Independent Banker - April 2019 - 19

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improved real estate or mobile homes located,
or to be located, in a special flood hazard area
(SFHA) where flood insurance is available under
the [National Flood Insurance Program] (NFIP)
unless ... covered by flood insurance for the term
of the loan. "
located: the property's " insurable value. "
The maximum coverage caps in an NFIP-participating
community are $250,000 for a residential
building and $500,000 for a nonresidential building.
The Biggert-Waters Flood Insurance Reform
Act of 2012 (BWA) increased the maximum
Know your loan
Remember those magic words: " Make, increase,
extend, or renew. " Lenders must initially
determine whether a prospective loan will be
secured-including security interests taken as an
abundance of caution-by residential or nonresidential
buildings or mobile homes that are or will
be in a SFHA covered by flood insurance under
the NFIP.
Whether the structures are in a covered SFHA or
not, the lender is required to document the results
of the flood hazard determination on FEMA's
Standard Flood Hazard Determination Form
(SFHDF). You must also retain a hard copy or
electronic record throughout the term of the loan.
A lender may rely on its prior determination
of the property's flood status, but only under certain
circumstances. A flood hazard determination
must be conducted before loan closing, and flood
insurance, if required, must generally be purchased
prior to loan closing.
Notice to borrowers
If the property securing the loan is or will be in
an SFHA, the lender must notify the borrower,
even if insurance is not available under the NFIP.
A record of the borrower's receipt of the notice
must be maintained for the life of the loan. No
notice provided is a common violation.
Quick stat
Flood insurance coverage and force
placement
Flood insurance coverage is generally required to
be the lesser of 1) the loan's outstanding principal
balance or 2) the maximum amount of coverage
available under the NFIP for the property serving
as collateral.
The maximum coverage available under the
NFIP is the lesser of 1) the maximum amount of
coverage available under the NFIP for the property
type securing the loan (i.e. residential or nonresidential)
or 2) the overall property value securing
the loan, minus the value of the land on which it is
$40B
of losses are
caused by
flooding events
in the U.S. on
average each
year
Source: OECD
A record of the
borrower's receipt of
the notice must be
maintained for the life
of the loan.
amount of coverage for a non-condominium residential
building designed for use for five or more
families from $250,000 to $500,000, effective for
new policies, renewals or change endorsements
made on or after June 1, 2014.
If a lender or servicer determines at any time
during the term of the loan that the collateral
has less flood coverage than required, it must
take steps to force place flood insurance. Interagency
Flood Q&A 61 states that if a borrower
fails to obtain insurance within 45 days after
notification, the lender or servicer is required to
purchase the insurance on behalf of the borrower
on the 46th day.
Common compliance violations include inadequate
or no insurance coverage, lapsed insurance,
and failure to force place insurance or comply
with force placement rules.
Flood compliance rules include condominium
coverage, flood insurance premium and fee
escrows, coverage for home equity loans and
home equity lines of credit (HELOC), and services
provided by a third party.
Sound compliance practices, including strong
internal controls to conduct and document flood
hazard checks, monitor flood insurance coverage
on covered loans and implement force placement,
stem the tide of flood compliance issues.
Mary Thorson Wright, a former Federal Reserve
examiner, is a financial writer in Virginia.
independentbanker.org Q 19
http://www.independentbanker.org
Independent Banker - April 2019

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