www.lenders-financial.com     Lenders Financial Insurance Services, Troy, MI       November, 2011

Federal Flood Insurance Compliance - Update

Federal agencies that regulate financial institutions have once again clarified their guidelines regarding flood insurance. The agencies are:

  • The Office of the Comptroller of the Currency
  • The Federal Reserve System
  • The Federal Deposit Insurance Corporation
  • The Office of Thrift Supervision
  • The Farm Credit Administration
  • The National Credit Union Administration

The agencies have been updating their flood insurance guidelines, by way of "Questions and Answers" (Q&A) published in the Federal Register. Two years ago, the six Federal agencies issued five supplemental "Questions and Answers", (July 21, 2009 - 74 FR 35914-947 ("Flood Q&A")).

Although not actual law, individual field regulators use the latest guidelines in their bank examinations.  Unfortunately, some aspects of the 2009 guidelines seemingly were in conflict with existing Federal Law ((The National Flood Insurance Act of 1968, and the Flood Disaster Protection Act of 1973, as revised by the Reform Act (codified at 42 U.S.C. 4001 et seq.).) The comment period that followed was put to good use by commenters (primarily lenders and insurance providers), whose actions lead to a new revised "Questions and Answers", published October 17, 2011. 

Link to Federal Register
(Click Here)

At issue are:

  1. When the (federally required) 45-day notice period should begin.
  2. When a borrower can be charged by the lender for the cost of flood insurance coverage, with respect to the 45-day notice period.
  3. How soon after the end of the notice period a lender should obtain flood insurance coverage when the borrower has failed to purchase an appropriate policy.

Of the five Supplemental "Questions and Answers" from 2009, three have been revised, and are significant for lenders.

(Read More...)

Checking for Insurance
on Your
Equity Loans?

While equity lending has been a boon for lenders, the administration (servicing) of equity loans - for insurance compliance - can be challenging.

As a mortgage loan, insurance coverage should be maintained at all times, in order to protect the lender's interest.  But equity loans, with many lenders, are originated and serviced in the installment loan department, which are not set up for escrows, and other "1st mortgage" needs.  Thus, for insurance purposes, it's like fitting a square peg into a round hole. 

In addition to compliance, there is always the issue of cost.  Lenders have several options - with differing complexities and costs - to ensure proper due diligence and insurance compliance. 

Equity Loans – What is the Actual Risk?

Consider that equity loans…

  1. Rarely, if ever, go to foreclosure
  2. Almost never result in loss, due to uninsured physical damage (i.e. a fire) to the collateral property
  3. Have floating balances, making it hard to monitor, or later force place, for the proper amount of insurance
  4. Do not command the high level of insurance documentation as do 1st mortgages (from insurance carriers and agents).
  5. Might possibly be simultaneously tracked by another lender - the first mortgagee.  A duplication of procedure

Equity loans do then present risk to the lender, albeit risk that is extremely low, and certainly not equal to the average 1st mortgage.

(Read More...)


is for financial institutions, with particular interest to:
Sr. Management
Loan Serv. Mgrs
Risk Mgrs
Compliance Mgrs
 Ins. Agency Mgrs.


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Lenders Financial Insurance Services
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