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#1934008 - 06/19/14 04:05 PM Amount of coverage
ynot Offline
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Florida
When we close a new loan with flood insurance, we ensure that the amount of flood insurance matches the replacement cost from the hazard policy. As the loan becomes seasoned, the hazard coverage typically increases each year. Are we required to always have the flood insurance match the replacement cost, or is it acceptable to use the original amount issued at closing?

Where we are struggling is not all flood and hazard policies have the same policy period therefore when the hazard policy comes in and the amount is increased by the 5 - 10% the flood insurance appears deficient. Are we then supposed to start the 45 day letter cycle each year that this occurs? or is it industry standard to set the required coverage one time?

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Flood Compliance
#1934107 - 06/19/14 06:33 PM Re: Amount of coverage ynot
complyorelse Offline
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Our insurance monitoring company has stated that they don't recommend "chasing" the hazard replacement cost. However, a regulator may feel differently.

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#1934129 - 06/19/14 06:50 PM Re: Amount of coverage ynot
Dan Persfull Offline
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they don't recommend "chasing" the hazard replacement cost

Neither do I
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#1934156 - 06/19/14 07:19 PM Re: Amount of coverage ynot
ynot Offline
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Florida
Does it make a difference if you are at renewal of the loan? Should the flood insurance match the hazard (RCV) at that point?

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#1934158 - 06/19/14 07:22 PM Re: Amount of coverage ynot
Dan Persfull Offline
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You only need to be concerned that the current coverage meets the lesser of the 3 minimum coverage requirements.
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#1934184 - 06/19/14 07:41 PM Re: Amount of coverage ynot
ynot Offline
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Florida
Dan, I am confused. You said that you don't recommend chasing the hazard replacement cost. What do you do?

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#1934224 - 06/19/14 08:45 PM Re: Amount of coverage ynot
Dan Persfull Offline
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What I meant is you don't need to keep up with the replacement cost on the hazard policy each time it renews. The only time you would need to do this is if the minimum flood coverage is based on the RCV. For us the loan balance is generally the lesser of the 3 requirements.

We have a flood worksheet that was taken from the BOL tools section and modified it to meet our needs. It goes on top of the flood insurance section of the file and it lists pertinent coverage information at the time the loan was made. If the renewal policy has the same or higher coverage when the loan was made it goes in the file, if by chance it's lower we make sure it meets the minimum coverage requirement.
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#1934242 - 06/19/14 09:02 PM Re: Amount of coverage ynot
ynot Offline
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Joined: Sep 2011
Posts: 81
Florida
Thank you Dan.

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#1950002 - 08/07/14 01:08 PM Re: Amount of coverage ynot
JWills, CRCM Offline
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I have a question regarding coverage as well. We have a loan that is in a flood zone, and has flood insurance for the home. There is however a 2 1/2 car detached garage that is not on the flood policy. In talking with the agent, do we need to have the coverage amount the same as the 'other structures' on the homeowners policy? I tried to find the flood worksheet described above, but it is being updated at this time.
Any help would be greatly appreciated.
Thanks.
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#1950034 - 08/07/14 02:09 PM Re: Amount of coverage ynot
JWills, CRCM Offline
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any takers?
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#1950053 - 08/07/14 02:17 PM Re: Amount of coverage ynot
Dan Persfull Offline
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There is however a 2 1/2 car detached garage that is not on the flood policy.

The garage should be covered under the 10% rule.

Does my NFIP policy cover all the buildings on my property?

The Standard Flood Insurance Policy provides coverage for one building per policy. The only exception is 10 percent coverage for a detached garage. However, the total payment for flood damage to the detached garage and the house together cannot exceed the building policy limit. For coverage to apply, the garage can only be used for parking and storage. Any other use would void this coverage; for example, if the garage has a workshop, the coverage would not apply. All other buildings on the premises need separate coverage. (Coverage is also available for owners of condominium units.) The maximum coverage available is $250,000 for residential properties and $500,000 for commercial properties.
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#1950064 - 08/07/14 02:26 PM Re: Amount of coverage Dan Persfull
JWills, CRCM Offline
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Originally Posted By: Dan Persfull
There is however a 2 1/2 car detached garage that is not on the flood policy.

The garage should be covered under the 10% rule.

Does my NFIP policy cover all the buildings on my property?

The Standard Flood Insurance Policy provides coverage for one building per policy. The only exception is 10 percent coverage for a detached garage. However, the total payment for flood damage to the detached garage and the house together cannot exceed the building policy limit. For coverage to apply, the garage can only be used for parking and storage. Any other use would void this coverage; for example, if the garage has a workshop, the coverage would not apply. All other buildings on the premises need separate coverage. (Coverage is also available for owners of condominium units.) The maximum coverage available is $250,000 for residential properties and $500,000 for commercial properties.



So if my flood insurance is $73,000, they would be fine with $7,300, if I am understanding you correctly.

Thanks!
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#1950072 - 08/07/14 02:34 PM Re: Amount of coverage ynot
Dan Persfull Offline
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You don't need a separate policy on the detached garage unless it's being used for something other than parking or storage, such as a workshop or upstairs apt.
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#1950081 - 08/07/14 02:40 PM Re: Amount of coverage ynot
JWills, CRCM Offline
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Thanks Dan!
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#1950110 - 08/07/14 02:57 PM Re: Amount of coverage Dan Persfull
rlcarey Offline
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Originally Posted By: Dan Persfull
You don't need a separate policy on the detached garage unless it's being used for something other than parking or storage, such as a workshop or upstairs apt.


Unless any detached structure on a residential transaction is actually considered a residential structure (i.e. contains living quarters), you are no longer required by law to require flood insurance. Safety and soundness may dictate otherwise however.
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#1950116 - 08/07/14 03:00 PM Re: Amount of coverage ynot
JWills, CRCM Offline
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JWills, CRCM
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Thanks Randy, unfortunately, Freddie Mac has not changed guidelines for loans we sell to them. At least not for now.
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#1950170 - 08/07/14 03:48 PM Re: Amount of coverage ynot
David Dickinson Offline
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Concerning the detached residential structures issue - Here's a blog we wrote on this topic:
http://www.bankerscompliance.com/blog/latest/we-have-unity-but-nothing-official.htm
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#1950204 - 08/07/14 04:07 PM Re: Amount of coverage ynot
JWills, CRCM Offline
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Thank you David!

smile
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#1950324 - 08/07/14 05:48 PM Re: Amount of coverage ynot
Dan Persfull Offline
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David, good to see you back.

When I click on the above link all I get is a white page.
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#1950339 - 08/07/14 05:57 PM Re: Amount of coverage ynot
JWills, CRCM Offline
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JWills, CRCM
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It worked for me Dan.
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#1950588 - 08/07/14 09:36 PM Re: Amount of coverage Dan Persfull
David Dickinson Offline
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Originally Posted By: Dan Persfull
David, good to see you back.

When I click on the above link all I get is a white page.

Thanks! It's good to be back Dan.
I think my time away has aged your eyes. smile Try this:
http://www.bankerscompliance.com/blog/latest/we-have-unity-but-nothing-official.htm
If it doesn't work, go to www.bankercompliance.com Click on the Blog link and scroll to the 8/6/14 entry. Let me know if you can't find it.
Last edited by David Dickinson; 08/07/14 09:38 PM.
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#1950668 - 08/08/14 01:03 PM Re: Amount of coverage ynot
Dan Persfull Offline
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The link issue was on my end. The IT person got it corrected.
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#1953430 - 08/15/14 02:29 PM Re: Amount of coverage ynot
JWills, CRCM Offline
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JWills, CRCM
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The Mitten State
See the below for the change from Freddie Mac, Bulletin 2014-15

Flood insurance on non-residential detached structures
On March 21, 2014, the President of the United States signed into law the Homeowner Flood Insurance Affordability Act of 2014 (the “Act”). As a result of the Act, we are updating Section 58.3, Flood Insurance, to provide that, for Mortgages secured by 1- to 4-unit properties, Seller/Servicers may waive the requirement for flood insurance coverage on non-residential detached structures located on the Mortgaged Premises.
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