We have a customer that is purchasing a mobile home as a title good. We are just taking the mobile as collateral, no land. Do we still have to do a flood determination since the customer is not attaching the home to real property and they are not surrendering the title to the state?

Yes. He has to put it somewhere. You need to find out where it is going to be located and do a flood determination. It is no different than a typical mobile home loan in a moble home park in which the space is rented. You have no land in one of those deals either.

Thank you. I appreciate your help.

I need a little more clarification on the answer to this question. Page 26 of the Mandatory Purchase of Flood Insurance Book published by FEMA states that in order "to be eligible for coverage in an SFHA, a manufactured home must be on a permanent foundation and meet specific anchoring requirements." It's true that there is no obligation that the lender also take the land as collateral, but it does appear that flood insurance cannot be obtained unless the mobile home is permanently affixed. So is the correct answer to the question that the lender needs to do a determination even if the mobile home is not affixed, but flood insurance will not be available? If so, what Notice would you give the borrower? Further comment...also on page 26, it seems to state that if the lender does not know where the mobile home will be placed at the time of closing, the lender does not have the obligation to do a determination until the lender learns where the mobile home will be located. Thoughts?

You are correct. A flood determination is required, but the mobile home might not be insurable. Myself, I would not make the loan on those conditions (either uninsurable or I didn't know where the mobile home was going to be) unless the borrower was strong enough to suffer a total loss on the mobile home and still pay the loan off.

You may want to pay attention to the following sentence on page 26:



If the mobile home is or will be located in a SFHA you are required to obtain insurance. If the MH is not anchored, then IMO you must require the home to be anchored in order to meet purchase elgibility or you cannot make the loan. Otherwise you will be in violation of the Flood rules.

I agree with Dan. You MUST have flood insurance. If it's not tied down, it must be anchored so they can purchase the insurance.

It's not logical to argue that you can't purchase insurance because the MH isn't anchored. This doesn't exempt the collateral.

Agree with Dan and David. Please don't confuse yourself with permanently attached being what HUD would consider permanently attached to qualify for their financing. "Permanently attached" for flood purposes simply means it is generally, at a minimum, on piers and the tie-down straps are in place.

I had never thought about this in the way Dan and David described, i.e., not being permitted to make a loan secured by a mobile home located in a SFHA unless it is permanently affixed because doing so would violate the flood laws. I'd like to pursue this just a little further. In OTS Examiner guidelines (http://www.ots.treas.gov/docs/r.cfm?48703.pdf)in Section VIII (Page 27), in the answer to Question No. 2, it states that "in the case of loan transactions secured by mobile homes not located on a permanent foundation, the agencies note that such 'home only' transactions are excluded from the definition of mobile home and the notice requirements would not apply to those transactions." It goes on to say that the lender should advise the borrower, however, that if the mobile home is ever permanently affixed in the future, flood insurance would be required. This certainly implies that it would not be viewed as a violation to make the loan on an unaffixed mobile home located in a SFHA. Thoughts?

That's very interesting. I was not aware the OTS took this stance. I have a letter from the FDIC-Washington, D.C.(written to me personally - not a formal guidance publication) that states:

Borrowers must provide tie downs if necessary to obtain flood insurance if a mobile home is located within a SFHA.

I'm not aware that the Act touches this topic. Unfortunately, there is no regulation to interpret these requirements, so we're left with each agency coming up with their own interpretations. If you regulated by the OTS, you can most likely rest on this guidance, but I don't believe the FRB, OCC or FDIC will let this slide (I've talked to OCC, Washington level people about this and know they agree with what we are stating).

Also, think about this from a S&S standpoint. You have collateral located in a SFHA yet you aren't going to require flood insurance?

David,

I totally agree with you.

I did find this in the FDIC Compliance Handbook and I think that you might be able to interpret it the same way:

Flood Insurance Requirements for Lending
Institutions

Basic Requirement

Flood insurance is required for the term of the loan on
buildings or mobile homes when all three of the following
factors are present:

• The institution makes, increases, extends, or renews any
loan(s) (commercial or consumer) secured by improved
real estate or a mobile home that is affixed to a permanent
foundation (“security property”);

• The property securing the loan is located or will be located
in an SFHA as identified by FEMA; and

• The community participates in the NFIP.

In the case of mobile homes, the criteria for coverage turns on
whether the mobile home is affixed to a permanent foundation.

Actually, we are regulated by OCC, not OTS, but I don't have anything specific from the OCC, and I assumed they would probably look at this the same way OTS appears to. But it sounds from your responses that that may not be correct. So I really appreciate your input in clarifying this for me. Thanks.

Sorry to bring this question back up, but I have another one that goes with this loan.

Does the flood determination have to be done before our loan closes? The reason I am asking, is because he has a piece of property he is putting the mobile home on, but the county has not given him an address yet. Would I have to require a survey for this titled good loan or can I wait until the county assigns it an address? This mobile home is going to be located in Texas north of the Dallas/Ft. Worth area. Due to the overwhelming rain and flooding, the ground is so saturated, the mobile home can't be moved yet.

You must do the determination, even if it means having it done by the legal description, once you learn the location where the MH will be located.

So if a person is buying a manufactured home from a dealer, and the applicant knows here the home is going to be placed, then flood insurance needs to be in place at closing? We can do a determination on the location where it will be placed, but until it's actually "placed" on the lot, insurance agents won't write the policy for us. Is this correct? In other words, how can we get a policy on a home that is at the dealer's place of business that is not "permanently" placed until after loan closing??

I would rely on the Interagency Questions and Answers Regarding Flood Insurance - July 23, 1997 A on this one:

Q. Lenders making loans on mobile homes may not always know where the home is to be located until just
prior to, or sometimes after, the time of loan closing. How is the notice requirement applied in these situations?

Answer: The notice requirement can be met by lenders in mobile home loan transactions if notice is provided
to the borrower as soon as practicable after determination that the mobile home will be
located in an SFHA and, if possible, before completion of the loan transaction. In circumstances
where time constraints can be anticipated, regulated lenders should use their best efforts to provide
adequate notice of flood hazards to borrowers at the earliest possible time.

In the case of loan transactions secured by mobile homes not located on a permanent foundation,
the agencies note that such “home only” transactions are excluded from the definition of mobile
home and the notice requirements would not apply to these transactions. However, as indicated
in the preamble to the Regulation, the agencies encourage a lender to advise the borrower that if
the mobile home is later located on a permanent foundation in an SFHA, flood insurance will be
required. If the lender, when notified of the location of the mobile home subsequent to the loan
closing, determines that it has been placed on a permanent foundation and is located in an SFHA
in which flood insurance is available under the Act, flood insurance coverage becomes mandatory
and appropriate notice must be given to the borrower under those provisions. If the borrower
fails to purchase flood insurance coverage within 45 days after notification, the lender must force
place the insurance.

In regard to a manufactured home (MH), we have a case where the MH will be not be placed on a permanent foundation but tied down. The insurance agent is telling us the NFIP can't rate the policy until after it's placed and an elevation certificate (EC) is obtained, so they either have to wait for the EC or rate the policy at the most expensive rate. EC can't be completed supposedly for 60 days after placement due to scheduling. Can't they submit the flood application as the building is under construction and rate it based on drawings and/or plans?

A building does not have to be under construction in order for the agent to order a provisionally rated policy if an elevation certificate is currently not available..