FDIC Rules About Flood Insurance
The Federal Deposit Insurance Corporation (FDIC), the Federal Emergency Management Agency (FEMA) and the National Flood Insurance Program (NFIP) work in concert to enforce federal laws regarding flood insurance. The Code of Federal Regulations 12 Part 339 contains the laws relating to flood insurance and the FDIC. These pertain to lenders insured by the FDIC.
Other People Are Reading
-
Determining Flood Hazard
-
Before closing on a loan secured by a building, a mobile home or commercial real estate, the lender must conduct a flood hazard determination and document it using the Federal Emergency Management Agency's Standard Flood Hazard Determination Form. The lender retains the form for the loan's duration. One exception exists. If the purchaser of a mobile home does not yet know the permanent location, the lender must conduct the determination after the owner sites the home. It is the responsibility of the lender to learn the final location.
Borrower Notices
-
If the lender determines the home lies within a FEMA-designated Special Flood Hazard Area (SFHA), it must notify the borrower, who must purchase the appropriate amount of flood insurance to fully cover the structure. The lender provides a FEMA-approved National Flood Insurance Program to the borrower at least 10 days before it makes, extends, renews or increases a loan. This notice tells the borrower about flood risks, mitigation measures, flood insurance availability and flood-related federal disaster relief assistance. The lender must retain a record of the borrower's receipt of notice.
-
FEMA and Insurance Company Notices
-
The lender also must notify FEMA and the insurance company issuing the flood insurance of the loan servicer's identity any time it makes, renews, extends, increases, sells or transfers a loan or if the loan servicer changes. The dual notices help ensure that the borrower maintains adequate flood insurance throughout the life of the loan.
SFHA Purchase Requirements
-
The owner of any structure located in an SFHA must carry flood insurance to fully cover potential losses. The minimum coverage equals the lesser of the outstanding balance of loan principal or the maximum NFIP policy available, but not less than the structure's value. It is the lender's responsibility to ensure the borrower obtains adequate flood insurance for the correct flood zone, if required.
Force Place Insurance
-
If a borrower does not purchase flood insurance before closing on the loan, the lenders must purchase a policy for the property, referred to in federal law as to "force place insurance." If the borrower lets the flood insurance policy lapse after closing on the loan, the lender must also force place insurance. In both instances, the lender must purchase insurance within 45 days of the borrower's notice. The lender can charge the borrower for the premiums and fees incurred.
Escrow
-
Escrows can apply to flood insurance. Any time a lender uses escrow, whether for fees, taxes, insurance premiums or other items, it has to escrow flood insurance premiums as well.
Fees
-
A lender can charge the actual cost of determining flood hazard if using a third-party determination service or a reasonable cost if conducting the work itself. The lender must pass along any volume discounts from a third-party service.
-
