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Question & Answer
Question: One of our commercial loan officers wants me to "waive" the flood insurance requirement for a customer whose property - a warehouse - is located in a flood hazard zone. This is a good customer and he wants to keep the customer happy. What can I tell this loan officer to change his mind?
Answer: You can always use the "club" approach and threaten to take any flood damage costs out of his/her pocket. And you can also tell him/her that making the loan without flood insurance violates the law.
In the long run, taking a more persuasive approach is preferable. The loan officer won't be quite as frustrated with you. But, more important, if a loan officer understands why flood insurance is so important, they are less likely to try the same violation again.
When the flood comes, the insurance protects the lender. The real issue here is that property in a flood zone has a known additional hazard - water damage. The flood insurance requirement is designed to protect the lender. So why not push it more? When a lender suggests that the bank should not require flood insurance, the lender is putting the safety and soundness of that loan - and the bank - at risk. Yes, the customer benefits by having the insurance. But the real issue here is safety and soundness.
Copyright © 2000 Compliance Action. Originally appeared in Compliance Action, Vol. 5, No. 5, 5/00
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