Assume that the properties involved in the following loans are located in special flood hazard areas.  Which loans would NOT require flood insurance as a condition of the loan?

A. A mortgage loan made to a consumer secured by a residence in a community in which flood insurance is available.

B. A commercial loan secured by residential real estate locates in a community in which flood insurance is available.

C. A consumer loan secured by a lake house located in a community in which flood insurance is not available.

D. A loan for the purpose of making investments secured by commercial rental property located in a community in which flood insurance is available.

C. A consumer loan secured by a lake house located in a community in which flood insurance is not available.

Reg. H: 12 CFR 22.2 and 22.3, 12 CFR 339.2 and 339.3, 12 CFR 208.25(b) and (c), and 12 CFR 172.2 and 172.3

Any loan secured by a building or mobile home located in a special flood hazard area where flood insurance is available must have flood insurance as a condition of making the loan.

Which of the following loans does NOT require flood insurance?

·         Loan A is a commercial loan that has been on the books for two years and has been renewed twice.  Flood insurance was legally required on the loan at the time it was made.  There was a f1ood insurance policy in effect at the loan’s inception, but it expired and was not renewed.

·         Loan B is a consumer loan secured by a mobile home that is located in a flood hazard area in which federal flood insurance is not available.

·         Loan C is a commercial loan that the bank would be willing to make on an unsecured basis, but the borrower has offered some commercial real estate property as collateral.  The property has one vacant building on it, and it is in a flood hazard area in a community where federal flood insurance is available.

A. Loan A

B. Loan B

C. Loan C

D. None of the loans

B. Loan B

Reg. H: 12 CFR 22.2 and 22.3, 12 CFR 339.2 and 339.3, 12 CFR 208.25(b) and (c), and 12 CFR 172.2 and 172.3

The properties securing Loans A and C are located in special flood hazard areas and in communities where federal flood insurance is available; therefore, flood insurance is required.  Loan A is required to have flood insurance for the entire term.  The bank must check at each renewal to make sure the insurance is still in effect.

Which of the following loans requires a notice of special flood hazard?

·         Loan A is to be secured by a car-wash facility located in a special flood hazard area in a community where federal flood insurance is not available.

·         Loan B is to be secured by a rental house not located in a special hazard area but in a community where flood insurance is available.

·         Loan C is to be secured by a vacant lot located in a special flood hazard area in a community where federal flood insurance is available. 

A. Loan A

B. Loan B

C. Loan C

D. All the loans

A. Loan A

Reg. H: 12 CFR 22.9, 12 CFR 339.9, 12 CFR 208.25(i), and 12 CFR 172.9

Loan B is not in a special flood hazard area.  Loan C is a vacant lot, which is not insurable.

When may a bank force the placement of flood insurance on the borrower’s property?

A. Immediately on the expiration of the insurance

B. Ten days after notifying the borrower

C. Twenty-one days after notifying the borrower

D. Forty-five days after notifying the borrower

D. Forty-five days after notifying the borrower

Reg. H: 12 CFR 22.7, 12 CFR 339.7, 12 CFR 208.25(g), and 12CFR 172.7

The bank must force the placement of flood insurance for the required amount of coverage, at the borrower’s expense, 45 days after notifying the borrower

When does a notice that the borrower’s property is located in a special flood hazard area have to be given to the borrower?

A. Before making a commitment to lend

B. Within 10 days after closing

C. At the time of application

D. Within a reasonable time before completion of the transaction, but no later than the bank sends other notices concerning insurance and taxes

D. Within a reasonable time before completion of the transaction, but no later than the bank sends other notices concerning insurance and taxes

Reg. H: 12 CFR 22.9(c), 12 CFR 339.9(c), 12 CFR 208.25(i)(2), and 12 CFR 172.9(c)

State National Bank is making a loan to the ACME Corporation to be secured by ACME’s manufacturing plant.  The bank’s loan is for $250,000.  The appraised value of the plant is $750,000.  The maximum amount of flood insurance available for a commercial building is $500,000.  What is the greatest amount of flood insurance the bank must require under the Flood Regulations?

A. $250,000

B. $750,000

C. $500,000

D. None of the above

A. $250,000

Reg. H: 12 CFR 208.25(c) and (g), 12 CFR 22.3 and 22.7, 12 CFR 339.3 and 339.7, and 12 CFR 172.3 and 172.7

When should a notice that a property is located in an area having special flood hazards typically be delivered to the borrower.

A. Only upon the borrower’s request

B. A reasonable time in advance of the loan closing

C. At the loan closing

D. No later than 30 days after the loan closing

B. A reasonable time in advance of the loan closing

Reg. H: 12 CFR 208.25(i), 12 CFR 22.9, 12 CFR 339.9, 12 CFR 172.9

Which of the following is acceptable proof of the purchase of flood hazard insurance?

A. Copy of the declarations page of the insurance policy

B. A certificate of insurance

C. Flood insurance binder

D. Letter signed by the borrower agreeing to purchase the insurance

A. Copy of the declarations page of the insurance policy

Mandatory Purchase of Flood Insurance Guidelines

FEMA guidelines have only two forms of proof of insurance.  One is a copy of the declarations page of the policy.  The other is the insurance application long with proof of payment.

When is the purchase of flood insurance required on or before loan closing?

A. Construction mortgage loan is to be secured by a single family dwelling in a participating community

B. Conventional mortgage loan is to be secured by an attached mobile home in a special flood hazard area of a nonparticipating community

C. Conventional mortgage loan is to be secured by vacant lot located in a special flood hazard area of a participating community

D. Business mortgage loan is to be secured by a commercial building located in a special flood hazard area of a participating community

D. Business mortgage loan is to be secured by a commercial building located in a special flood hazard area of a participating community

Reg. H: 12 CFR 208.25(c), 12 CFR 22.3, 12 CFR 339.3, and 12 CFR 172.3

The other alternatives do not require flood insurance.  Vacant lots are not covered.  Property in nonparticipating communities does not require insurance.  Construction loans require flood insurance if the building will be located in a special flood hazard area, but the insurance does not have to be in place on or before loan closing as long as the lender has reasonable controls in place to assure that the insurance will be purchased when walls and a roof are in place.