CRU CRU Insurance & Title Requirements 1 — Questions and Answers
Question 1: What is the minimum required hazard insurance coverage amount for a conventional residential mortgage?
- The appraised value of the property
- The outstanding loan balance only
- At least 100% of the insurable replacement cost of the improvements (Correct answer)
- The purchase price of the property
Correct answer: At least 100% of the insurable replacement cost of the improvements
Conventional guidelines require hazard insurance to cover at least the full replacement cost of the improvements to ensure the lender's collateral can be rebuilt.
Question 2: Which federal program provides flood insurance to property owners in participating communities?
- FHA Mortgage Insurance Program
- National Flood Insurance Program (NFIP) (Correct answer)
- Federal Crop Insurance Program
- FEMA Disaster Relief Fund
Correct answer: National Flood Insurance Program (NFIP)
The NFIP, administered by FEMA, offers federally backed flood insurance to homeowners in communities that adopt floodplain management ordinances.
Question 3: Under the Flood Disaster Protection Act, when is a lender required to mandate flood insurance on a residential property?
- Whenever the borrower requests it
- When the property is in a Special Flood Hazard Area (SFHA) and the community participates in the NFIP (Correct answer)
- Only for properties with basements
- When the loan-to-value ratio exceeds 80%
Correct answer: When the property is in a Special Flood Hazard Area (SFHA) and the community participates in the NFIP
Federal law requires lenders to mandate NFIP flood insurance for loans on properties located in SFHAs in NFIP-participating communities.
Question 4: What does a lender's title insurance policy protect?
- The borrower's equity in the property
- The lender's security interest against prior title defects, liens, or encumbrances not disclosed in public records (Correct answer)
- The homeowner against future title claims only
- The appraiser against errors in the appraisal report
Correct answer: The lender's security interest against prior title defects, liens, or encumbrances not disclosed in public records
A lender's title policy indemnifies the lender for losses from undiscovered title defects up to the loan amount.
Question 5: What is a 'mortgagee clause' (also called 'loss payee clause') in a homeowner's insurance policy?
- A clause allowing the insurer to cancel the policy without notice
- A provision naming the lender as a co-insured to receive claims proceeds to the extent of its interest (Correct answer)
- A requirement that the borrower pay the deductible before coverage applies
- A clause that increases coverage after a loss is reported
Correct answer: A provision naming the lender as a co-insured to receive claims proceeds to the extent of its interest
The mortgagee clause protects the lender by ensuring that insurance proceeds are paid to the lender (to the extent of its mortgage balance) in the event of a covered loss.
Question 6: Which type of title search examines recorded instruments for a specified number of years back from the present?
- Abstract of title
- Chain of title search (Correct answer)
- Bring-down search
- Root of title search
Correct answer: Chain of title search
A chain of title search traces ownership and encumbrances through recorded instruments over a defined period to establish a clear ownership history.
CRU CRU Insurance & Title Requirements 1
What is the minimum required hazard insurance coverage amount for a conventional residential mortgage?