Post on 26-Jun-2020
11/2/2013
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Lenders Gone Wild!Lenders Gone Wild!
Everyone is “muted.” Sound will start at 10:00 a.m.
This webinar is not filed for CE credit.
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David Thompson, CPCU, AAI, API, CRISDavid Thompson, CPCU, AAI, API, CRISFlorida Association of Insurance AgentsFlorida Association of Insurance AgentsDthompson@faia.comDthompson@faia.com
Poll QuestionPoll Question
•• Is this your first webinar with FAIA?Is this your first webinar with FAIA?Is this your first webinar with FAIA?Is this your first webinar with FAIA?
•• YesYes•• NoNo
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Wait for poll question…
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Type questions here and click “send.”
NoticeNotice
This webinar is approximately an hourThis webinar is approximately an hourThis webinar is approximately an hour. This webinar is approximately an hour. Since Since it is not filed for CE credit it is not filed for CE credit we are we are not “married to the clock.”not “married to the clock.”
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Webinar Being RecordedWebinar Being Recorded
•• We are recording this on 11/4/13We are recording this on 11/4/13We are recording this on 11/4/13We are recording this on 11/4/13•• Possible future rebroadcast datesPossible future rebroadcast dates
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Kid UpdateKid Update
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Sarah Annsley Bigwoodaka “Rambette”
DOB: 5/3/13
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“Some of these lender demands just crack me up. Stand firm and do what’s right!”
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Today’s Special GuestsToday’s Special Guests
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Dan Alexander Rob Norberg, AAI
1111Robert Ludwig Sandy Lynch, Chase Bank
How Much of an Issue Are How Much of an Issue Are Lender Inquiries?Lender Inquiries?
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Today’s MenuToday’s Menu
•• Fannie GuidelinesFannie Guidelines •• NFIP requirementsNFIP requirementsFannie GuidelinesFannie Guidelines•• DeductiblesDeductibles•• Condo projectsCondo projects•• GRC wordingGRC wording•• Agreed valueAgreed value
NFIP requirementsNFIP requirements•• Private flood ins.Private flood ins.•• RCE issuesRCE issues•• Lender specific formsLender specific forms•• Recorded linesRecorded lines
•• 100% RC wording100% RC wording•• Ordinance & LawOrdinance & Law•• Mechanical BreakdownMechanical Breakdown
•• ResourcesResources•• Standing firmStanding firm
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To Set The Stage…11/1/13To Set The Stage…11/1/13
•• Appraisal for “hazard” shows $4 7MAppraisal for “hazard” shows $4 7MAppraisal for hazard shows $4.7MAppraisal for hazard shows $4.7M•• Blanket “hazard” policy for $4.7MBlanket “hazard” policy for $4.7M•• RCBAP RCBAP decdec page shows RC of $2,779,900page shows RC of $2,779,900•• RCBAP building coverage: $2,770,900RCBAP building coverage: $2,770,900
–– $7 000 short 13 units $538 short per unit$7 000 short 13 units $538 short per unit$7,000 short. 13 units. $538 short per unit$7,000 short. 13 units. $538 short per unit
•• Lender says unit owner must buy $14,000 Lender says unit owner must buy $14,000 of NFIP building coverageof NFIP building coverage–– Says, “Hazard must match NFIP”Says, “Hazard must match NFIP”
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To Set The Stage…11/1/13To Set The Stage…11/1/13
•• Customer has voluntarily purchased NFIPCustomer has voluntarily purchased NFIPCustomer has voluntarily purchased NFIP Customer has voluntarily purchased NFIP building coverage of $80,000building coverage of $80,000
•• Lender says, “The $80K plus the RCBAP Lender says, “The $80K plus the RCBAP goes above the NFIP max of $250K.”goes above the NFIP max of $250K.”–– Lender tells agent, Lender tells agent, “We will not allow “We will not allow
customer to purchase $80K. Please customer to purchase $80K. Please reduce coverage to $14,000.”reduce coverage to $14,000.”
•• Thompson calls lender, issue resolved.Thompson calls lender, issue resolved.
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Your “One Stop Shop” Your “One Stop Shop”
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Search for “Mortgage Company”
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The Basis for Many Lender The Basis for Many Lender IssuesIssues
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http://www.allregs.com/tpl/Main.aspx
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Financial Ratings of CarriersFinancial Ratings of Carriers
•• A M Best: “B” or betterA M Best: “B” or betterA.M. Best: B or betterA.M. Best: B or better•• DemotechDemotech: “A” or better: “A” or better•• S&P: “BBB” or betterS&P: “BBB” or better•• Citizens is acceptableCitizens is acceptable
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Financial Ratings of CarriersFinancial Ratings of Carriers
•• Can a lender refuse to accept a policy byCan a lender refuse to accept a policy byCan a lender refuse to accept a policy by Can a lender refuse to accept a policy by an insurer without an A. M. Best rating?an insurer without an A. M. Best rating?
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Coverage RequirementsCoverage Requirements
•• Hazard insurance for property securingHazard insurance for property securingHazard insurance for property securing Hazard insurance for property securing loans delivered to Fannie Mae must loans delivered to Fannie Mae must protect against loss or damage from fire protect against loss or damage from fire and other hazards covered by the and other hazards covered by the standard extended coverage standard extended coverage endo sementendo sementendorsement….. endorsement…..
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•• The coverage must provide for claims toThe coverage must provide for claims toThe coverage must provide for claims to The coverage must provide for claims to be settled on a replacement cost basis. be settled on a replacement cost basis. Extended coverage must include, at a Extended coverage must include, at a minimum, wind, civil commotion (including minimum, wind, civil commotion (including riots), smoke, hail, and damages caused riots), smoke, hail, and damages caused b ai c aft ehicle o e plosionb ai c aft ehicle o e plosionby aircraft, vehicle, or explosion…..by aircraft, vehicle, or explosion…..
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•• Fannie Mae does not accept hazardFannie Mae does not accept hazardFannie Mae does not accept hazard Fannie Mae does not accept hazard insurance policies that limit or insurance policies that limit or exclude from coverage (in whole or exclude from coverage (in whole or in part) windstorm, hurricane, hail in part) windstorm, hurricane, hail damagesdamages, or any other perils that , or any other perils that no mall a e incl ded nde an e tendedno mall a e incl ded nde an e tendednormally are included under an extended normally are included under an extended coverage endorsement.coverage endorsement.
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Amount of CoverageAmount of Coverage
•• For a first mortgage, Fannie Mae requiresFor a first mortgage, Fannie Mae requiresFor a first mortgage, Fannie Mae requires For a first mortgage, Fannie Mae requires coverage equal to the coverage equal to the lesserlesser of the following: of the following: –– 100% of the insurable value of the 100% of the insurable value of the
improvements, as established by the property improvements, as established by the property insurer; orinsurer; or
–– the unpaid principal balance of the mortgage,the unpaid principal balance of the mortgage,the unpaid principal balance of the mortgage, the unpaid principal balance of the mortgage, as long as it equals the minimum amountas long as it equals the minimum amount——80% of the insurable value of the 80% of the insurable value of the improvementsimprovements——required to compensate for required to compensate for damage or loss on a replacement cost basis. damage or loss on a replacement cost basis.
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Deductible AmountDeductible Amount
•• The maximum allowable deductible forThe maximum allowable deductible forThe maximum allowable deductible for The maximum allowable deductible for insurance covering a property (including insurance covering a property (including common elements in a PUD, condo, or cocommon elements in a PUD, condo, or co--op project) securing a first mortgage loan op project) securing a first mortgage loan is is 5%5% of the face amount of the policy. of the face amount of the policy.
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Condo ProjectsCondo Projects
•• The lenderThe lender must review the entire condomust review the entire condoThe lender The lender must review the entire condo must review the entire condo project insurance policy to ensure the project insurance policy to ensure the homeowners’ association maintains a homeowners’ association maintains a master or blanket type of insurance policy, master or blanket type of insurance policy, with premiums being paid as a common with premiums being paid as a common e pensee penseexpense. expense.
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“Project Approval”“Project Approval”
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Condo ProjectsCondo ProjectsAmount of InsuranceAmount of Insurance
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Fannie Mae does not require “Guaranteed Replacement Cost” or Agreed Value!!
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Guaranteed Replacement CostGuaranteed Replacement Cost
•• Dave one quick question I just read yourDave one quick question I just read yourDave, one quick question. I just read your Dave, one quick question. I just read your article, Mortgage Companyarticle, Mortgage Company Issues, where Issues, where you state there is no such thing as you state there is no such thing as Guaranteed Replacement Cost or 100% Guaranteed Replacement Cost or 100% percent RC. percent RC.
•• Continued ………………Continued ………………
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•• When it comes to high net worth companies, When it comes to high net worth companies, most if not all include Guaranteed RC if the most if not all include Guaranteed RC if the dwelling is insured to 100% RCdwelling is insured to 100% RC. . Some go as Some go as high as up tohigh as up to 200% ( for some perils)200% ( for some perils) of theof thehigh as up to high as up to 200% ( for some perils) 200% ( for some perils) of the of the coverage limit. They indicate this on their coverage limit. They indicate this on their decdecpage once the policy is written. page once the policy is written. Under these Under these circumstances, would it acceptable for us to circumstances, would it acceptable for us to include in our EOI Guaranteed Replacement include in our EOI Guaranteed Replacement CostCost, or would you suggest we include a copy of, or would you suggest we include a copy ofCostCost, or would you suggest we include a copy of , or would you suggest we include a copy of the declaration page which indicates this the declaration page which indicates this coverage?coverage?
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Another Lender Another Lender -- GRCGRC
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Tip for the lender: You are not going to get the RCE.
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There is no such coverage as “Guaranteed Replacement Cost.” If you use those words on any document then there is“Guaranteed” coverage. It is guaranteed by your E&O policy!
Agreed Value CoverageAgreed Value Coverage
•• It isIt is notnot required by Fannie Maerequired by Fannie MaeIt is It is notnot required by Fannie Maerequired by Fannie Mae•• It does It does notnot “…ensure full value “…ensure full value
replacement cost coverage” replacement cost coverage” as Fannie as Fannie statesstates
•• It only waives the coinsurance provision, if It only waives the coinsurance provision, if y p ,y p ,the Statement of Values (SOV) is properly the Statement of Values (SOV) is properly submitted to the carrier. submitted to the carrier.
•• It is It is notnot an endorsement. Activate it via an endorsement. Activate it via the declarations page. the declarations page. 4444
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Agreed Value CoverageAgreed Value CoverageExample #1Example #1
•• Estimated replacement cost: $1 millionEstimated replacement cost: $1 millionEstimated replacement cost: $1 millionEstimated replacement cost: $1 million•• Policy coverage: $1 millionPolicy coverage: $1 million•• SOV submitted and acceptedSOV submitted and accepted•• After loss, RC is determined to be $1.5MAfter loss, RC is determined to be $1.5M•• $400 000 loss paid without coinsurance$400 000 loss paid without coinsurance•• $400,000 loss paid without coinsurance $400,000 loss paid without coinsurance
penaltypenalty
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Agreed Value CoverageAgreed Value CoverageExample #2Example #2
•• Estimated replacement cost: $1 millionEstimated replacement cost: $1 millionEstimated replacement cost: $1 millionEstimated replacement cost: $1 million•• Policy coverage: $1 millionPolicy coverage: $1 million•• SOV submitted and acceptedSOV submitted and accepted•• After total loss, RC is determined to be After total loss, RC is determined to be
$1.5M$1.5M$1.5M$1.5M•• Policy pays Policy pays $1 million$1 million
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Other Replacement Cost IssuesOther Replacement Cost Issues
•• “Policy must state replacement cost ”“Policy must state replacement cost ”Policy must state replacement cost.Policy must state replacement cost.•• “Must state 100% replacement cost.”“Must state 100% replacement cost.”•• “100% replacement cost up to policy “100% replacement cost up to policy
limits.”limits.”•• “Replacement cost up to policy limits”“Replacement cost up to policy limits”Replacement cost up to policy limitsReplacement cost up to policy limits
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Other Replacement Cost IssuesOther Replacement Cost Issues
•• “Policy must state replacement cost ”“Policy must state replacement cost ”Policy must state replacement cost.Policy must state replacement cost.•• “Must state 100% replacement cost.”“Must state 100% replacement cost.”•• “100% replacement cost up to policy “100% replacement cost up to policy
limits.”limits.”•• “Replacement cost up to policy limits”“Replacement cost up to policy limits”Replacement cost up to policy limitsReplacement cost up to policy limits
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“Ain’t gonna happen!”
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Other Replacement Cost IssuesOther Replacement Cost IssuesExampleExample
•• $1M of coverage$1M of coverage$1M of coverage$1M of coverage•• 50 year old structure50 year old structure•• Fire damage to large deck and wood roof Fire damage to large deck and wood roof
over deck plus damage to screensover deck plus damage to screens•• $75,000 replacement cost$75,000 replacement cost$75,000 replacement cost$75,000 replacement cost•• Insured decides not to replaceInsured decides not to replace•• How much is paid? How much is paid?
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Other Replacement Cost IssuesOther Replacement Cost IssuesWhat You What You CanCan Put on COIPut on COI
•• “Please refer to attached policy for loss“Please refer to attached policy for lossPlease refer to attached policy for loss Please refer to attached policy for loss settlement provisions relating to settlement provisions relating to replacement cost.” Or…replacement cost.” Or…
•• “Some (not all) losses are settled on a “Some (not all) losses are settled on a replacement cost basis subject to terms, replacement cost basis subject to terms, conditions, limitations, deductibles, and conditions, limitations, deductibles, and exclusions found in the policy. Please exclusions found in the policy. Please refer to policy.” refer to policy.”
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Other Condo CoveragesOther Condo Coverages
•• The requirements for endorsements for PUD, condo, and coThe requirements for endorsements for PUD, condo, and co--op projects are op projects are f llf llas follows:as follows:
•• Inflation Guard EndorsementInflation Guard Endorsement, , when it can be obtainedwhen it can be obtained;;•• Building Ordinance or Law EndorsementBuilding Ordinance or Law Endorsement, if the enforcement of any building, , if the enforcement of any building,
zoning, or landzoning, or land--use law results in loss or damage, increased cost of repairs use law results in loss or damage, increased cost of repairs or reconstruction, or additional demolition and removal costs. (The or reconstruction, or additional demolition and removal costs. (The endorsement must provide for contingent liability from the operation of endorsement must provide for contingent liability from the operation of building laws, demolition costs, and increased costs of reconstruction.); andbuilding laws, demolition costs, and increased costs of reconstruction.); and
•• Steam Boiler and Machinery Coverage EndorsementSteam Boiler and Machinery Coverage Endorsement, if the project has , if the project has y gy g , p j, p jcentral heating or cooling. (This endorsement should provide for the central heating or cooling. (This endorsement should provide for the insurer’s minimum liability per accident to at least equal the lesser of $2 insurer’s minimum liability per accident to at least equal the lesser of $2 million or the insurable value of the building(s) housing the boiler or million or the insurable value of the building(s) housing the boiler or machinery.) In lieu of obtaining this as an endorsement to the commercial machinery.) In lieu of obtaining this as an endorsement to the commercial package policy, the project may purchase separate standalone boiler and package policy, the project may purchase separate standalone boiler and machinery coverage.machinery coverage.
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Inflation Guard Inflation Guard –– When AvailableWhen Available
•• What it isWhat it is not:not:What it is What it is not:not:–– Current coverage; $1MCurrent coverage; $1M–– Renewal coverage: $1.05MRenewal coverage: $1.05M
•• What it What it is:is:–– Current coverage: $1MCurrent coverage: $1M–– 5% inflation guard endorsement5% inflation guard endorsement–– $50,000 of additional coverage, pro$50,000 of additional coverage, pro--rated rated
each day during the policy. Loss each day during the policy. Loss six six months months into policy: $1,025,000 into policy: $1,025,000 availableavailable
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Ordinance and Law Ordinance and Law -- RequiredRequired
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O&L O&L –– Homeowners PoliciesHomeowners Policies
•• Required for admitted marketsRequired for admitted marketsRequired for admitted marketsRequired for admitted markets•• Issue policy at 25%; must offer 50%Issue policy at 25%; must offer 50%•• Carrier does not have to allow customer to Carrier does not have to allow customer to
reject itreject it•• “Packaged” together“Packaged” togetherPackaged togetherPackaged together
–– Undamaged portionUndamaged portion–– Demolition costDemolition cost–– Increased cost of constructionIncreased cost of construction
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O&L O&L –– Commercial PropertyCommercial Property
•• NotNot included. Add via endorsement.included. Add via endorsement.NotNot included. Add via endorsement.included. Add via endorsement.•• Coverage ACoverage A: Undamaged portion: Undamaged portion
–– No dollar limit needed. Select it on No dollar limit needed. Select it on endorsementendorsement
•• Coverage BCoverage B: Demolition cost: Demolition costS l t d b i dS l t d b i d–– Selected by insuredSelected by insured
•• Coverage CCoverage C: Increased Cost of Construction: Increased Cost of Construction–– Selected by insuredSelected by insured
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O&L O&L –– Commercial PropertyCommercial Property
•• Can blanket Coverages B and CCan blanket Coverages B and CCan blanket Coverages B and CCan blanket Coverages B and C–– “Blanketed” A, B, and C is not true O&L“Blanketed” A, B, and C is not true O&L
•• Some O&L has Some O&L has sublimitssublimits of B and C as a of B and C as a percentage of A.percentage of A.
•• StandStand--alone “true” O&L is about asalone “true” O&L is about asStandStand alone true O&L is about as alone true O&L is about as common as snow in Floridacommon as snow in Florida
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O&L: NonO&L: Non--ISO FormsISO Forms
•• Carrier A:Carrier A: $1M on A $500 000K on B&C;$1M on A $500 000K on B&C;Carrier A:Carrier A: $1M on A, $500,000K on B&C; $1M on A, $500,000K on B&C; no coverage in the event of windno coverage in the event of wind
•• Carrier B:Carrier B: Full A but B&C subFull A but B&C sub--limited to limited to 2.5% per bldg; coverage includes wind2.5% per bldg; coverage includes wind
•• Carrier C: Blanket A, B, C. (Huh???)Carrier C: Blanket A, B, C. (Huh???)
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O&L: NonO&L: Non--ISO FormsISO Forms
•• “Sometimes you can add O&L to the DIC“Sometimes you can add O&L to the DICSometimes you can add O&L to the DIC Sometimes you can add O&L to the DIC for just DIC perils and other times you can for just DIC perils and other times you can add to the DIC for what they call extended add to the DIC for what they call extended perils (all perils but wind).perils (all perils but wind). I’ve seen I’ve seen agents show the O&L on the cert when agents show the O&L on the cert when the a e doing this b t the bank doesn’tthe a e doing this b t the bank doesn’t
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they are doing this but the bank doesn’t they are doing this but the bank doesn’t understand it, doesn’t care, they see O&L understand it, doesn’t care, they see O&L and mark it off the checklist.”and mark it off the checklist.”
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O&L O&L –– The Dilemma The Dilemma
•• Coverage not availableCoverage not availableCoverage not availableCoverage not available•• Fannie/lender requires itFannie/lender requires it•• Some lenders stand firmSome lenders stand firm•• Some lenders will close if agency states: Some lenders will close if agency states:
“Coverage is not available via our agency“Coverage is not available via our agencyCoverage is not available via our agency Coverage is not available via our agency at the current time.” at the current time.”
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O&L Coverage O&L Coverage -- SummarySummary
•• Extremely important coverage even for aExtremely important coverage even for aExtremely important coverage…even for a Extremely important coverage…even for a brand new structurebrand new structure
•• Always quote and recommend it. Always quote and recommend it. Document it “out the Document it “out the wazoowazoo.”.”
•• If it’s not available, it’s not available. If it’s not available, it’s not available. ,,Advise the lender of suchAdvise the lender of such
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Flood InsuranceFlood Insurance
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NFIP NFIP -- FannieFannie
•• General RequirementsGeneral RequirementsGeneral RequirementsGeneral Requirements•• The lender must ensure that any flood insurance The lender must ensure that any flood insurance
required for the security property is in place.required for the security property is in place.•• Fannie Mae requires flood insurance for any Fannie Mae requires flood insurance for any
property that has a building, dwelling, structure, property that has a building, dwelling, structure, or improvement situated in a Special Floodor improvement situated in a Special Floodor improvement situated in a Special Flood or improvement situated in a Special Flood Hazard Area (SFHA) that has federally mandated Hazard Area (SFHA) that has federally mandated flood insurance purchase requirements…flood insurance purchase requirements…
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Detached StructuresDetached Structures
•• Flood insurance is required if any part ofFlood insurance is required if any part ofFlood insurance is required if any part of Flood insurance is required if any part of the principal structure is located within an the principal structure is located within an SFHA.SFHA.
•• Detached buildingsDetached buildings——such as standsuch as stand--alone alone garages, sheds, or greenhousesgarages, sheds, or greenhouses——are not are not considered part of the principal structure, considered part of the principal structure, although flood insurance may be required although flood insurance may be required for them if they are also a part of the for them if they are also a part of the security for the mortgage.security for the mortgage.
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Two NFIP policies may be required here.
Acceptable Flood Insurance Acceptable Flood Insurance
•• Flood insurance should be in the form of theFlood insurance should be in the form of theFlood insurance should be in the form of the Flood insurance should be in the form of the standard policy issued under the NFIP or by a standard policy issued under the NFIP or by a private insurer. The terms and conditions of the private insurer. The terms and conditions of the flood insurance coverage must be at least flood insurance coverage must be at least equivalent to the terms and conditions of equivalent to the terms and conditions of coverage provided under the standard policy of coverage provided under the standard policy of the NFIP for the appropriate property type. the NFIP for the appropriate property type. The The Policy Declaration page of a policy is acceptable Policy Declaration page of a policy is acceptable evidence of coverage.evidence of coverage.
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WARNING!!!!WARNING!!!!
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Lender LetterLender Letter
•• What will we do with the lender’s letter?What will we do with the lender’s letter?What will we do with the lender s letter? What will we do with the lender s letter?
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Lender LetterLender Letter
•• What will we do with the lender’s letter?What will we do with the lender’s letter?What will we do with the lender s letter?What will we do with the lender s letter?•• Answer…use it for this: Answer…use it for this:
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Lender LetterLender Letter
•• What IWhat I wouldwould signsignWhat I What I wouldwould sign…. sign….
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NFIP NFIP –– Amount of Coverage Amount of Coverage
•• The minimum amount of flood insurance required for The minimum amount of flood insurance required for qqmost first mortgages secured by one to fourmost first mortgages secured by one to four--unit unit properties, individual PUD units, and certain individual properties, individual PUD units, and certain individual condo units (such as those in detached condos, condo units (such as those in detached condos, townhouses, or townhouses, or rowhousesrowhouses) is the ) is the lowerlower of:of:–– • 100% of the replacement cost of the insurable • 100% of the replacement cost of the insurable
value of the improvements;value of the improvements;p ;p ;–– • the maximum insurance available from the NFIP, • the maximum insurance available from the NFIP,
which is currently $250,000 per dwelling; orwhich is currently $250,000 per dwelling; or–– • the unpaid principal balance of the mortgage.• the unpaid principal balance of the mortgage.
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NFIP NFIP –– Amount of CoverageAmount of CoverageCondo Associations Condo Associations
•• For coFor co--op projects and most condoop projects and most condoFor coFor co op projects and most condo op projects and most condo projects, the amount of coverage should projects, the amount of coverage should be at least equal to the lesser of 100%** be at least equal to the lesser of 100%** of the insurable value of each insured of the insurable value of each insured building (including all common elements building (including all common elements and p ope t ) o the ma im m co e ageand p ope t ) o the ma im m co e ageand property) or the maximum coverage and property) or the maximum coverage available under the applicable National available under the applicable National Flood Insurance Program.Flood Insurance Program.
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NFIP NFIP –– Amount of CoverageAmount of CoverageCondo Associations Condo Associations
•• Effective 2/1/14Effective 2/1/14Effective 2/1/14…Effective 2/1/14…•• For coFor co--op projects and most condo op projects and most condo
projects, the amount of coverage should projects, the amount of coverage should be at least equal to the lesser of be at least equal to the lesser of 80%80% of of the insurable value of each insured the insurable value of each insured building (including all common elements building (including all common elements and property) or the maximum coverage and property) or the maximum coverage available under the applicable National available under the applicable National Flood Insurance Program.Flood Insurance Program.
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Condo AssociationsCondo AssociationsHow Many Policies Are Required How Many Policies Are Required •• Effective 2/1/14Effective 2/1/14Effective 2/1/14…Effective 2/1/14…•• This Guide update also clarifies that flood This Guide update also clarifies that flood
insurance is required if any part of a insurance is required if any part of a security structure on security structure on the subject the subject property property is in a Special Flood Hazard is in a Special Flood Hazard Area and definitively allows delivery of Area and definitively allows delivery of mortgages on properties located in mortgages on properties located in Emergency Program communities with Emergency Program communities with additional insurance requirementsadditional insurance requirements. .
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Liability Insurance Liability Insurance Condos, Coops, EtcCondos, Coops, Etc
•• The homeowners’ association (or coThe homeowners’ association (or co--opopThe homeowners association (or coThe homeowners association (or co op op corporation) must maintain a commercial corporation) must maintain a commercial general liability insurance policy for the entire general liability insurance policy for the entire project, including all common areas and project, including all common areas and elements, public ways, and any other areas that elements, public ways, and any other areas that are under its supervision. are under its supervision.
•• The amount of coverage must be at least $1 The amount of coverage must be at least $1 million for bodily injury and property damage for million for bodily injury and property damage for any single occurrence.any single occurrence.
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CGL CGL –– Severability Severability
•• If the policy does not include “severabilityIf the policy does not include “severabilityIf the policy does not include severability If the policy does not include severability of interest” in its terms, Fannie Mae of interest” in its terms, Fannie Mae requires a specific endorsement to requires a specific endorsement to preclude the insurer’s denial of a unit preclude the insurer’s denial of a unit owner’s claim because of negligent acts of owner’s claim because of negligent acts of the homeo ne s’ association (o cothe homeo ne s’ association (o co opopthe homeowners’ association (or cothe homeowners’ association (or co--op op corporation) or of other unit owners.corporation) or of other unit owners.
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CGL CGL –– Severability Severability ISO WordingISO Wording
•• 7. Separation Of7. Separation Of InsuredsInsureds7. Separation Of 7. Separation Of InsuredsInsureds•• Except with respect to the Limits of Insurance, Except with respect to the Limits of Insurance,
and any rights or duties specifically assigned in and any rights or duties specifically assigned in this Coverage Part to the first Named Insured, this Coverage Part to the first Named Insured, this insurance applies: this insurance applies:
•• a. As if each Named Insured were the onlya. As if each Named Insured were the onlya. As if each Named Insured were the only a. As if each Named Insured were the only Named Insured; and Named Insured; and
•• b. Separately to each insured against whom b. Separately to each insured against whom claim is made or "suit" is brought. claim is made or "suit" is brought.
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CGL CGL –– Severability Severability From the Lender…From the Lender…
•• “The COI has to state severability or the“The COI has to state severability or theThe COI has to state severability or the The COI has to state severability or the loan won’t close. You are the only agent loan won’t close. You are the only agent that won’t do this?” that won’t do this?”
•• Agent response: Agent response:
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Refuse the request for “severability.” Send a copy of the policy and point out where the “separation of insureds” is. Send them my blog.
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Fidelity CoverageFidelity Coverage
•• Fidelity insurance is required for condo or coFidelity insurance is required for condo or co--opopFidelity insurance is required for condo or coFidelity insurance is required for condo or co op op projects consisting of more than 20 units. This projects consisting of more than 20 units. This requirement applies to all condo and corequirement applies to all condo and co--op op review processes.review processes.
•• In states that have statutory fidelity insurance In states that have statutory fidelity insurance requirements, Fannie Mae accepts those requirements, Fannie Mae accepts those q , pq , prequirements in place of its own. The lender requirements in place of its own. The lender must verify coverage as part of its review of the must verify coverage as part of its review of the projectproject..
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The Proper Documents To UseThe Proper Documents To Use
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Do not put property and/or flood here.
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Recorded LinesRecorded Lines
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Recorded LinesRecorded Lines
•• “I am calling from XYZ Mortgage Company“I am calling from XYZ Mortgage CompanyI am calling from XYZ Mortgage Company I am calling from XYZ Mortgage Company and this call is being recorded.” and this call is being recorded.”
•• Thoughts…Thoughts…•• Agent response: Agent response: “I am conducting a test “I am conducting a test
of my phone system. Listen close and see of my phone system. Listen close and see y p yy p yif it sounds like I am hanging up.”if it sounds like I am hanging up.”
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Recorded CallsRecorded Calls
•• PerPer SwissReSwissRe/Westport relating to/Westport relating toPer Per SwissReSwissRe/Westport relating to /Westport relating to depositionsdepositions: : –– We We do not like recorded statements, as they do not like recorded statements, as they
always have always have been a problem. Agents should been a problem. Agents should not give not give recorded statements, and recorded statements, and should should request request the questions in writing. the questions in writing. qq q gq g
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Replacement Cost EstimatorsReplacement Cost Estimators
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Replacement Cost EstimatorsReplacement Cost Estimators
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Replacement Cost EstimatorsReplacement Cost Estimators
•• LENDER: “Our policy is that we requireLENDER: “Our policy is that we requireLENDER: Our policy is that we require LENDER: Our policy is that we require that your agency send the RCE to us for that your agency send the RCE to us for this closing. It is required by the this closing. It is required by the investors.” investors.”
•• Thoughts….Thoughts….•• Agency response: “Our policy is to ignore Agency response: “Our policy is to ignore
your policy.” your policy.”
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Replacement Cost EstimatorsReplacement Cost Estimators
•• “You are the only agency that won’t send“You are the only agency that won’t sendYou are the only agency that won t send You are the only agency that won t send the RCE. Everyone else does.” the RCE. Everyone else does.”
•• “The loan won’t close without the RCE.”“The loan won’t close without the RCE.”•• “I will call the customer and advise them “I will call the customer and advise them
that you are holding up the closing.” that you are holding up the closing.” y g p gy g p g
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•• 626.9551626.9551 Favored agent or insurer; coercion of Favored agent or insurer; coercion of debtors.debtors.
•• (1)(1) No person may:No person may:
•• (a)(a) Require, as a condition precedent or condition Require, as a condition precedent or condition subsequent to the lending of money or extension ofsubsequent to the lending of money or extension ofsubsequent to the lending of money or extension of subsequent to the lending of money or extension of credit or any renewal thereof, that the person to whom credit or any renewal thereof, that the person to whom such money or credit is extended, or whose obligation such money or credit is extended, or whose obligation the creditor is to acquire or finance, negotiate any policy the creditor is to acquire or finance, negotiate any policy or contract of insurance or contract of insurance through a particular insurer through a particular insurer or group of insurers or agent or broker or group or group of insurers or agent or broker or group of agents or brokers.of agents or brokers.of agents or brokers.of agents or brokers.
•• (b)(b) …. …. or unreasonably disapprove the insurance or unreasonably disapprove the insurance policy provided by a borrower policy provided by a borrower for the protection of for the protection of the property securing the credit or lien. the property securing the credit or lien.
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Replacement Cost EstimatorsReplacement Cost Estimators
•• LENDER:LENDER:LENDER: LENDER: –– We can close without the RCE if you will We can close without the RCE if you will
please answer this question: please answer this question: ••Is coverage adequate to rebuild the Is coverage adequate to rebuild the structure after a total loss? structure after a total loss? –– __Yes __ No__Yes __ No
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Replacement Cost EstimatorsReplacement Cost Estimators
•• BackgroundBackgroundBackground…Background…–– Lenders used to order appraisalsLenders used to order appraisals–– Appraiser put figure down, it was inadequate. Appraiser put figure down, it was inadequate.
Appraiser got sued. (See AMH vs. Appraiser got sued. (See AMH vs. ArgovArgov) ) –– Appraiser learns: “I put figure down, I get Appraiser learns: “I put figure down, I get
sued No more figures to be listed ”sued No more figures to be listed ”sued. No more figures to be listed.” sued. No more figures to be listed.” –– Lender now says: “We need someone else to Lender now says: “We need someone else to
give us a figure. If that figure is too low, that give us a figure. If that figure is too low, that person will get sued.” person will get sued.”
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Replacement Cost EstimatorsReplacement Cost Estimators
•• Lender now says: “We need someoneLender now says: “We need someone•• Lender now says: We need someone Lender now says: We need someone else to give us a figure. If that figure else to give us a figure. If that figure is too low, that person will get sued.” is too low, that person will get sued.” •• The lender wants that person to be The lender wants that person to be
you!you!you!you!
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Replacement Cost EstimatorsReplacement Cost Estimators
•• FromFrom SwissReSwissRe::From From SwissReSwissRe::•• Agents should not provide copies of any RCE, Agents should not provide copies of any RCE,
ever.ever. The agency has no relationship with the lender The agency has no relationship with the lender and is under no obligation to do so. We don't and is under no obligation to do so. We don't recommend that they provide it to the customer either. recommend that they provide it to the customer either. If they don't provide it to the customer, then they If they don't provide it to the customer, then they shouldn't provide it to anyone It is the lenders job toshouldn't provide it to anyone It is the lenders job toshouldn t provide it to anyone. It is the lenders job to shouldn t provide it to anyone. It is the lenders job to determine what they think the value of the house is, the determine what they think the value of the house is, the agent is not a real estate appraiser. At most they can agent is not a real estate appraiser. At most they can provide an ACORD form certificate of insurance and provide an ACORD form certificate of insurance and nothing else.nothing else.
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Replacement Cost EstimatorsReplacement Cost Estimators
•• From Citizens:From Citizens:From Citizens:From Citizens:•• (Posted 08/30/13) Citizens has become aware (Posted 08/30/13) Citizens has become aware
that some lenders are requesting copies of the that some lenders are requesting copies of the Replacement Cost Estimator (RCE) that Citizens Replacement Cost Estimator (RCE) that Citizens secures for underwriting purposes. The RCEs are secures for underwriting purposes. The RCEs are a part of Citizens’ confidential underwriting file,a part of Citizens’ confidential underwriting file,a part of Citizens confidential underwriting file, a part of Citizens confidential underwriting file, and and agents are not to provide copies of the agents are not to provide copies of the RCE to lenders or other third parties. RCE to lenders or other third parties.
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Replacement Cost EstimatorsReplacement Cost Estimators
•• Would the lender sendWould the lender send youyou these items:these items:Would the lender send Would the lender send youyou these items:these items:–– Loan applicationLoan application–– Credit reportCredit report–– Prior financialsPrior financials–– Home inspectionHome inspection–– Home inspectionHome inspection–– Loan underwriting fileLoan underwriting file
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RCE RCE –– Related IssueRelated IssueAgent Email to FAIAAgent Email to FAIA
•• WeWe frequently get calls from lendersfrequently get calls from lendersWe We frequently get calls from lenders frequently get calls from lenders informing us a value calculated using a informing us a value calculated using a RCE is too low and telling us we must RCE is too low and telling us we must increase or else. increase or else.
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RCE RCE –– Related IssueRelated Issue
•• WeWe frequently get calls from lendersfrequently get calls from lendersWe We frequently get calls from lenders frequently get calls from lenders informing us a value calculated using a informing us a value calculated using a RCE is too low and telling us we must RCE is too low and telling us we must increase or else. increase or else.
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Agent to lender: “Provide me with some documentation showing where you got your figure and after consulting with my customer, I will submit it to the carrier for review.”
Tools on RCE IssueTools on RCE Issue
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Request For RCE SummaryRequest For RCE Summary
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•• Building and personal property coverage limits are Building and personal property coverage limits are estimates only and were arrived at based on information estimates only and were arrived at based on information provided by the policyholder and/or industry standard provided by the policyholder and/or industry standard software used to estimate replacement costs. The actual software used to estimate replacement costs. The actual cost to rebuild the structure or replace the personal cost to rebuild the structure or replace the personal
t d th li li it i ll it d th li li it i ll iproperty may exceed the policy limits, especially in property may exceed the policy limits, especially in circumstances where a catastrophic event has disrupted circumstances where a catastrophic event has disrupted the normal supply of materials, labor, and resources. the normal supply of materials, labor, and resources. The agency makes no assurances or guarantees that the The agency makes no assurances or guarantees that the policy limits provided will be adequate to rebuild the policy limits provided will be adequate to rebuild the structure or replace personal property. If there is doubt structure or replace personal property. If there is doubt about the adequacy of the policy limits the policyholderabout the adequacy of the policy limits the policyholderabout the adequacy of the policy limits, the policyholder about the adequacy of the policy limits, the policyholder should obtain a professional appraisal or obtain the should obtain a professional appraisal or obtain the services of a qualified company or builder who is able to services of a qualified company or builder who is able to provide replacement cost estimates.provide replacement cost estimates.
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Lender Specific FormsLender Specific Forms
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Lender EmailLender Email
•• Property Address:Property Address:Property Address:Property Address:•• Policy Number: Policy Number: •• Is this the clients Is this the clients -- Primary [ ] Secondary [ ] Primary [ ] Secondary [ ]
Investment [ ] Property?Investment [ ] Property?•• Is wind included in coverage?Is wind included in coverage?•• Y l i t($)Y l i t($)•• Yearly premium amount($)Yearly premium amount($)•• Premium remaining balance due($)?Premium remaining balance due($)?•• Yearly 2013Yearly 2013--2014 Premium amount($)?2014 Premium amount($)?•• Premium remaining balance due 2013Premium remaining balance due 2013--2014 ($)?2014 ($)?
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Lender Email Lender Email -- ResponseResponse
•• Property Address:Property Address: SeeSee decdec pagepageProperty Address: Property Address: See See decdec pagepage•• Policy Number: Policy Number: See See decdec pagepage..•• Is this the clients Is this the clients -- Primary [ ] Secondary [ ] Primary [ ] Secondary [ ]
Investment [ ] Property? Investment [ ] Property? Ask the customerAsk the customer..•• Is wind included in coverage? Is wind included in coverage? See See decdec page.page.•• Y l i t($)Y l i t($) SS dd•• Yearly premium amount($) Yearly premium amount($) See See decdec pagepage•• Premium remaining balance due: Premium remaining balance due: See See decdec page.page.
•• Yearly 2013Yearly 2013--2014 Premium amount($)? 2014 Premium amount($)? See See decdecpagepage
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DFS LetterDFS Letter
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Reminder…Source DocumentReminder…Source Document
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In SummaryIn Summary
•• Don’t be forced down the illegal highwayDon’t be forced down the illegal highwayDon t be forced down the illegal highway Don t be forced down the illegal highway or the wrong highway.or the wrong highway.
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As We As We ConcludeConclude……
EE--mail me with questionsmail me with questions
Dthompson@faia.comDthompson@faia.com
Slides: Slides:
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––www.faia.com/lenderswww.faia.com/lenders