This may seem like a Flood 101 question, but I'm a new Compliance Officer with a strong ops background, and not a lot of lending experience.

We have an internal discussion right now between a lender and our loan admin manager. We have a borrower that purchased flood insurance, but it was not a sufficient amount. The insurance was in place when the borrower went to the title company to close. When our internal loan admin got back all of documentation to fund the loan, she caught it was the wrong amount. The lender contacted the borrower, the correct amount was obtained, and then the loan was funded.

The million dollar question(s)... Was this a flood violation? By my understanding regulation stipulates insurance must be in place by loan closing. Is closing when the docs are signed or when the loan is funded? Nobody here can agree, so thought I'd get some other expert feedback. Thanks for the help!

Closing is when the documents are signed unless your state law stipulates differently.

The million dollar question(s)... Was this a flood violation? - Yes.

That's what I thought.

Thanks!

Oh my, this is a great post... we have always required flood insurance to be in effect the date the loan "closes" which in our world has always been the date it "funded."

So am I reading here, that if the borrowers sign days before "funding" that the flood insurance must be in effect on signing day? And if multiple signors, who sign on different days, would it be the date of the first signor or the last?

Loan Exception: If the initial purchase of new, additional, or increased flood insurance coverage is in connection with making, increasing, extending, or renewing a loan secured by the insured property (for example, a mortgage loan) – and if the NFIP receives the Application Form or endorsement request and full amount due within specified timeframes as noted in Table 10 – then no waiting period applies and coverage becomes effective as of the time of the loan closing.

Anything else, such as a policy not effective until the funding date, requires a 30-day wait period. Even if the insurance agent orders the policy without a 30 day wait period, this would be uncovered in the event of a flood within the first 30 days and coverage would be denied.

Thank you Randy. We definitely have the loan exception with no waiting period for MIRE events. On the flood policy we receive, it shows the effective date of the day our loans fund, not the day the client signs. That's the part I'm unclear about...?

If the loan closed on the 5th but doesn't fund until the 9th and if the flood insurance policy was not effective as of the 5th then you closed a designated loan without flood insurance being in place and it would be a violation.

Thanks Dan. I'm sorry I'm being dense, I just struggle with calling signing date the "closing date" (for non-TRID loans.) For business purpose loans, we have always considered loans "closed" on the day it funds, as multiple borrowers may sign on various days, and/or may be using remote escrow/notaries, etc.. So would it be expected that when one borrower signs, that's "closing date" vs. when all borrowers have signed?

Loan consummation is a State law issue and has nothing to do when a lender might fund a loan. When people refer to closing, they are referring to consummation. At which point the loan is signed sealed and delivered. Who really cares when you disburse the funds.

Funding date is also typically "settlement date" which is also the date our DOTs are recorded. To accommodate borrowers schedules, we have often had one borrower sign days/week before the second borrower signs. I agree "loan consummation" is defined in State law. We have always used "settlement date/closing date/funding date" as the same, and examiners have never questioned that date as our effective date on flood policies. But I know, that doesn't mean they won't the next time.

Appreciate the feedback!

To accommodate borrowers schedules, we have often had one borrower sign days/week before the second borrower signs.

I would opine (and again based on state law) that the transaction is not closed (consummated) until all required signers have signed the legal agreement. So in this case I think you would be within the regulation as long as the flood policy's effective date was on or before the date of the last signature on the legal agreement. But IMHO the funding date should be taken out of the equation.

Thank you Dan. Due to researching more after this discussion, I have just found out that Washington is a "dry funding" state. Crazy I didn't know this after nearly two decades of compliance! But this completely clarifies my confusion for "closing date" for the Flood regs, as title transfer does not occur at signing/consummation in WA.

I was directed to this, on page 22 of the Notice for Comment on proposed changes to the Interagency Q&As:

Lastly, proposed new Q&A Coverage 3 would explain when mandatory flood insurance on a designated loan needs to be in place during the closing process. The proposed answer would clarify that a lender should use the loan “closing date” to determine the date by which flood insurance should be in place for a designated loan. FEMA deems the “closing date” as the date the ownership of the property transfers to the new owner based on State law. The proposed answer further explains the difference between “wet funding” and “dry funding” States and how it impacts the “closing date” for purposes of flood insurance.