Flood Insurance Update
Regulators Issue Guidance to Allow
Loan Closings During NFIP Lapse
Updated: April 2, 2010
WHAT’S
NEW
- Six of the nation's largest
lending authorities have issued guidance to administer the federal flood
insurance regulations during the current National Flood Insurance Program
(NFIP) lapse in authority (see below).
- Although each lending
authority notes considerations, the consensus is, in most cases, loan
closings may still occur during the NFIP lapse with verification of the
submission of a NFIP flood policy application and premium payment
submission to the insurance provider.
- Lenders should follow all
normal flood risk evaluations prior to closing and establish follow up
practices to monitor full compliance upon the re-authorization of the NFIP
program.
- Lenders should become
familiar with and follow the specific guidance offered by their lending
authority.
NEXT
STEPS
- When Congress returns on
April 12, NAR will encourage them to act swiftly to reauthorize and extend
the NFIP, and insist that the reauthorization should be made retroactive
to March 28, 2010, so that any properties that are flooded during this
lapse will be covered by the program.
- NAR will continue to make
every effort with Congress to extend the NFIP and in the meantime,
encourage Federal agencies, GSEs and bank regulatorys to take every step
available to them under current law, to continue servicing residential and
commercial mortgages in the interim
NAR
FAQs
1.
Federal Emergency Management Agency: at http://www.fema.gov/business/nfip/
2. Fannie
Mae: https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2010/ll1005.pdf
3.
Federal Housing Administration: http://portal.hud.gov/portal/page/portal/HUD/federal_housing_administration
4.
Freddie Mac: http://www.freddiemac.com/singlefamily/news/2010/0326_flood.html
5. Office
of Thrift Supervision: http://files.ots.treas.gov/25338.pdf
6.
Federal Reserve: http://www.federalreserve.gov/boarddocs/caletters/2010/1003/caltr1003.htm
BACKGROUND
INFORMATION
Congress
has recessed without extending authority for the National Flood Insurance
Program (NFIP) which expired on March 28, 2010. By law, flood insurance
is required for the purchase of real estate in a 100-year floodplain.
However, insurers may not issue new or renewal policies or increase the
coverage of existing policies backed by the NFIP while it's expired.
Since
March 28, NAR has issued an all-member Call For Action for Realtors to contact
their members of Congress and urge the immediate extension of the NFIP.
NAR has also reached out to Federal agencies, GSEs and the bank regulators to
clarify what lenders and insurers may and may not do to help during the
program's expiration.
FEMA,
which administers the NFIP, issued guidance that:
-Existing
flood insurance polices that were in effect on March 28 (when NFIP expired)
will remain in effect and would not be affected.
-While
new flood policies may not be issued after that date, new policies for which payment
was received or in case of loan closings, the application was dated on or
before March 28 -- will be issued.
-Also renewal policies may not be issued until the NFIP is extended; however, there is a 30-day grace period during which the policy remains in effect following its expiration date.
-NOTE: Buyers may also "assume" the seller's existing policy without having to re-issue it (NFIP Manual, Page GR15).
"D. Assignment: A property owner's flood insurance building policy
may be assigned in writing to a purchaser of the insured property upon transfer
of title without the written consent of the NFIP. Policies on buildings
in the course of construction and policies insuring contents only may not
be assigned." Source:
http://www.fema.gov/pdf/nfip/manual201005/03gr.pdf
The
purchase requirement for flood insurance may be fulfilled with non-NFIP
policies; for instance, Lloyd's of London, Chubb and AIG have offered such
insurance, but it can be very expensive and is limited to a certain number of
states, with other conditions:
http://www.realestatejournal.com/buysell/taxesandinsurance/20050902-silverman.html
http://www.usatoday.com/money/industries/insurance/2006-06-09-flood-insurance-usat_x.htm?POE=click-refer
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FEMA Information032910_FEMA_Memo_w-10027_.pdf102709_FEMA_Guidance_w-09068_.pdf