2007 News and Events

National Flood Conference to be in Denver, CO

Now Available: Q&A's from ABA Telephone
Briefing: Flood Insurance for Condominiums—A Compliance Challenge Made Simple

Changes to Sacramento Flood Maps May Affect
Lenders Who Service the Region

Freddie Mac said it finds the current ACORD 28 (2006/07) form: Evidence of Commercial Property Insurance, unacceptable based on changes made to the form in July.

National Flood Conference to be in
Denver, CO

If you haven't yet registered for the National Flood Conference being held in Denver, CO on April 29-May 2, you can do so online at www.fema.gov/business/nfip/natl_fldconf.shtm.
In addition to Lender specific workshops, you will have the opportunity to expand your flood insurance knowledge and working network. More than 40 workshops are planned to keep you current. Don't delay. Register today.

Now Available: Q&A's from ABA Telephone
Briefing: Flood Insurance Coverage for Condominiums—A Compliance Challenge Made Simple

American Bankers Association has graciously made available in question and answer format concerns raised by participants during the August 23, 2006 phone meeting. Please download the PDF here:

www.aba.com/aba/documents/Compliance/FEMAABAQAfinal.pdf

Changes to Sacramento Flood Maps May Affect Lenders Who Service the Region

Effective February 21, 2007, improvements to Sacramento’s levee system will result in the release of approximately 26,000 properties from the mandatory Federal flood insurance purchase requirement.

To reflect these improvements, the Federal Emergency Management Agency (FEMA) will revise, by Letter of Map Revision, its Flood Insurance Rate Maps (FIRMs) for the Sacramento region, moving from high-risk A99 flood zones to moderate-risk X flood zones most of the properties that are located in zip codes 95822, 95831 and 95832. The affected map panels are:

060266 0025 F-City of Sacramento
060266 0030 F-City of Sacramento
060262 0305 F-County of Sacramento

For lenders, the lifting of this requirement may increase the number of requests from Sacramento property owners who wish to cancel their flood insurance.

Undoubtedly, some of these requests will come from property owners who choose not to carry flood insurance. However, lenders also will receive cancellation requests from property owners whose insurance agent has instructed them to cancel their current flood insurance before the agent will convert them to a low-cost Preferred Risk Policy, or PRP. (FEMA rules now allow agents to convert property owners, mid-term, from Standard to Preferred Risk flood insurance. However, some agents still require cancellation.)

Under Federal rules, property owners who own a home or building that is secured by a Federally-guaranteed loan must obtain their lender’s written permission to cancel their flood insurance. Lenders can approve or deny this request.

Responding to these requests presents lenders with an opportunity to inform clients that FEMA, the City of Sacramento and the Sacramento Area Flood Control Agency (SAFCA) urge property owners who have been released from the Federal requirement to maintain flood insurance. Flood insurance protects the property owner’s investment--and the lender’s.

Improvements to regional levees have reduced but not eliminated the flood risk to the Sacramento community. Because of this risk, SAFCA and the City of Sacramento will conduct flood insurance/levee risk awareness outreach to the more than 120,000 property owners who are protected by a Sacramento levee.

Through various outreach methods, SAFCA and the City will (1) alert property owners to the ongoing flood risk posed by the potential failure of a Sacramento-area levee and (2) urge property owners who have been released from the Federal requirement to apply with their agent for a low-cost PRP. For more information, visit the SAFCA website at www.safca.org.

A product of the National Flood Insurance Program, PRPs are only available for homes and buildings in B, C and X flood zones. In addition, these properties must meet Federal flood loss criteria.

In February 2005, Sacramento experienced a map change similar in scale to the one that will soon occur. In the months that followed, lenders denied hundreds of cancellation requests on the basis of flood zone determinations that, in error, showed properties in out-dated flood zones. Unbeknownst to the lenders, these determinations had not kept pace with recent Sacramento map changes, and in some cases, precluded property owners from purchasing PRPs.

To accurately assess the flood risk to property located in the Sacramento region, lenders should compare the FIRM effective date of the flood zone determinations they are provided with the effective date of the revised Sacramento FIRMs.

A background and history can be found on FEMA’s Web site at http://www.fema.gov/plan/prevent/fhm/st_hot.shtm#1 the week of 2/19/07. As of 2/21/07 you will be able to obtain a copy of the related LOMR and Map Attachments. This information will also be available on the Sacramento Area Flood Control Agency (SAFCA) Web site (http://www.safca.org/) and the Map Service Center Web site (http://msc.fema.gov) on 2/21/07. Please communicate this information to your lenders/servicers and members to ensure that they have up-to-date information in order to service their customers.

Freddie Mac said it finds the current ACORD 28 (2006/07) form: Evidence of Commercial Property Insurance, unacceptable based on changes made to the form in July.

Effective immediately, Freddie Mac said it will require either the previous ACORD 28 (2003/10) form, an ACORD 75 insurance binder or an insurance policy or duplicate original insurance policy as evidence of insurance.

ACORD, a nonprofit organization that provides standardized forms to the insurance industry, changed certain language in the ACORD 28 form in July that eases liabilities and obligations for insurance companies. The changes could reduce the amount of relevant information received by insured parties on a policy, including commercial mortgage servicers.

The Mortgage Bankers Association, various lenders and investors raised concerns following the changes made in July.

"MBA concurs with Freddie Mac's conclusions that the revised ACORD 28 form is not substantive evidence of commercial property insurance and that lenders are not protected by the revised cancellation notification requirements,” said Gail Davis Cardwell, senior vice president of commercial/multifamily at MBA. “MBA strongly advocates notification of policy cancellations to all insureds cited on the insurance policy and provision of substantive and legally binding evidence of insurance to these same parties to promote timely and transparent insurance information on commercial properties.”

The key changes appear in the first paragraph. The new form (2006/07) states that the evidence of commercial property insurance is “a matter of information only and confers no rights” for the “additional interest” on the policy, which could include a commercial mortgage servicer. The old form (2003/10), however states that evidence of commercial property insurance “has been issued, is in force, and conveys all the rights and privileges afforded under the policy."

In the cancellation section, the new ACORD 28 form said that if an owner cancels any of the insurance policies prior to the expiration date, “the issuing insurer” is under no obligation or liability to mail written notice of the cancellation to the “interest named below,” which could include the commercial mortgage servicer. The old form also provides a time frame for the insurance company to provide written notice to the “interest named below,” but without additional language to reduce "obligation or liability" for the issuing insurer.

Source: Mortgage Bankers Association

This site is designed to provide general information and does not constitute legal or other professional advice by NLIC or its officers and directors. This information should not be used as a substitute for advice of an attorney in specific situations.

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