ML 1995-01 Single Family Loan Production - Revised Flood Insurance Requirements
- Kacey Olson
Owned by Kacey Olson
© HUD Single Family Housing Policy Handbook 4000.1
www.hudclips.org U. S. Department of Housing and Urban Development Washington, D.C. 20410-8000 January 5, 1995 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER MORTGAGEE LETTER 95-01 TO: ALL APPROVED MORTGAGEES SUBJECT: Single Family Loan Production - Revised Flood Insurance Requirements This Mortgagee Letter is to advise lenders of revised procedures for flood insurance following enactment of recent legislation. REVISED FLOOD INSURANCE REQUIREMENTS--The Riegle Community Development and Regulatory Improvement Act of 1994 was recently enacted into law. Title V of this act, the National Flood Insurance Reform Act of 1994, impacts mortgage lenders and servicers. Although this mortgagee letter will only address mortgages insured by HUD, the new legislation affects conventional mortgages as well. The legislation expands and strengthens flood insurance requirements. Flood insurance is now required by Federal law if at any time during the term of the loan the lender or servicer determines that the property is in a special flood hazard area (SFHA). If the originating lender determines that the property being financed is located in a special flood hazard area, the borrower is required to obtain flood insurance at the time of origination. Similarly, if the servicer at any time during the term of the loan determines that the property is in a SFHA, it must notify the borrower that flood insurance must be obtained. In these cases, the borrower has 45 days to respond and provide evidence of acceptable insurance to the servicer; if no response is made by the borrower, the servicer can force-place flood coverage alter 45 days from original notification. The change in law is not expressly applied to lenders that are not subject to the supervision of the Federal agencies named in the law (not including HUD), but HUD intends that the same policy be followed for all FHA-insured mortgages as part of proper servicing practices. The legislative history indicates that Congress intended lenders to have the ability to force-place flood insurance under previous law and that the change in statutory language was to reinforce existing law. HUD Handbook 4330.1 already requires lenders to enforce the flood insurance requirement on properties that are in special flood hazard areas designated after the mortgage is closed. Servicers for all mortgagees with FHA-insured mortgages must require flood insurance to be maintained on all properties in special flood hazard areas with forced-placed insurance if needed, regardless of whether the holder of the mortgage is a supervised or a non-supervised lender. 2 In addition, the law permits lenders and servicers to recoup from the borrower the cost of flood zone determination fees. The flood determination service provider must be an entity that can guarantee the accuracy of the information. Under the provisions of the Real Estate Settlement Procedures Act (RESPA), only the amount charged by the service provider may in turn be charged to the borrower. The amount of the fee must be customary and reasonable within the local HUD Office's jurisdiction. Because HUD requires lenders to escrow taxes, hazard and mortgage insurance premiums, etc., flood insurance premiums and fees must be escrowed along with these other items on HUD insured mortgages. The National Flood Insurance Reform Act of 1994 contains additional important elements besides those mentioned above. The Department urges you to obtain copies of this legislation from your trade association or Congressional representative. If you have any questions regarding these issues, please contact your local HUD Office. Sincerely yours, Nicolas P. Retsinas Assistant Secretary for Housing- Federal Housing Commissioner