Be sure to JOIN US on August 4, 2020, for our webinar, “New Flood Insurance Q & A Proposal”.
In case you missed it, the Federal Reserve, Farm Credit Administration, FDIC, NCUA and OCC recently proposed revisions to the Interagency Questions and Answers Regarding Flood Insurance. In addition to reorganizing the Q&As and making changes to provide more clarity on some existing topics, new Q&As were added to address escrows, the detached structure exemption, and force-placement. One proposed area of change relates to lender expectations when dealing with flood zone discrepancies between the flood determination and the policy.
Click on the video to listen to Jerod explain more.
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How about a little regulatory relief? Who wouldn’t go for that, right? Hi there, this is Jerod Moyer with Banker’s Compliance Consulting. Today’s relief comes in the form of flood insurance and the frequently asked questions. We currently have a set that’s out there. They recently proposed an updated version of that. Now, what’s that mean for all of us? Well, many of the Q&As will remain mostly unchanged. They’ve added some, and then they made some pretty big revisions to some others.
You need to be aware of these, but today I want to tackle one thing that I thinks pretty cool and that’s where this regulatory relief comes into play. They’re going to relieve some of your burden and we don’t always get that in our industry, but today you’re going to. So there’s a Q&A out there currently that says, “If you have a discrepancy between the flood determination that the bank has obtained and what the insurance industry has come up with or what the borrower thinks it is, you’re supposed to resolve the discrepancy, make that effort.”
And it also goes on to state that “If you don’t do that and there’s this pattern in practice, you could be cited for violations.” And so we’ve all got this practice where we duke it out with the insurance industry, with the borrower to make sure that these policies match these determination forms. Well, one of the proposed Q&As out there and I say proposed, because that’s what it is. But I really think this is probably something they’re already applying in practice. We just haven’t heard a lot about it.
So I think that even before it’s finalized, you might be able to go here. Now, maybe it’s best to check with your regulator, but I don’t think they’d be doing things this way if it wasn’t already something they were applying. So here’s what the new question and answer reveals about flood zone discrepancies. And I think this is super cool. First off, and this is the minor part of it, but you should consider documenting discrepancy. I think that’s a great idea, a great best practice. Make sure you tell the story.
Require the appropriate amount of insurance, that would be the lesser of calculation. And here it comes, here’s the super cool part. You’re no longer required to burden the resolving of the discrepancy. Okay? And that’s a great thing. Document the story and move on. You don’t have to work to get this thing resolved. And better yet, the regulatory agencies are not going to be citing you for violations when flood determination forms don’t match up with your policy declarations page.
Now you may be thinking, “Well, am I going to get the appropriate amount of money relative to the policy if there’s a loss?” Yes, what will have to happen is that the borrower will have to make up the difference in the event that there’s a loss between what they were paying and what the full policy premium should have been for the correct zone. But I think we’ll be able to make that stuff happen in the event that there is one of those type of floods that occur.
So that’s just one of the many Q&As. Make sure you check out the rest of them and get yourself up to speed. If you’ve got feedback, give that to the regulators, but there should be a new set of final Q&As coming down the road. Thanks.