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Flashcards in Flood Deck (52):
1

What are the record retention requirements for flood insurance?

The bank should retain sufficient records of compliance during the term of the loan.

2

What is the mandatory flood insurance requirement?

Lender must require flood insurance when making, increasing, renewing or extending a designated loan.
*If a property is no longer in a SFHA due to a map change, the lender may drop the requirements.

3

What must a lender have to prove there is insurance on a loan?

The declarations page from the flood insurance policy with the property description and agent contact information.

4

Does the Notice of Flood Hazard have to be signed?

Yes, it's one of the few regulations that require borrower acknowledgement.

5

The compliance officer gets a call from the head of the mortgage department who informs the compliance officer that they are planning to make a second lien mortgage loan on a residence. The property is located in a Special Flood Hazard Area requiring flood insurance, but the customer is objecting to getting flood insurance. The customer says that the first lienholder never required it, so why is our bank requiring it. The compliance officer should tell the mortgage department head

a. If the first lienholder didn't require the flood insurance, we, the second lienholder, don't have to either
b. We need to require the borrower to obtain flood insurance that fully covers the property including the first lien loan balance
c. We need to require the borrower to obtain flood insurance that covers our second lien loan amount
d. We cannot make the loan, because the first lienholder did not properly require flood insurance

b. We need to require the borrower to obtain flood insurance that fully covers the property including the first lien loan balance

6

What are the lenders monitoring responsibilities?

Lenders must monitor POLICIES.

7

Which of the following loans does NOT require flood insurance?
- Loan A is a commercial loan that has been on the books for 2 years and has been renewed twice. Flood insurance was legally required on the loan at the time it was made. There was a flood insurance policy in effect at the loan's inception, but it expired and was not renewed.
- Loan B is a consumer loan secured by a mobile home that is located in a flood hazard area in which federal flood insurance is not available.
- Loan C is a commercial loan that the bank would be willing to make on an unsecured basis, but the borrower has offered some commercial real estate property as collateral. The property has one vacant building on it, and it is in a flood hazard area in a community where federal flood insurance is available.

a. Loan A
b. Loan B
c. Loan C
d. None of the loans

b. Loan B.

The properties securing Loans A and C are located in SFHA and in communities where federal flood insurance is available; therefore, flood insurance is required. Loan A is required to have flood insurance for the entire term. The bank must check at each renewal to make sure the insurance is still in effect.

8

For construction loans, if the flood insurance for the property isn't purchased at the time of loan origination, when must the flood insurance be purchased?

The borrower may defer the purchase of flood insurance until either a foundation slab has been poured or an elevation certificate has been issued, or in the case of a building where the lowest floor is below the Base Floor Elevation (BFE), when it is walled and roofed.

If the lender allows this, controls must be in place to ensure that the borrower obtains insurance no later than when the foundation is poured or the elevation certificate is issued.

9

Assume that the properties involved in the following loans are located in SFHA. Which loans would NOT require flood insurance as a condition of the loan?

a. A mortgage loan made to a consumer secured by a residence in a community in which flood insurance is available
b. A commercial loan secured by residential real estate located in a community in which flood insurance is available.
c. A consumer loan secured by a lake house located in a community in which flood insurance is not available.
d. A loan for the purpose of making investments secured by commercial rental property located in a community in which flood insurance is available.

c. A consumer loan secured by a lake house located in a community in which flood insurance is not available.

Any loan secured by a building or mobile home located in a SFHA where flood insurance is available must have flood insurance as a condition of making the loan.

10

Which of the following is acceptable proof of the purchase of flood hazard insurance?

a. Copy of the declarations page of the insurance policy
b. A certificate of insurance
c. Flood insurance binder
d. Letter signed by the borrower agreeing to purchase the insurance

a. Copy of the declarations page of the insurance policy

Although FEMA guidelines have been rescinded, they are sill applicable and say that there are only two forms of proof of insurance. One is a copy of the declarations page of the policy. The other is the insurance application along with proof of payment. the NFIP does not recognize binders or certificates of insurance.

11

State National Bank is making a loan to the ACME Corporation to be secured by ACME's manufacturing plant. The bank's loan is for $250,000. The appraised value of the plant is $750,000. The maximum amount of flood insurance available for a commercial building is $500,000. What is the least amount of flood insurance that the bank must require under the Flood Regulations?

a. $250,000
b. $750,000
c. $500,000
d. None of the above

a. $250,000

12

What are the flood requirements for individual condominium unit loans?

The lesser of:
- The outstanding principal balance
- The maximum limit for the residential condo unit, or
- The insurable value allocated to that unit (replacement cost value of the building divided by the number of units in the building)

13

What is the penalty for violating the flood regulations?

$2000 per occurrence.

14

Rate rules: residential property that is not a primary residence can have rate increases of up to __% per year

25%

15

When must lenders offer the option to escrow flood insurance premiums & fees?

Any loans outstanding as of Jan 1, 2016 must escrow by June 15, 2016.

16

Is escrow required if the loan is in a subordinate position to a senior lien secured by the same property for which flood insurance is being provided?

No, this is an exemption from the mandatory escrow requirement.

17

Are lenders required to review the portfolio periodically to identify uninsured or underinsured loans?

No, and they don't have to track map changes either. However, if a bank discovers an uninsured or underinsured loan, it must notify the borrower and force place insurance, if necessary.

18

When should a notice that a property is located in an area having special flood hazards typically be delivered to the borrower?

a. Only upon the borrower's request
b. A reasonable time in advance of the loan closing
c. At the loan closing
d. No later than 30 days after the loan closing

b. A reasonable time in advance of the loan closing

19

FEMA will charge a $__ surcharge for primary residences per year and a $__ surcharge for other types of properties.

$25
$250

20

When may a bank force the placement of flood insurance on the borrower's property?

a. Immediately on the expiration of the flood insurance
b. 10 days after notifying the borrower
c. 21 days after notifying the borrower
d. 45 days after notifying the borrower

d. 45 days after notifying the borrower

The bank must force the placement of flood insurance for the required amount of coverage, at the borrower's expense, 45 days after notifying the borrower.

21

Insurance amounts must be at a minimum, equal to the lesser of x, y, and z.

- outstanding principal balance of the loan
- the insurable value of the property
- the maximum limit of available coverage

Coverage is required only for the value of the structures.

22

What must a lender do if a borrower provides flood insurance coverage after the bank force places the flood insurance?

If the borrower provides proof of coverage after flood insurance is force placed, the lender must notify the insurer to terminate the force placed coverage and refund any premium covering the overlapping period to the borrower within 30 days of receiving evidence of the borrower's coverage.

23

Flood insurance lapsed on a loan at First Bank on June 1. The bank sent the borrower a notice stating that flood insurance was required and giving the borrower 45 days (until July 15) to reinstate the policy or purchase a new one. If the borrower does not reinstate the flood insurance and the bank force places a policy and charges the borrower for a premium, what date should the force placed insurance policy start coverage?

a. June 1
b. June 30
c. July 1
d. July 15

a. June 1

24

What are the flood requirements for 5+ family dwelling loans ("other residential loans")?

The lesser of:
- The outstanding principal balance
- The maximum limit of $500,000, or
- The insurable value allocated to that structure

25

Does the flood insurance ever have to cover improved real property and its contents?

Yes, if the collateral for a loan is improved real property and its contents (e.g., a bookstore and its inventory), then insurance is required on the building and its contents if it is located in a SFHA in a community where insurance is available.

26

When is the purchase of flood insurance required on or before loan closing?

a. Construction mortgage loan is to be secured by a single family dwelling in a participating community.
b. Conventional mortgage loan is to be secured by an attached mobile home in a SFHA of a nonparticipating community.
c. Conventional mortgage loan is to be secured by a vacant lot located in a SFHA of a participating community.
d. Business mortgage loan is to be secured by a commercial building located in a SFHA of a participating community.

d. Business mortgage loan is to be secured by a commercial building located in a SFHA of a participating community.

The other alternatives do not require flood insurance. Vacant lots are not covered. Property in nonparticipating communities does not require insurance. Construction loans require flood insurance if the building will be located in a SFHA, but the insurance does not have to be in place on or before loan closing as long as the lender has reasonable controls in place to assure that the insurance will be purchased when walls and a roof are in place.

27

What if there is more than one building in a SFHA that secures a loan?

Then the lender may determine the amount required on each building and add them together for the total amount of insurance required.

28

Are materials for construction insurable?

Only if they are contained in an enclosed building on the premises or adjacent to the premises.

29

For a property located in a SFHA, what does the notice include?

- FEMA-approved warning that the structure is in a SFHA.
- A description of flood insurance purchase requirements.
- A statement that flood insurance coverage is available, if applicable.
- A statement of whether federal disaster relief is available, in the even of damage to the property.
- The fact that flood insurance is available from insurance companies or NFIP directly
- Flood insurance that provides the same level of coverage as an NFIP policy may be available from private insurance companies
- Borrowers are encouraged to compare policies.
- Escrow REQUIREMENTS clause for residential loans secured by improved real estate or mobile homes made, increased, renewed or extended on or after Jan 1, 2016.
- Escrow OPTIONS clause for residential loans secured by improved real estate or mobile homes made, increased, renewed or extended before Jan 1, 2016.

30

Is the flood insurance determination fee a finance charge?

No, but fees for life-of-loan coverage are considered to be finance charges.

31

What is the 3-part permissible situation in which an old flood determination may be used?

- Less than 7 years old, and
- There are no new or revised map revisions, and
- It was initially recorded on the SFHDF

*The determination must have been done for you as the lender. Cannot rely on another bank's determination.

32

When must the flood insurance notice be mailed or delivered to the borrower?

Within a reasonable time before completion of the transaction and to the loan servicer as soon as practicable thereafter.

The notice should be sent or delivered no later than the Bank sends other notices concerning insurance and taxes.

33

What is the purpose of a SFHDF?

To evidence that a flood determination was performed. This is kept in the loan file for the life of the loan. It does not need to be given to the borrower or signed by the borrower.

34

What loans require flood insurance?

All loans secured by a building or mobile home, including increases, extensions, refinances and renewals located or to be located in a SFHA where federal flood insurance is available.

Notes:
*Collateral driven, not purpose driven
*includes HELOCs
*Think of it this way: if we're adding more risk (adding more money or adding more time), then we need a new flood determination. If we're refinancing, then we don't.

35

When is notification required?

Notice is to be sent to the borrower and loan servicer when making, increasing, renewing or extending a loan secured by property in or to be located in a SFHA.

If the property is not in a SFHA, the SFHDF is still required.

36

How quickly must banks notify FEMA or its designee, the insurance agent, of a change in servicer?

Within 60 days after the effective date of change.

37

Is escrow required if the loan term is not longer than 12 months, is a HELOC or the loan is non-performing?

No, this is an exemption from the mandatory escrow requirement.

38

What are the zone codes for a SFHA?

A or V zone - high
X zone - moderate

39

Which of the following loans requires a notice of special flood hazard?
- Loan A is to be secured by a car-wash facility located in a SFHA in a community where federal flood insurance is not available.
- Loan B is to be secured by a rental house not located in a SFHA but in a community where flood insurance is available.
- Loan C is to be secured by a vacant lot located in a SFHA in a community where federal flood insurance is available.

a. Loan A
b. Loan B
c. Loan C
d. All of the loans.

a. Loan A.

Loan B is not in a SFHA. Loan C is a vacant lot, which is not insurable.

40

When does a mobile home have to have insurance?

- Has to be tied down
- Has to have utilities
- Has to be sitting on a foundation

41

When does a notice that the borrower's property is located in a SFHA have to be given to the borrower?

a. Before making a commitment to lend
b. Within 10 days after closing
c. At the time of application
d. Within a reasonable time before completion of the transaction, but no later than the bank sends other notices concerning insurance or taxes

d. Within a reasonable time before completion of the transaction, but no later than the bank sends other notices concerning insurance or taxes

42

When must lenders escrow flood insurance premiums and fees for loans?

All loans or after Jan 1, 2016

43

Rate rules: primary residences can have rate increases from __% to __% per year

5-25%

44

Is there any time flood insurance isn't required on construction loans?

Yes, if the construction has been halted for more than 90 days and/or the lowest floor is below the Base Flood Elevation (BFE).

45

Property classification:
Hotels and motels with normal room rentals of __ _____ or more is considered a residential building. Less than __ _____ is considered a non-residential building.

6 months
6 months

46

Is escrow required if the loan is an extension of credit primarily for a business, commercial, or agricultural purpose?

No, this is an exemption from the mandatory escrow requirement.

47

Loans that have an original principal loan balance of _____ or less AND an original repayment term of __ _____ or less are exempt from flood requirements

$5,000
1 year

48

What property types are eligible under flood?

buildings, mobile homes and any personal property securing the loan and does not include the land itself.
- all walled and roofed buildings (including construction) that are principally above ground and affixed to a permanent site, except gas or liquid storage tanks.
- mobile homes and travel trailers set on permanent foundations
- high-rise condos with common ownership

49

What is improved real estate?

A building, most of the value above ground.

50

What if the borrower disputes the placement of flood insurance?

Owners and lenders may jointly request that FEMA review a flood hazard determination by using a Letter of Determination Review (LODR).

If the building is naturally above the BFE, the property owner can submit scientific or technical information to FEMA to prove that the property is incorrectly included in a SFHA. If it agrees, FEMA will issue a Letter of Map Amendment (LOMA). Lenders are bound by the FEMA map until a LOMA is issued.

If the community approves and initiates a requires that indicates the property is no longer in a SFHA because of a grade or fill of a site, FEMA can issue a Letter of Map Revision (LOMR). If FEMA does not change the designation or issue a LOMR or LOMA, the lender must require insurance as a condition of the loan. Flood insurance must be required even if a LOMR or LOMA is pending.

51

What is the maximum amount of coverage on a condominium?

Either 100% of the replacement cost value of the building or the total number of units in the building times $250,000.

52

In which of the following transactions is a disclosure statement to the consumer required?

a. A $125,000 loan to purchase and secured by an unimproved lot on which the borrower eventually plans to build a home for retirement.
b. A $100,000 loan made to a physician for a recreational vehicle, secured by the physician's equipment
c. A $75,000 loan to purchase a speedboat
d. A $200,000 unsecured loan to purchase a residence

a. A $125,000 loan to purchase and secured by an unimproved lot on which the borrower eventually plans to build a home for retirement.

This loan is covered by Reg Z because it is for a consumer purpose and is secured by real estate. If it were not secured by real estate, it would not be covered. The other alternatives are either not real estate secured or are too large for the TIL coverage.