Iowa Mortgage Association - Prime Times
Jul 15, 2008


In this issue:
Catch the Next Wave in the Mortgage Industry with the IMA 54th Annual Convention!
Look for IMA in the News!
MBA Addresses Fannie Mae and Freddie Mac situation
Flood Zone Discrepancies
Flood Recovery Resources & Assistance

Catch the Next Wave in the Mortgage Industry with the IMA 54th Annual Convention!

Catch the Next Wave in the Mortgage Industry with the IMA 54th Annual Convention!

September 3-5, 2008 • Downtown Des Moines Marriott


Designed to help you “Catch the Next Wave in the Mortgage Industry”, become more knowledgeable about the mortgage industry and increase your awareness about pressing issues, the Iowa Mortgage Association Convention is a must for any mortgage professional. This year’s event has sessions on marketing skills for a new market, legislative updates, updates from Fannie Mae and Freddie Mac, using technology, using databases to your advantage, creating your personal brand and more!

Take the opportunity to network with your peers, explore the products and services available in the exhibit hall and gain perspective from the educational speakers.

September 3 – Golf Outing at Briarwood Golf Course in Ankeny
September 4-5 – Convention at Downtown Des Moines Marriott

To register for the Convention see the IMA Calendar of Events.

Don’t miss this great event!

Look for IMA in the News!

Look for IMA in the News!

The Iowa Mortgage Association is advertising around the state of Iowa. In June, and coming up on Saturday, September 13 and December 6, the IMA will have ads appear in seven metro markets. The ads discuss the importance of financing a home and encourage borrowers to make sure their lender is a member of the Iowa Mortgage Association. The ad uses the tag line, “Dedicated to helping Iowans make sound homeownership decisions.” The ads are running in the Cedar Rapids Gazette, Quad City Times, Des Moines Register, Dubuque Telegraph Herald, Iowa City Press Citizen, Sioux City Journal and the Waterloo Courier.

MBA Addresses Fannie Mae and Freddie Mac situation

MBA Addresses Fannie Mae and Freddie Mac situation

Yesterday, the Mortgage Bankers Association (MBA) released a letter to its membership outlining the government’s plans to stabilize and strengthen Fannie Mae and Freddie Mac. Click here to read the letter in its entirety.

Flood Zone Discrepancies

Flood Zone Discrepancies
Ronette K. Schlatter, CRCM
Senior Compliance Coordinator, Iowa Bankers Association

The issue of flood zone discrepancies is a growing epidemic. Lenders obtain flood zone determinations on the buildings for which they make loans or hold mortgages. Flood zone determination companies report to lenders the flood zone information for the building based on the current Flood Insurance Rate Map (FIRM) for each community. When the flood insurance policy declaration page for the building shows a flood zone other than the one reported on the Standard Flood Hazard Determination Form, lenders fear the property may not be properly insured. Time and again lenders are left frustrated and the discrepancies unresolved when insurance companies refuse to change their flood zone rating to match the lender's determination finding. Up until now, lenders have had little other choice than to force place the correct coverage on loans previously closed or to refuse to close pending loan applications.

Recent Guidance
Recent FEMA and federal regulatory guidance reiterates the lender's responsibility to resolve these discrepancies. The September 2007 release of FEMA's Mandatory Purchase of Flood Insurance Guidelines clearly state if the flood zone designation noted on the lender's standard flood hazard determination differs from the zone designation on the flood insurance policy, the lender should resolve the discrepancy. The guidelines suggest the lender could ask its third party determination provider and insurance provider to both re-examine their finding - perhaps providing more detailed information such as a site drawing or survey on the collateral property. The guidelines also suggest the lender look for a legitimate reason for the discrepancy such as the NFIP's "grandfather rules."

The grandfather rules apply when a homeowner built a home in compliance with the flood map in effect at the time of construction. FEMA recognizes that property owners might not have built in high flood risk areas if the risks had been identified at the time of construction. Therefore, in fairness to policyholders who built in compliance with the existing floodplain management standards for their flood zones and/or have continuously maintained Federal flood insurance, FEMA developed grandfather rules to avoid penalizing these policyholders with higher rates. The grandfather rules allow policyholders to benefit in the premium rating of their buildings.

If a new policy is applied for, the rates can be based on the FIRM zone and base flood elevation in effect on the date the building was constructed provided that:

  • The building was built in compliance with the map in effect at the time of construction; and
  • The building has not been altered in any way that resulted in a lowest floor being situated lower than the base flood evaluation; and
  • The building has not been substantially improved.

If this is the case, the Mandatory Purchase Guidelines provides instructions for lenders as to how to properly document the application of the grandfather clause in order to waive the insurance requirement.

The federal regulatory agencies also updated their flood guidance document - the Interagency Questions and Answers on the flood rules. The proposed revisions were released in the March 21, 2008 Federal Register. Among the revisions to the Q & A was a section added on flood zone discrepancy issues that stated, like the guidelines, that a lender was ultimately responsible for resolving flood zone discrepancies and if it failed to do so, civil money penalties could be imposed by the lender's federal regulator.

FEMA's Directive
Thankfully, FEMA recognized the growing problem of flood zone discrepancies and took action. FEMA issued a memorandum to all Write Your Own (WYO) Principal Coordinators and NFIP Servicing Agents in mid-April to address the issue. WYO vendors are private insurance carriers that issue and service NFIP policies under their own names.

The memo explained to WYO Coordinators and NFIP Servicing Agents the federal regulatory agencies supervising federally regulated lending institutions require lenders to take certain actions to ensure buildings in high-risk areas, known as Special Flood Hazard Areas (SFHAs), are properly protected and flood insurance is retained for the life of those loans.

The memo stated FEMA understands flood zone discrepancies are occurring because some WYO companies are no longer accepting the flood zone determinations provided by lenders to rate flood policies. WYO companies are either providing their own flood zone determinations or requiring agents to determine the flood zone. As a result, lenders are frequently finding the flood zone indicated on a flood insurance policy declarations page is different from the lender's flood zone determination, and they are seeking resolution.

FEMA's memo directed that effective May 1, 2008, WYO companies and the NFIP Servicing Agent are to use the most hazardous flood zone for rating when presented with two different flood zones, unless the building qualifies for the "grandfathering rule." So, if the bank's determination shows one flood zone and the insurance agent's details another, the policy will be written for the most hazardous zone - whether that is the bank's finding or the insurance company's finding.

The letter from FEMA included two attachments, the FDIC FIL 114-2007 that addressed managing risks associated with lapses in flood insurance coverage and a three-page document providing a number of options available to a borrower for appealing a lender's determination findings. Click here to read the FDIC FIL 114-2007.

Options for Appealing Determinations
If the homeowner/policyholder wants to dispute the high-risk flood zone determination, various procedures are available. The attachment to FEMA's memo describes the following options available to policyholders.

Letter of Determination Review (LODR)
LODR requests can be made to FEMA, at a current cost of $80, jointly by the lender and borrower within 45 days of notice of SFHA by the lender. The LODR review process enables FEMA to verify whether the building's location was correctly identified on the applicable Flood Insurance Rate Map (FIRM). A successful LODR releases the lender from the obligation to require the purchase of flood insurance and identifies the building in a low-to-moderate flood risk area.

More detailed information concerning the LODR is available at http://www.fema.gov/plan/prevent/fhm/fq_proc.shtm#fldproc81.

Flood Provider Review
The lender has the option of asking its flood zone determination company to review its determination, especially if the borrower has compelling information to show that the building is not in an SFHA. A plat survey, tax map, or elevation certificate may enable the lender's determination company to better identify the location of building on a FIRM. If the lender's flood zone determination company revises its certification or provides a new Standard Flood Hazard Determination Form (SFHDF) showing the building as out of the SFHA, the mandatory purchase requirement is waived.

If however, the lender's flood zone determination company still identifies the building in a SFHA, then only the LODR, Letter of Map Amendment (LOMA) or Letter of Map Revision-Fill (LOMR-F) appeals can be attempted. Insurance clients can contact a FEMA map specialist by calling (877) 336-2627 for information about these options, the forms necessary to apply, and to discuss whether the property owner might be a candidate for these appeal options. Only FEMA, via the LODR, LOMA or LOMR, can change a lender's flood zone determination.

Letter of Map Amendment (LOMA)
The LOMA applies where a borrower can provide an Elevation Certificate to show that the building's lowest adjacent grade is at or above the base flood elevation. The LOMA suits a situation where the building is within the boundaries of the SFHA, but is on natural high ground. A property owner can view the FIRMs that are located in the community and may be wise to discuss options with community officials. Some communities collect elevation information, which is available to the property owner, and is the required supporting documentation for the LOMA.

A successful LOMA releases the lender from the obligation to require the purchase of flood insurance and identifies the building in a low-to-moderate flood risk area.

There is an Out-As-Shown LOMA that addresses the location of a building that may apply after the LODR 45-day notice period has ended and an E-LOMA may be possible. Property owners should call the FEMA Mapping Specialist at (877) 336-2627 for information.

Letter of Map Revision-Fill (LOMR-F)
The (LOMR-F) applies when the community has permitted the use of fill to raise the ground beneath the building and requires the community's assistance to apply for a LOMR-F. A successful LOMR-F releases the lender from the obligation to require the purchase of flood insurance and identifies the building in a low-to-moderate flood risk area.

Information about additional options available to a property owner to appeal the lender's flood zone determination is available at: http://www.fema.gov/plan/prevent/floodplain/nfipkeywords/lomr.shtm and http://www.fema.gov/plan/prevent/floodplain/nfipkeywords/loma.shtm.

If FEMA grants a LODR, LOMA, or LOMR, it agrees with the property owner's contention that the building is currently not in a high-risk flood area and is instead in a low-to-moderate flood risk area. These Letters of Map Change waive the lender's obligation under the law to require the purchase of flood insurance. It should be noted however, that lenders may, based on loan agreements, require flood insurance to protect their collateral also in low-to-moderate flood risk areas, zones B, C or X. This is because about 25% of the NFIP claims are paid in low-to-moderate flood risk areas.

An additional benefit to a property owner in obtaining a Letter of Map Change is that flood insurance coverage is far more reasonable in low-to-moderate flood risk areas, where flood insurance is "not required by law" but may still be "needed." The client may be eligible for the Preferred Risk Policy (PRP).

To review FEMA's memo to WYO Coordinators and NFIP Servicing Agents, click here.

Flood Recovery Resources & Assistance

Flood Recovery Resources & Assistance

The Federal Deposit Insurance Corporation (FDIC) issued a Financial Institution Letter (FIL 56-2008) on June 24, 2008 detailing a series of steps intended to provide regulatory relief to financial institutions and to facilitate recovery in areas of Iowa affected by recent severe storms, tornadoes and flooding. As of June 20th, 65 counties in Iowa, encompassing most of the state, have been declared federal disaster areas.

Lending & Consumer Laws
The FDIC is encouraging financial institutions to work constructively with borrowers who are experiencing difficulties beyond their control because of damage caused by these disasters. Extending repayment terms, restructuring existing loans or easing terms for new loans, if done in a manner consistent with sound banking practices, can contribute to the health of the community and serve the long-term interests of the lending institution.

The FIL also reminds lenders that in some cases of "personal bona fide emergencies" it may be appropriate to allow borrowers to waive or modify their rescission rights in loans secured by their principal dwellings. To exercise this option, the consumer must provide the lender with a statement describing the emergency and the letter must be signed by each person who has the right to rescind the transaction. The lender must consider such waiver requests on a case-by-case basis in order to properly assure itself such an emergency does exist. For example, a borrower who needs funds for construction supplies to repair a home damaged by flood waters would be considered a "personal bona fide emergency" versus a borrower whose home was not damaged and is borrowing for purposes of debt consolidation would not.

Reporting Requirements
FDIC-supervised institutions affected by the disasters should notify the FDIC's Kansas City Regional Office if they expect a delay in filing their Reports of Income and Condition (Call Reports) or other reports. The FDIC will take into consideration any causes beyond the control of a reporting institution in considering how long of a filing delay will be acceptable.

Publishing Requirements
The FDIC understands that the damage caused by the storms and tornadoes may affect compliance with publishing and other requirements for branch closings, relocations and temporary facilities under various laws and regulations. Banks that have disaster-related difficulties in complying with any publishing or other requirements should contact the Kansas City Regional Office.

Temporary Banking Facilities
The Kansas City Regional Office will expedite any request to operate temporary bank facilities by an institution whose offices have been damaged or that desires to provide more convenient availability of services to those affected by the disaster. In most cases, a telephone notice to the regional office will suffice initially, and necessary written notification can be submitted later. The full text of FIL 56-2008 can be found at http://www.fdic.gov/news/news/financial/2008/fil08056a.html.

The OCC also issued a proclamation authorizing national banks to close offices temporarily if needed due to the widespread flooding. It can be found at http://www.occ.treas.gov/ftp/release/2008-67a.pdf.

Iowa Bankers Association Resources
The Iowa Bankers Association, in partnership with several other organizations, has developed a special web page on its web site (www.iowabankers.com) to provide resource and recovery information to our membership. The IBA Flood Relief Information and Resources page includes the following:

  • IBA Compliance Resources including Flood Recovery Frequently Asked Questions prepared by the Iowa Bankers Association Compliance Department as well as information about Safety Deposit Box Laws and Procedures.
  • Links to Federal Regulatory Guidance
  • Links to state resources including the State of Iowa Flood Resource Center, Iowa Homeland Security, Business Recovery Center and more.
  • Links to Federal Resources including FEMA's web site, Fannie Mae and Freddie Mac assistance programs, the Federal Home Loan Bank and more.

The IBA Flood Recovery Information and Resources web page can be found at http://www.iowabankers.com/floods08.html.


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