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Flood Insurance Regulations

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  1. Flood Insurance Regulations Justin M. Anderson, Esq. Staff Attorney National Credit Union Administration

  2. Overview • Statutes (Flood Disaster Protection Act, National Flood Insurance Act, and National Flood Insurance Reform Act of 1994) • NCUA’s Flood Insurance Regulation • How Flood Insurance Works • Insurance Procedures • Questions and Answers

  3. Section 1 Statutes and Regulations • Flood Disaster Protection Act and Flood Insurance Act– Protection for borrowers and lenders • National Flood Insurance Reform Act of 1994 • Purpose • Requirements

  4. Nat’l Flood Insurance Reform Act of 1994 • Requires flood insurance on all real property securing a loan if the property is in FHA. • Flood insurance required for the life of the loan • CU’s must escrow flood insurance premiums if other payments are being escrowed • Force-placement

  5. Nat’l Flood Insurance Reform Act of 1994, Continued • Civil penalties on lenders in non-compliance • Cost of flood insurance determination can be passed on to borrower • Credit union must use a standard flood hazard determination form

  6. Nat’l Flood Insurance Reform Act of 1994, Continued • Small loans are exempt • No federal flood emergency relief funds unless borrower has active FIP • Ceiling on coverage - $250,000 for residential, $100,000 for residential contents and $500,000 for non-residential contents

  7. NCUA Regulation Part 760 • Flood hazard determination • Escrow requirements • Forced placement of flood insurance • Civil Money Penalties

  8. NCUA’s Flood Insurance Regulations • Flood hazard determination – Whenever a loan is made, increased, renewed or extended • Credit unions are not required to perform prospective or retroactive reviews – Should be done • Standard Flood Hazard Determination Form • Use of previous determination – Seven years, done on standard form and no map changes

  9. NCUA’s Flood Reg Continued • Use of third party determinations – Third party must guarantee accuracy • Insurance coverage – Outstanding loan principal or maximum coverage limits • Member notification of property in a designated flood area

  10. NCUA’s Flood Reg Continued • Escrow requirement and exemption for commercial property loans • Requirements for forced placement of flood insurance • Notification of force placement and the 45-day response time • CMP’s - $385 per violation and a maximum of $130,000 in any calendar year – Apply even if the credit union sells the loan

  11. Section 2Flood Insurance Basics • Flood insurance program’s two phases: • First phase triggered by a flood emergency • Second phase begins after a detailed study and requires a community to adopt and enforce a floodplain management ordinance • Failure to do so may result in probation and/or suspension • Probation – Written notice from FEMA • Suspension – Renders community non-participating

  12. Property and Exemptions • What types of property are eligible for flood insurance? • Insurance coverage on multiple, eligible buildings • What types of property are ineligible for flood insurance? • What Property is exempt from flood insurance

  13. Flood Insurance Requirements • First, determine whether subject property is in a flood hazard area and whether the community in which the property is located is a participant in the NFIP • Use of 3rd party determinations • Use of flood maps • Zone A – once every 100 years • Zone B – every 100 to 150 years • Zone C – minimal flood activity

  14. Flood Zones Continued • Zone X – new designation to replace B and C • Zone D – possibility of flood has not been determined • Zone V – costal improved area in a 100 year area • Zone AR – flood protection system restoration areas • FEMA performs a review of the flood maps every 5 years • Participation in the NFIP

  15. Map Changes by Letters • Property owners can ask FEMA to determine if a building is in a flood hazard area and to amend the map to reflect the determination • Letter of Map Amendment – Goes to Federal Insurance Administration and concerns elevations ( 60 days to respond) • Letter of map revision – Concerns changes to the land and costs $425 for a review (90 days to respond) • Letter of Determination Review – Credit unions and borrowers jointly contest a flood determination, costs $80 (45 day response)

  16. Flood Determination Fees • Credit union or 3rd party may charge a “reasonable fee” for making the determination • Made in connection with making, increasing, extending or renewing a loan • Determination reflects a change by FEMA • Forced placement

  17. Standard Flood Hazard Determination Form • Form is used to determine if the property is in a flood area • Need the following information • Lender’s name and address • Property address • FEMA map community number, panel number, and flood zone • Is the community in a regular or emergency program • Information about flood insurance availability

  18. Notice Requirements • Applies to improved property in flood hazard areas and includes the following: • Warning that building is in SFHA • Description of flood insurance purchase requirements • Statement that flood insurance is available under NFIP or from private insurers • Statement as to whether federal disaster relief assistance could be available • If flood insurance is required must notify the borrower within a reasonable period of time • NCUA recommends within 10 days

  19. Loan Servicers • Credit unions must notify the flood insurance provider, within 60 days, of an change in servicer • FEMA requires credit unions to notify the flood insurance provider of the identity of the servicer when: • The credit union makes, increases, extends, renews, sells or transfers a covered loan • Must be done within 60 days from the date of the change

  20. Section 3Credit Union Compliance • Credit unions must obtain evidence of flood insurance and must maintain insurance documentation • Evidence of flood insurance • Flood insurance application and receipt or check • FEMA proof-of-purchase certificate • For new purchasers, flood insurance is effective the day after payment • If no loan transaction is involved, flood insurance is effective in 30 days

  21. Recordkeeping • FEMA and NCUA requirement • Necessary documentation: • Completed standard flood hazard determination • Copies of notices regarding community participation • Member’s written acknowledgement • Copy of flood insurance policy

  22. Mortgage Portfolio Protection Program • Offered by Federal Insurance Administration • Applies to lenders who need to obtain flood insurance for properties in FHA in a participating community and after notice borrower has not obtained insurance • Also available to all lenders if they comply with certain guidelines • Intended to be used as a last resort • Can be canceled if borrower proves to the credit union that there is a current policy that was in effect before the date of the MPPP

  23. Questions? Contact Information: Justin M. Anderson, Esq. NCUA, Office of General Counsel 703-518-6556 Janderson@ncua.gov