Topic: Flood Insurance
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We are extending a first and second mortgage loan on the same property on the same day. Is it a best practice to obtain a separate flood determination for each loan file? The drawback to this approach would be paying for two flood determinations.
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No, we believe that obtaining one flood determination on the property for both loans will be sufficient. The flood insurance regulations require lenders to obtain a flood determination whenever a building (or mobile home) will be collateral securing a loan. A lender may rely on a previous flood determination when a new loan is secured…
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We are making a loan secured by a house, a detached garage, and a detached three-walled outbuilding used to shelter animals and store hay, all of which are located on a horse farm. The house is being rented out by the owners. How should we classify each building in terms of determining the maximum flood insurance available? Are these residential or non-residential buildings?
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In our view, the house is a residential building subject to the $250,000 flood insurance coverage limit. The detached garage may be exempt from flood insurance coverage, and the three-walled outbuilding may be a non-residential building, subject to the discussion below. The flood insurance rules and guidances distinguish between residential and non-residential buildings when determining…
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At a recent seminar, we were told that we were required to escrow for flood insurance starting January 1, 2016. As a “small lender” under the FDIC flood insurance rules, aren’t we exempt from that requirement? Before 2012, we never had a policy of regularly requiring escrow for any charges. However, now we require escrow for taxes and insurance for higher-priced mortgage loans (HPMLs). Do we lose our “small lender” exemption if we escrow for taxes and insurance for HPMLs, even if we are well under the asset threshold? Also, is an investment purpose loan secured by a 1-4 family residence exempt from escrow requirements?
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No, if your bank began escrowing for taxes and insurance after 2012, your bank will not lose its “small lender” exemption from the general requirement to escrow flood insurance premiums for residential mortgage loans that are made, increased, extended or renewed on or after January 1, 2016. A small lender is exempt from the flood…
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If we are required to escrow for flood insurance premiums on residential mortgage loans under the interagency flood insurance rules, are we obligated to escrow for taxes and insurance on those loans? We understand that we are required to escrow for taxes and insurance for higher-priced mortgage loans.
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No, we do not believe that being required to escrow for flood insurance premiums under the flood insurance rules obligates a lender to escrow for other charges, such as taxes or insurance. In an interagency webinar on the flood insurance rules, the federal banking agencies clarified that a lender is not obligated to escrow for…
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Can we accept flood insurance from a private insurer? If so, are there requirements the insurer must meet?
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Yes, we believe that you may — but are not required to — accept private flood insurance. The Biggert-Waters Flood Insurance Reform Act of 2012 (Act) included a provision directing the federal banking agencies to promulgate a rule to require regulated lending institutions to accept private flood insurance. This provision will only become effective when…
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If we make a loan on secured by three different condominium units all located in the same building, do we need a separate flood determination (also known as a flood certificate) for each unit? All three units are located in the same building, under one address, and all three are being purchased simultaneously.
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No, we believe that obtaining one flood determination for the building will be sufficient, unless more than seven years have passed or the applicable flood maps have been revised since the original flood determination was obtained. The flood insurance regulations require lenders to obtain a flood determination whenever a building (or mobile home) will be…
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We have a business customer who is using a line of credit to purchase condominium units within a large complex, without buying the entire complex. The complex consists of multiple two-story buildings, with several units in each building. Each building has its own address. The borrower is purchasing the units as they become available, and each new purchased unit will secure the line of credit. When the borrower purchases a unit, we do not order a new flood determination if we have previously ordered one for another unit in the same building. Is obtaining one flood determination for each building sufficient? Or should each unit have a separate flood determination (also known as a flood certificate)?
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No, we believe that obtaining one flood determination per building is sufficient, unless more than seven years have passed or the applicable flood maps have been revised since the original flood determination for that building was obtained. The flood insurance regulations require lenders to obtain a flood determination whenever a building (or mobile home) will…
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We are located in a flood-prone area. For a recent residential real estate loan, we received a quote for private flood insurance that is completely unaffiliated with the National Flood Insurance Program (NFIP). Can we accept private flood insurance?
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Yes, we believe that you may — but are not required to — accept private flood insurance at this point in time. The Biggert-Waters Flood Insurance Reform Act of 2012 (Act) included a provision that directed the federal banking agencies to promulgate a rule to require regulated lending institutions to accept private flood insurance. This…
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We have a matured HELOC that we want to extend. We pulled a flood determination and discovered the property now is in a special flood hazard area, although it wasn’t when we originally made the HELOC. The community where the property is located does not participate in the National Flood Insurance Program (NFIP). We are exploring private insurance but cannot find a policy that covers the full amount of the loan. Is the borrower required to obtain flood insurance if their community doesn’t participate in the NFIP?
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No, the borrower is not required to obtain flood insurance when the home securing the loan is located in a special flood hazard area in a community that does not participate in the NFIP. Under the FDIC flood insurance regulations, a lender may not make, increase, extend, or renew any “designated loan” unless the building…
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I am working on an in-house real estate purchase loan, and the borrower does not want an escrow account. We just pulled a flood report, and the property does require flood insurance. In Illinois, must we escrow the flood insurance (using the FFIEC rate spread calculator, the rate is low enough so that it appears we do not have to escrow taxes and insurance)? Also, if we do have to escrow just for the flood insurance, do we need to send out another Loan Estimate?
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In general, a lender must escrow flood insurance premiums for residential mortgage loans that are made, increased, extended or renewed on or after January 1, 2016. Since your bank is under $1 billion in assets, you might qualify for the small lender exemption from the flood insurance escrow requirement. To qualify for that exemption, you…