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#2215232 - 06/07/19 03:44 PM Re: New Private Flood Insurance Rules rlcarey
ComplianceKat Offline
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Joined: Sep 2017
Posts: 32
To clarify, I thought the discretionary acceptance provision on loan protection focuses enables us to accept a flood insurance policy
issued by a private insurer, such as builders risk, and facilitates our ability to accept flood insurance policies issued by private insurers that do not satisfy the definition of private flood insurance. With that discretion, we should still consider the 60 days notice as inadequate notice of cancellation to us as the mortgagor and the mortgagee according to the sufficient protection criterion?

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Flood Compliance
#2215246 - 06/07/19 04:34 PM Re: New Private Flood Insurance Rules Tesla
rlcarey Online
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rlcarey
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Galveston, TX
That is true - but since a builder's risk policy is probably never going to comply, does a bank want to get a copy of each and every one and review them all to make sure that there are no specific flood exclusions, that the owner of the property is a named insured, and not just builder, that the dollar amount of coverage is sufficient, retain a copy and the review notes, etc.? Then determine exactly when the builder's risk insurance will terminate and have the tracking mechanisms in place to make sure that other flood coverage is in place without any gaps.

It would not happen in my shop is all I can say.
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#2215969 - 06/18/19 08:29 PM Re: New Private Flood Insurance Rules David Dickinson
bcompliance Offline
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Joined: Sep 2014
Posts: 1,252
Originally Posted By David Dickinson
Good question. I saw the FRB is having a Outlook webinar in May. Hopefully, they'll address this issue.


Did anyone happen to catch the answer to the contradiction to the compliance aid statement when something like this is also on the policy In the FRB webinar today? I was on a conference call at the same time as the webinar, so I was attempting to listen to both. The conference call ended up getting the majority of my attention.

"This insurance contract is issued by a non-admitted insurer which is not licensed by nor under the jurisdiction of the _____(State name) Insurance Director."
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#2215974 - 06/18/19 09:07 PM Re: New Private Flood Insurance Rules Tesla
J Van Horn Offline
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Joined: Sep 2012
Posts: 25
Coppell, Texas
Originally Posted By bcompliance
Did anyone happen to catch the answer to the contradiction to the compliance aid statement when something like this is also on the policy In the FRB webinar today?


Not a contradiction; the answers you seek are here: https://www.bankersonline.com/forum/ubbt...ies#Post2214009

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#2216056 - 06/19/19 07:26 PM Re: New Private Flood Insurance Rules Tesla
Dodge Offline
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Posts: 246
What about a force place flood policy? Do those policies need to have the compliance aid statement since they are a private insurance policy?

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#2216078 - 06/19/19 09:43 PM Re: New Private Flood Insurance Rules Tesla
rlcarey Online
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rlcarey
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Galveston, TX
No - but they have to meet the minimum guidelines.
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#2216140 - 06/20/19 03:42 PM Re: New Private Flood Insurance Rules Tesla
Compliance Nut Offline
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Posts: 118
Does anyone have (or know where to find) a sample of a private flood insurance policy dec page with and without the compliance aid statement? Need to create training materials and looking for samples.

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#2216141 - 06/20/19 03:44 PM Re: New Private Flood Insurance Rules Tesla
Red Raiders Offline
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Compliance Land
I have the same question as Compliance Nut but also one more. This may be a dumb question but we don't have a lot of flood loans. How do you tell the difference between a SFIP and a private policy?
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#2216163 - 06/20/19 06:59 PM Re: New Private Flood Insurance Rules Tesla
rlcarey Online
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Galveston, TX
Private policy declaration pages are going to very greatly between companies. Even the declaration pages of NFIP policies through WYO agencies are going to vary somewhat - they just have to have all of the information. Google "nfip declaration page sample". It's amazing what is out on the internet smile
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#2216192 - 06/20/19 09:04 PM Re: New Private Flood Insurance Rules Tesla
Tesla Offline
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Has anyone read the Fannie Selling Notice June 5, 2019 that contains this language:

After the federal banking agencies’ regulation becomes effective, we will continue to apply our current Selling Guide eligibility standards and procedures to all loans in SFHAs delivered to us, including the ratings requirements for issuers of private flood insurance. Likewise, we will continue to apply our current Servicing Guide eligibility and ratings requirements to all loans secured by residences that are in a SFHA at origination, or which are remapped into an SFHA after origination. These requirements apply to each lender and servicer subject to the federal banking agencies’ regulation regardless of the regulatory provision employed by it (that is, “mandatory” or “discretionary”) in complying with the regulation. This applies despite an institution’s reliance on “compliance aid” language in a policy asserting qualification as “private flood insurance” under that regulation.

Does anyone else interpret this as we can't rely just on the compliance aid statement? We need to meet the additional requirements of Fannie - right?
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#2216199 - 06/20/19 09:24 PM Re: New Private Flood Insurance Rules Tesla
rlcarey Online
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Galveston, TX
They can do what they want because they are not the original lender or governed under the regulation. They can choose what they want to buy.
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#2216200 - 06/20/19 09:26 PM Re: New Private Flood Insurance Rules Tesla
Tesla Offline
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Right, but we can't sell to them unless we meet their requirements which exceed the federal requirements. Meaning- my original training to look for the compliance aid statement and you are done (with some exceptions) won't work for Fannie loans. Ugh!
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#2216272 - 06/21/19 07:17 PM Re: New Private Flood Insurance Rules Tesla
FL Compl Officer Offline
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Posts: 20
FL
Does anyone know if the compliance aid statement is going to be on the flood quote as well as the policy or just the policy? Just occurred to me that the majority of the time we only receive a quote prior to closing and then collect the premium at closing so if the statement is not on the quote it's not helping us much except for renewals. Thanks.

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#2216308 - 06/24/19 01:04 AM Re: New Private Flood Insurance Rules Tesla
David Dickinson Offline
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Central City, NE
FL Compl Officer: I don't know the answer to your question about the compliance aid statement being on something other than the policy. Good point. However, I want to bring up something else you said. Do you collect the premium at closing? If I understand correctly, you're paying for the borrower's flood insurance after the loan closes ("we collect the premium at closing") and then you purchase the policy. I don't believe that's sufficient.

Flood insurance is a requirement that must be met BEFORE you close the loan. §339.3(a) indicates a bank "…shall not make, increase, extend, or renew any designated loan unless the building or mobile home and any personal property securing the loan is covered by flood insurance for the term of the loan." IOW, the borrower has to purchase the flood insurance and THEN you close the loan.
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#2216389 - 06/25/19 03:10 PM Re: New Private Flood Insurance Rules Tesla
Reads Regs Offline
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Posts: 2,294
I agree Tesla that FNMA requires lenders to review the full private flood policy to ensure it is equivalent to an NFIP policy. You must also review the insurers rating. You can’t rely on the presence of the compliance aid wording. FHLMC made a similar statement in this recent bulletin. https://guide.freddiemac.com/app/guide/content/a_id/1003146
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#2216390 - 06/25/19 03:11 PM Re: New Private Flood Insurance Rules Tesla
Tesla Offline
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Thanks for the confirmation, Reads Regs! smile
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#2216570 - 06/26/19 08:44 PM Re: New Private Flood Insurance Rules Tesla
Mel in WA Offline
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Joined: Mar 2013
Posts: 1,193
Tesla - We sell a lot of our loans to Fannie. I have looked everywhere for this announcement.....can you please share a link?

Thanks!

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#2216580 - 06/26/19 09:49 PM Re: New Private Flood Insurance Rules Mel in WA
Reads Regs Offline
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#2216603 - 06/27/19 01:35 PM Re: New Private Flood Insurance Rules Tesla
J_Compliance Offline
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Joined: Apr 2018
Posts: 11
If we are accepting a private flood insurance policy and the outstanding loan balance and insurable value of the property is greater than $250,000 are we still able to require only $250,000 coverage on the private policy? For example, outstanding loan balance is $300,000 and insurable value is $400,000. If the policy is a private policy what would the minimum coverage amount be? $250,000 or $300,000? Thanks

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#2216610 - 06/27/19 02:02 PM Re: New Private Flood Insurance Rules Tesla
Adam Witmer Offline
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Joined: Sep 2010
Posts: 2,643
The minimum coverages for private policies are the same as those for the NFIP. Assuming that $250,000 is the lesser of the outstanding principal balance of the designated loan or the maximum limit of coverage available for the particular type of property under the Federal flood insurance statutes, than that is the amount of coverage the private policy needs.

That said, you can require more coverage as a matter of safety and soundness (assuming the amount required doesn't exceed what would actually be paid out/available), but aren't required to do so.
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All statements are my opinion, not those of my employer, and should not be taken as legal advice.
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#2216613 - 06/27/19 02:52 PM Re: New Private Flood Insurance Rules Tesla
midwestriver Offline
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Joined: May 2011
Posts: 37
Borrower has private flood WITH the compliance aid statement.

However, it is a Non-Admitted (Excess & Surplus Lines) carrier, and as such, has a disclaimer on the dec page:

"The insurer which has issued this insurance is not licensed by the Pennsylvania Insurance Department and is subject to limited regulation. The insurance is NOT covered by the Pennsylvania Property and Casualty Guaranty Association"

How can this be acceptable?

All the private flood I have seen is from a Non-Admitted (Excess & Surplus Lines) carrier.

Thanks in advance!

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#2216614 - 06/27/19 03:20 PM Re: New Private Flood Insurance Rules Tesla
NE Wx Forecast - Frosty Offline
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NE Wx Forecast - Frosty
Joined: Mar 2011
Posts: 442
SE, Nebraska
Midwestriver,
Someone more eloquent than I can chime in, but here's what I know about this issue.
"Non-Admitted" essentially means they are not in the State's 'club' of insurance providers backed up by the guarantee association you cited. So they don't pay into the insurance pot and so policies are not covered by State insurance if they go under. They should still be registered as such (surplus lines, etc), but the State law requires that folks get the disclosure, so they know the policy might be riskier in the event of a claim. One decent explanation is here: https://www.investopedia.com/terms/a/admitted-insurance.asp
Also, read this. It's a decent summary of the issue.
https://fas.org/sgp/crs/homesec/R45242.pdf

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#2216615 - 06/27/19 03:29 PM Re: New Private Flood Insurance Rules midwestriver
Adam Witmer Offline
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Posts: 2,643
Originally Posted By midwestriver
Borrower has private flood WITH the compliance aid statement.

However, it is a Non-Admitted (Excess & Surplus Lines) carrier, and as such, has a disclaimer on the dec page:

"The insurer which has issued this insurance is not licensed by the Pennsylvania Insurance Department and is subject to limited regulation. The insurance is NOT covered by the Pennsylvania Property and Casualty Guaranty Association"

How can this be acceptable?

It is acceptable because the insurance company is "not disapproved as a surplus lines insurer," which is one of the options under an acceptable insurance company under the definition of "private flood insurance."

From the final rule:
"(1) Is issued by an insurance company that is:
(i) Licensed, admitted, or otherwise approved to engage in the business of insurance by the insurance regulator of the State or jurisdiction in which the property to be insured is located; or

(ii) Recognized, or not disapproved, as a surplus lines insurer by the insurance regulator of the State or jurisdiction in which the property to be insured is located in the case of a policy of difference in conditions, multiple peril, all risk, or other blanket coverage insuring nonresidential commercial property;
"
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Adam Witmer, CRCM

All statements are my opinion, not those of my employer, and should not be taken as legal advice.
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#2216670 - 06/27/19 07:49 PM Re: New Private Flood Insurance Rules Tesla
J Van Horn Offline
Junior Member
Joined: Sep 2012
Posts: 25
Coppell, Texas
Also, just in case the property in question is residential, don't get stuck on the "insuring nonresidential commercial property" bit at the end of (ii). For those in doubt, regulators already addressed in commentary that a surplus lines insurer falls squarely in the "otherwise approved to engage" camp under (1)(i), relative to residential property.

See page 12 of 90 on the final rule (Published here: https://www.occ.gov/news-issuances/news-releases/2019/nr-ia-2019-15a.pdf)

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#2216727 - 06/28/19 04:15 PM Re: New Private Flood Insurance Rules Tesla
Bville Offline
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Bville
Joined: May 2001
Posts: 1,282
Out West
I checked two of the states in which we have branches and the Dept of Insurance for both states has a list of Surplus Lines Insurers that can do business in that state. I'm thinking it's easier to go to those lists than to try to understand the language on the policy. Hopefully I'm not missing something there.

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