Evidence of NFIP Flood Insurance and Documenting

Grandfathering

AgendaIntroductions OverviewLender PerspectiveGSE PerspectiveAgency PerspectiveWYO PerspectiveFEMA PerspectiveFuture PossibilitiesSummaryQuestions

1NFC 2010 Workshop | Apr. 12, 2010 | San Diego, CA

• Lauri Lydecker – People’s United Bank• Bob Cope – Freddie Mac• Debbie Freeman – Gambrell & Sturges LLC• Patricia Latshaw – American Bankers Insurance

Company of FL• Barry Thomas – State Farm Insurance • Tuula Young – FEMA/NFIP • Linda Mackey – IIABA

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Introductions

Our Panelists

• The necessary evidence of NFIP flood insurance raises many questions.

• We’ll be discussing the current options, plus some possibilities for the future.

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Overview

Evidence of NFIP Flood Insurance and Documenting NFIP Grandfathering Eligibility

What defines acceptable evidence for lenders?• Mandatory Purchase of Flood Insurance Guidelines (pg 26),

– Flood Insurance Application and premium payment, or

– Declarations Page

– Specifically excludes Binders and Certificates of Insurance• Very few lenders or regulators are familiar with the Flood

Insurance Manual or its 2008 amendment regarding Certificates.

• Interagency Q&As Regarding Flood Insurance– Grandfather Rule eligibility must be substantiated (Question

#71)

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Lender Perspective

* Per BankersOnline.com “Flood Penalties Watch” * Per BankersOnline.com “Flood Penalties Watch”

Lender Challenges

• Regulator scrutiny and fines– Over $4,900,000 in regulator penalties since Katrina*

• Loan officer knowledge of the flood law and NFIP– Program complexities

– Requests for RCBAP to reflect lender, in error

– Balance between a customer service focus and regulatory compliance

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Lender Perspective

* Per the Bureau of Labor Statistics – 2008 * Per the Bureau of Labor Statistics – 2008

Lender Challenges

• Agent knowledge of the flood law and NFIP

– 434,800 insurance agents*

– Unfamiliarity with FEMA’s April 2008 letter W-08021

– Claims of Grandfather Rule eligibility without support

– Certificates of Insurance with unreliable information

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Lender Perspective

Freddie Mac Best Practices

• Current evidence of flood insurance via a copy of the insurance declaration page.  The declaration page should include the following key data elements:– Address of the property insured – Name of borrower insured (if not a condominium policy) – Effective dates of the policy coverage period – Amount of coverage on the structure – Deductible amount on the structure – Replacement cost would be nice, but is

typically not a data element provided

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Government Sponsored Entity Perspective

Freddie Mac Best Practices - Condos• Number of units in the complex (or each building if buildings are

insured separately) • Amount of coverage per building if coverage is so structured • Replacement cost value (by building or complex) based on how

coverage is structured• The original flood zone determination form used at origination to

determine the plotting of the property and if insurance is required.  If a subsequent FZD was performed, that determination will be needed as well.

• Evidence of the current unpaid principal balance (UPB) of the loan.  This is normally provided as a "screenshot" from the Lender's servicing system.

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Government Sponsored Entity Perspective

Freddie Mac Remediation of Noncompliance Issues

• If the noncompliance issue results from the testing of individual loans and results in inadequate coverage, lapsed, or non-existing coverage, the Servicer will be required to obtain and provide evidence that insurance has been obtained (either by the borrower or the Servicer) to bring the coverage in line with our requirements.

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Government Sponsored Entity Perspective

Agency Lender - Coordination

• Basic Premise – Majority of agents want to provide correct info 1st time.

– Most lenders want to resolve documentation 1st time.

• Property Insurance Appraisal Information–  Often Available. Ask agency for copies.

• Lenders need to centralize information gathering– At least 3 have different processing centers for Flood & Hazard

– Currently require borrowers/agents to provide 2 COIs

– Need to share information not ask for duplicate COIs

10

Insurance Agency Perspective

Agency Lender - Coordination

• Lender/Agency Liaison needed at processing centers – Resolve issues when COIs have been sent 3+ times

• Technology system updates– Need ability to identify & update all condo unit owners at one time.

– Large commercial properties often have multiple carriers; need ability to document multiple property/flood carriers.

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Insurance Agency Perspective

The WYO Company – How can they help?

• Acceptable Evidence of Flood Insurance – Declarations Page

• Grandfathering – New Business: Provided on Declarations Page – Yes/No

– Existing Business: Update declarations page to show Grandfathering if supporting documentation is in file for “built in compliance” or “continuous coverage”

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WYO Perspective

• Incorrect forms used

• Unit owner’s lender insisting to be added as a mortgagee on the RCBAP

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FEMA Perspective

FEMA Concerns

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FEMA Perspective

FEMA Concerns• Incorrect information on Certificates of Property

Insurance inadvertently misrepresenting the NFIP coverage.– Misleading because a Certificate of Property Insurance

is only information about the coverage at that point in time and is not binding.

– Information on a Certificate of Property Insurance must mirror the information on the declarations page, but often does not.

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FEMA Perspective

• Removal of the optional use of Certificates at NFIP policy renewal and accept only the use of copies of the Declarations Page or copies of the SFIP application and proof of payment;

or• Keeping Certificates available “at renewal” with

conditions to assist all the stakeholders.

Given these problems, FEMA is considering

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FEMA Perspective

• Certificates of Property Insurance, mirroring the information on the applicable NFIP Declarations Page

– Must include:

Possible Conditions

• Insured’s name and address; • Location; • Mortgagee; • Policy Number; • Policy Form (PRP, GP, DP,

RCBAP, GFIP); • Policy Term; • Coverage A &/or B Limits;

• Deductibles; • Flood Hazard Zone; • NFIP Grandfathering – Yes/No

(documentation required); • Annual Premium • If an RCBAP: – the number of units; and – Building RCV

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Future Possibilities

• Drafting an Evidence of Flood Insurance form – ACORD 29

• Why?

• When?

ACORD Workgroup

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Future Possibilities

• Certificates of Property Insurance “at NFIP policy renewal” as a matter of information (a snapshot) of what the coverage is on the date the Certificate is completed. 

– The insured or mortgagee may require a copy of the policy Declaration Page at policy renewal since Certificates of Property Insurance do not bind coverage under the NFIP. 

– The Certificate of Liability is not acceptable for the NFIP policies.

Optional Use

Properly documenting evidence of flood insurance is a key component of a lender’s compliance obligations.

Our discussion has reviewed the current options available to lenders, plus some possibilities for the future.

Summary

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Evidence of NFIP Flood Insurance and Documenting NFIP Grandfathering Eligibility

Questions

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Open Forum