Flood & Tax News- Fall 2011

Flood Insurance Manual Updates

Updates to the NFIP Flood Insurance Manual became effective October 1, 2011. Some of the changes include rate increases, building occupancy updates, clarification on improvements and betterments coverage, expansion of the Lowest Floor Guide, and the inclusion of new Notes within certain sections. Below is a summary of some of the updates:

1. Rate increases impact both pre-FIRM and post-FIRM buildings across all flood zone designations. These rate increases apply to newly written or renewal policies effective after October 1, 2011 (GR 2-11).
2. Specifies that for a building to be considered a single family dwelling, incidental occupancies such as an office or a studio must be limited to less than 50% of the building’s floor area (GR 5-6).
3. Clarification that improvements and betterments (tenant’s coverage) is provided for tenants who have purchased personal property and/or building coverage if they meet certain criteria (GR 13).
4. The Lowest Floor Guide has been expanded to include several new building illustrations and relevant data. For example, additional clarification has been added for single-family non-elevated structures with attached garages (LFG 29).

Notes have been included for further clarification on a given section. For example, in Section VIII “Policy Effective Date” of the General Rules, a note addresses a “loss in progress” noting that even if a policy is considered effective that flood damages may not be covered if the flood began before the policy became effective and the damages occur after the policy effective date.

The updates to the Manual, in their entirety, can be found on FEMA's website.
 

Hurricane Season Continues

September marked the peak of the Atlantic hurricane season, but the season continues until November 30. This year there have already been 17 named storms during a year in which 18 were predicted. For the first time since 2008, a hurricane made landfall in the United States. In 2008 hurricanes Dolly, Gustav and Ike each made landfall along the Gulf Coast with Dolly and Ike hitting Texas and Gustav making landfall on Louisiana’s coastline. 

This year Hurricane Irene made landfall three times causing flooding in 13 states along the East Coast, Puerto Rico and Washington D.C. Irene was quickly followed by Tropical Storm Lee which caused additional flooding, particularly in Pennsylvania and New York. Flood damage from both Irene and Lee led to FEMA declaring approximately 200 counties as major disaster areas.

The devastation caused by flooding from Irene, in addition to the Midwest floods of earlier this year, remind us of the value of NFIP flood insurance in providing financial coverage from the impact of flooding.
 

Update and Proposed Revision to the Interagency Flood Insurance Q&A Issued

On October 17, the federal lending regulators (Regulators) issued an update and further proposed revisions to the Interagency Question and Answers Regarding Flood Insurance (Q&A) that became effective in September 2009. The Q&A provides guidance to lenders on complying with federal flood regulations including insurance requirements for condominium units and construction loans, instructions for calculating sufficient coverages under the Flood Act, explanations related to force placement, and directions for resolving flood zone discrepancies.

In addition to seventy-seven finalized questions and answers, the 2009 Q&A contained five proposed questions and answers related to insurable value and force placement. The recent update to the Q&A finalizes two of these questions (#9 related to insurable value and #61 related to force placement), withdraws one question (#10 related to insurable value), and further revises and submits for public comment the remaining two questions (#60 and #62 related to force placement). In addition, the recent update to the Q&A modifies one previously finalized question and answer (#57 related to force placement) and resubmits it for comment. The due date for public comments on these three questions is December 1, 2011. 

After considering public comments in response to the 2009 publication of the Q&A, the Regulators have finalized and clarified #9 to explain that RCV (replacement cost value) may not always be appropriate when determining the amount of flood insurance required due to possible overinsurance and underinsurance situations. Given that #9 now suggests alternative approaches for determining coverage, the Regulators have withdrawn #10 as it provided content related to alternative approaches.

Regarding the 2009 proposed questions and answers related to force placement, the Regulators have finalized and expanded #61 to include an example of when there may be a brief delay in force placement after the 45-day notice period. Also, #60 and #62 have been revised and are being resubmitted for further comment. Revised #60 has been expanded to acknowledge the notice requirement when a lender learns that a property is within a SFHA due to a map revision. Revised #62 now allows for charging the borrower during the 45-day notice period if the authority to charge is a contractual condition of the loan, and encourages lenders to explain force-placement policies to borrowers and to escrow flood insurance premiums. #57 related to force placement, with specific direction related to the notice provided to the borrower, and was finalized in 2009, but is also being resubmitted for comment since it has been modified in light of #60 and #62. It is anticipated that the Regulators will adopt a final update to the 2009 Q&A after public comments have been considered for #60, #62, and #57.

We encourage you to consider this recent update to the Q&A, including the request for comments, and to consult with your internal legal or compliance department and your federal regulator on any potential changes to your business practices.

If we can be of any additional assistance with regard to the Q&A, please contact your account manager or our compliance department at 1-800-447-1772.

Delinquent Property Taxes, a Growing Portfolio Risk

As unemployment and the housing crisis continue to impact the US economy, delinquent property taxes can become an additional loss risk for lenders and investors. In fact, some entrepreneurs are capitalizing on the situation by offering to teach consumers new methods for securing ownership at a tax sale.

Regular, frequent tax status monitoring of your loan portfolio is more important than ever. TaxWatch from CoreLogic provides tools to help mitigate the risk associated with home equity loans and loans in default or foreclosure. Additionally, TaxWatch optimizes your due diligence process by identifying risk due to delinquent real estate property taxes in portfolios targeted for sale or acquisition. With TaxWatch you can:

• Identify and monitor tax delinquency risk quickly and accurately
• Improve decision making to minimize penalties and collateral losses
• Increase workflow productivity
• Enhance GSE compliance
• Prioritize work queues

CoreLogic has built a database of more than 143 million parcels with over 25 million delinquent tax records, which is updated routinely to include recent payments and new delinquencies. Flexible access options enable you to obtain data via a one-time periodic match, batch process, or interactive query through our web portal. With TaxWatch you can:

• Track tax payment status on:
  • Loans in first lien position on a periodic basis
  • Second liens which may have moved into a first lien position
  • Single property or via batch mode for loan portfolios
• Review the status of real estate property taxes on loans moving into default
• Review the tax status on loan portfolios for sales and acquisitions
• Anticipate default through predictive tools

Visit our website for a complete list of residential mortgage servicing products from CoreLogic.

Update On NFIP Reform Efforts

On September 8, the Senate Committee on Banking, Housing, and Urban Affairs passed its version of a major flood insurance reform bill, which includes a 5-year reauthorization of the NFIP similar to the House’s reform bill (HR 1309). While the Senate and House bills contain some of the same or similar reform proposals, major differences between the two would necessitate a House and Senate compromise if significant NFIP reforms were to be passed. Therefore, given the time limitation of the November 18, 2011 NFIP expiration date, it is not certain whether or not Congress will take up these differences or simply extend the NFIP for an additional short period of time.

A few examples of proposed changes found in the Senate’s reform bill which are not found in the bill which passed the House include:

• Applying the mandatory purchase requirement to residual risk areas, such as areas protected by levees, once the mapping of all such areas is finalized.
• Requiring lenders to provide notice to borrowers in the 500-year floodplain—although not a mandatory purchase area
• Increasing lender noncompliance penalties to $2,000 while removing the annual maximum limit

Whereas the House bill includes changes which are not currently found in the Senate bill including:

• Clarifying that servicers can recover costs associated with force-placement of flood insurance for the 45-day period prior to force-placement
• Delaying the mandatory purchase of flood insurance requirement for 5 years for properties newly mapped into the Special Flood Hazard Area
• Requires servicers to refund premiums resulting from force-placement of flood insurance within 30 days of borrower’s purchase of a voluntary policy

You are encouraged to review both the House and Senate versions of NFIP reform legislation available at Thomas.gov to determine the possible impact of the reforms being proposed. You can find our bill summaries as well as future updates on our legislative update page. 

In the event a lapse of the NFIP occurs, please see our related article on guidance on NFIP operations during a program hiatus. We will continue to monitor Congressional activity related to the NFIP extension as well as NFIP reform.

Q:  We are requiring flood insurance on a loan secured by a house in the Special Flood Hazard Area (SFHA). The elevation difference of this house according to the insurance declarations page is plus 4 (+4). Would the building qualify for a Letter of Map Amendment (LOMA)?

A:  FEMA would not be able to determine whether or not this building qualifies for a LOMA based on this information alone. The Elevation Difference is the whole number of feet difference between the Base Flood Elevation (BFE) and the elevation of the insurable structure's lowest floor for insurance rating purposes. In this case, the lowest floor is 4 feet above the BFE. In terms of insurance policy cost, this positive Elevation Difference means that your borrower pays lower flood insurance premium. For a LOMA review, however, FEMA will compare the BFE to the elevation of the land adjacent to the building rather than to the lowest floor elevation. 

To qualify for a LOMA, according to FEMA, a building would need to be built such that the elevation of the lowest grade adjacent to the building is above the BFE. This can be determined by reviewing the Elevation Certificate (FEMA Form 81-31). In this particular case, given that the Elevation Difference is known, the borrower may have a completed Elevation Certificate. If so, consider the data found in section B and C of the form. Additional information about the LOMA process or other FEMA processes can be found in our Compliance Kit.

If you have a question for “Ask the Flood Expert” that you believe would benefit the lending or insurance community through response in this quarterly publication, please send us an email. All questions will receive a response regardless of whether or not they are published.

Q:  The Tax Sale Redemption process in Cook County, Illinois is complicated and can be quite time-consuming. Can you provide some insight as to what is involved in this process, and if any opportunities exist to reduce the turnaround time for redemption orders?

A:  There are many factors associated with the Tax Sale Redemption process in Cook County. The following is a brief overview regarding the annual Cook County Tax Sale, the subsequent Tax Sale Redemption process, as well as other significant dates associated with Cook County.

The second installment due date for Cook County’s property taxes has historically fluctuated, most recently between October 1, to as late as December 13 of last year. As a result, there have also been delays to the annual Cook County Tax Sale, which is now typically held in late spring or early summer of the following year. However, recent property tax code changes will escalate the timeframe by which Cook County must apply for judgment and order sale of taxes. Effective in 2012, for 2010 pay 2011 taxes, the annual tax sale is expected to occur within 90-120 days of the 2nd installment due date.

In order to provide timely information regarding parcels offered in the Cook County Tax Sale, CoreLogic conducts Tax Payment Status reporting for Cook County in three phases. This allows the most critical items to be reported sooner so that payments can be made prior to the tax sale, thus reducing the number of items that would otherwise require redemptions.

In the event a parcel has been sold at the tax sale, an Estimate of the Cost of Redemption form must be submitted to the Cook County Clerk’s office to obtain the correct payoff information. This is the most time consuming aspect of the redemption process as each estimate of redemption must be manually calculated, and given the volume of requests the county receives, it can take from 4-10 weeks for this information to be returned. 

While much of the functions associated with the redemption process are out of our control, each redemption request CoreLogic receives is reviewed and prioritized according to criticality. In addition, redemption requests are also reviewed for missing or incorrect information prior to submission in to avoid further delays.

CoreLogic appreciates your interest in the Cook County Redemption process and will soon be providing clients with a more in-depth overview which we trust you will find beneficial.

If you have a question for “Ask the Tax Expert” that you believe would benefit the lending community through response in this quarterly publication, please send us an email. All questions will receive a response regardless of whether or not they are published.

Feel free to forward this newsletter to any colleagues you think will find it informative. However, any other reproduction of, or modifications to, any part of this newsletter is strictly prohibited without the prior written consent of CoreLogic.

If you have any questions or comments regarding this newsletter, please call us at (800) 447-1772 or email us at FloodTaxNews@corelogic.com.
To learn more about CoreLogic visit us at www.corelogic.com.

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