Top Ten Facts Every Lender Needs To Know About The National Flood Insurance Program (NFIP)
- Flood insurance is mandatory for buildings in FEMA-identified high-risk flood areas, which are called Special Flood Hazard Areas (SFHAs). This requirement applies to buildings located in SFHAs on FEMA’s flood maps, including manufactured (mobile) homes and commercial buildings. Whenever you make, increase, extend, or renew a mortgage, home equity, home improvement, commercial, or farm credit loan in an SFHA, you must require flood insurance. You may require flood insurance on all loans, even those outside SFHAs.
- You must ensure that flood insurance coverage is maintained for the term of all the loans on a building. Escrowing flood insurance premiums can help you meet this requirement, and it helps protect you and your borrowers from uninsured flood losses.
- Flood zone determinations are required to establish whether a building is located in an SFHA. Document your findings on the required Standard Flood Hazard Determination Form (SFHDF). The SFHDF is available on the FEMA website.
- Know the amount of flood insurance coverage to require. The required coverage is the lesser of one of the following:
-The maximum amount of NFIP flood insurance coverage available
-The outstanding principal balance of the loan
-The value of the building only. (Land values are not covered under the NFIP.)
- You must notify borrowers in writing of the requirement to buy flood insurance for new and existing loans. New Loans: if you determine that a home or business is in an SFHA before loan closing, you are required to notify the borrower within a reasonable time (defined by Federal regulation as at least 10 days) prior to the loan closing. Existing Loans: if you determine that an existing loan for a home or business is in an SFHA, you are also required to notify the borrower within a reasonable time. The law provides for force placement of flood insurance 45 days after the borrower is notified of deficient flood insurance coverage. The NFIP’s Mortgage Portfolio Protection Program (MPPP) helps you force place flood insurance when necessary.
- The law requires you to escrow flood insurance premiums for homes in SFHAs when taxes, other forms of insurance, or any other payments are escrowed. Consider escrowing flood insurance premiums for all loans, including loans on non-residential improved real estate to help maintain flood coverage.
- There is no waiting period for flood insurance to go into effect when it is purchased in connection with making, increasing, renewing, or extending a loan. In most other instances, there is a 30-day waiting period before flood insurance goes into effect. For more information about the waiting period and its exceptions, contact FEMA’s Region 8’s NFIP Coordinator, Norm Ashford.
- Notify the insurance company or agent when the lender or servicer of a loan changes. Notification of a change of lender or servicer must be within 60 days after the effective date of the change.
- For more information about the mandatory purchase of flood insurance requirements, and other related topics, contact FEMA’s Region 8’s NFIP Coordinator, Norm Ashford.
- Flood insurance and the mandatory purchase laws help protect your investments, as well as your borrowers, against uninsured flood losses. Floods happen all over the country. Make sure you and your borrowers are protected from uninsured flood losses for their homes, businesses, and belongings by following these requirements. It is just good business.
Federal Alliance for Safe Homes
The Insurance Institute for Business and Home Safety
FEMA Map Service Center
Information on obtaining Flood Insurance
Additional information for Lenders
The Risk is Real, Flood Preparation and Safety
Information Provided by SEMSWA, A Pocket Guide for Real Estate and Insurance Agents (Being Revised per BW-12)
Prepare for and Respond After a Flood, A Pocket Guide for Home & Property Owners
Protect Your Home or Business from Floods, A Pocket Guide for Home and Business Owners
Flood Insurance, A Pocket Guide for Property Owners in or Adjacent to the Floodplain
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