Michigan bank pays $3.6 million for flood insurance penalties

The OCC has issued a Consent Order that Flagstar Bank, FSB, Troy, Michigan, pay a $3,620,000 civil money penalty for violations of the Flood Disaster Protection Act and its implementing regulations, 12 CFR §§ 22.3, 22.5, 22.7, 22.9, and 22.10.

The OCC found, and the bank neither admits nor denies that, at the 2020 examination of the bank’s Flood Act compliance program, the OCC identified violations of Flood Act requirements to:

• make, increase, extend, or renew loans secured by properties in special flood hazard areas only after obtaining proof of adequate insurance;
• timely pay flood insurance premiums collected in escrow;
• provide timely and adequate notices to customers for loans secured by properties in special flood hazard areas, including if a change in servicer occurs; and
• provide borrowers with notice of inadequate Flood Act insurance and force place adequate insurance if not obtained by the borrower in 45 days.

The OCC also determined that the bank’s Flood Act risk assessment, internal controls, and training, along with its inadequate third-party risk management program over its loan servicing, led to the various violations.

During the period of February 2017 through February 2020, the bank engaged in a pattern or practice of violations of the Flood Act and its implementing regulations, including 12 CFR §§ 22.3, 22.5, 22.7, 22.9, and 22.10.