Time To Remember The Basics - Flood Insurance
I just left the parking lot of our country's best known big box store. Being in the mood for a bit of 21st century mischief, I had just completed paying for my grocery purchases with cash (intentionally just to shock the cashier - and betting he would have a hard time figuring out the change if I made it such that I wouldn't get back even dollar change). Obviously I had been in the store actually making my purchases in person versus ordering them via phone and having them delivered to my car. I backed out of the parking space without incident, without assistance of a backup camera, and headed home not caring if anyone was trying to call me as my phone was in silent mode because it was Sunday and I wanted to be left alone. I won't even broach the subjects of texting, especially while driving, or those plastic grocery bags where the contents all spill out on the drive home vs. the paper ones that always stood up straight without spilling if packed properly.
My point of all this is that sometimes we get so caught up in the moment, be it new regulations, product delivery systems, etc., that we tend to forget the basics. Flood is a case in point.
We all know the flood basics for our institution. They have been around for a while. Determination, typically via a vendor.
Standard Flood Hazard Determination Form.
If in Flood Hazard Area, borrower notification, giving reasonable time to purchase coverage (generally regarded as 10 days prior to closing). If in Flood Hazard Area, require coverage based on the lesser of structure insurable value, loan outstanding principal value, or maximum available though National Flood Insurance Program. Require escrow of flood insurance if we escrow taxes and insurance. Ensure coverage is maintained throughout the loan term and force place as allowed, depending on whether coverage was escrowed or not.
Just because we are aware of these basics does not mean that certain aspects are not being forgotten and this is leading to a rise in flood or flood-related findings in regulatory examiner reports.
Here are some problem area particulars.
Has the cost of flood insurance been considered in the Standard Ability to Repay calculation on an applicable loan? If a vendor is paid for Life of Loan notification, is the vendor actually performing the service, and where is the notification going at your financial institution?Is it going to a general mailbox that is never looked at or to an employee who no longer works for your institution and thus a dead email address? If you offer escrow, you have to escrow for flood unless you are a Small Servicer that never escrows. The detached nonresidential structure exemption is a lender choice exemption. Has a valuation guideline been set in your policy and has such a guideline been applied in a consistent matter so as not to create a potential fair lending issue? Is the flood status check applied if make, increase, renew, or extend? Even on a modification where the property is located in a flood zone and the property has flood coverage, is a NEW determination notice provided with new dates and a new customer acknowledgement?
Hopefully some of these basic reminders will be of help, heading off potential issues with flood insurance, before those examiners come calling or the rains start falling.