VIDEO: Discrepancy Between Flood Determination and Declaration Page
In this Compliance Clip (video), Adam discusses what lenders must do if there is a discrepancy between the flood determination and the declaration page. While the industry has long understood one answer to this question, the May 2022 Flood Q&A’s made some significant changes to what is expected when there is a discrepancy between the declaration page and flood determination. Therefore, Adam discusses the applicable Flood Q&A’s as well as how FEMA 2.0 has impacted the answer to this question.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to talk about the discrepancy between the flood determination page and the declaration page. So this is a flood insurance topic. This is actually a topic that comes from our 2022 Flood FAQs program that's located in our store at compliancecohort.com/store. But I want to share this with you as a compliance clip, because this is a pretty big change that has taken place from the prior guidance that we had on flood insurance rules.
What we can look at to answer this question and really what this question comes down to is, what do you do if you have a discrepancy between what's on your flood determination - so your flood determination says you're in a high-risk zone and it tells you what letter of high-risk zone it's in - but your declaration page of your flood insurance policy has a different zone. What do you do? That is what we're talking about. That's the question that we're faced with.
In the past, what we had to do was correct those discrepancies and it was considered a violation. But I want to show you that the May Question and Answers on Flood Insurance that were released by the interagency, the May 2022 Questions and Answers, tell us something a little bit different than what we know for some time. Let's look at a couple of questions and this is under the “Zone” topic, and this is actually Zone topic question number 2. It says, is it a violation if there is a discrepancy between the flood zone on the Standard Flood Hazard Determination Form and the flood zone associated with the flood insurance policy, that would be located on the decoration page?
Again, in the past, it was problematic if there was a discrepancy, but here you can see the answers to the May 2022 Questions and Answers now tell us no, a lender is not in violation of the Regulation if there is a discrepancy between the flood zone on the Standard Flood Hazard Determination Form and the flood zone associated with the policy. But also see Q&A Zone number 1. What they're telling us is it's not a violation. It is no longer a violation. That's something that actually changed with FEMA 2.0.
Let's go to Zone question 1 to kind of explain this. This question asks, does a lender need to reconcile a discrepancy between the flood zone designation on the flood determination form and the flood zone associated with the flood insurance policy, such as what's located on the declaration page? And the answer here is no. They do say in the answer, I'm abbreviating here on this slide, but they say on the answer that you can note it, but you don't have to resolve it and you don't have to take any other action. They explain to us why this is. They say, first of all, FEMA, 2.0, that happened in the fall of 2021, now risk rates flood policies differently. In fact, what they do is their risk screening policies based on the location of the property rather than the zone. So, they're actually pricing insurance differently, so we no longer have to worry about if the flood zone listed on the deck page and on the policy is different from what our flood determination tells us. In the past, the pricing was different, so it mattered, but now the pricing has changed with FEMA 2.0, it no longer matters. That’s necessarily what they tell us in this answer.
They also say that flood insurance policies issued by private insurers may still include the flood zone. That's okay. Older policies may still include the flood zone. That's okay. You still don't have to resolve it. But they do want to reiterate that a determination is still absolutely necessary to determine whether or not a property is in a high-risk flood zone.
That's what Zone questions 1 and 2 tell us regarding discrepancies between a declaration page and a flood determination flood zone. That's all I have for you for this Compliance Clip.