Written By: Stacey Sprain, Op-Ed Writer
As we all dealt with back in March, the National Flood Insurance Program (NFIP) is set to expire yet again at midnight on May 31st. With a holiday weekend looming, it’s somewhat doubtful congress will have this resolved by the forthcoming expiration date.
It’s important you be prepared for worst case scenario in the meantime which means checking in with your lenders as to their policies and procedures during lapses in NFIP program coverage.
HUD has already released a statement which communicates the following information regarding their stance:
The Federal Emergency Management Administration’s (FEMA) authority to issue flood insurance policies under the National Flood Insurance Program (NFIP) will expire at midnight on May 31, 2010 unless it is reauthorized by Congress and signed by the President before then. Typically, FEMA issues guidance for lapses in authority, which can be found at http://www.fema.gov/business/nfip/
FHA will continue to insure single family mortgages on homes where flood insurance is normally required but was not secured during a lapse in flood insurance coverage authority. However, FHA-approved lenders should have an appropriate flood insurance policy application on file and collect and remit premiums pursuant to FEMA’s guidance when an insured mortgage is being closed. Lenders and mortgage servicers are reminded that, if at any time during the life of the FHA-insured mortgage, it is determined that the property is in a special flood hazard area flood insurance must be obtained when available under the NFIP. As a reminder, mortgagees are responsible for flood damage in the event that a mortgage insurance claim is filed to FHA.
Lenders are urged to periodically check FEMA’s web site at:http://www.fema.gov/business/nfip/ for information regarding Congress’ reauthorization of the flood insurance program.
As guidance, the following instructions are considered valid with the agencies and therefore should be considered acceptable to most lenders out there:
Loans Closed on or Before May 31, 2010
- If the flood insurance premium payment was part of the loan closing as indicated on the HUD I Settlement statement, and payment is received by the insurance company within 30 days of the closing, the flood insurance policy will be issued.
- If the borrower paid his/her flood insurance premium directly either at or before closing, both the application for flood insurance and the premium payment must be received within 10 days of the closing date in order for the flood insurance policy to be issued.
Loans Closed on or After May 31, 2010
A private flood insurance policy provided by a property and casualty insurance company authorized to participate in NFIP’s “Write Your Own” program should be obtained.
- The private flood insurance company will “hold” any new policy premiums, renewal policy premiums or added coverage endorsements received on or after May31, 2010, until the NFIP’s authority has been reinstated.
o Refinance Transactions: If the policy renewal was issued prior to May 31, 2010 and the premium payment is received after May 31, 2010, the policy will be reinstated even though the renewal premium was received after the authorization expiration date on May 31, 2010.
o Private flood insurance companies will not be authorized to issue renewal notices until the NFIP’s authority has been reinstated.
Evidence of Interim Insurance
If a borrower applies for private flood insurance, the private insurer’s binder or equivalent of the applicable NFIP form is acceptable pending issuance of a final flood insurance policy.
- Acceptable evidence pending issuance of a final NFIP policy must include one of the following:
o A completed and executed NFIP Flood Insurance Application plus a copy of the borrower’s premium check or agent’s paid receipt;
o A completed and executed NFIP Flood Insurance Application plus the final HUD-I Settlement Statement reflecting the flood insurance premium collected at closing;
o A completed and executed NFIP General Change Endorsement Form showing the assignment of the current flood insurance policy by the property seller to the borrower; or an agent-executed NFIP Certification of Proof of Purchase of Flood Insurance.
If you close any loans during the lapse period based on the guidance above, you must follow up to ensure that, after the NFIP has been reauthorized, you receive acceptable final evidence of flood insurance. And again, be sure to check with your lenders for their policies on handling flood insurance during the potential lapse period because the lender requirements may differ from FEMA’s guidance stated herein.
Hope everyone has a safe and happy holiday weekend!
About The Author
Stacey Sprain - As an op-ed writer, Ms. Stacey Sprain is currently a NAMP® Certified Ambassador Loan Processor (NAMP®-CALP). With over 15+ years of mortgage banking experience, Stacey is also a Quality Control Manager for a major mortgage lending institution.