Flooding and a Bank's Reputation
By David Dickinson
This summer, the Midwest flooding has gotten a lot of attention. Thousands of home and business owners were affected by the June rains - especially in the Cedar Rapids and Iowa City, Iowa communities. We live in a society of "victims". If something bad happens to a person, they too often look to blame someone else (like the McDonald's coffee being too hot!). Many people were victims of this tragedy and we all should feel an obligation to help. However, when someone points a finger at a bank for simply following federal regulations, I'm going to come to the bank's defense.
Adam Belz from the Cedar Rapids newspaper "The Gazette" recently wrote a story about the flooding in his community. I was interviewed by Mr. Belz as he asked me about regulatory Civil Money Penalties for not following the requirements of the Flood Insurance Act. I also explained to Mr. Belz how broken the flood requirements really are.
Be sure to read the story in The Gazette. But also scroll down and read the online posts the public made. Specifically, here's the 3rd post from the bottom where one person blames the lender for not requiring enough insurance:
My best friend, who lost her home in Czech Village the middle of June because of the flood, was very under insured. She said her lending institute told her she only needed to carry flood insurance to the value of $20,000. Everybody in their right mind knows that $20,000 is way undervalue for ANY house this day and age.
She received money from FEMA for rent only for the next 18 months. She says she is only allowed to use the FEMA money for rent, which is what she is currently doing. She cannot use that FEMA money towards the purchase of another home, either. Why would a mortgage lending institution tell a person buying a home that they only needed to carry house flood insurance of no more than $20,000? Beats me, and I feel the mortgage institution in this instance is grossly negligible in telling her this. If it were me in that situation, I would have automatically carried a much higher dollar amount of flood insurance. She and her husband have been royally scammed by their lending institution. They have applied for buyout.
$20,000 this day and age is nothing monetary-wise as far as property is concerned. I do hate to see people get scammed, but unfortunately it is going on all the time. Our city is scammed by inexperienced people handling our problems and it is costing us, big time.
I also hate to see people get scammed, but (and I'm assuming), this person's friend had a $20,000 loan at the bank. The bank simply followed the federal requirement to get the "lesser of" insurance required. If the bank would have required the full replacement value (RCV), her friend would have most likely been mad and wouldn't have closed the loan at this bank. Now the bank is "grossly negligible" because they didn't follow a practice that I've never seen implemented (requiring full RCV)???
Where do we go from here? We're damned if we do (requiring full RCV) and damned if we don't ("my bank scammed me"). Tough time to be a banker. 