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Buying property comes with a lot of administrative paperwork and legal requirements. One of those requirements says that mortgage lenders must determine whether the property lies in a flood zone. Read on to learn how you can better manage flood zone determination for your mortgage customers.
The Flood Insurance Reform Act of 1994
This law ties flood insurance premiums under the National Flood Insurance Program to the flood risk. In practical terms, that means that flood-prone areas (including areas that flood repeatedly) mean higher premiums for those property owners.
The law requires lenders to use the Emergency Management Agency's (FEMA) current flood insurance maps to identify whether the property the borrowers want to buy lies in a floodplain. The map is known as the FEMA Flood Insurance Rate Map (FIRM). If the property is in an area designated as prone to flooding, the borrowers must buy flood insurance (which may include higher premiums) to protect their property.
Even in areas where flood insurance is not a mandatory requirement, borrowers may find themselves eligible to buy flood insurance from the National Flood Insurance Program.
Flood Area Designations
FEMA divides the flood insurance rate map into four areas and then subdivides three of the four areas into zones. The four areas include:
- Special Flood Hazard Areas - High Risk: FEMA says that buildings in these areas have a 26% chance of flooding during a typical 30-year loan. Mandatory flood insurance and floodplain management regulations apply to these properties. This area is further subdivided into 6 zones of decreasing risk.
- Coastal High Hazard Areas - High Risk: FEMA says that properties in these areas also have a 26% chance of flooding during a typical 30-year loan. They are at risk of being impacted by high waves from storms or seismic activity (tsunamis). Mandatory flood insurance and floodplain management regulations apply. This area is further subdivided into two zones.
- Moderate and Minimal Risk Areas: Properties in this area could be inundated by heavy rainfall combined with poor drainage systems. Flood insurance is available but not mandatory in these areas. FEMA says that nearly 25% of all flood claims with respect to buildings come from these zoned areas. There are two subdivisions.
- Undetermined Risk Areas: These are areas FEMA has not studied but which still may flood. Mandatory insurance does not apply but borrowers can buy flood insurance.
It's also important to know whether the property's elevation takes it out of harm's way above the floodplain (even if it is in the floodplain area). Such properties would not be subject to mandatory flood insurance or floodplain regulations.
ABT Can Help You Manage Flood Zone Determination
Whether your business is new to mortgage servicing or you've acquired a business that now stretches your mortgage servicing capability beyond your current staff, ABT has solutions and products that can help you manage all aspects of your mortgage business.
- Advanced Technical Support: We are here when you need us. ABT provides advanced technical support 24/7, 365 days a year. We staff our support team with SSAE16 Type II employees. We never use third-party providers.
- MortgageWorkSpace®: MortgageWorkSpace® is a cloud-based platform developed specifically as a work space for mortgage companies. Mortgage companies have a specific portal within MortgageWorkSpace® where they can satisfy security and compliance for any device, no matter where it's located. MortgageWorkSpace®'s portal also allows you to manage all your loan origination software from the cloud. In addition, MortgageWorkSpace® integrates Office 365 with the other products in its mortgage cloud so that it’s tailored specifically to mortgage companies’ needs.
To learn more about how property owners can fight FEMA floodplain determinations with evidence of higher elevations, see the Lens (NOLA) article entitled, "Here’s a FEMA map that actually delivers good news for New Orleans."
To learn more about flood zone determination or any one of our cloud hosted services, please contact us. We look forward to helping you grow and protect your mortgage business.
