Flood Insurance Updates: Biggert-Waters & Homeowner Flood Insurance Affordability Acts

1. BCAC and Connecticut Bankers Association April 1, 2015 - Flood Insurance Updates - Presented by: Samuel W. Shaw, Review Examiner Robert Ellis, Senior Compliance Examiner

2. Objectives • Provide background, information and updates on: • Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12) • Homeowner Flood Insurance Affordability Act of 2014 (HFIA-14) • Common compliance pitfalls or challenges • Compliance Management System (CMS) as applied to Flood Insurance compliance • Questions and answers • Resources 2

3. Biggert-Waters Flood Reform Act of 2012 • Signed into law on July 6, 2012 • Extends the NFIP to September 30, 2017 • Provides financial reforms to NFIP • Phases out subsidies (significant premium rate increases for many consumers) • Mandates flood map update • Creates reserve fund • Makes changes to mandatory purchase requirements 3

4. Biggert-Waters Flood Reform Act of 2012 (Continued) • Two provisions of BW-12 became effective • July 6, 2012: • Civil Money Penalties (CMPs) • Increased from $385 to $2,000 per violation • Annual penalty cap removed (potential for unlimited, mandatory CMPs for pattern and practice violations) • Force placement provisions 4

5. Biggert-Waters Flood Reform Act of 2012 (Continued) • Pattern or Practice violations of the following sections of the Flood Regulation are subject to the assessment of mandatory CMPs: • § 339.3 Requirement to purchase flood insurance where available • § 339.5 Escrow requirement • § 339.7 Forced placement of flood insurance • § 339.9 Notice of special flood hazards and availability of federal disaster relief assistance 5

6. Biggert-Waters Flood Reform Act of 2012 (Continued) • Force placement provisions • Termination & Refund – within 30 days of receipt of confirmation of borrower’s existing policy • Require a lender or servicer to accept as confirmation of a borrower’s existing flood insurance policy a declarations page that includes: • Policy number • Identity and contact info for insurer or agent • FIL 14-2013 (March 29, 2013) 6

7. Biggert-Waters Flood Reform Act of 2012 (Continued) • BW-12 provisions requiring implementing regulations to become effective: • Private Flood Insurance • Escrow of Flood Insurance payments • Amended by HFIA-14 7

8. Biggert-Waters Flood Reform Act of 2012 (Continued) • Other BW-12 provisions • Increased maximum limit available for non-condo residential buildings designed for use for five or more families – “Other Residential Buildings” • Maximum building coverage increased from $250,000 to $500,000 per building • Joint Notice of Proposed Rulemaking, Loans in Areas Having Special Flood Hazards, • October 30, 2013 (78 FR 65108) 8

9. Homeowner Flood Insurance Affordability Act of 2014 • Summary of Key Features • Limits annual flood insurance premium rate increases, imposes an annual surcharge, and refunds excess premiums paid under BW-12 • Restores “grandfathered” status to certain properties • Permits assumption of an NFIP policy upon sale of a home • Introduces optional high-deductible policies • Requires escrow of FI premiums on a “tripwire” approach • Excludes detached structures on residential property from FI requirements 9

10. Homeowner Flood Insurance Affordability Act of 2014 (Continued) • Flood Insurance Premium Rate Increases • Limits annual rate increases for primary residential properties • Annual rate increases for secondary homes and non-residential properties unchanged • Refunds to policyholders in the NFIP of excess premiums paid under BW-12 10

11. Homeowner Flood Insurance Affordability Act of 2014 (Continued) • Grandfathered Properties • Restores grandfathered status to certain properties • Grandfathered status attaches to the property • Grandfathered rates subject to annual increases 11

12. Homeowner Flood Insurance Affordability Act of 2014 (Continued) • Sales of Property • Purchaser of a home covered by an NFIP policy can assume the existing policy • Remainder of the term will be at existing subsidized rate • Rates also subject to annual increases 12

13. Homeowner Flood Insurance Affordability Act of 2014 (Continued) • Property Newly Mapped in Special Flood Hazard Area • Policyholders pay preferred risk premium rate for first year • Upon renewal, rates subject to annual increases 13

14. Homeowner Flood Insurance Affordability Act of 2014 (Continued) • High Deductible Policies • FEMA to offer optional high deductible policies • Limited to residential properties • Maximum deductible of $10,000 • Requires disclosure to policy applicant 14

15. Homeowner Flood Insurance Affordability Act of 2014 (Continued) • Escrow Requirements • Would be required to escrow flood insurance premiums and fees for any loan secured by residential improved real estate or a mobile home that is: • made, • increased, • extended, • renewed, or • refinanced • on or after January 1, 2016, unless an exception applies. • This requirement is effective when the Agencies issue implementing regulations. 15

16. Homeowner Flood Insurance Affordability Act of 2014 (Continued) • Escrow Requirements • Would not be required to escrow premiums and fees if: • Your institution has total assets of less than $1 billion; and • On or before July 6, 2012, your institution: • Was not required under Federal or State law to escrow taxes or insurance for the term of a loan; and • Did not have a policy to require escrow of taxes and insurance. 16

17. Homeowner Flood Insurance Affordability Act of 2014 (Continued) • Escrow Requirements • Expanded exemptions to include: • Junior liens • Condo loans • Business loans • HELOCs • Nonperforming loans • Loans with maturities < 1 year 17

18. Homeowner Flood Insurance Affordability Act of 2014 (Continued) • Exclusion of Detached Structures • Effective immediately (March 21, 2014) • Amends RESPA to require a disclosure 18

19. Homeowner Flood Insurance Affordability Act of 2014 (Continued) • FEMA Flood Insurance Advocate • Assists current and prospective policyholders • Answers questions about flood mapping and insurance rates • Joint Notice of Proposed Rulemaking, Loans in Areas Having Special Flood Hazards, October 30, 2014 (79 FR 64518) 19

20. Common Pitfalls and Challenges • Force placement of flood insurance • Map changes • Flood zone discrepancies • Miscellaneous 20

21. Common Pitfalls and Challenges (Continued) • Force Placement of Flood Insurance • Notify borrower of requirement to obtain coverage • Force place coverage if borrower does not obtain policy within 45 days of notification • Renewing/Refinancing a loan with force placed coverage 21

22. Common Pitfalls and Challenges (Continued) • Map Changes • Life of loan monitoring • Notifying the borrower of map changes • Preferred Risk Policies 22

23. Common Pitfalls and Challenges (Continued) • Flood Zone Discrepancies • Policy vs. Standard Flood Hazard Determination Form • Use of more hazardous flood zone • Effect of grandfathering 23

24. Common Pitfalls and Challenges (Continued) • Miscellaneous • Notice to borrower (Q&A # 79) • Proof of coverage • Construction loans (Q&As 21 and 22) 24

25. Flood Insurance – Compliance Management System • Board and Management Oversight • Compliance Program • Policies and Procedures • Monitoring 25

26. Flood Insurance – Compliance Management System (Continued) • Compliance Program (Continued) • Training • Audit Function 26

27. Questions? Thank you! 27

28. Resources Statutes and Regulations • Part 339 – Loans in Areas Having Special Flood Hazards (FDIC’s • implementing regulation) http://www.fdic.gov/regulations/laws/rules/2000-6100.html • Joint Notice of Proposed Rulemaking on Loans in Areas Having Special • Flood Hazards October 21, 2013 http://www.fdic.gov/news/news/financial/2013/fil13048.html • Biggert-Waters Flood Insurance Reform Act of 2012 http://www.gpo.gov/fdsys/pkg/BILLS-112hr4348enr/pdf/BILLS-112hr4348enr.pdf • Consolidated Appropriations Act – 2014 • http://beta.congress.gov/113/bills/hr3547/BILLS-113hr3547enr.pdf • Homeowners Flood Insurance Affordability Act of 2014 http://www.gpo.gov/fdsys/pkg/PLAW-113publ89/pdf/PLAW-113publ89.pdf 28

29. Resources (Continued) FDIC and Interagency Guidance • July 21, 2009 Questions and Answers • http://www.fdic.gov/news/news/financial/2009/fil09042.html • October 2011 Q&A’s # 9 and # 61 www.fdic.gov/news/news/press/2011/pr11163.html • FIL 14-2013 – March 29, 2013 Interagency Statement on the • Impact of Biggert-Waters Act http://www.fdic.gov/news/news/financial/2013/fil13014.html • FDIC Press Release – December 2013 Technical Assistance Videos • on Flood Insurance http://www.fdic.gov/news/news/press/2013/pr13110.html

30. Resources (Continued) FEMA Guidance on NFIP • FEMA Guidance on Flood Insurance Reform http://www.fema.gov/flood-insurance-reform • Standard Flood Hazard Determination Form http://www.fema.gov/media- library/assets/documents/225?id=1394 • FEMA – April 16, 2008 – W-08021 Procedures Relating to Flood • Zone Discrepancies http://nfipiservice.com/pdf/bulletin/w-08021.pdf • NFIP Flood Insurance Manual, effective June 1, 2014 http://www.fema.gov/media-library/assets/documents/93344 30