You might expect our advice would be to NOT get mired down in the details of compliance, but, for flood requirements, it is just the opposite! When you are struggling with a question about obtaining a flood hazard check, remember the MIRE notice rule, that is Make-Increase-Renew-Extend.
Flood Law Background
The National Flood Insurance Act was passed in 1968, the result of continued flooding along the Mississippi River. It required local communities to adopt and enforce floodplain management regulations to be eligible for the National Flood Insurance Program, and its goal was threefold:
- Ultimately reduce federal expenditures for flood-related disaster control.
- Reduce flood damages through better state and local floodplain management.
- Better indemnify individuals for flood losses.
The Flood Disaster Protection Act of 1973 added requirements, including mandatory insurance on all grants and loans on buildings in SFHAs (Special Flood Hazard Areas). In the mid-1990s, reform legislation increased compliance by mortgage lenders; increased the amount of coverage; and required FEMA to update its flood hazard map inventory at least every five years. There have been additional changes to flood requirements over the past 20 years, and you can find them detailed on the Federal Emergency Management Agency (FEMA) website.
The MIRE Rule
If the lender Makes, Increases, Renews or Extends (MIRE) a covered loan, the lender must comply with the flood rules – including force placement, if necessary.
What is a covered loan? A loan secured by a building or mobile home which is located or to be located in a special flood hazard area (SFHA), in which flood insurance is available under the Act. There are limited exclusions, and you should become familiar with the FEMA flood rules.
Of course, you can’t be sure a property securing a loan would need flood insurance unless you have conducted a flood hazard check. So, loans to be secured by a building or mobile home must evidence that a flood check was conducted, and the Standard Flood Hazard Determination Form (SFHDF) must be in the file to document the results of the flood check.
Your compliance procedures should include a process to check the location of all covered properties offered as collateral. If the property will not be located in a SFHA, the SFHDF can be completed and added to the file documentation without further action.
If the property securing the loan will be located in a SFHA, the SFHDF must be completed to reflect that fact, and notice must be provided to the borrowers at a time reasonable for them to obtain any required flood insurance coverage BEFORE the loan closes. Failure to provide adequate notice or not obtain the flood insurance BEFORE the loan closes is a violation of law.
So, remember, when it comes to flood compliance – Get “MIREd” down! Any time a covered loan is made, increased, renewed, or extended, make sure the flood insurance compliance requirements are covered!
Around the Industry:
CFPB published its Supervisory Highlights, Issue No. 16 (Summer 2017), with findings in the areas of debt collection; mortgage servicing; mortgage origination; service providers; and fair lending.
Compliance professionals know that a well-documented and board-approved fair lending CMS is the foundation of any effective fair lending risk management program. How does yours measure up? Find out more here.