Condominium Flood Insurance

Be sure to JOIN US on June 18, 2020, for our webinar, “Condominium Flood Insurance”. 

If you’ve ever had to deal with flood insurance on a condominium, you are probably very aware that it’s a whole different ball game.  Condo flood insurance has a lot of additional complexities and quirks that you don’t see when obtaining insurance on other types of structures.  For instance, can you force place flood insurance on a residential condo?

Click on the video to listen to Jerod explain more. A transcription is provided below.

Transcription:

Are the rumors really true? Is flood insurance really that much more complicated when it comes to condominiums and flood insurance either. This is Jerod Moyer with Banker’s Compliance Consulting. Unfortunately the rumors are true. Flood insurance is just a little bit more complicated when it comes to condominiums than it is with other types of structures. Let me get to the solution. Right out of the gate we’re going to be providing a one hour webinar where we’re going to bring to you those complexities about flood insurance and condominiums all in plain English. So that’s the solution. Let’s talk about some of the quirk factors as it relates to flood insurance and condominiums. I’ll share with you one, we’ll get to the rest of them when we get into the webinar, but the one I want to share with you is just like any other type of property, you have to monitor to ensure that the condominium is insured for the life of the loan to meet the lesser of calculation.


Well, what happens if you have a condo that’s not insured for the life of the loan and you identify that? Well, you’d have to give them a 45 day notice just like any other transaction, but what happens at the end of the 45 days if they haven’t purchased flood insurance in the amount equal to the regulatory requirement? Can I force place? The answer is maybe it depends. You see, if it’s a residential condominium building and you’re looking to obtain an RC bap, a residential condominium building association policy, which is the best flood policy you can get for condominiums of the residential variety, you need to know that you can’t force place that type of policy. You’ll have to find another Avenue and there are other avenues for forced placement on those types of structures, but you’re not going to be able to force place an RC bap policy. This is just one of the many things that we’re going to talk about and hopefully bring to you the plain English solution on as it relates to condos and flood insurance in that upcoming webinar. I’d love to have you get your team registered and join us as we go on that journey. I hope to see you there.

Published
2020/06/15

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Flood Insurance Requirements

Be sure to JOIN US on June 2, 2020, for our webinar, “Flood Insurance Requirements”. 

Flood insurance isn’t about you.  That statement is sometimes hard for banks and lenders to fully grasp.  Flood insurance isn’t about protecting the bank, it’s about protecting your borrowers and ultimately the interest of the U.S. Government.  We see lenders all the time trying to get out of requiring flood insurance by saying the collateral located in a Special Flood Hazard Area is being taken as an abundance of caution, or the land value far exceeds the structure value, etc.  When it comes to flood insurance; however, it doesn’t matter.  If your loan is secured by a structure in a SFHA you must play the flood insurance game, it’s not optional.

Click on the video to listen to Jerod explain more. A transcription is provided below.

Transcription:

Can we match or even beat the competition? Hi, there. This is Jerod Moyer with Bankers Compliance Consulting.

One of the common questions that I get when I do a fair lending session is, we’ve sat and we’ve worked and worked and worked with this client. We’re set to close, and because the CFPB and the other agencies are out there promoting shopping with things like the TRID and Know Before You Owe disclosures, our client actually went and shopped. And at the last minute they bring to the table a lower rate from down the street or some sort of lower pricing from down the street.

And so the question is, can we match or even beat the competition’s price? And the answer is fairly simple, but it comes with some baggage. So you’re not prohibited from beating or matching the competition in the form of pricing and/or underwriting. However, the risk that comes with it is, what you’re really doing there is, you’ve enabled discretionary pricing within your organization. It’s not a bad thing. You just have to have controls in place.

The big thing that we look for when we go into banks and we do our fair lending reviews, if there’s any form of discretionary pricing and/or underwriting, is that these exceptions, and that’s what we’re going to refer to them as, that they’re monitored and controlled. That we know where they’re coming from, where they’re not coming from, and we talk about it and we monitor it along the way. That’s what we’re looking for.

This is just one of the many things that we train on within the fair lending training that we provide. We also have a lot of other training we would invite you to go and check out within our library located on our website. Or give us a call. We’d love to talk about how our team can partner and help your team navigate risks such as fair lending.

Published
2020/05/30

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CFPB Guidance on PPP Applications and Flood Guidance from the Federal Reserve and OCC

The CFPB has provided some clarification on Regulation B’s notification requirements for institutions taking Paycheck Protection Program (PPP) applications. 

For purposes of Regulation B, a PPP application is only complete after a loan number or a response about the availability of funds has been received from the SBA.  So, any time spent waiting on this information does not need to be included in the 30 days you have to notify an applicant about the action you’re taking on an application.  You also cannot deny an application for incompleteness if you have enough information to make a credit decision, but are waiting on a loan number or a response on whether funds are available from the SBA.  If you deny an application without ever sending it on to the SBA, however, you must give an adverse action notice within 30 days. 

The Federal Reserve issued CA Letter 20-7, clarifying flood insurance requirements in light of loan extensions and the NFIP’s change to a 120-day grace period.  First off, the Federal Reserve clarifies that extending a loan’s maturity date will trigger flood insurance requirements (determination, notice, escrow, as applicable). 

While not as relaxed as the Federal Reserve’s statement, the OCC also provided some FAQs stating it would not look to take action against a bank for “reasonable delays” in the force-placement process in light of the 120-day grace period, as long as “good faith efforts” were being made to comply with the rule and support borrowers.  We’re not aware of anything from the OCC stating it’s okay to delay your force-placement process to align with the 120-day grace period.

If you’re a Federal Reserve or OCC bank, we advise you to look at the guidance closely.  Only the Federal Reserve has really indicated it’s okay to change your force-placement process to fall in line with the changes in the NFIP grace period.  Remember as well, the 120-day grace period only applies to NFIP policies.  We still have yet to hear from other regulators.

Published
2020/05/07

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Intro to Flood Insurance

Be sure to JOIN US on May 12, 2020, for our webinar, “An Introduction to Flood Insurance”. 

Have you ever been confused about if or when you could rely on a previous flood determination form? 

If so, you’re not alone.  To put it simply, if you meet the following conditions, you can rely on a previous flood determination for subsequent loans:

  1. It’s less than seven years old;
  2. There have been no map changes; and,
  3. The determination is on an actual Standard Flood Hazard Determination Form.

Click on the video to listen to David explain more.

Read the transcription below the video.

An Introduction to Flood Insurance

Hi Dave Dickinson with Banker’s Compliance Consulting and want to talk about flood insurance and specifically relying on a previous flood determination form. Now there’s a lot of confusion out there about when can you rely upon a previous determination and first off, let me tell you, go to our website and go to the tools, the free downloadable tools, there’s an article called Reliance on a Previous Flood Determination that spells out all these details. I support it with the law, the regulation and the FAQs. But in short, anytime that you already have a flood determination and there’s three conditions that are met, it’s less than seven years ago, there’s been no map changes, at least that flood determination still references the current map and date for that property of course, and then three, it had to be on the flood determination form itself. If you can say yes, yes, yes to those three questions, you can use that flood determination for subsequent loans.


So imagine that I did a 30 year loan with you and now I come in five years later and I’d like to refinance that. Can you take that determination out of the loan A file and put it with the loan B file? Again, if those three conditions … it’s going to be on the flood determination form, it’s going to be less than seven years. And that example I just gave, but is that map still current? Okay. If that map effective date, everything is the same, that what you’d fill out today would be what you’d filled out five years ago. The answer is yes, you can rely upon that.


So where’s the confusion here? Well, FEMA used to publish a book called The Mandatory Purchase of Flood Insurance Guidelines, and in those guidelines they incorrectly stated that if you made a new loan, you had to do a new flood determination. Now what’s interesting is we have an FAQ, the FFIC got together, the frequently asked question number 68 specifically addresses this and says, “You can rely upon a previous flood determination.” So from a regulatory standpoint, no question.


Now is this prudent? That’s something you may want to think about because how do you know if there’s been a map change? Most flood determination companies will do a recertification for you for a dollar or two or maybe even free, so maybe procedure wise you to say, “Listen, we want to know for sure. We don’t want to take a chance. Let’s just always rectify.” And that’s not a bad rule to have. But if an examiner is trying to cite you because you refinanced or made a subsequent loan and relied upon a previous determination, I don’t believe that’s possible, you have to check that out.


Now I’m going to throw in one more thing. How about your contract if you are using a flood vendor, which most of you probably are, do they allow you to take their flood determination out of loan A and put it with loan B? In a sense you’re only paying for one, for a subsequent loan. So that might be something you’ll want to consider as well as there’s a contractual issue here. It’s not a regulatory issue but a contractual issue that you might be violating your contract with your flood vendor. So lots of things to consider. The prudent and the safest way would be to always do a new flood determination, but possibly you don’t need to. I want you to be informed. Hey, thanks for listening!



Published
2020/05/06

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$18 Million Flood Act Penalty!

The OCC recently issued a Consent Order to Citibank, N.A., Sioux Falls, South Dakota, for violations of the Flood Disaster Protection Act and it’s implementing regulations.  The bank was ordered to pay a civil money penalty of $17,998,510 to the National Flood Insurance Program.

In its residential lending sector, the Bank utilized a third party to service loans secured by improved property located in a special flood hazard area. The third party notified the borrower(s) and force-placed flood insurance when the flood insurance failed to appropriately cover the collateral.  However, the problems arose as a result of the Bank’s policies and procedures which allowed the third-party servicer to extend the 45-day period following notification to the borrower. 

12 CFR § 22.7(a) – Force placement of flood insurance states: If the borrower fails to obtain flood insurance within 45 days after notification, then the… institution or its servicer shall (must) purchase insurance on the borrower’s behalf.

Flood Interagency FAQ #61 does potentially allow for a “brief delay” where there is a brief delay in force placing required insurance, the Agencies will expect the lender to provide a reasonable explanation for the delay…. This does not allow for a pattern or practice of extending the 45-day period!

This resulted in a “pattern or practice” of violations, dating back to at least 2014, for failing to force-place insurance in a timely manner.

Live and Learn!  The key word being “learn”.  Don’t discount the value that Consent Orders issued to other banks can be to you!  It’s a great way to learn what examiners are finding, a good warning to make sure you are not doing similar things in your institution and are also current, relevant examples to use (of what not to do) when training your Team!

If you need help with flood insurance compliance, we have several webinars coming up in the next several months.  Stay tuned to our store as registration information will be posted soon. See store.bankerscompliance.com.

Published
2020/02/24

Want free flood tools? See – https://store.bankerscompliance.com/link/LendingFD