Applying For a Flood Insurance Waiver

Talking about flood insurance waiver, if you live in an area prone to flooding, chances are you already understand the expense involved with flood insurance coverage for both your home and its contents. Furthermore, federally regulated mortgage lenders typically require their borrowers to secure and maintain such insurance policies as part of the loan contract agreement.

Lenders may only waive this requirement under specific conditions and must uphold prudent lending standards and document their decision.

Waiting Period

There is typically a waiting period before homeowners can use their flood insurance, although in certain situations this can be waived, including when purchasing or refinancing within an agreed-upon timeframe and/or being located in an area declared high risk for flooding.

SFHAs (Specific Flood Hazard Areas) require adequate and necessary flood insurance; should a lender determine that adequate and necessary coverage are not readily available, the borrower can be required to purchase one as part of their mortgage payment and their lender will collect and hold onto the premium before sending payment directly to their insurer each year.

Lenders can also accept private flood insurance policies that meet or exceed the minimum coverage amount required by Regulation, as long as they meet all other relevant requirements set out by both Act and Regulation, including safety and soundness principles. Furthermore, lenders can accept these private policies because they typically feature higher policy limits and lower deductibles than NFIP policies.

Fannie Mae and Freddie Mac loans serviced by entities not supervised by the Agencies must follow their own policies and procedures with regards to private flood compliance. Specifically, Fannie Mae/Freddie Mac must ensure that flood determinations are made available to borrowers as soon as they become available, while also conducting its own review of policies underlying them to determine whether they meet all requirements set out by both Regulation and Servicing Guidelines of their Agency.

Deed Requirement

Before applying for a flood insurance waiver, it is vitally important to gather all pertinent data, such as property address and contact details, as well as reading the instructions carefully and providing honest answers to questions asked of you. Doing this will prevent issues with an incomplete or insufficient application being submitted later on.

In order to waive the requirement for flood insurance, lenders require a deed as evidence of ownership and can sign it as evidence that flood insurance will no longer be needed. It should be noted, however, that this document cannot act as a replacement policy.

Lenders may choose to escrow flood insurance premiums and fees as per regulations for loans made to borrowers residing in communities not participating in the National Flood Insurance Program (NFIP). When doing this, lenders must follow prudent lending standards; otherwise they risk breaking them. Should a lender elect to do this, a notice of its intent to do so must be given to borrowers.

A lender must show evidence that it has reviewed an NFIP insurance policy and determined it provides sufficient protection for the loan, consistent with general safety and soundness principles. This review may be documented through a letter from an independent insurance expert or any other means deemed by them as appropriate.

Lender Requirement

There are three exemptions to the requirement of purchasing flood insurance when making loans, including State-owned property covered by an acceptable policy of self-insurance, loans made to non-homeowners and structures detached from residential structures that do not serve as residences. [1] Lenders should carefully assess these exceptions and understand any associated risks of waiving this requirement for their borrowers.

Under the act and regulation, lenders are required to give borrowers a Notice of Special Flood Hazards whenever making, increasing, extending, or renewing loans secured by improved real estate located within an SFHA where flood insurance coverage is available. Lenders may tailor or change the format of this notice according to appendix A of the regulation; however, at minimum it must contain minimum required information.

NFIP requires mortgagees to carry flood insurance on any property secured by their mortgage, such as buildings, mobile homes, or other structures. Policies typically offer coverage of at least $250,000 but this number could increase depending on location; generally it should have at least 1% chance of flooding each year and where homes exceed Base Flood Elevation (BFE). Furthermore, lenders must make sure GP/PLP borrowers possess an additional hazard insurance policy which specifically addresses damage from flooding events.

Waiver

The National Flood Insurance Program (NFIP), administered by FEMA, offers property owners insurance against flooding. Participating communities agree to adopt and enforce ordinances that reduce future flooding risk while the Increased Cost of Compliance coverage helps cover building requirements that reduce risks to structures and their contents.

Flood insurance typically has a 60-day waiting period; however, this period can be reduced or waived in certain situations. For instance, if your house is located in an area affected by wildfire smoke flooding and you purchase flood insurance within 13 months of flood map revision then this waiting time can be waived.

When refinancing or selling your home, you may request that your lender waive the flood insurance requirement. To do so, submit a LOMA or LOMR-F form along with a signed waiver from them to receive this advantage.

Filing for a LOMA or LOMR-F can also allow your building to escape flood zone requirements if it has been significantly damaged, even if it does not fall within its SFHA on the FIRM. You must present evidence of floodwater reaching any part of your property before filing, such as certified elevation certificates showing how floodwater can access low points on your property and comply with any local/State construction requirements to bring the structure into line with NFIP standards for your community.