Midwest bank was fined $3.6M by the OCC over flood violations
Avoid these common lender violations:
Failing to verify flood insurance is in place before a loan closes
-Confirming proof of policy purchase vs. estimate
-Being loose with borrower about proof of insurance deadline
-Waiting until last minute to provide flood insurance binder to borrower
Failing to follow the requirements for force-placed insurance
-No process to verify borrower insurance lapses
-Lenders playing loose with coverage requirements
-Clearly communicating to borrower the need for coverage of outbuildings
-Lack of follow-up with third-party vendors who enforce force-placed insurance
-Failure to update flood insurance when loans are refinanced or extended, or a new loan is issued
Let our servicing experts help clean up your flood insurance program in three easy steps:
1) Assess your flood insurance plan
2) Identify compliance gaps
3) Remediate to avoid risk and penalities
Important Update for Lenders on Flood Insurance Requirements
The U.S. Department of Housing and Urban Development (HUD) audited FHA-insured loans serviced in 2020:
- Identified 31,500+ loans in SFHA flood zones lacking adequate flood insurance
- Lenders exposed to at least $4.5 billion in risk
Get the Facts about Flood Insurance Requirements
NFIP (National Flood Insurance Program): Provides insurance to help reduce the socia-economic impact of flood. Congress established NFIP under the National Flood Insurance Act of 1968.
Flood Insurance Rate Maps (FIRMs): Maps used by lenders to determine properties in high-risk flood areas, designated Special Flood Hazard Area (SFHA).
FDPA (Flood Disaster Protection Act of 1973): Provides penalties for lender violations of mandatory flood purchase requirements, escrow requirements, notice requirements and force placement requirements for up to $2,000 per violation.
Biggert-Waters Reform Act: This Act states that an institution may force place and charge for insurance beginning on the date on which flood insurance coverage lapsed or did not provide a sufficient coverage amount.
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