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1. How do lending institutions determine a loan's flood insurance requirement?
The lending institution must determine or have a third party determine if a building or mobile home (and personal property securing the loan, if applicable) is located within a Special Flood Hazard Area (SFHA) as shown on the effective Flood Insurance Rate Map for the property's community. If any portion of the improvements is located within the SFHA, then flood insurance is required.
The steps, as outlined by FEMA, to make the flood zone determination are as follows: (1) Find the correct flood map, (2) Find the general location of the subject property, (3) Find the specific location of the subject property's improvements on the flood map, and (4) Identify the flood insurance risk zone as shown on the flood map.
Learn more about reading a Flood Insurance Rate Map.
2. When is a lending institution required to make or obtain a flood zone determination?
A flood zone determination must be made or obtained whenever a federally regulated lender makes, extends, increases or renews a loan secured by a building or mobile home. In addition, federal regulators recommend that lenders and servicers, as a matter of safety and soundness, conduct periodic reviews of existing portfolios and perform prospective analyses on portfolio acquisitions, as well as monitor changes triggered by flood map revisions.
3. Is the Standard Flood Hazard Determination Form required? Are there exceptions?
Yes, the Standard Flood Hazard Determination Form (SFHDF) is a required federal document that federally regulated lending institutions must complete or have completed as a condition of making, extending, increasing, or renewing a loan that is to be secured by improved real estate.
Loans that are exempt from the mandatory purchase requirements, including the requirement for a flood zone determination, are on state-owned property covered by self-insurance acceptable to the director of FEMA and on loans with an original outstanding balance of $5,000 or less and a repayment term of one year or less.
4. Is a Standard Flood Hazard Determination Form required for a condominium unit, a cooperative unit, or a commercial building?
Yes, the mandatory purchase requirements, including the requirement for a flood zone determination, apply equally to commercial properties as they do to residential properties. In addition, the requirements apply to condominium, cooperative, timeshare units and all forms of single or multi-family dwellings.
5. What are the major obligations for lending institutions with respect to flood zone determinations?
Lending institutions have the following obligations: (1) Determine whether the building is or will be located in an SFHA; (2) Document the flood hazard determination; (3) Require that flood insurance (when it is required) is obtained to the appropriate limit; and (4) Ensure that required flood insurance is maintained for the term of the loan or added if the property is subsequently determined to be in an SFHA.
6. Is a lending institution required to provide a copy of the Standard Flood Hazard Determination Form to its borrower?
There is no requirement for the lending institution to provide a copy of the Standard Flood Hazard Determination Form to the borrower, regardless of whether or not the property is within the SFHA. However, the lending institution must keep a record (hardcopy or electronic) of the flood zone determination or be able to retrieve a copy of the form in the event that a regulator requires it.
7. How long before the loan closing should a lending institution complete or obtain a Standard Flood Hazard Determination Form?
The regulations do not prescribe a specific timeframe prior to a loan closing; however, if the property is in the SFHA, then within a reasonable time period prior to the loan closing, the lending institution must provide a notice to the borrower stating that flood insurance is required. Some regulators agree that a "reasonable period of time" is at least 10 days.
8. Is a lending institution required to use a third-party provider, such as CoreLogic Flood Services, for its flood zone determinations?
Lending institutions may make their own flood zone determinations; however, most choose to use a third-party provider because of the resources and expertise required to make the determinations and the guarantees provided by these companies. For a lender to use a flood zone determination made by a third-party provider, the determination must be "guaranteed" according to the regulations. Lenders should ensure that the company is following FEMA guidelines with respect to its flood zone determinations. Whether or not a lending institution utilizes a third party provider, the ultimate, non-delegable obligation to require flood insurance on designated loans is on the lending institution.
9. How does CoreLogic make flood determinations?
As a CoreLogic client, you are in the unique position of receiving certifications that are validated through the instantaneous comparison of two completely separate databases of determinations. Each one of our databases was developed by separate teams of technology and operations experts, with each team using a different research methodology. When it comes to accuracy, the melding of these two alternate databases is vastly superior than either alone.
The foundation database is compiled of manually completed determinations. These are determinations that a research analyst, who is an expert in that specific geographic region, has viewed the actual hard copy flood map from FEMA and rendered the determination. The researcher may also use other resources from our extensive library, such as tax maps, plats, surveys, subdivision maps, lot and block information, section/township/range, and legal descriptions, to locate a specific structure on the FEMA map.
The second database is compiled using state-of-the-art GIS (Geographic Information Systems) technology, which overlays digitized flood maps with street and address information.
If you've never seen a flood map, it may surprise you (the dark grey shaded areas are the high risk flood zones). You'd think that a map would make it easy to find your way around. But a flood map is different. There aren't a lot of streets or landmarks you can use to locate your structure. That's why it takes expertise and lots of resources, and we have both, to consistently render accurate determinations.
10. What type of indemnification and guarantee does CoreLogic offer with its flood zone determinations?
CoreLogic guarantees its flood zone determinations as required by federal regulations. The specifics of the guarantee are prescribed by the service agreement or contract between CoreLogic and its client and may vary according to the particular product.
Generally speaking, if CoreLogic incorrectly states that a building is not in the SFHA on the effective Flood Insurance Rate Map and the building suffers flood damage, then CoreLogic will reimburse the client for the structural damage caused by flood as if a valid NFIP flood insurance policy were in effect at the time of the loss.
Conversely, if CoreLogic incorrectly states that a building is in the SFHA on the effective Flood Insurance Rate Map and a flood insurance policy is required based on this flood zone determination, then CoreLogic will reimburse the client up to the amount of the flood insurance policy premiums paid which are not reimbursed by the insurance company.
11. Can a lending institution use a flood zone determination that was completed for a previous transaction?
A lender may only rely on a previous flood zone determination when increasing, extending, renewing or purchasing a loan, not when a lender originates or makes a loan. The previous determination must have been completed within seven years on the same property and recorded on the Standard Flood Hazard Determination Form. Furthermore, the lender must confirm that no map revisions or updates since the original determination have placed the property into the Special Flood Hazard Area or affected the area of the property.
12. If a prior flood zone determination stated that a property was not in the Special Flood Hazard Area (SFHA,) but a more recent determination based upon a revised flood map states that it is now within an SFHA, can the property be "Grandfathered" out of the flood zone, thereby waiving the flood insurance requirement?
The mandatory purchase of flood insurance decision must be based on the current Flood Insurance Rate Map for the property's community. The effective flood map supersedes a flood zone determination based upon a previous, outdated flood map. There is no "grandfathering" of the mandatory purchase requirement; however, a flood insurance policy may be rated on the prior flood map under certain conditions based upon the Grandfather Rules of the NFIP.
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