Don't confuse how policies are issued verses what the regulator require as proof of coverage:

In the Mandatory Purchase of Flood Insurance Guidelines (September 2007), it indicates that the following is considered proof of purchase:

Page 26:

Acceptable proof of coverage may be a copy of the Flood Insurance Application and premium payment, or a copy of the Declarations Page. The NFIP does not recognize binders or certificates of insurance.

Page GLS-4:

Evidence of Insurance. Copies of the Flood Insurance Application, premium payment, and Declarations Page that, when submitted to the lender, constitute proof of flood insurance purchase. The NFIP does not recognize binders or certificates of insurance.

The payment of the flood insurance premium, if done at closing, is going to happen at some point after closing.

Additionally, Page 5:

A designated loan must have flood insurance as a condition of closing. If a borrower will not voluntarily obtain coverage, the lender must deny the loan. A lender cannot accept a borrower’s assurance that he or she will obtain coverage in the future or grant the lender indemnity while he or she seeks coverage. Closing a designated loan without coverage in place constitutes a violation of the regulation.

If the premium payment has not been made prior to closing, the coverage is not in place.

From the FDIC Compliance Handbook – June 2006:

Page V-6.6:

Forced placement should not be necessary at the time an institution makes, increases, extends, or renews a loan, when it is obligated to require that flood insurance be in place prior to closing.

Page V-6.9 (Examination Objectives):

Purchase Requirements

1. For loans that require flood insurance, determine that sufficient insurance was obtained prior to loan closing and is maintained for the life of the loan.

Page V-6.10 (Examination Objectives):

Insurance Requirements

1. If an improved property or mobile home is located in a SFHA and flood insurance is required, does the institution have the borrower obtain a policy, with the institution as loss payee, in the correct amount prior to closing?

Thanks, Randy...that cleared up the fog!

I am okay on closing loans that are secured with property located in a SFHA, either new or renewals, but what about the policies that are up for renewal?

There is a lapse in coverage if they did not pay the premium prior to the 28th. But I can't see sending the 45 day force place letter since they are unable to get a current policy. I know this is just a couple more days (hopefully), but what is everyone else doing- just monitoring and waiting to see what Congress does or sending a letter telling them to go ahead and pay the premium so that the policy will be kept once Congress reauthorizes this? Thanks

Perhaps this will help you:

o What happens to renewals during a lapse?
For applications and premiums received on or after a lapse begins, FEMA generally processes all renewals as soon as the program is reauthorized. Lenders are encouraged to notify their servicers that flood insurance payment premiums may continue to be accepted during the lapse. Lenders who act as their own servicers may also continue to accept such payments during the period of lapsed authority.
Alternatively, depending on the terms of the mortgage, lenders may be able to require borrowers to obtain coverage outside the NFIP, as a risk management measure.

What about a situation where we notified a client of a map change and the 45-Day requirement for flood insurance coverage, and now they aren't able to purchase a NFIP policy because of the lapse? Their 45-Days will be up at the end of April. We can force place a private policy at that time, but if the NFIP hasn't been reauthorized, what impact does that have on whether or not we can still require insurance?