Would appreciate input on how this is handled at other banks...

We received notice from our flood vendor that a building under construction is now located in a SFHA due to a map revision and the 45 day letter has been mailed to the borrower. Would you allow the borrower to continue to draw funds from the loan during the 45 day period or would you restrict additional draws until evidence of coverage is provided?

You cannot make, increase, renew or extend a designated loan without proper insurance coverage in place. The loan is now a designated loan and we would restrict any MIRE event without insurance.

Dan - thanks for your response.

This is an existing construction loan, and several draws were already made before the map revision. Since a draw against an existing line of credit is not a MIRE event, would you allow them to continue drawing on the line during the 45 day period?

Since a draw against an existing line of credit is not a MIRE event

A draw against the LOC would be a MIRE event. You are increasing (the I in MIRE) the loan amount so yes we would not allow any new advance until the proper flood insurance coverage was in place.

Search the threads using +construction +loans +flood +insurance and you will find numerous discussions on the requirements of flood insurance in connection with a construction loan.

Not trying to argue, just thinking about our own internal process here. So if a draw against a previously established LOC is a MIRE event, we would also need to send a written notice (telling the borrower whether or not flood insurance is available under the Act for the collateral securing the loan) for each and every draw then?

So someone has a HELOC with collateral located in a SFHA, they need to receive the written notice prior to making a draw since the draw is increasing the loan amount?

Or is the distinction here a non-revolving vs. revolving LOC?

Also, not trying to argue, just trying to understand...

The approved line amount is not being increased, only taking a draw on an existing open-ended line of credit within the amount that was approved. If you use a HELOC as an example, draws on the approved line amount after closing are not considered a triggering event (interagency Q&A, #35).

Is my original scenario considered a MIRE event because we had to initiate force placement due to the map revision?

If you have a designated loan then you cannot increase the current balance of the loan without proper flood insurance in place.

Burke - yes you should suspend advances under the terms of the HELOC agreement with proper notice the line has been suspended and yes you would need to send the notice that flood insurance is now needed and begin your force placement procedures.

N - If you do the search like I suggested you will find that for a construction loan you can close the loan without flood insurance but once the materials are delivered to the site you cannot make any advance until flood insurance is in place. If you do not get flood insurance at closing then when the first draw is requested you have to get flood insurance before making that draw and there will be a 30 day waiting period imposed for the flood insurance to be effective. Your borrow will have to wait 30 days to get their money.

Again the I in MIRE stands for increase. If you have a HELOC or construction loan with a $100,000 limit and it has a $10,000 balance and you make a $5,000 advance you just increased the designated loan to $15,000.

BTW...Q&A 35 addresses the need to get a new determination if a draw is made against an established LOC.

You might want to review Q&A 36.

Dan, my question was more in terms of a HELOC in a SFHA where insurance is already in place.

(i) Notice of special flood hazards and availability of Federal disaster relief assistance. When a member bank makes, increases, extends, or renews a loan secured by a building or a mobile home located or to be located in a special flood hazard area, the bank shall mail or deliver a written notice to the borrower and to the servicer in all cases whether or not flood insurance is available under the Act for the collateral securing the loan.

If we are saying that a draw is an increase, wouldn't we need to send the notice since the notice must be sent for every MIRE event?

If you already have insurance in place to cover the full line you don't need to do anything.

However, If you have a $50,000 HELOC and if you only have $10,000 in coverage and they request an advance to take the balance to $15,000 you have to get at least $15,000 in coverage before making that advance. If you get $15,000 in coverage and then they request an advance to $20,000 you have to get $20,000 in coverage before making the advance and so on for each advance.

The rule says you cannot make, increase, renew or extend a designated loan without proper flood insurance coverage being in place. If you get the $50,000 coverage at the account opening you have met the minimum coverage requirement. This is assuming of course the $50,000 is the lesser of the coverage requirements.

Dan




I referenced #35 because my question was regarding an established revolving line of credit. At the time of the closing the property was in a flood zone "x". The borrower had already drawn funds from the revolving line multiple times before we received notice of the map change. Last week, our life of loan servicer notified us that the property was remapped and is now is a flood zone "AE". As a result, we sent out the 45 day letter notifying them of the map change and that flood insurance is now required. Since the coverage will be obtained due to a map change, the waiting period for it to become effective is 1 day.

So, since we have to force place because of the map change, even though the revolving line amount is not being increased, any increase in the outstanding principal balance of the line would be considered a MIRE event because there is no flood policy currently in place. Correct? (just making sure I am interpreting your comments correctly)

Also, do you restrict draws on all HELOCs if you receive notice that the property has been newly mapped into a SFHA until proof of coverage is provided by the borrower?


Thanks for all the help!

Since the coverage will be obtained due to a map change, the waiting period for it to become effective is 1 day.

That is correct but day 1 will be the date the borrower purchases the policy.

any increase in the outstanding principal balance of the line would be considered a MIRE event because there is no flood policy currently in place. Correct?

That is correct. However if there is coverage in place and the increase in the principal balance would exceed that coverage then you would have to increase the coverage to meet the minimum regulatory requirements before making the advance.

do you restrict draws on all HELOCs if you receive notice that the property has been newly mapped into a SFHA until proof of coverage is provided by the borrower?

We would and we would send the proper notice advising them the line has been suspended until flood insurance is obtained at the same time we send them the Notice of special flood hazards and availability of Federal disaster relief assistance letter. I can only recall one time where we had to do this though.