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#2047959 - 11/04/15 04:00 PM One Flood Determination cover multiple loans?
jonus Offline
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jonus
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If we have a customer who is getting multiple loans, but using the same property as collateral for all loans, can one flood determination be pulled for that property and be used to cover all loans. Asking this with the assumption that the loans are all done at the same time.
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Flood Compliance
#2047974 - 11/04/15 04:44 PM Re: One Flood Determination cover multiple loans? jonus
David Dickinson Offline
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From a regulatory standpoint - yes. You can rely on a rely on a previous determination for subsequent loans if the 3 conditions are met:
1. On a SFHDF,
2. Map referenced is current, and
3. within 7 years.

So, you have 1 SFHDF for loan #1 and the other loans meet this criteria.

From a contractual standpoint, check with your vendor. They provide Life of Loan services, but probably not "life of property" services. Therefore, is their guarantee going to cover multiple loans although you only paid for one SFHDF?
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#2047976 - 11/04/15 04:51 PM Re: One Flood Determination cover multiple loans? jonus
Kathleen O. Blanchard Offline

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Definitely check the contract because in my prior lives, we negotiated "life of relationship" for commercial loans because of the ongoing nature of the liens on real estate across multiple loans. The vendors tracked until we said stop.
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#2048324 - 11/05/15 07:59 PM Re: One Flood Determination cover multiple loans? Kathleen O. Blanchard
jonus Offline
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That's exactly what I was wondering...thanks!
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#2048381 - 11/05/15 10:59 PM Re: One Flood Determination cover multiple loans? jonus
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Make sure your servicing area has a process in place to ID any flood determinations that cover multiple loans - otherwise you may end up with the LOL coverage cancelled when the first loan pays off.
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#2049157 - 11/10/15 09:44 PM Re: One Flood Determination cover multiple loans? jonus
CMLComp Offline
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David - my understanding was that existing determinations can be used (if those 3 conditions are met) when increasing, extending or renewing a loan, but that this rule does not apply when a new loan is made (Mandatory Purchase of Flood Insurance Guidelines). Has subsequent guidance revised this stance, and if so, does that only apply to loans made to the same borrower or could determinations completed on a single property securing multiple loans in a shared relationship (multiple borrowing entities involved in various related transactions, but not necessarily the same borrower/combination of borrowers on each loan)?

I'd greatly appreciate any source document or guidance you can provide, thank you!

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#2049167 - 11/10/15 10:01 PM Re: One Flood Determination cover multiple loans? jonus
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68. May a lender rely on a previous determination for a refinancing or assumption of a loan or multiple loans to the same borrower secured by the same property?

Answer: It depends. Section 528 of the Act, 42 U.S.C. 4104b(e), permits a lender to rely on a previous flood determination using the SFHDF when it is increasing, extending, renewing, or purchasing a loan secured by a building or a mobile home. Under the Act, the “making” of a loan is not listed as a permissible event that permits a lender to rely on a previous determination. When the loan involves a refinancing or assumption by the same lender who obtained the original flood determination on the same property, the lender may rely on the previous determination only if the original determination was made not more than seven years before the date of the transaction, the basis for the determination was set forth on the SFHDF, and there were no map revisions or updates affecting the security property since the original determination was made. A loan refinancing or assumption made by a lender different from the one who obtained the original determination constitutes a new loan, thereby requiring a new determination. Further, if the same lender makes multiple loans to the same borrower secured by the same improved real estate, the lender may rely on its previous determination if the original determination was made not more than seven years before the date of the transaction, the basis for the determination was set forth on the SFHDF, and there were no map revisions or updates affecting the security property since the original determination was made.
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#2049168 - 11/10/15 10:02 PM Re: One Flood Determination cover multiple loans? jonus
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#2049236 - 11/12/15 12:40 AM Re: One Flood Determination cover multiple loans? jonus
David Dickinson Offline
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CML: What you referenced were the Guidelines, which were never accurate on this topic and have now been rescinded. What Randy referenced is the FAQ's, which are a little hard to follow. The FAQ states in one place:
Under the Act, the “making” of a loan is not listed as a permissible event that permits a lender to rely on a previous determination.
Bu then it says, you can make a "refinancing . . . the lender may rely on the previous determination". Seems like a contradiction and there's obvious confusion.

It also says "Further, if the same lender makes multiple loans to the same borrower secured by the same improved real estate, the lender may rely on its previous determination if the original determination . . ." (listing the 3 criteria). There's your plain english answer, which I stated without all of the detailed support that Randy gave you.

We have an article at our website entitled "Relying on a Previous SFHDF" that explains this in detail. You can find it here:
http://www.bankerscompliance.com/compliance-resources/free-downloads.htm
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#2050983 - 11/23/15 07:24 PM Re: One Flood Determination cover multiple loans? jonus
CMLComp Offline
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Thanks David and Randy, that information is very helpful. Based on the Q&A alone I was still concerned about our ability to rely on an existing determination for a subsequent transaction to a related entity when the original determination was ordered for a different loan/borrower, however the commentary to the 1996 seems to indicate that any determination ordered on a given property can be used by a lender for any subsequent transaction involving that property, regardless of borrower, business line, etc., would you agree?

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#2054071 - 12/14/15 08:16 PM Re: One Flood Determination cover multiple loans? jonus
benda Offline
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Continuing on this line of discussion, a sister bank of ours was recently examined and they had one loan for $20,000.00 where the property was in a flood zone, flood insurance was obtained for $23,000.00 and was all around sufficient. A year later the borrower decides to buy a car for $20,000.00 and cross-collateralized it with the existing property, increasing the outstanding loans to $40,000.00. The examiner is stating that flood insurance needs to be increased to cover the second loan because there is room within the $250,000.00 Maximum NFIP amount available to increase it. I disagree with this but would like confirmation because they are now getting civil money penalties.

Second question - We have loan for $500,000.00 and the commercial property is in a flood zone. We have the maximum amount of insurance of $500,000.00 and we have this loan crossed with approx. 10 other loan, totaling $5,000,000.00. Along the same line of questioning above, are we sufficiently covered?

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#2054077 - 12/14/15 08:28 PM Re: One Flood Determination cover multiple loans? jonus
rlcarey Online
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The examiners are correct in the first scenario. You now have $40,000 in outstanding debt secured by the property in a SFHA. If the insurable value of the building(s) on that property is greater than $40,000, then the lesser of the three tests is the outstanding loans.

If the only building in a SFHA within all of the cross collateralize loans is insured up to the NFIP maximum, then you are covered.
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#2054091 - 12/14/15 08:54 PM Re: One Flood Determination cover multiple loans? jonus
benda Offline
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I agree on your assessment on the first scenario, only if the insurable value is greater than the original loan amount. Clearly I used very low values for my example.

Thank you for your help.

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#2054139 - 12/15/15 01:52 PM Re: One Flood Determination cover multiple loans? jonus
JSS Offline
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Speaking from experience when a single life-of loan flood determination is used for multiple loans it could present a tracking problem for you and/or your flood vender. For example it's not uncommon for the borrower to pay off just one of the loans. When a payoff occurs its our practice to electronically notify our flood vender to cancel the determination tied to that loan number. So depending on your procedures unless all loan numbers are linked by you and/or your flood vender to the determination of record you may unknowingly terminate the life of loan tracking for all other active loans. Just something to consider.

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#2054178 - 12/15/15 03:26 PM Re: One Flood Determination cover multiple loans? jonus
David Dickinson Offline
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Salinas brings up a good point. Let me add: You're paying for "life of loan", not "life of property". Is your vendor (contract) okay with you using the same SFHDF for several loans but only paying for 1 determination? If you outsource determinations, the law requires them to be guaranteed. I'll bet (assumption on my part) that the vendor doesn't guaranty their SFHDF for multiple loans.
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#2054180 - 12/15/15 03:34 PM Re: One Flood Determination cover multiple loans? jonus
Kathleen O. Blanchard Offline

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David, that depends upon the contract with the vendor. I have used "life of relationship" for commercial loans. They covered until we told them we no longer had any loans secured by the property.
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#2054184 - 12/15/15 03:42 PM Re: One Flood Determination cover multiple loans? jonus
David Dickinson Offline
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I agree. That's why my 3rd sentence said "Is your vendor (contract) okay with . . . "
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#2068725 - 03/11/16 07:20 PM Re: One Flood Determination cover multiple loans? jonus
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Loan was made in August 2015 with life of loan flood monitoring obtained and determination was on SFHDF. Property was not in a flood zone. Borrower returns 7 months later in March 2016 for an additional loan secured by the same property. Bank has not been notified of a flood map revision by the flood monitoring vendor. Based on the interagency q&a below, may we rely on the existing flood determination?

Proposed question and answer 61
(final question and answer 68)
addressed the circumstances when a
lender may rely on a previous special
flood hazard determination. The
Agencies received several comments
concerning this question and answer.
One commenter suggested that, if a
lender maintains life-of-loan tracking,
there is little benefit in obtaining a new
special flood hazard determination
when renewing, refinancing, or
extending a loan if the original
determination is older than seven years.
The authority to rely on a previous
determination made within the previous
seven years if that determination meets
certain requirements is statutory (42
U.S.C. 4104b(e)). Accordingly, seven
years is the maximum period during
which a lender may rely on a previous
determination, even if the lender has
maintained life-of-loan tracking.
Two commenters suggested that the
proposed question and answer should
also address whether a lender may rely
on one determination if a lender makes
multiple loans to one borrower, all of
which are secured by the same
improved property. For example, it
should address when a lender may rely
on a single determination when making
a home purchase loan and a subsequent
home equity loan, both secured by the
same residence. The situation described
by the commenters is similar to the
example of a refinancing or assumption
by a lender, which obtained the original
flood determination on the same
security property. In that case, the
question and answer states that the
lender may rely on the original
determination if the original
determination was made not more than
seven years before the date of the
transaction, the basis of the
determination was set forth on the
SFHDF, and there were no map
revisions or updates affecting the
security property since the original
determination was made. The Agencies
based this interpretation on the premise
that a refinancing would be the
functional equivalent of either a loan
extension or renewal. Subsequent loans
to the same borrower secured by the
same improved real estate could be
deemed to be the functional equivalent
of increasing the amount of the original
loan. Therefore, if the original
determination was made not more than
seven years before the date of the
transaction, the basis of the
determination was set forth on the
SFHDF, and there were no map
revisions or updates affecting the
security property since the original
determination was made, a lender may
similarly rely on a previous
determination if the lender makes
multiple loans that are secured by the
same building or mobile home. The
Agencies have revised the proposed
question and answer to also address
subsequent loans by the same lender
secured by the same improved real
estate.

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#2068735 - 03/11/16 07:38 PM Re: One Flood Determination cover multiple loans? jonus
Dan Persfull Offline
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Bloomington, IN
Bank has not been notified of a flood map revision by the flood monitoring vendor. Based on the interagency q&a below, may we rely on the existing flood determination?

As has been quoted many times you have to look at the contract with your vendor. Do they notify you each time there is a map change and in what time frame do they notify you of that map change, or do they only notify you if the map change affects the status of the property?

If the map officially changed on 1/15/16 and you made a loan on 1/20/16 using the existing determination you have a violation.

The following link is updated daily.

http://www.fema.gov/national-flood-insurance-program-community-status-book
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