Spring has sprung! Well, in some places anyway. Let’s make sure you don’t spring a leak in your portfolio of flood loans. Here is a spring cleaning checklist of your flood program.
In general, an institution under the OCC, FRB or FDIC rules shall not make, increase, renew or extend (MIRE) any designated loan unless the building or mobile home and any personal property securing the loan is covered by flood insurance for the term of the loan. The amount of insurance must be at least equal to the lesser of the outstanding principal balance of the designated loan or the maximum limit of coverage available for the property under the Act. Flood insurance coverage under the Act is limited to the building or mobile home and any personal property that secures a loan and not the land itself.
- Flood policy and procedures should be reviewed at least annually. TIP: TCA has reviewed flood procedures only to find out that something changed in the department (staff, vendors or checklists) and the procedures have not been updated. Make sure your procedures are current and reflect what you are doing.
- Flood procedures – From the Loan Officer to Servicing, what should happen along the way? When and who will obtain the flood determination? If the property is in a flood zone, is the Notice to Borrower sent? Are you obtaining the signed Notice back from the borrower prior to closing? Are you obtaining flood insurance prior to closing? Is the amount of coverage checked to ensure coverage is correct? Has an escrow account been established for the flood premiums and fees if the bank does not qualify under one of the escrow exceptions?
- Are flood determinations being obtained within a reasonable time prior to closing?
- Reports – Check internal reports showing what loans the bank thinks are in a flood zone compared to the vendor list – does it match? If it doesn’t, do you have procedures in place to get the zone corrected?
- Verify flood coverage is enough; using internal reports, obtain the most recent loan balance (include any 2nd liens secured by the same property) and verify the flood insurance coverage is sufficient at least annually or when notified of insurance changes.
- Flood insurance current – Review policy dates.
- Flood determination – Does the flood zone match the zone on the flood insurance policy?
If you must force place Flood insurance, make sure:
- Notices are being sent to the borrower on a timely basis.
- Renewal notices of forced placement are being sent on a timely basis.
Remember, the penalty for each incorrect flood item is $2,000.00, so it’s worth getting things correct!
TCA can help with your review of loans in a flood zone – don’t wait until your bank is underwater! TCA can conduct a flood‐only review or include as part of your compliance review. Contact TCA at [email protected] or 800‐934‐7347 for a proposal.