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Question & Answer
Question: For flood hazard insurance, does the $5,000 exemption apply to force-placed loans? This becomes a problem when a customer has multiple loans on the property and the bank makes a new loan for $4,500.
Answer: When determining whether loans are subject to flood hazard insurance requirements, it is useful to remember that flood insurance is designed to protect the lender rather than the consumer. It is fundamentally an issue of safety and soundness and therefore in bank's interest to comply actively. The lender can require flood insurance as a condition of a loan even if flood insurance is not required by law. The law sets minimum situations for requiring insurance.
Copyright © 1997 Compliance Action. Originally appeared in Compliance Action, Vol. 2, No. 6, 5/97
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