By Elly Leonida, FVP Operations Manager
Floods are the most common natural disaster in the U.S. In fact, 90% of all natural disasters involve some type of flooding. As a result, floods cause more property damage and loss of life than any other natural hazard. And yet, American homeowners are typically confused when it comes to understanding flood insurance, what causes their home to be in a flood zone, and what their options are if their home is in a flood zone. This situation has been further complicated by the recent changes to FEMA’s National Flood Insurance Program (NFIP). In the new Risk Rating 2.0, implemented in April of this year, FEMA is changing the way it prices flood insurance as well as how it assesses flood risk.
Fielding flood-related questions from borrowers has always been a challenge for mortgage lenders and servicers With the updates in Risk Rating 2.0, one can only expect a flood (pun intended) of new inquiries, questions and complaints from concerned homeowners. We asked our LERETA flood experts to weigh in on the frequently asked questions that can help lenders and servicers be prepared to help their borrowers better understand flood risk and insurance.
What’s the difference between a flood determination and flood insurance?
In order to get a mortgage, refinance your home, or take out a home equity loan, a flood certification is mandatory. Flood certification, which can also be referred to as flood determination, is a document that certifies whether a property is located or not located in a Special Flood Hazard Area based on FEMA flood maps and, as a result, whether the property requires flood insurance or not.
So, while every home must have a flood certification, not every home is required to carry flood insurance.
What are the new risk ratings?
With the new Risk Rating 2.0, FEMA has expanded the variables that determine flood risk to include flood frequency and more types of flood, including river overflow, storm surge, coastal erosion and heavy rainfall. In addition, it looks at the distance to a water source along with property characteristics such as elevation and the cost to rebuild.
Your flood certification will indicate whether your property is at risk of flooding and you can also visit the FEMA website at fema.gov/portal/search and enter your address to see if your home is at risk.
Does my homeowner’s insurance cover flood? And if not, where do I get flood insurance?
A standard homeowner’s insurance policy does not cover damage caused by flooding (not to be confused with when your home floods as a result of a broken pipe). The vast majority of homeowners who need flood insurance buy it from the NFIP, however there are some private insurers that offer it. The new Risk Rating 2.0 provides a more equitable and updated pricing strategy, and, as a result, more private insurers are partnering with NFIP to offer these policies. Private insurers also may offer coverage options not available from NFIP which may be good for homeowners with larger or more expensive properties.
Can my home’s flood designation change?
Yes. Flood maps can and do change, although typically only a small percentage of properties experience a change in their flood designation. FEMA manages all flood mapping for the U.S. using the Risk Mapping, Assessment and Planning (Risk MAP) process. Flood risk is ever changing, and FEMA works with local communities to identify shifting risk factors such as new building and development, weather patterns and other variables that might affect risk. Even if you’ve not previously been in a flood zone, a revision from FEMA might change that status.
I’ve been in my home for decades and it’s never flooded. Why am I in a designated flood zone?
Even if you’ve been in your home for many years without experiencing a flood, it may still be in a flood zone. Sometimes only a portion of a home or parcel is at risk and designated as an “Area of Minimal Flood Hazard.” Even though the risk may be low, it still is identified as being in a flood zone. Homes with high risk for flooding are marked as “Special Flood Hazard Areas.” Flood risk typically does not decrease over time.
My house is on a hill, how can it flood?
Properties on a hill can still suffer flooding from storm surge, surface water runoff, and sewage and groundwater issues. If you believe your home should not be in a flood zone, talk to your mortgage servicer about requesting a Letter of Map Amendment (LOMA) from FEMA. LERETA works with servicers to provide life-of-loan flood zone tracking to identify any change to a home’s flood status, whether it’s for a new loan or a mortgage that’s been in place for years.
LERETA has a dedicated GIS team that works specifically on flood designation exceptions and can work directly with homeowners to resolve issues and obtain LOMAs if they qualify – all at no additional cost to the lender or homeowner, even for rechecks or rushes.
For more information contact us at sales@LERETA.com.