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#1409689 - 06/29/10 09:06 PM Flood insurance coverage amount and charge off
Tryin-2-Comply Offline
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Joined: Apr 2003
Posts: 202
Hills of TN
Can someone point me in the direction of firguring out how much flood insurance coverage is required when a loan has a partial charge off?

Total value: $115,000
Land value: $60,000
Loan amount: $128,000
Partial charge off: $68,000

Thank you!!!

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#1409699 - 06/29/10 09:17 PM Re: Flood insurance coverage amount and charge off Tryin-2-Comply
BankingNut Offline
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Joined: Apr 2010
Posts: 90
Is the current value of the loan $60,000 or $128,000?

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#1409703 - 06/29/10 09:26 PM Re: Flood insurance coverage amount and charge off Tryin-2-Comply
Doug Hendrickson Offline
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Doug Hendrickson
Joined: Oct 2009
Posts: 3,927
If my math serves me right, in this case the lesser of the value of the improved real property or the loan amount would be $55,000 ($115,000 appraisal value less $60,000 site value).

Someone who knows the reg better than I may differ, but I would not adjust the loan amount in the calculation for any partial charge offs. The customer is still legally obligated to repay the entire loan amount and, god forbid there is a flood, you would want to recoup as much of the loan amount as possible.

In this case it's irrelevant as the improved real property value is less than the loan amount. But let's say the improved real property value is $150,000; I'd use the $128,000 loan amount as the lesser of the values and not take into account the charge-off amount. I'm hoping that's not against the regs.
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#1409718 - 06/29/10 10:03 PM Re: Flood insurance coverage amount and charge off Doug Hendrickson
Tryin-2-Comply Offline
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Joined: Apr 2003
Posts: 202
Hills of TN
Current value of loan remains at $128,000.

Thank you Doug, that's what we have placed. $55,000. We are being challenged by the borrower - because they were affected by flood and lost everything in their home. The borrower wouldn't keep flood insurance on it - so we force-placed the coverage at $55,000 - even though we already had a partial CO.

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#1409754 - 06/30/10 12:58 AM Re: Flood insurance coverage amount and charge off Tryin-2-Comply
Dani York, CRCM Offline
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Dani York, CRCM
Joined: Apr 2005
Posts: 3,663
TN
That's the rub of using the lesser of calculation. While you are in compliance with regulation, borrower's who suffer a loss may try to put you on the hook for not covering their interest as well.

If think of it in a reversed scenario where the loan balance is less than the insurable value, you will see how a borrower could be left high and dry after a flood loss where only the loan balance was placed (or even required). The big bad bank got paid but poor borrower doesn't have a house to live in.
Last edited by Dani York; 06/30/10 12:59 AM.
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#1409764 - 06/30/10 02:34 AM Re: Flood insurance coverage amount and charge off Dani York, CRCM
Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
Joined: Dec 2000
Posts: 21,277
A charge off does not affect how much the customer owes you. Only a forgiveness or bankruptcy (which forces forgiveness) changes that.

A charge off changes the way a bank recognizes income and what is claims as good assets. No affect on borrower at all!
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