Our mortgage underwriter asked me a question that I wasn't quite sure about. If we document we forwarded the SFHA notice to the customer within the required time period and the customer doesn't sign and return it, is the fact that we forwarded the document timely sufficient? Generally in these cases the customer signs the document at closing.

§339.9 Notice of special flood hazards and availability of Federal disaster relief assistance.
(c) Timing of notice.
The bank shall provide the notice required by paragraph (a) of this section to the borrower within a reasonable time before the completion of the transaction, and to the servicer as promptly as practicable after the bank provides notice to the borrower and in any event
no later than the time the bank provides other similar notices to the servicer concerning hazard insurance and taxes. Notice to the servicer may be made electronically or may take the form of a copy of the notice to the borrower.

(d) Record of receipt. The bank shall retain a record of the receipt of the notices by the borrower and the servicer for the period of time the bank
owns the loan.

I think that delivering the notice is sufficient but you should get it signed at closing.

Thanks!! I guess sometimes all I need to do is read the regulations. I'm new to BOL threads and I'm enjoying them very much and learning a lot even though I've been in compliance for over 7 years.

If you don't get the notice signed is it a violation? (No record of receipt by the customer)

Yes. It must be signed as required by §339.9(d).

Suppose the client refuses to sign the document and threatens to take it to her "attorney"? Rather than to escalate the issue, would a certified mail receipt or the comment from the lender suffice?

From page 30 of the Mandatory Purchase of Flood Insurance Guidelines:

The Regulations require the lender to retain a record or evidence of the borrower’s receipt of the notice throughout the period the lender owns the loan. This record can be the borrower’s statement or initials that the notice was received directly, or the U.S. Postal Service return receipt in either hard copy or electronic format……

Based on this, I would say your certified mail receipt would suffice, as long as it is dated before the loan is closed.

We have a simple policy, if a customer refuses to sign a document we deem necessary by the regulations, we refuse to close the loan.

I'm with Dan - as long as you hold the loan proceeds you hold all the leverage. Once you give the borrower the loan proceeds, you lose much of that leverage.

In reply to:

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Suppose the client refuses to sign the document and threatens to take it to her "attorney"?

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Why would want to start a customer relation with someone who wants to fight you like this. Deny the loan. You don't need headaches like this. I have a standard statement to handle this: "I have the money that you want. This is how the game is played. Any questions?" Of course, that is why I'm a consultant now and not a loan officer.

Let me pose another question. How do the rest of you handle loan officers and their lack of understanding of the rules and requirements of the flood regulations. It seems they're always wanting to get around them and 'waive' certains issues for "good" customers. I'm concerned that until we get our hands smacked from the regulators that compliance will not really be considered necessary in all instances.

Compliance is a top down approach. If management supports you, you train and they comply. Less the occasional error. If management doesn't support it, you have to work to get their "buy-in". And if that comes from your good information and examples of other banks fines, that is great. If it has to get to where your bank is the example, keep a good CYA file.

We eventual wrote in regulatory compliance into the loan officers performance evaluations with a very heavy weighting. If you hit them in the pocketbook - they pay closer attention.

I think that's what they started doing at my previous employer AFTER I left.

We simply have it in our loan policy, that a FZD and/or Flood Ins. requirement cannot be waived under any circumstance. Our loan documents are also centrally prepared, and if the document specialist doesn't have a copy of the FZD, they don't prepare the documents (this has been the "saving grace", especially when we have had a loan officer that had to postpone a couple of closings with the borrower sitting at his desk).

The other issue is what happens if the flood insurance isn't continued. Who makes the decision or performs the force-placement?

Our "Loan Administration" dept. monitors insurance. If a flood policy expires, they send a notice to the borrower giving them 45 days to provide proof of coverage. If the proof is not received, they automatically force place it.