A Message from Vicki
In our annual hurricane season issue, we like to remind our clients and their borrowers about the importance of managing hurricane and storm risk. In this issue, you will find some of the hurricane trends this year to be slightly different than in years past. However, our position regarding risk management remains. According to the National Hurricane Center (NHC), much of the United States' densely populated Atlantic and Gulf Coast coastlines lie less than 10 feet above mean sea level. This puts millions of people and billions of dollars of property at risk, especially during hurricane season.
Source: NOAA, 2014.
Earlier this month, we published our 2014 Storm Surge Report. The new report highlights several key areas for consideration. This year’s analysis shows that more than 6.5 million homes along the U.S. Atlantic and Gulf Coasts are located within storm surge risk zones, totaling more than $1.4 trillion in reconstruction costs. More than $986 billion of that risk is concentrated within 15 major metro areas. To download the new report, click here.
While some in the mortgage and insurance industry are relying on our Storm Surge Report to help evaluate risk, many originators and servicers are leveraging other CoreLogic property reports to help support strategic decisions. These reports, regularly published by CoreLogic economists, are helping our clients gain greater insights into industry trends and this issue includes highlights from some of our most recent publications.
In the area of compliance, our teams continue to analyze current industry requirements and impact on client workflows. One way our Tax team is helping is through our InstantData® product. Clients are relying on this tool to help improve the accuracy of tax information for the Good Faith Estimates (GFEs). Read more about how InstantData® helps clients manage final closing cost precision in this issue.
Our legislative section covers topics such as National Flood Insurance Program (NFIP) updates and Property Assessed Clean Energy Financing Programs. As updates occur throughout the remainder of 2014, we will continue to send our Industry Alerts.
All of us from the Flood and Tax teams hope you and your families are having a great and relaxing summer and as always, we appreciate your business.
Senior Vice President, CoreLogic Escrow Services
Data Reports Provide Insight
Recent reports from CoreLogic economists help analysts in the capital markets and mortgage industries assess current and projected market activity related to housing. Dr. Mark Fleming, CoreLogic Chief Economist, and his team recently released the Equity Report, Home Price Index Report, and the National Foreclosure Report. Provided below are highlights from each document as well as links to the full reports.
Highlights from the Equity Report based on Q1 2014 data include:
- Rising home prices led to improvements in home equity, with 312,000 residential properties regaining equity in Q1 2014.
- 6.3 million homes with a mortgage are still in negative equity
- 10.1 million of mortgaged properties have equity but are considered under-equitied
- 12.7 percent of mortgaged homes have negative equity
- $16.9B decline in aggregate value of negative equity
Top Five States Where Mortgaged Residential Properties Have Negative Equity:
- Nevada: 29.4 percent
- Florida: 26.9 percent
- Mississippi: 20.1 percent
- Arizona: 20.1 percent
- Illinois: 19.7 percent
Top Five States Where Mortgaged Residential Properties Have Equity:
- Texas: 96.7 percent
- Montana: 96.3 percent
- Alaska: 95.7 percent
- North Dakota: 95.7 percent
- Hawaii: 95.6 percent
The full Q1 2014 Equity Report is available here.
Home Price Index Report
CoreLogic Home Price Index Report highlights (featuring May 2014 data):
- CoreLogic reports home prices rise by 5.8 percent year over year in May
- Projects 0.8 percent month-over-month growth in June
- National home prices are expected to rise by 5.1 percent from May 2014 to May 2015
- Home prices remain 14.3 percent below April 2006 peak
Including distressed sales, the five states registering largest year-over-year home price appreciation in April were:
- Hawaii: 13.2 percent
- California: 13.1 percent
- Nevada: 12.6 percent
- Michigan: 11.8 percent
- New York: 11.0 percent
The full May 2014 Home Price Index Report is available here.
National Foreclosure Report
As of May 2014, approximately 660,000 homes in the United States were in some stage of foreclosure, known as the foreclosure inventory, compared to 1 million in May 2013, a year-over-year decrease of 37 percent. The foreclosure inventory as of May 2014 represented 1.7 percent of all homes with a mortgage, compared to 2.6 percent in May 2013.
- Every state posted double-digit year-over-year declines in completed foreclosures.
- Thirty-eight states show declines in year-over-year foreclosure inventory of greater than 30 percent with Arizona, Utah, Nebraska and Minnesota experiencing declines greater than 50 percent.
- The five states with the highest number of completed foreclosures for the 12 months ending in May 2014 were: Florida (122,000), Michigan (44,000), Texas (39,000), California (34,000) and Georgia (32,000).These five states account for almost half of all completed foreclosures nationally.
- The five states (including the District of Columbia) with the lowest number of completed foreclosures for the 12 months ending in May 2014 were: the District of Columbia (71), North Dakota (334), West Virginia (515), Wyoming (710) and Alaska (856).
The full May 2014 CoreLogic Foreclosure Report is available here.
Federal Emergency Management Agency (FEMA) Affirms Parcel Number Will Remain Optional on SFHDF
As previously announced, on May 6, 2014, FEMA issued Bulletin W-14022 which states that “it has been determined that the parcel number will not be required but will remain an optional collateral identifier.” To clarify, users of the Standard Flood Hazard Determination Form (SFHDF) will not be required to provide the property’s parcel number along with the property address on each completed SFHDF. The property address will continue to be sufficient while additional information may be added, if necessary, to describe the location. Thus, CoreLogic will continue to include the parcel number on the completed SFHDF in situations when applicable and appropriate to the flood determination.
FEMA may issue a proposed rule this fall announcing its intentions related to the SFHDF (FEMA Form 086-0-32) beyond May 2015. We will be monitoring any activity and providing updates, as appropriate.
If you have questions regarding the SFHDF or other compliance-related matter, contact us via email.
Changes in Notice to Borrower in Special Flood Hazard Areas
BW 12 called for changes to the Notice to Borrower in Special Flood Hazard Areas, including the addition of language related to private flood insurance and the expansion of the escrow requirements. For clients which utilize the CoreLogic version of the Notice, we incorporated language related to private flood insurance last year. With respect to the escrow requirement, the Homeowners Flood Insurance Affordability Act delayed the expanded escrow requirement until January 1, 2016 and reduced its effect.
Based on the proposed rule released by the Regulators last year to implement BW 12 reforms, it appears that a new Sample Form of the Notice will be made available as part of the regulations once adopted. At that point we intend to offer a revised Sample Form of the Notice to clients.
Further, with respect to the Notice, for clients which utilize the CoreLogic version of the Notice, we are making a modification to the language to more clearly inform the borrower/applicant about the possible availability of flood insurance which may benefit them. The following sentence is being added: “You are encouraged to consider additional flood insurance beyond your lender’s requirements including coverage for personal property not securing the loan.”
We believe this language will be beneficial to your customers and is consistent with the intent of BW 12 to inform the consumer about flood insurance issues which impact them. If you have questions, please contact our Compliance Department via email.
The Agencies are expected to issue further guidance or a revised proposed rule regarding implementing regulations required by BW 12 and subsequently by the Homeowners Flood Insurance Affordability Act (HFIAA). Therefore, the changes proposed in the Agencies’ jointly released notice of proposed rulemaking related to private flood insurance and escrowing for flood insurance premiums remain pending until the Agencies take further action and adopt a final rule.
Prior to passage of HFIAA this past spring, some lenders expected to face the expanded escrow requirements this month. However, as a reminder, HFIAA reformed the scope of the escrow requirements and delayed its implementation until January 1, 2016.
As you may be aware, the OCC and FDIC have each recently opened a public comment period for various information collection activities that they require of supervised institutions. Included in these current requests for comment is existing information collection related to loans in the SFHA. Comments to the OCC are due August 19 while comments to the FDIC are due September 2.
We will continue to monitor regulatory activity related to flood insurance.
After a devastating 2012 Atlantic hurricane season, the 2013 season was the quietest season in the past two decades, with only 2 hurricanes, neither making landfall in the U.S. While grateful for the quiet season, it is interesting to note that the NOAA outlook for 2013 was for a busier than normal season. Even though the 2014 hurricane season is already under way, there is still time to prepare. For you and your borrowers, hurricane and flood preparedness are essential to help ensure personal and economic safety.
NOAA 2014 Atlantic hurricane outlook indicates a “near normal” or “below normal” season with 8-13 named storms and 3-6 hurricanes, with 1 to 2 of those being a major hurricane. These storms, whether a hurricane or tropical storm, can create strong storm surges and drop significant amounts of rain. Many times these storms move inland as tropical depressions producing heavy rain events that can cause flash flooding. Flash floods are short-term events occurring within six hours of the causative event and often within two hours of the start of high intensity rainfall. The CoreLogic Flash Flood Risk Score (FFRS) provides flooding detail in areas where flooding resources are traditionally unavailable. Too many homeowners don’t have flood insurance coverage in place to help recover from these costly events and are unaware of the low-cost flood insurance available for properties located outside of FEMA’s high risk flood zones.
For more information about FFRS, please call 855-267-7027 or email us. You may also download the 2014 Storm Surge report here.
Flood Map Revisions
More than 500 communities across the country are scheduled to receive updated FEMA flood maps throughout the summer and third quarter of 2014. Some of the more notable communities receiving map updates during this time include:
- Dallas, Texas – July 7
- Fort Lauderdale, Fla. – August 18
- Madison, Wis. – September 17
- Rancho Cucamonga, Calif. – September 26
- Pittsburgh, Pa. – September 26
Some of these communities are only being revised partially. CoreLogic clients who opt for Life of Loan service will receive appropriate notices based on their portfolio within these areas. While some properties may require additional research by our trained staff, most notifications should be sent within a few days from the new effective map dates.
In the meantime, you can download our Risk Map Updates document to view a list of communities to receive flood map revisions in the coming weeks.
Pursuant to certain requirements of BW 12 and HFIAA, FEMA initiated in June the release of a monthly update document to serve as notification to members of Congress regarding proposed flood map changes affecting their constituents. Each month’s summary document will list an estimated schedule of actions related to the flood mapping process for affected counties (for the current month and the following two months) while listing the previous month’s actions taken by FEMA. The document also provides details about the various actions required of FEMA during the flood map creation and update process that you may find of interest.
Tax Data Coverage Update
CoreLogic continues to optimize our data procurement process. The National Data Management team is currently supported by six Regional Service Centers located in strategic parts of the country. With a dedicated staff working with taxing authorities, our procurement specialists foster regular relationships with all agencies to maintain and update relevant agency intelligence necessary for property tax servicing.
To help put the efforts of our data team into perspective, this map represents the national property data coverage that CoreLogic currently maintains on an annual basis. Presently, CoreLogic property data covers 98 percent of U.S. counties (3,000+ shown in green) which encompass 19,000+ individual collection municipalities.
Procurement of property data on an annual basis enables CoreLogic to maintain effective and professional working relationships with the counties and represents our ability to evaluate and process a wide variety of data file layouts from across the U.S.
Our goal is to provide the most comprehensive property data coverage within a centralized repository and our National Data Management teams are well on their way to helping CoreLogic succeed in this area.
InstantData® Improves Accuracy
The Consumer Financial Protection Bureau (CFPB) has an updated list of items that can and cannot change between the Good Faith Estimate (GFE) and final mortgage costs at closing. There are some items that cannot increase by more than 10 percent at closing. InstantData allows you to receive critical property tax data early in the loan origination process and many of our clients rely on the tool to help ensure greater accuracy with GFEs. Data may include tax agency name, address and type as well as the number of installments and due dates. In many cases, users will receive tax installment amounts and the information helps originators calculate the borrower’s monthly tax escrow payment. Additional information on our InstantData product can be found in the Tax Information and Services section of the Property Detail & Assessment section of our Mortgage Origination Solutions page.
On June 26, FEMA issued bulletin W-14035 with premium refund procedures related to the requirements of Sections 3 and 5 of the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA) for eligible flood insurance policies. As a reminder, Section 3 of HFIAA repealed provisions of BW 12 that required flood insurance rate increases for certain pre-FIRM structures (these rate increases were in effect for new and renewal policies between October 1, 2013, and May 1, 2014). In addition to restoring pre-FIRM subsidies for these structures, Section 3 required refunds for the affected policyholders that experienced rates is excess of the existing subsidized rates.
Section 5 of HFIAA required certain annual caps on flood insurance rate increases; however, since the effective date (March 21, 2014) of these caps is subsequent to NFIP rating tables that became effective on October 1, 2013, some polices may have been issued with rates exceeding the new annual caps. Therefore, FEMA has developed additional refund procedures for these affected policyholders.
In addition to the various guidelines related to the refund procedures, W-14035 contains the rate tables to be used for generating refunds. The tables will be effective October 1, 2014, and according to the bulletin, all refunds must be generated between October 1 and December 31, 2014. The bulletin also includes a sample explanation letter for policyholders receiving refunds as well as a Q&A regarding the refunds associated with Sections 3 and 5 of HFIAA.
Prior to issuing the refund procedures, FEMA had released bulletin W-14033 on June 23 as a reminder that duplicate policies are not allowed under the NFIP. The bulletin indicates that some existing policyholders affected by the BW 12 rate increases had recently attempted to obtain new policies to benefit from lower rates, possibly believing that NFIP insurers charge different rates. However, the lower rates were likely due to the restoration of pre-FIRM subsidies pursuant to Section 3 of HFIAA that went into effect for new and renewal policies beginning May 1, 2014. The bulletin instructs that any latter duplicate policy must be cancelled and not utilized in the event of a loss.
Finally, FEMA issued bulletin W-14032 on June 20 to delay by an additional 31 days (until August 1, 2014) the compliance date for large-font NFIP policy documents pursuant to Section 100234 of BW 12.
Last month, FEMA published some resources that you may find useful related to the recent NFIP reforms pursuant to BW 12 and HFIAA. There is a fact sheet that summarizes rating changes under the reform laws and a presentation that additionally provides key points on other provisions of the two laws. Also available is a fact sheet that provides an overview of refund eligibility due to the implementation of HFIAA. These documents can be found through FEMA's dedicated webpage on “Flood insurance Reform.”
We continue to keep you updated on a legislative proposal in Massachusetts that, if passed, would establish a state-level requirement prohibiting a lender from requiring flood insurance in an amount greater than the outstanding mortgage balance, among other things. On June 26, the Massachusetts Senate passed S 2229 as a substitute amendment to the House’s version of the bill (H 3783) which passed in March. More recently, however, the House proposed a further amendment designated as H 4255 which passed both the House and the Senate, and was sent to the Governor on July 14.
In addition, there have been laws recently enacted in other states with requirements related to flood insurance. In April, we updated you on Virginia Senate bill 74 which was enacted on March 17 and prohibits a lender from requiring a borrower to purchase flood insurance in an amount greater than the improvement’s replacement value. Virginia Senate bill 74 became effective on July 1. Similarly, Connecticut House bill 5353, which was enacted on June 3 and goes into effect on January 1, 2015, prohibits a mortgage servicer from placing hazard, homeowner’s or flood insurance in excess of the replacement cost of the improvements, among other requirements. New Hampshire House bill 1193, which was enacted on May 27 with an effective date of January 1, 2015, requires an insurer issuing homeowners insurance to include a notice to the policyholder if the policy does not cover flood damage and to provide contact information for the NFIP. Finally, South Carolina Senate bill 569, enacted on June 2 with an effective date of January 1, 2015, also includes a requirement for insurers related to notifying policyholders about the existence of flood coverage on a policy and to state that coverage is available through the NFIP.
You may want to consider whether or not these developments impact your business processes and work with your compliance or legal departments, as appropriate. If you are interested in additional information or discussion related to the topics in this article, please feel free to contact our Compliance Department via email.
Keeping PACE, an Update on Property Assessed Clean Energy Financing Programs
PACE, an acronym for Property Assessed Clean Energy, took form in 2008 as an experiment in Berkeley, Calif. and soon became what was known then as the California First Program. PACE financing programs allowed homeowners and businesses to borrow money to install solar panels primarily, and pay back those loans over a typical ten to twenty year period as an additional line item on their property tax bill. Depending on the parameters of each program, other energy efficient improvements qualified for the financing as well. Window replacement, insulation, and other improvements that saved energy generally qualified.
The idea quickly exploded across the country and, at last count, 31 states to date have some form of PACE program in play; although at this juncture most of those programs apply to commercial property (C-PACE). This is due primarily to the fact that in 2010, the Federal Housing Finance Agency (FHFA) acting as conservator for government-sponsored enterprises Fannie Mae (FNMA) and Freddie Mac (FHLMC) brought the residential PACE program’s expansion to an abrupt halt by ruling that PACE financing, with its superior property lien, posed an unacceptable risk to mortgage lenders by undermining their first-position lien. FHFA subsequently directed Fannie Mae and Freddie Mac not to buy PACE loans with first-position liens, citing the risk as well as safety and soundness concerns. The GSEs in turn issued the appropriate guidance to lenders. This all led to lengthy litigation, with FHFA’s position ultimately upheld. It was also the impetus for proposed federal legislation (HR 2599) which was introduced in Congress in 2011. However, that bill failed. California later implemented the Home Energy Renovation Opportunity (HERO) program in response; though it did not resolve the first-position lien issue.
Fast–forward to present. HERO remains one of California’s most robust PACE-like programs. Over 135 California communities have implemented PACE through this program. And while numerous PACE programs have kept running in spite of the 2010 FHFA ruling (i.e. there is no known restriction on commercial financing or on conventional residential non-GSE-backed financing) a California bill signed by Governor Edmund G. "Jerry" Brown in September 2013 took aim at the FHFA directed GSE restrictions by creating a state-run reserve fund for PACE programs. The rationale was that FHFA’s concerns would be abated by the reserve fund. In practice, should a residential property foreclosure occur based on a defaulted PACE obligation, the $10 million fund would cover any losses that Fannie Mae or Freddie Mac would otherwise face as result. However, CoreLogic learned of two letters sent in May 2014; one from newly appointed FHFA Director, Secretary Melvin L. Watt to California Governor Jerry Brown and the other from FHFA General Counsel to Governor Brown’s Senior Policy Advisor, reinforcing FHFA’s position with regard to residential PACE programs in the context of the Reserve Fund established by California.
PACE programs continued to be introduced sporadically over the last couple of years, most being C-PACE but some, especially in California, included provisions for residential programs. Further, CoreLogic has observed an uptick in state-level PACE-related bills being introduced during the 2014 legislative session; many taking aim once again at enabling local residential PACE programs despite no change in the FHFA’s position. While several California bills continued to advance as residential programs in that state continue to ramp-up, we also reported on a Michigan House bill introduced March 19, 2014 (H5417), that presented some particular concern points in light of previous guidance from Fannie Mae and Freddie Mac. CoreLogic published a Legislative Alert in the May 2, 2014, Weekly Tax Bulletin alerting customers to this bill. The bill remains in committee. CoreLogic continues to watch this bill closely.
CoreLogic also reported in the May 9, 2014, Weekly Tax Bulletin on a federal-level PACE bill introduced in Congress (HR 4285); The PACE Assessment Protection Act of 2014. This bill remains in committee having seen no further action since its March 24th introduction. As background, this concerns enabling state-level “PACE” legislation, which has already passed in many states but failed to implement due to the current FHFA restrictions. Substantially similar to 2011’s HR 2599, the current congressional bill if passed would compel FHFA to reverse its current position and the GSEs to subsequently rescind previous guidance concerning PACE encumbered mortgage loans. CoreLogic will continue to watch this bill closely and report on any significant developments.
Please continue to refer to the Legislative Updates section of the Weekly Tax Bulletin and watch for updates on these and other bills.
ASK THE FLOOD EXPERT
Q: A customer recently obtained a Letter of Map Amendment (LOMA) which removed the residential building on their property from the Special Flood Hazard Area (SFHA). However, the LOMA document includes a second page attachment titled “Additional Considerations” which mentions that a portion of the property remains in the SFHA and that a study is underway which may supersede this LOMA. What does this mean with regard to our loan?
A: The “Additional Considerations” which FEMA sometimes includes as part of the LOMA is meant to provide information and context around FEMA’s determination. This information does not necessarily impact a lender’s flood insurance requirement, but provides the property owner and interested stakeholders with more to consider when weighing decisions about risk and insurance.
Based upon the information you have provided regarding this instance, the LOMA removes the federal mandatory purchase of flood insurance requirement from the loan secured by this residence. Due to portions of the property being within the SFHA, future improvements may be in the SFHA depending upon where located. The reference to the flood map study indicates that FEMA is in the process of reviewing and revising the flood maps for this community. New flood maps supersede previously issued LOMAs so when the new flood map is issued for this community the LOMA may need to be revalidated if FEMA does not incorporate it into the revised flood map.
If you or your customers have a question regarding a particular LOMA, you may contact our Compliance Department or the FEMA map assistance center at 877.336.2627.
If you have a question for Ask the Flood Expert that you believe would benefit the lending or insurance community through response in this quarterly publication, please send us an email. All questions will receive a response regardless of whether or not they are published.
ASK THE TAX EXPERT
Q: Aside from Texas, what other states allow property owners to authorize the assignment of a taxing authority’s priority property tax lien to a third party who in turn provides a loan for the purpose of satisfying an outstanding property tax debt on behalf of the property owner?
A: To date only the states of Texas and Nevada have such programs on the books. The current Texas code dates back to 1979. The original intent of the program was to accommodate and protect family members (without an interest in the property) who would fund an outstanding tax payment on another family member’s behalf. The program has evolved and expanded over the years to include commercial third party lenders. Nevada Senate Bill 301 was signed into law in 2013. While the program is widely engaged in Texas, at this writing there are only four properties in Nevada known to have engaged this process for the payment of delinquent property taxes.
Several states, including Arizona, Illinois, Missouri, New York, Oregon and Virginia attempted to pass similar enabling legislation during their regular 2014 legislative sessions. However, all but the two New York bills have failed to advance. New York’s Assembly Bills 3965 and 4037 which were carry-over bills from the 2013 session were re-introduced on January 8, 2014 and remain in committee with no further action to date.
The challenge with owner-initiated tax lien assignments is that the ordinary escalation of the tax delinquency, up to and including tax sale (a process which is actively monitored by CoreLogic Tax Service) can be circumvented by the homeowner entering into a property tax loan arrangement with a private third party lender at will, initiating a third party loan for payment of the property taxes, and authorizing the assignment of the priority tax lien to the third party lender. These transactions are often difficult to detect and track and therefore difficult to prevent. Once detected, the mortgagee (typically in a non-escrow arrangement with a borrower), is often compelled to take action to remedy the undermined first-mortgage lien.
For more information about managing issues related to property tax loans, contact Chris Flynn.
If you have a question for Ask the Tax Expert that you believe would benefit the lending community through response in this quarterly publication, please submit by email. All questions will receive a response regardless of whether or not they are published.
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