Recent Flood Events Draw Attention to the Importance of Accurate Flood Certification Data to Protect Homeowners and Mortgage Lenders

Recent hurricanes Beryl and Debby left much of the eastern U.S. under water. Some areas saw record-breaking amounts of rainfall as the storms moved up the east coast. Homeowners with flood insurance will likely be dealing with FEMA as they begin their road to recovery, but many don’t have insurance to fall back on.

Mortgage lenders rely on accurate flood certifications when closing mortgage loans. When a property is determined to fall within the boundaries of a special flood hazard area (SFHA) on a FEMA map, the lender requires a flood insurance policy to be in place prior to closing. This protects the homeowner from catastrophic loss, and the lender is protected from loss of collateral.

However, the importance of flood certification data extends far beyond the initial loan closing. FEMA regularly updates its flood maps to reflect changes in flood risks due to factors such as urban development, climate change, and improved data collection methods. These updates can significantly impact properties and the associated mortgage loans over time.

For mortgage lenders, tracking these changes is crucial to maintaining a secure loan portfolio. A property that was not in a flood hazard area at the time of closing may be reclassified into an SFHA years later. Conversely, properties initially requiring flood insurance may be removed from high-risk zones. Without monitoring these changes, lenders risk exposure to uninsured losses or unnecessary insurance costs for their borrowers.

Implementing a robust flood map monitoring system offers several benefits to lenders:

1.     Risk Mitigation: By staying informed about properties that move into SFHAs, lenders can promptly notify homeowners of the need to purchase flood insurance, reducing the risk of uninsured losses.

2.     Regulatory Compliance: Federal regulations require lenders to ensure continuous flood insurance coverage for properties in SFHAs throughout the life of the loan. Regular monitoring helps maintain compliance with these regulations.

3.     Customer Service: Informing borrowers when their properties are no longer in SFHAs can lead to reduced insurance costs, enhancing customer satisfaction and loyalty.

4.     Portfolio Protection: A comprehensive view of flood risks across the entire loan portfolio allows for better risk management and more informed decision-making.

To effectively track these changes, many lenders partner with specialized flood certification providers. These services offer continuous monitoring of FEMA map revisions and can automatically notify lenders when a property's flood zone status changes. This proactive approach ensures that lenders can take timely action to protect their interests and those of their borrowers.

It's important to note that flood risks can change rapidly, sometimes even between FEMA map updates. Recent extreme weather events have demonstrated that flood damage can occur in areas previously considered low risk. This underscores the value of working with flood certification providers that utilize advanced data analytics and predictive modeling to assess flood risks beyond the standard FEMA designations.

As climate change continues to influence weather patterns and flood risks, the role of accurate and up-to-date flood certification data becomes increasingly critical. Mortgage lenders who prioritize ongoing flood risk assessment and management are better positioned to navigate these challenges, protect their loan portfolios, and provide valuable guidance to homeowners.

New Vista Solutions offers flood certifications through its partnership with ServiceLink Flood, a leading provider of flood zone determinations and FEMA flood map revision monitoring for mortgage lenders.

Mike Hanson, senior vice president at ServiceLink states, “...flood zones change — often. Human activity, such as the development of new subdivisions, can alter the flow of water, and emerging scientific and topographic contour data reveal new shifts of nature that can affect flood risks. FEMA does its best to keep up with these flood zone changes, but lenders need to do their part as well, paying attention to floodplain map updates to keep their borrowers protected and compliant.”

For more information about New Vista’s flood determination products, visit https://newvistasolutions.com/flood-determinations.