1 BCAC and Connecticut Bankers Association April 1, 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 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

4 Biggert-Waters Flood Reform Act of 2012 (Continued) 4 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

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

6 Biggert-Waters Flood Reform Act of 2012 (Continued) 6 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 (March 29, 2013)

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

8 Biggert-Waters Flood Reform Act of 2012 (Continued) 8 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)

9 Homeowner Flood Insurance Affordability Act of 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

10 Homeowner Flood Insurance Affordability Act of 2014 (Continued) 10 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

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

12 Homeowner Flood Insurance Affordability Act of 2014 (Continued) 12 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

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

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

15 Homeowner Flood Insurance Affordability Act of 2014 (Continued) 15 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.

16 Homeowner Flood Insurance Affordability Act of 2014 (Continued) 16 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.

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

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

19 Homeowner Flood Insurance Affordability Act of 2014 (Continued) 19 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)

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) 23 Flood Zone Discrepancies Policy vs. Standard Flood Hazard Determination Form Use of more hazardous flood zone Effect of grandfathering

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

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 28 Statutes and Regulations Part 339 – Loans in Areas Having Special Flood Hazards (FDIC’s implementing regulation) Joint Notice of Proposed Rulemaking on Loans in Areas Having Special Flood Hazards October 21, Biggert-Waters Flood Insurance Reform Act of Consolidated Appropriations Act – Homeowners Flood Insurance Affordability Act of

29 Resources (Continued)

30 Resources (Continued) FEMA Guidance on NFIP FEMA Guidance on Flood Insurance Reform Standard Flood Hazard Determination Form library/assets/documents/225?id=1394 FEMA – April 16, 2008 – W Procedures Relating to Flood Zone Discrepancies NFIP Flood Insurance Manual, effective June 1,