Q. What are AFR’s primary services?
A. AFR is a full service risk management company serving mortgage lenders, insurance agencies, and a host of other industries across the country, as well as consumers. Our expertise lies in hazard and flood insurance solutions – tracking and notification systems, lender placed insurance, commercial flood insurance, residential flood insurance, and flood zone determination services. AFR also offers a full suite of real estate solutions – tax, AVM’s, inspections, and more.
Q. Does AFR have licensed agents?
A. Yes. AFR is staffed with licensed insurance agents experienced in all facets of residential and commercial flood insurance. They can assist with both lender placed and standard policies through AFR's Private Flood Insurance Program, other private offerings or through the NFIP. In addition, AFR's flood research department is fully staffed with nationally recognized Certified Floodplain Managers who are happy to assist with questions regarding flood zone determinations, LOMC's and Elevation Certificates. AFR is also staffed with licensed real estate agents and brokers to fully complement our suite of real estate services.
Q. Does AFR have a site for compliance information?
A. Yes. This website affords visitors access to AFR's compliance page. You will find access to the page under Resources at the top of the page. Simply click on Compliance.
Q. What compliance information do you have available?
A. The AFR Compliance page contains a variety of information and is updated regularly by the AFR Compliance Team. You can find information on federal law and regulations, FEMA, NFIP and CFPB bulletins, upcoming flood map revisions, and much more.
Q. Can AFR help me with obtaining an Elevation Certificate for help with insurance or a LOMA?
A. Yes. AFR has access to a network of surveyors and engineers throughout the U.S. We will assist by first obtaining quotes for the service and then, if requested, arrange for the completion of the work.
Q. Can AFR help me obtain a LOMA (Letter of Map Amendment)?
A. Yes. AFR is staffed with Certified Floodplain Managers that can assist with the application and processing of a Letter of Map Change.
Q. Can an Elevation Certificate be used to overturn a flood zone determination?
A. No. This is the most frequently asked question regarding properties that have been determined to be located in the 100-year floodplain. The law, as well as regulatory guidance, is very clear as to what documents a lender [or its respective flood vendor like AFR] can use in making a flood zone determination. An Elevation Certificate cannot be used to make a flood zone determination nor can one be used to overturn a flood determination. In fact, it is stated as such in the instructions for the Elevation Certificate. However, the EC can be used to support an application for a Letter of Map Change.
Q. Why won’t you accept a surveyor’s/appraiser’s word about my house not being in a flood zone?
A. As is the case with an Elevation Certificate, federal law, supported by regulatory guidance, is very clear that a flood zone determination is to be completed by the mortgage lender [or their respective flood vendor] using only the flood information shown on the current, applicable Flood Insurance Rate Map (FIRM). If a surveyor, engineer, or even the local floodplain manager has provided their opinion or elevation data that shows the property to be above the 100-year flood plain, this data cannot be used to overturn a flood zone determination. However, it can be used in support of a re-check and possibly other remedies, e.g. a LOMA.
Regs and Rules FAQ’S:
Q. Can a lender accept private flood insurance?
A. Yes. Lenders have been accepting private policies for many years, as supported in part by Section XI. of the Interagency Q&A's, published in 2009. Unfortunately, on rare occasions we still find lenders that are reluctant to accept private policies, which can often put their borrowers at a disadvantage and the lender at risk.
Fortunately, in 2012, Congress passed the Biggert-Waters Flood Insurance Reform Act of 2012 mandating the acceptance of private flood insurance as long as those policies meet certain criteria, which are essentially the same criteria referenced in the aforementioned Q&A’s. In addition, Congress issued instruction to the regulatory agencies to declare the mandate to lenders in formal rulemaking. The agencies finally issued proposed rulemaking in November of 2016. A copy of the criteria can be found here.
Also found in Biggert-Waters was a required amendment to the Notice to Borrower of Special Flood Hazards. The Notice is now to include a statement that informs borrowers as to the availability of private flood insurance. The Notice was effective January 1st, 2016.
For lenders that remain unsure about the acceptance of private flood insurance, we recommend that you speak with your respective regulatory field examiner for confirmation.
Q. Does AFR's private flood insurance policy comply with the criteria as defined in the statute?
A. Yes, and we are happy to provide any and all supporting documentation necessary to satisfy your compliance department and your regulatory field examiner.
Q. According to the Loans in Areas Having Special Flood Hazards FINAL RULE (July 2015) some detached structures on residential property no longer require flood insurance. Do I still need a flood zone determination for those structures?
A. Yes. The FINAL RULE clearly instructs the lender to continue to determine whether or not a detached structure lies within the 100-year floodplain. As a matter of safety and soundness, most lenders will continue to require flood insurance on any detached structure that is being used to secure the note.
Q. I’ve been told by my compliance department that flood zone determinations expire in 7 years. I thought we had life of loan coverage. Do I really need to re-order new determinations for ones older than 7 years?
A. The short answer: No. You do not need to order new flood zone determinations. Determinations do not expire and this has nothing to do with Life of Loan coverage.
The long answer: First, let’s clearly define the 7-year rule and Life of Loan because they are mutually exclusive. The '7-year rule' is a statutory rule providing lenders limited time conditions under which they may re-use an old flood zone determination.
Life of Loan coverage is a type of service invented by the determination industry. Even though lenders are not required by law to monitor for map changes, Fannie requires it, so our industry addressed that need and now most all lenders order Life of Loan coverage. The coverage ends when the loan is paid off.
Now, how do these two overlap? Specifically, the 7-Year Rule states that a lender may re-use a determination for loan renewals, extensions, increases, purchases, or refi’s if these three conditions are met: 1) the determination is less than 7 years old and 2) the flood maps haven’t been revised and 3) the determination was originally completed on the official FEMA form.
Let’s work backwards. #3 is now completely irrelevant. Given that lenders started using the Form in 1996 this condition was applicable until 2003.
In regards to condition # 2, flood map revisions are only of concern for ‘one-time’ determinations. These days, ‘one-time’ determinations are rare. Most lenders order determinations with Life of Loan coverage for the reasons stated above, so now determinations are always going to reflect the most current map. Therefore, a lender should rarely be concerned about re-using a determination that has outdated info on it*.
*It is important to always pull a current copy of the determination from the AFR website. In other words, don’t assume the paper copy in your office file is an updated determination.
Conclusion: Now we are left with # 1 – is the determination less than 7 years old. It’s a simple Yes or No. Unfortunately, now that it remains the only relevant question, it too gets misapplied. For some reason some compliance folks read it as an expiration date. We assure you it is not.
Q. Can you provide anything in writing relative to what is the insurable value of a building?
A. Yes. Following is the regulatory rule, i.e. Interagency Q&A # 9:
9. What is the ‘‘insurable value’’ of a building?
Answer: The insurable value of a building is the same as the overall value of a property minus the land on which the property is located. FEMA’s Mandatory Purchase of Flood Insurance Guidelines state that the insurable value of a building is the same as 100 percent replacement cost value (RCV) of the insured building, which is defined as ‘‘[t] he cost to replace property with the same kind of material and construction without deduction for depreciation.’’ FEMA’s guidelines, however, also provide that lenders should avoid creating a situation in which the insured pays for more coverage than the NFIP would pay in the event of a loss. Strictly linking insurable value to RCV is not practical in all cases. In cases involving certain residential or condominium properties, insurance policies should be written to, and the insurance loss payout usually would be the equivalent of, RCV. However, in cases involving nonresidential properties, and even some residential properties, where the insurance loss payout would normally be based on actual cash value, which is RCV less physical depreciation, insurance policies written at RCV may require an insured to pay for coverage that exceeds the amount the NFIP would pay in the event of a loss. Therefore, it is reasonable for lenders, in determining the amount of flood insurance required, to consider the extent of recovery allowed under the NFIP policy for the type of property being insured. This allows the lender to assist the borrower in avoiding situations in which the insured pays for coverage that exceeds the amount the NFIP will pay in the event of a loss. Lenders need to be equally mindful of avoiding situations in which, as a result of insuring at a level below RCV, they underinsure property.
Q. Can we require more flood insurance than the loan balance?
A. Yes. Following is the regulatory rule, i.e. Interagency Q&A # 16:
16. Can a lender require more flood insurance than the minimum required by the Regulation?
Answer: Yes. Lenders are permitted to require more flood insurance coverage than required by the Regulation. The borrower or lender may have to seek such coverage outside the NFIP. Each lender has the responsibility to tailor its own flood insurance policies and procedures to suit its business needs and protect its ongoing interest in the collateral. However, lenders should avoid creating situations where a building is ‘‘over-insured.’’
Q. When do we need to provide the Notice to the Borrower that flood insurance is required?
A. Each agency has a different section within their respective compliance manual/handbook/announcements, but they are essentially the same. The following is taken from the FDIC Compliance Manual, January 2014:
The final rule provides that delivery of notice must take place within a “reasonable time” before the completion of the transaction. What constitutes “reasonable” notice will necessarily vary according to the circumstances of particular transactions. An institution should bear in mind, however, that a borrower should receive notice timely enough to ensure that:
• The borrower has the opportunity to become aware of the borrower’s responsibilities under the NFIP; and
• Where applicable, the borrower can purchase flood insurance before completion of the loan transaction.
The preamble to the final rule states that the agencies generally continue to regard ten days as a “reasonable” time interval.