Responding to Nature's Hazards

FDIC has again issued guidance on steps institutions may take to help rebuild areas affected by severe storms. FIL-57-2004. These issuances come out with predictable regularity after bad storms. The most recent bout of storms affected the Midwest and included tornados that razed entire communities.

Severe storms generally include hurricanes, tornados and storms with sufficient wind or water to do significant property damage. The damage creates an urgent need for credit to rebuild, repair, or simply hold damage at bay.

The FDIC guidance is consistent each time a storm or natural disaster occurs. First, banks are encouraged to provide responses that help communities and customers minimize damage and rebuild and repair. Doing so, however, must be within the context of safety and soundness. There are basically two considerations for safety and soundness. First, flexibility in lending, such as increasing a credit line, allowing the customer to skip payments, or extending the amortization period, must be done with attention to the underlying safety and soundness of the loan. Second, the flexibility given to customers may increase the soundness of the loan by making it possible for the borrower to make required payments.

Second, required reporting or publishing requirements may be relaxed. The agencies will give specific guidance for this based on the nature of the reports (e.g. call reports) or publications (branch closing announcements) that may be affected. In this area, you need to stay tuned to your regulator.

Finally, there is some relaxing of rules in consumer protection laws. The ability of the consumer to waive the right to rescind recognizes the necessities generated by the storm or other disaster. Thus, agencies will accept a high rate of rescission waivers. You can also expect reasonableness in dealing with problems that result from making loans quickly and without all of your compliance disclosure tools up and running. However, never ever use a natural disaster of any kind to justify making a high cost mortgage without the disclosures and cooling-off period and don't even think about discriminating!

Copyright © 2004 Compliance Action. Originally appeared in Compliance Action, Vol. 9, No. 5, 3/04