Flood Servicer Notice to FEMA
Adam uses this Compliance Clip (video) to explain a flood servicer's requirements to notify FEMA. The process is actually simpler than you might think.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to talk about the Servicer Notice to FEMA. Our question here is: How do most financial institutions comply with 12 CFR 22.10 for notifying FEMA? This was a question I received just a while back.
What the rules say, the Flood Insurance rules, is they require any MIRE event to trigger a notice to FEMA or its designee. What this means is any time you have a loan that's secured by a property that's in a high-risk flood zone - so you've got a property, a house, some sort of structure that's in a high-risk flood zone - and you MIRE, which means you Make, Increase, Renew or Extend a loan, what the rules say is then you as a lender is required to send a notice to FEMA that you have this property in a high-risk flood zone. It does say you can send it to FEMA or the designee, we'll talk about that in just a minute.
The second part of this rule, it's actually 12 CFR 22.10(b) also requires notice to FEMA or its designee for a transfer of servicing. So when you own a loan but you transfer the servicing, the FEMA or its designee must be notified. So how do most institutions comply with this rule?
They do this by making sure that the “loss payee" on the borrower's flood insurance policy is listed with their name on it. So the bottom line is you have to notify either FEMA or the designee and the rules say that the designee is the insurance agent that has that flood policy. So if your borrower has a flood policy or you have a force-placed policy, as long as you are the loss payee on that policy, you've notified the designee who is then in turn has notified FEMA. So that's how this process works.
For servicing, when servicing is sold, the seller is the one responsible to notify the insurance agent or FEMA. So if you are a servicer that sells your servicing, then make sure that you're either notifying FEMA with a letter or an insurance agent with a letter or making sure that loss payee has changed, but somehow you have to notify them of the new servicer.
Frequently Asked question No. 45 actually expands on this a little bit, and this can be your citation if somebody ever asks you for this. Question 45 from the Flood Insurance Frequently Asked Questions says, “When a regulated lender makes a designated loan and will be servicing that loan, what are the requirements for notifying the director of FEMA or the director's designee?”
The answer is that FEMA stated in a June 4th, 1996 letter, so we're going back several years, that the director's designee is the insurance company issuing the Flood Insurance Policy. The borrower's purchase of a policy or the regulated lender's force placement of a policy will constitute notice to FEMA when the regulated lender is servicing that loan.
In the event that the servicing is subsequently transferred to a new servicer, the regulated lender must provide notice to the insurance company of the identity of the new servicer no later than 60 days after the effective date of such a change.
So that's your citation there if anybody ever asks you where the proof is, you can go to Frequently Asked Question 45 from the Flood Insurance FAQs.
Well, that's all I have for you today.