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Lynne Haney joins Chase Mortgage team in Concord

National Mortgage Professional
Aug 25, 2008

Flood servicing 101Steve Grantflood insurance, flood zones, flood reports, Federal Disaster Protection Act A few years ago a book titled "Don't Sweat the Small Stuff...and it's All Small Stuff" by Richard Carlson topped the charts. As the title suggests, it's about simple ways to keep the little things from taking over your life. While that's excellent personal advice, as a mortgage broker, you know there is an enormous amount of details that you need to attend to on a daily basis. As you are aware, lenders are required by the Federal Disaster Protection Act of 1973 and the Flood Insurance Reform Act of 1994 to determine whether or not a mortgaged property needs flood insurance. The law also mandates that coverage be kept for the life of the loan. Flood zone determination outlines if there have been floods on a property and the financial risk associated with buying or building a home in a zoned area. This, in turn, protects lender investments as well as helps prepare clients in the event disaster strikes. Nearly 4.5 million people hold flood insurance policies in almost 20,000 "high-risk" areas across the U.S. Determining flood zones to secure funding for a mortgage is just another one of the "little things" that could overtake your day. Fortunately, there are companies such as Credit Plus Inc. that offer bundled services including credit reporting and flood information services to alleviate the stress of floods. But how do you avoid getting swamped with flood-related concerns, and what details should you have your third party address? The next few paragraphs will help you keep afloat in the world of floods. Flood reporting responsibility In high-risk areas, there is more than a 25 percent chance that a house will experience a flood during the course of a 30-year mortgage. Therefore, in order to protect the lender's investment, your number one goal regarding floods should be to determine if the house that is going to be purchased is in a flood zone. If it is, the potential borrower will have to secure flood insurance in order to obtain a mortgage. This information is gleaned from a flood report that includes all of the data necessary for closing a loan. Included in the report is the National Flood Insurance Program community name along with the date ordered, date completed, a reference number, a loan identification number and the borrower's name, address, city, state, zip code and zone designation. On a flood report, there are seven designations that require the purchase of federal insurance. These classifications are based on the "100-year floodplain," a formula developed by the federal government that determines a "best guess" of stream flow peaks over time. It reviews elevations of land with a "one-in-one hundred chance (one percent) of floods occurring in any given year." Since it is measured annually (although some regions will have more frequent updates to their zoning than others due to repetitive hazardous weather or catastrophic events), the chances of this level of flooding reoccurring in a short period of time are considerable. Designations include: •A: Areas of 100-year flood, base flood elevations, and flood hazard factors not determined •AO: Flood depths of one to three feet (usually sheet flow on sloping terrain), average depths determined, areas of alluvial fan flooding, velocities determined •AH: Flood depths of one to three feet (usually areas of ponding), base flood elevations determined •AE, A1-A30¬: Areas of 100-year flood, base flood elevations, flood hazard factors determined •A99: To be protected from 100-year flood by federal flood protection system under construction, no base flood elevations determined •V: Areas of 100-year coastal flood with velocity (wave action), base flood elevations, flood hazard factors not determined •VE, V1-V30: Areas of 100-year coastal flood with velocity (wave action), base flood elevations, flood hazard factors determined Not only should you investigate if a current house is in a floodplain, but if a potential borrower comes to you for a construction loan, you will also want to have a flood report pulled for the land he or she plans to build on. If a potential client wants to build in a high-risk zone, both the community and individuals can make adjustments to the land to reduce the risk of flood damage. If the lender and the builder comply with flood-zone building regulations, elevation certificates can be prepared and certified by either an authorized land surveyor, engineer or architect. Authorized floodplain information management officials in the county may also sign the certificate. For instance, in Sacramento, Calif., man-made alterations to the land have reduced the flood risk from a level A flood zone to a level B flood zone, which does not require flood insurance for the life of the loan. With advancements in technology and continuous updates in flood zone mapping, some companies are able to pull flood zone information within moments. An entire report can be compiled within 24 hours. The life-of-loan lowdown While flood reports have to be pulled in order to secure a mortgage, flood insurance must also be maintained for the life of a loan. Fortunately, experts in the industry will monitor zoning maps daily and keep borrowers informed on the status of the zones where their loans apply. This information allows brokers to keep their clients updated on the necessity for flood insurance on their home. Because brokers must multi-task in a range of areas that require specific attention to detail, most do not want to handle the many elements of this extensive monitoring process. There are many third-party companies that offer their services individually or as part of bundled services, so that flood servicing and credit reporting are accessible as one package. By having the most accurate, up-to-date knowledge on flood reporting, you won't drown in the details. Steve Grant is president and CEO of Credit Plus Inc., based in Salisbury, Md. He may be reached at (800) 258-3488 or e-mail [email protected]
Published
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