Flood Insurance Insurable Value

Be sure to JOIN US on August 18, 2020, for our webinar, “Flood Insurance & the Insurable Value Intersection”. 

When we’re talking about determining/calculating the value of a property or collateral, there are a lot of things on the table.  There’s market value, replacement cost value, income approaches, cost approaches, etc.  When it comes to the flood insurance requirements, it talks about the “insurable value”.  What is insurable value?

Click on the video to listen to David explain more.


The Challenging Environment You’re Facing

Yesterday, we held the first session of our six-part webinar series on Compliance Management.  We discussed the challenging environment you’re facing, how to meet that challenge, as well as, the role of the Board of Directors and Management.  We have a lot more to cover and it’s not too late to join us!

The remaining hour-long sessions will be held August 6, 13, 20, 27 & September 3 at 11:00 a.m. CST.  Each session is recorded so if you missed the first session, it’s easy to go back, watch it and get right back up to speed.  You can also play the recording for other members of your Team and Board who you feel might benefit.

Here’s a little feedback we received from session 1:

Very useful! I was on the fence about whether I should attend, as I feel that upper management is already very supportive of the compliance department. This training brought to light some ideas about the exam and the reflection on us based on the rating as well as additional communication that could/should happen between me and the board/charter president.

Great info to share w/Board!

It was on an understandable level, not all legal jargon.

Very useful. Will be passing along to the Board for their review.


Rule Number one, it’s a challenging environment. In fact, I don’t have COVID up here on the screen right now, but you can see here that there’s been some HMDA changes. There’s been deregulation, that if you’re a HMDA bank, some of you might’ve had to start doing HMDA for the first time and then there was the small filer stuff that came out. Then the thresholds changed, and then July 1st, and now maybe you’re back out of HMDA. Oh my gosh, they really seemed to mess that one up.

TRID, how many times have we had different TRID changes and Q&As, and different things, and it’s evolved. In fact, we’re coming up on the fifth anniversary of the TRID, gee, happy birthday for that. Bank Secrecy Act, an always evolving thing. Now I specifically put on here like the customer due diligence beneficial owner, but the problem with Bank Secrecy Act I often hear is, “If you just tell me what I need to do, I’ll do it.” But regulators keep changing the rules.

Yes, that’s true. And what I want to say to that is, here’s why that happens. There’s always new ways to lie, cheat and steal and move money around. And the bad guys, they’re always coming up with new ways to do that. The bad news is that we’re one step behind them, all the time. The good news is, that we’re only one step behind them, but they’re coming up with new ways to lie, cheat, steal, move money. And so we’re constantly having to do with beneficial owner, cuts for due diligence requirements, the BSA requirements are always evolving.

Flood insurance. There’s some new proposed Q&As that just came out. That’s why I have that on there. Fair lending, always a hot topic. Now I know that we’ve got several directors that are listening in, and I hope that if your directors aren’t with you today, that you’ll be able to play some of this because this first segment is really going to be directed towards senior management and the board of directors.

This is a challenging environment and it’s tough for compliance officers, especially the smaller institutions that may not even have a full time compliance officer, or maybe just by themselves. In fact, just this morning, I was chatting with numerous compliance officers in an online group about the isolation, if you will, being on your own and how it’s difficult. Now this graphic that I’m putting up on your screen right now, I want you to see that this is quite outdated. Look at the very bottom, it says 2017, I crossed that out I updated with June of ’18. That’s still a couple of years ago. This is from the American Bankers’ Association. They had a website where they’ve now stopped trying to keep track of this, but here’s the details. So I want you to write this down. As of June 22nd ’18, this is from the Dodd-Frank Act only. Just the Dodd-Frank Act, right?

The one that created the CAPB, gave us TRID, gave us some other things, that there were 11,000 plus pages of proposals and final regs and guidance, almost 16,000 pages. Now again, that’s over two years ago. For a total of nearly 55 plus reams of paper, that if you’re trying to read through these things, that’s how much you’ve had to read. And gosh, so 2012, Dodd-Frank Act 2018, in that six years, about 28,000 pages came out where most compliance officers are trying to read through that, analyze that, determine what applies, what we got to do different, et cetera. Think about the HMDA, think about TRID. Now, that does not include things like the Fair Credit Reporting Act, because that comes from the Federal Trade Commission. That doesn’t include flood insurance because that comes from FEMA or there might be FFIC things, but they’re not from the Dodd-Frank Act.

So I’m trying to get you to understand that this is just the Dodd-Frank Act, and then you have other things. How about state laws? How about treasury department, Bank Secrecy Act things, and depending on what hat you wear. But the point is, never in my career, have I seen such a crush of information that has come out and the volume of information. Now we’ve had some different presidents and we’ve had some differences in the executive committee. With Trump, there’s been some down change if you will, or deregulation, but that’s still changes that you have to process. And here in a few months, we’re going to see another election and who knows what’s going to happen. But this pendulum of regulations in the sense, it only seems like it’s just swinging greater and greater and greater all the time, where in Trump’s administration we’ve had less, there’s still more than what we’ve seen maybe 20 years ago.


Flood Insurance & Mobile Homes Clip from July Monthly Connection

This clip is from Memory Lane during the July 2020 Monthly Connection. Take a look at this peer group! https://store.bankerscompliance.com/link/MConnection


Head on into section five. Jarod and I talked through this this morning. It took much longer than I thought it was going to, but this is from those new Q&As, but it’s nothing new. It’s an area to me that often gets misunderstood. Notice that we say the notice, that’s the section in the new proposals. It has to do with giving the notice. It’s question number two and it’s talking about mobile homes. What I want to do is have you all read through this and I’m going to break this down into really four different components here.

The question is about, we don’t know where they’re going to put their mobile home. What do we do? And so starting out there, first off, let me do this. I need to define what a mobile home is. A mobile home, as they explain in here is something that’s built on a chassis, et cetera. Flood insurance comes into play when the mobile home is put on a permanent foundation. Now what does that mean? I have a memo that here.

This is back in 2000. I actually emailed what was FEMA had kind of a helpline and they basically explain, let me see if I can just attach this here. There. Must a mobile home be tied down? Was kind of the question. What is a permanent foundation? Because the definition of mobile home means that it’s off of its tires. It’s not on its case anymore. Now I’m going to use this wording. If it’s a mobile home that can roll down the road on tires, I’m going to call that an RV. And I know there’s a big difference here. I’m talking about let’s just say a mobile home that qualifies for flood insurance means that it’s off of the tires. It’s supported on some type of foundation. It’s most likely going to be hooked up to utilities and stuff like that. And that’s what this memo that I just put up there talks about.

But let’s talk about a mobile home that isn’t yet. And that’s where this question starts out. We don’t know where this thing’s going to be. Their answer goes into, you must provide the notice of special flood hazard within a reasonable period of time, prior to completion of transaction. There’s a footnote 46 about that. If the lender determines that the mobile home’s carrying the loan will be located a special flood hazard just prior to closing. Hey, Jarod’s buying a mobile home and we gave him a loan to buy one, but we don’t know where he’s going to put it. And then right before closing, he says, “Aha, this is where I’m going to put it.” Now and that’s probably pretty rare.

Well, what they’re saying is in that case, then you need to check where’s that property at? Do your flood determination. If it comes back, that it’s in a special flood hazard area, you may or may not have to do flood requirements. Why? Because is it going to be on a permanent foundation? And that’s of the second part that I’ll get to in just a minute. Now so what they’re saying is, if you realize that it is going to be a special flood hazard area and if it’s going to be on a permanent foundation, I’ve got to give them the notice and I might need to delay the closing to give him the notice, a reasonable period of time so he can go out and buy this insurance. I’m going to draw a line. That’s kind of one, let’s go to the next one.

It says in the case of a loan transaction secured by a mobile home not located on a permanent foundation. In other words, it’s still got its tires. That that home only transactions are excluded from the definition of mobile home. I use the word RV or camper or whatever. If it’s still on his tires, then it doesn’t qualify. And the note’s requirements would not apply. However, the agencies encourage you to still advise the borrower that the mobile home is later located in a permanent foundation that they wouldn’t need to have it. Let’s call that number two.

Now let’s go to the last part. If the lender, when notified of the location of the property of the mobile home, subsequent to loan closing. We’ve closed your loan and then we find out that you’ve put it on a permanent foundation and it’s located in a special flood hazard area, then I’m going to have to require flood insurance. And forced placement must be given. If the borrower fails to buy it, then I’ll buy it for them.

Now here’s the thing that they didn’t get into but I think they’re inferring or this memo that I just put up in the chat function, Jarod doesn’t tie down his mobile home. It’s on a permanent foundation, which basically means that it’s on cinder blocks or whatever. It’s just off of its tires. That’s what the definition says. And that’s what this memo that I put up there says, sometimes we have borrowers or lenders will tell us where our borrower went to buy insurance and the agent told him, “I can’t sell it to you because it’s not strapped down.” They didn’t say in this question and answer, “If it’s tied down you have to make them buy insurance.” It says, “If it’s in a special flood hazard area and it’s off its tires, it’s on some type of permanent foundation, then you must get insurance.”

I’m going to add to this, if you have a mobile home off a foundation in a special flood hazard, I tell Jarod, “Go buy flood insurance.” Jarod goes to his agent says, “I can’t sell it to you, Jarod, because you didn’t strap it down.” He comes back to me and says, “Dave, I can’t buy the insurance.” “Why not?” “Because it’s not strapped down.” “Well Jarod, go strap your trailer down. You have to have insurance.” That’s what this question and answer says, not quite as direct as I wish, but they certainly do say you must have insurance. To qualify for flood insurance, NFIP at least, it has to have straps. And that’s what I put up in the chat function.

I just want to revisit this old topic because this new Q&A is clarifying this a little bit and I really we’re running short on time. Maybe that if have questions about that as a topic, we can visit more. But I hope that’s crystal clear to you all. Now I’m going to throw out one more thing, Jarod and I were discussing this, how many mobile homes do you know, Jarod, are strapped down?

I’m going to have to look this weekend. I’ve got a lake cabin, there’s several around there. I don’t know if I’ve ever seen one tied down.

Right. And I was telling him when I was in college, I lived in a mobile home and we actually got the tie downs. They are literally straps and there’s big old corkscrews that go in the ground. Now, here’s the other thing, for those of you lenders that are going “Nah, we don’t do that.” I’m going to challenge you something. Do you have hazard insurance? I’m going to bet you all do. Pull out your hazard insurance policies on your mobile homes. I guarantee you, every single one of your mobile home hazard insurance policy says it has to be tied down to resist wind. And so if you’re saying, “Oh, we don’t think so.” Check that out. You may not have an adequate hazard insurance policy or your policy may not pay is what I’m trying to say if you don’t tie them down.

If I’m wrong, I’m going to ask you to notify me. Email us or call us and let me know. I have never seen a mobile home policy that didn’t have the wording about tie downs on the hazard insurance side. And so if you aren’t strapping them down, you don’t really have hazard insurance as well as flood insurance qualifications. With that, I’m going to get off this.


Compliance Management

Be sure to JOIN US on July 30, 2020, as we begin a six-part webinar series on “Compliance Management”. 

Over the course of his career, David has seen all sides of the regulatory process.  He founded Banker’s Compliance Consulting with the mission to help financial institutions ease the burden related to creating and excelling in their Compliance Management System (CMS).

If you’ve ever heard David talk about Compliance Management Systems (CMS), you’ve heard him talk about culture.  Culture should be the foundation of your compliance program.  But, WHY is it so important?

Click on the video to listen to David explain more.


Make sure you subscribe to our blog to get the most up-to-date Banking Regulation information. https://store.bankerscompliance.com/#/Registration?keyword=&type=

Compliance Management

Be sure to JOIN US on July 30, 2020, as we begin a six-part webinar series on “Compliance Management”. 

Over the course of his career, David has seen all sides of the regulatory process.  He founded Banker’s Compliance Consulting with the mission to help financial institutions ease the burden related to creating and excelling in their Compliance Management System (CMS).  It’s also one of his favorite topics to teach.  Every institution is unique and has their own challenges but there are some basic guiding principles that will ensure success in this area.

Click on the video to listen to David explain more.


Make sure you subscribe to our blog to get the most up-to-date Banking Regulation information. https://store.bankerscompliance.com/#/Registration?keyword=&type=