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ANNE LOLLEY

andTotal Training Solutions

FLOOD INSURANCESPECIAL CREDIT UNION EDITION

CALL ME!

QUESTIONS?CALL OR E‐MAIL ANNE 

877‐778‐5192 x4

alolley@cox.net

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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

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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

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Detached structures – more . . .

Lender may require insurance

No duty to monitor

Re‐examine when triggering event: Increase

Renew

Extend

New escrow rules . . .

Escrow required if loan is:

Made, increased, extended or renewed on or after January 1, 2016

Secured by residential real estate or mobile home

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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

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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

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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)

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FLOOD!

THE NCUA REGULATIONS

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YOUR ESSENTIAL REFERENCE TOOL

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ApplicabilityMAKE

INCREASE

EXTEND

RENEW

LOAN SECURED BY 

BUILDING/MANUFACTURED HOME

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Definitions page 17page 17

Building

WALLED‐AND‐ROOFED STRUCTURE

Above ground

Includes buildings under construction

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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)

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Zones A and V

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Participating Community

Contracts with FEMA

reduce flood damage

restrict development in SFHA________

NFIP FLOOD INSURANCE IS AVAILABLE

NATIONAL FLOOD INSURANCE PROGRAM

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Designated Loan

1. Secured by building/manufactured home

2. Located in SFHA

3. Participating community_______

FLOOD INSURANCE IS REQUIRED AND AVAILABLE

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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: Secured by building/manufactured home

SFHA + participating community

Originally only purchased through federal government

In 1983 partnered with private insurance carriers

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Credit Union Responsibilities

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MAPS ON-LINE SERVICE

The Determination

MAKE/INCREASE/EXTEND/RENEW

LOAN SECURED BY BUILDING/MANUFACTURED HOME

Must determine if building is in SFHA

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The Determination

Whether building is in SFHA

Whether community participates

FOR THE CREDIT UNION, NOT THE BORROWER

STANDARD FLOOD HAZARD DETERMINATION FORM

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The Notice

IF BUILDING IS IN SFHA

PROVIDE NOTICE

Building is in SFHA

Whether flood insurance is available

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The Notice

Reasonable time before closing – 10 days

Must be signed or acknowledged

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The Insurance

CANNOT 

MAKE/INCREASE/EXTEND/RENEW

WITHOUT FLOOD INSURANCE

Secured by building/manufactured home

SFHA

Participating community

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The Insurance 

Insurance must be in place 

before the loan is made/increased/extended/renewed!

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Note:  Non‐Participating Community

SFHACOMMUNITY DOES NOT PARTICIPATE

Flood insurance not required

Can make conventional loan without flood insurance

Government‐guaranteed loans not permitted

Required Amount of Insurance

LESSEROF

OUTSTANDING PRINCIPAL BALANCE

OF THE LOAN

“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 $250,000NON-RESIDENTIAL $500,000

OR

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Required Amount of Insurance

LESSEROF $300,000 HOME LOAN $320,000 INSURABLE VALUEOR

Exemptions

Loans of $5,000 or less with term of 

one year or less

Detached structures on residential property

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Disputes page 19page 19

1.  Determination Disputed

Letter of Determination Review (LODR)

CREDIT UNION/BORROWER JOINTLY SUBMIT REQUEST

WITHIN 45 DAYS

FEE INVOLVED

BOUND BY DETERMINATION

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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

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More Dispute Situations

FOR MORE 

DISPUTE INFORMATION

FEMA’S Flood Insurance Guidelines(Pages 14 – 18)

Previous Determinationspage 20page 20

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Previous Determinations

Okay to use if: Not more than 7 years old

Nomap changes

Increasing/extending/renewing

Consider recertification

Cannot use if: New loan

Refinancing

Fees page 20page 20

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Fees

Determination only ‐ Not included in finance charge

Life‐of‐Loan Monitoring ‐ Include in finance charge

Force‐Placement page 20page 20

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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.

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Escrowing page 20page 20

Escrowing

Currently . . . must escrow flood insurance premium if:

Residential real estate loan and

Credit union requires escrow of other taxes and insurance

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Escrowing

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 

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INTERAGENCY QUESTIONS AND ANSWERS

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I. DESIGNATED LOANS

Non‐participating communitiesInsurance not required  Conventional loan okay  No SBA/VA/FHA  Consider risk

Purchase of loanNot a trigger  Due diligence required

ParticipationEach lender responsible  Compliance duties may be assigned to one lender

Restructure/modificationQuestion is whether loan is increased, extended or renewed

Performing reviewsNot specifically required  But sound risk management may require scheduled periodic reviews

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II. APPROPRIATE AMOUNT

Required coverageRequired insurance amount   Caps  Insurable value  Examples

Residential/Nonresidential buildingsDistinction essential for escrow rules

Multiple buildingsDetermining amount of insurance  Allocating insurance  Examples

Additional flood insurancePermitted  Not required

Maximum DeductablePermissible

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III.  EXEMPTIONS

$5,000 or less / 1 year or less

Does not yet discuss detached structures

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IV.  CONSTRUCTION LOANS

Property to be developedInsurance not required if loan is only secured by land

Building in course of constructionFlood insurance is applicable  Gives specific detail

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V. NON‐RESIDENTIAL BUILDINGS

Structures with limited valueInsurance required  Can “carve out” . . . but may not be able to market if foreclosed

Multiple buildingsConsider each building

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VI.  CONDOMINIUMS

Not reprinted in booklet

Available upon request

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VII.  HOME EQUITY LOANS / LINES OF CREDIT /

SECOND MORTGAGES / OTHER LIENS 

Home equity loansUsual rule  Lien priority irrelevant 

Lines of creditRequirements not triggered by a draw

Second mortgagesSpecial rules for determining amount of insurance  Examples

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VII.  OTHER LIENS

Inventory stored in unsecured buildingFlood insurance not required

Building and contents both securedFlood insurance required for building and contents  Example

Abundance of cautionReason irrelevant  Insurance required

Personal guaranteesIf secured by structure, flood insurance may apply

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VIII.   SALE / TRANSFER OF LOAN

Notify FEMAFEMA designated insurance company to receive notice

Mergers and acquisitions

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IX.  ESCROW REQUIREMENTS

Defining “residential real estate”Multi‐family buildings  Mixed‐use properties

Voluntary escrow accountsEscrow of flood insurance not triggered

Premiums for credit life, disability insuranceEscrow of flood insurance not triggered 

Does not yet discuss new rules

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X.  FORCE PLACEMENT 

Explanation of requirement

Does not yet discuss new rule

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XI. PRIVATE INSURANCE POLICIES

Relying on private insurance policy

Policy not meeting FEMA criteria

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XII.  DETERMINATION FORM

Whether to provideNot required to provide May give, but does not replace notification

Electronic formatPermitted

Previous determinationRules for using  Can never use when making a new loan  Refi by new lender is new loan

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XIII.  FEES

Determination feesFour instances when fees are permitted

Life‐of‐loan reviewGenerally permitted  If RESPA loan, can only charge if loan closes (otherwise would be unearned fee)

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XIV.  FLOOD ZONE DISCREPANCIES

Discrepancy in insurance policy / determination

Compare documents  Resolve discrepancies 

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XV.  NOTICE OF FLOOD HAZARD

Multiple borrowersOnly need to give to one borrower

Mobile homesIf not certain of final location, give at earliest possible time

Previous noticeIrrelevant . . . give new notice

Sample form (in FEMA Guidelines)Not mandatory May personalize, change format, add information

Does not yet discuss new form

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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 practiceRepeated  Intentional  Regular  Usual  Deliberate  List of  considerations

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2015 CUWebinarsOctober 1st - Best-Ever Compliance

Checklists for ConsumerLoans

October 5th - Stress Testing 101

October 8th - Optimizing Your Loan Review Process

October 14th - 10 Lessons Learned When Your Member Dies

October 21st - Understanding the Residential Mortgage Application

Thanks for participating!

TTS800‐831‐0678info@TTStrain.comCUWebinars.com

Anne Lolley877‐778‐5192 x4alolley@cox.net