Solving Common Violations

Reg H: Flood Hazard Insurance

208.25(c): Purchase Flood Insurance

• The requirement to purchase flood insurance if the improved real property is located in a flood hazard zone is absolute. No-one can waive the requirement (not even a commercial lender) and no-one can do it after the loan closes.
• The determination must be made before closing. Check the dates on flood determination forms and compare the dates with application and closing dates.
• If determinations are occurring too close to closing (like the day before), work with lending to place flood determinations earlier in the underwriting process - with appraisals, for example.
• Most of the violations are found in the commercial lending area. Implement a method for holding the commercial lenders accountable for flood insurance lapses of any kind.
• Establish a system for reviewing flood insurance renewals. Give special attention to loans that do not have escrow accounts.

208.25(f): FEMA Determination form

• Use the correct form. This should be easy!
• Be sure the completed form is in each real estate-secured loan file.
• Review forms periodically for completeness. The form should be fully and correctly filled out.

208.25(i): Notice of Insurance

• When the property is in a flood hazard area, the notices are important. Get the notice right.
• Use FEMA's notice form and be sure the information is complete.
• Get the notice to the customer on time. The customer must have sufficient opportunity to purchase flood insurance before closing. This means the determination should be done well before closing. If insurance is required, send the notice immediately.
• Keep proof (a copy in the file does wonders) that you sent the notice.

Previous highlighted violations:
Reg C: Home Mortgage Disclosure Act
Reg B: Equal Credit Opportunity
Reg E: Electronic Funds Transfers

Copyright © 2001 Compliance Action. Originally appeared in Compliance Action, Vol. 6, No. 6, 6/01