Refinance…Renewal…Modification…Extension. Many banks use these terms interchangeably but from a compliance standpoint they are NOT the same. If your bank calls something a modification when the regulations deem to be a refinance, you are going to have problems. You need to understand that the rules for closed-end credit differ from open-end credit.
When it comes to flood insurance compliance there is a lot to remember and even more ways to mess it up. There are determinations to pull, notices to provide, calculations to make, timing requirements to follow, etc. There’s little to no room for error and failure to comply can result in hefty civil money penalties. This is an area you want to ensure your financial institution gets right!
New to flood insurance compliance? Need a refresher on the basics? Check out our webinar, “An Introduction to Flood Insurance”, which is available now OnDemand. Here’s one of the questions we received during the webinar:
Question: Will you explain further on what constitutes a loan being “modified” (e.g., rate changes only, payment schedule change only)? What if there is not an extension in the modification?
Answer: A modification can be just about any change to the loan agreement, although Regulation Z does prohibit you from adding a variable-rate feature or going from open-end to closed-end (or vice versa) without giving new disclosures. Flood insurance requirements are triggered whenever you make, increase, renew/refinance, or extend a loan agreement – whether the change is made with a new agreement or modification to an existing agreement.
As with all of our training, you can expect our signature plain English style. Check out this clip from the webinar:
Are you tasked with the responsibility of training on compliance regulations at your institution? Compliance officers/personnel are often asked to do this because they are subject matter experts. But, knowing and understanding regulations and being an effective trainer require two completely different skill sets. We find many compliance officers need help when it comes to training.
Training is what we do! David gives a few tips in the video to get you started.
Ready to learn more? JOIN US, for our webinar, “Train the Trainer”.
Bank Compliance: Refinance v. Renewal v. Modification
Bank Compliance: Refinance. Renewal. Modification. These words are used all the time in the banking industry and in many cases, they are used incorrectly. When it comes to compliance, these terms are not one in the same. Thus, you have to be careful because the requirements for refinances may be quite different than for a renewal or modification.
David explains more in the video about the bank compliance terms.