Despite the lack of available insurance coverage, Fannie Mae will still purchase loans in a flood zone.
The Federal Emergency Management Agency’s statutory authority to issue flood insurance policies under the National Flood Insurance Program ended on March 28, according to Lender Letter LL-2010-05 issued today. FEMA is unable to issue new policies, increase coverage on existing policies or issue renewal policies.
But Fannie said Congress is expected to reauthorize the program soon.
Until then, the government-controlled enterprise said it will still purchase loans secured by properties located in special flood hazard areas even though there is no flood policy.
In order to qualify, loans must include a completed application for flood insurance and a copy of a check or the final HUD-1 Settlement Statement reflecting the initial premium payment.
As an alternative, Fannie will also purchase loans in flood zones without insurance if the property’s seller assigns an existing flood insurance policy.
“Lenders must have a process in place to identify mortgaged properties securing loans sold to Fannie Mae that do not have proper evidence of active flood insurance, take all steps (insofar as permitted by applicable law) necessary to facilitate the issuance of coverage once the NFIP insurance authority is renewed, and retain documentation to support acceptable evidence of flood insurance,” the letter stated.
Fannie said its policy is retroactive to March 29. The policy is in effect until the flood insurance program is reauthorized or until April 30 — whichever occurs first.
Refinances are only impacted if the existing flood policy expires prior to loan delivery.
