need to begin your investigation to determine whether the discrepancy is caused by a grandfathered property or an error by the determination company or the insurance agency. It is the responsibility of the lender to ensure the discrepancy is investigated and resolved.
Unless the lender meets a mandatory escrow exemption, the lender must require the escrow of all premiums and fees for required flood insurance for designated loans made, increased, renewed or extended on or after January 1, 2016. If the loan is subject to RESPA (Real Estate Settlement Procedures Act), the escrow account will be subject to RESPA and §1024.17 or Regulation X (12 CFR §1024.17), which generally limits the amount that may be maintained in escrow accounts for certain types of loans and requires escrow account statements for those accounts. Following receipt of a notice from the Administrator of FEMA or another provider of flood insurance that premiums are due, the lender must pay the amount owed to the insurance provider from the escrow account by the date when such premiums are due. We will discuss the exemptions to the mandatory escrow requirements during the Temenos Talks "Flood Rules...Will You Sink or Swim" presentation.
Private Insurance Policy
Flood insurance that provides the same level of coverage as a standard flood insurance policy under the NFIP may be available from private insurers that do not participate in the NFIP. You should compare the flood insurance coverage, deductibles, exclusions, conditions and premiums associated with flood insurance policies issued on behalf of the NFIP and policies issued on behalf of private insurance companies and contact an insurance agent as to the availability, cost and comparisons of flood insurance coverage.
Effective July 1, 2019, institutions will be required to accept private policies issued by private insurers as long as those policies meet the definition of private flood insurance. I hope I have whetted your appetite to learn more about the Flood Rules!
Don't miss the next Temenos Talks webinar, Flood Rules...Will You Sink or Swim?
on Tuesday, June 25, 2019 at 2:00 p.m.