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FEMA's New Zone
Now there is a new flood hazard zone: AR. This designation identifies areas that are a temporarily increased flood risk until flood control improvements are made or restored. The areas that FEMA first identified were in California. Effective July 6, 1998, areas around Los Angeles and Sacramento are designated as AR until flood control improvements are made.
The floods and mud that El Nino has brought illustrate why banks should be (or should have been) concerned about flood hazard zones. Customers, however, often resist the extra cost. To ease customer resistance, it can be worth reminding customers and loan officers of several things.
First, federal disaster assistance is not free money. It is a loan which must be paid back. It doesn't make the borrower whole; it just helps out.
Second, a disaster victim may only get federal disaster assistance once. There is no going back for more. Congress is tired of footing the bill for people who don't want to pay for insurance.
Finally, (and this is really for the loan officers) if there is no flood insurance and the property is damaged or destroyed by flood, the bank becomes the "insurer." The bank (or possibly the loan officer) will be liable for damages suffered in a flood if the bank failed to comply with flood insurance requirements.
Copyright © 1997 Compliance Action. Originally appeared in Compliance Action, Vol. 3, No. 2, 4/97
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