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#1575636 - 07/08/11 05:02 PM Flood Notice 10 days prior to closing
tlevandoski Offline
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Illinois/Indiana
We are being cited by an external auditor for those rare occasions where the Borrower Notification is not signed 10 days prior to closing. I found a Q&A in the InfoVault about this topic dated 03/14/11 for which Randy Carey and Kathleen Blanchard responded that the 10 day requirement had gone away. Can someone point me to a citation or reference for that change? Thanks for your help!

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Flood Compliance
#1575682 - 07/08/11 05:43 PM Re: Flood Notice 10 days prior to closing tlevandoski
Dan Persfull Offline
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Page 34 of the Mandatory Purchase of Flood Insurance Guidelines - you will notice the 10 day reference is no longer there.

Also refer to the center column on page 35930 of the FAQs

http://edocket.access.gpo.gov/2009/pdf/E9-17129.pdf
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#1575700 - 07/08/11 06:01 PM Re: Flood Notice 10 days prior to closing Dan Persfull
tlevandoski Offline
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Thanks much!

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#1576283 - 07/11/11 06:20 PM Re: Flood Notice 10 days prior to closing tlevandoski
David Dickinson Offline
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Dan is correct, however, there's a twist. Here's some info on the Flood webinar I taught on 6/23/11 concerning the timing of the Notice:

1. Prior to Closing:
Must be delivered to the borrower(s) and to the servicer if applicable, within a “reasonable time”, before the completion of the loan. [§339.9(c)]

2. Reasonable Time:
The regulations do not establish a fixed time period in which a lender must provide the notice. What constitutes a reasonable time will necessarily vary according to the circumstances of the particular transaction. [MPFIG – page 34 and Federal Register /Vol. 74, No 138 – page 35930]

3. Regulatory Guidance:
The Agencies generally continue to regard ten days as a “reasonable” time interval. [Federal Register /Vol. 74, No 138 – page 35930]

So, although the reference to 10 days was removed from the regulation and the MPFIG, the Federal Register still makes this comment. Ticks me off!
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#1576348 - 07/11/11 07:25 PM Re: Flood Notice 10 days prior to closing David Dickinson
Dan Persfull Offline
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Quote:
The Agencies generally continue to regard ten days as a “reasonable” time interval. [Federal Register /Vol. 74, No 138 – page 35930]


Hmmm.....I skipped right over that little tidbit. However, I still rely on your first cite. There are many times we can close an in-house, HELOC or HE loan within 10 days and we will not make the customer wait simply because we have to furnish them the notice.
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#1576400 - 07/11/11 08:33 PM Re: Flood Notice 10 days prior to closing Dan Persfull
rlcarey Offline
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The reality of the matter is, if you give them the notice and they produce a flood insurance policy and then you close, how could any timing be deemed unreasonable?????
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#1576768 - 07/12/11 04:27 PM Re: Flood Notice 10 days prior to closing rlcarey
David Dickinson Offline
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Exactly Randy. That's my common response when an examiner criticizes one of our clients. Giving the notice at closing is not acceptable, but if they gave the notice before closing and the borrower produces the insurance, the borrower must have had a reasonable period of time.
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#1576773 - 07/12/11 04:33 PM Re: Flood Notice 10 days prior to closing David Dickinson
SLU Voice Offline
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Randy & David, that didn't work with us. We had two cases in which the loan officer had the borrower sign the notice at closing, and the borrower DID have sufficient flood insurance at closing, but we were still cited because the examiner said the same day is not a reasonable amount of time. I argued your exact point that if the borrower has a policy, the timing was reasonable, but she didn't go for it.

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#1576854 - 07/12/11 05:58 PM Re: Flood Notice 10 days prior to closing SLU Voice
David Dickinson Offline
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If they signed the notice at closing, you are in violation of the law. You must have given them a verbal notice (since they had the insurance), but that is not acceptable.
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#1578374 - 07/14/11 09:52 PM Re: Flood Notice 10 days prior to closing David Dickinson
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Now this is a worry. In a recent review I ran across two notices signed @ closing. David, where in the law does it say you cannot provide the notice @ closing. I'm aware of the reasonable time=10 days etc. but please point me to where it says @ closing is a violation. By the way, one determination was dated two weeks prior to the customer's notice signature/date. And it was in a flood zone and there was adequate insurance dated with the closing date.

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#1578428 - 07/15/11 06:27 AM Re: Flood Notice 10 days prior to closing Combustible
rlcarey Offline
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Where does it say that - nowhere. But I can verify that David is correct as I have seen banks cited for just this situation.

If you had the notice in your hand two weeks ago, why was it not delivered to the customer. Was it ever delivered to the customer prior to closing or did the loan officer just call them up and say: "hey, we need flood insurance on this propoerty"? Signing at closing is not delivering the notice in a reasonable manner.
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#1578431 - 07/15/11 06:42 AM Re: Flood Notice 10 days prior to closing Combustible
Kathleen O. Blanchard Offline

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A bank is supposed to have a process with controls in place to manage the entire flood insurance process, from initial determination to ensuring that sufficient insurance is in place at closing to monitoring for coverage until the loan is paid off.

Providing notice at closing is not a satisfactory process. The fact that you happened to have sufficient insurance in place is either lucky or indicative that you are giving verbal notice but not written notice as required by federal law.

Flood insurance is a safety and soundness issue, subject to CMPs, and not something you want to take chances with.

Order the determination, provide notice in time for the borrower to obtain sufficient insurance and provide evidence of such to the bank, and for the bank to review and ensure the insurance is:

>in place
>for the correct amount
>for the correct zone.

If you did all of this at closing, how is this indicative of a good process with appropriate controls meant to protect the bank (and the government from having to pay out in disaster funds in event of a flood).
Last edited by Kathleen B; 07/15/11 11:24 AM.
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#1578499 - 07/15/11 01:37 PM Re: Flood Notice 10 days prior to closing Kathleen O. Blanchard
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Believe me, I am the choir on this one. My point is (and I know you are aware), when we go into an exit, and we don't have exact language in the law to back up our exception, then a full blown discussion breaks out and we (compliance)appear to not know what we're talking about. This affects our credibility as corporate internal auditors and all future exams. I was hoping I'd overlooked the "@ closing" verbiage. Plus, I've not seen this in any of the CMP citings, so you can understand my position I'm sure. Thanks and I appreciate all of your help and knowledge!

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#1578527 - 07/15/11 02:01 PM Re: Flood Notice 10 days prior to closing Combustible
Dan Persfull Offline
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339.9

(b) Contents of notice. The written notice must include the following information:

(c) Timing of notice. The bank shall provide the notice required by paragraph (a) of this section to the borrower within a reasonable time before the completion of the transaction, and to the servicer as promptly as practicable after the bank provides notice to the borrower and in any event no later than the time the bank provides other similar notices to the servicer concerning hazard insurance and taxes. Notice to the servicer may be made electronically or may take the form of a copy of the notice to the borrower.


Providing the written notice at closing (completion) does not meet the above timing requirements.
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#1578545 - 07/15/11 02:20 PM Re: Flood Notice 10 days prior to closing Dan Persfull
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Thank you Dan. Technically, if the brwr signs the notice before they sign the note (which will be their argument) would that be in agreement with the law?

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#1578579 - 07/15/11 02:43 PM Re: Flood Notice 10 days prior to closing Combustible
Dan Persfull Offline
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How is providing the require written notice the day of closing providing it within a reasonable time?

IMO it would not be in agreement with the law. From page 55 of the Mandatory Purchase Guidelines:

The 1994 Reform Act requires lenders and
servicers to develop policies and procedures
to ensure that flood insurance coverage is
obtained before a loan can be granted, when
a determination has been made that a
building securing a loan is located in an
SFHA.


If you are not providing the written notice until closing then IMO your management has failed miserably to comply with the flood insurance requirements and will deserve any and all CMPs levied.
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#1578670 - 07/15/11 03:52 PM Re: Flood Notice 10 days prior to closing Combustible
Kathleen O. Blanchard Offline

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You will never win an argument that giving notice at closing is reasonable. Should the customer leave the closing to shop for insurance?

Making that argument will make compliance look foolish.

That is the kind of argument that should be left for a courtroom. It is not the plan for compliance.
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#1579266 - 07/18/11 03:57 PM Re: Flood Notice 10 days prior to closing Kathleen O. Blanchard
David Dickinson Offline
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I was out for a few days, so I couldn't respond. Kathleen, Dan and Randy have supported this. The notice is a big deal. Giving it at closing is not sufficient as the notice is to be delivered PRIOR to closing. Even if you tried to say you gave them the notice first and then they signed the loan, they still didn't get it a reasonable period of time prior to closing.

I think Kathleen supported this well with her last post.
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#1581856 - 07/22/11 04:40 PM Re: Flood Notice 10 days prior to closing David Dickinson
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Just curious about something. Has anyone ever been criticized for obtaining the SFHDF on the day of closing? (It was negative so a notice was not required.)
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#1581876 - 07/22/11 04:46 PM Re: Flood Notice 10 days prior to closing Rubaiyat
Kathleen O. Blanchard Offline

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Yes, because you did not know it was negative until the determination was obtained.
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#1581893 - 07/22/11 04:59 PM Re: Flood Notice 10 days prior to closing Kathleen O. Blanchard
Dani York, CRCM Offline
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But you could counter that if it had come back in as a positive hit, that you would have cancelled and rescheduled the closing until flood insurance was provided. Not saying you will win the argument, but it is a counter defense if you have any criticism.
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#1581904 - 07/22/11 05:03 PM Re: Flood Notice 10 days prior to closing Dani York, CRCM
Kathleen O. Blanchard Offline

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You could but in all likelihood you would then be criticized for a poor process.
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The HMDA Academy
www.kaybeescomplianceinsights.com

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#1582216 - 07/22/11 09:24 PM Re: Flood Notice 10 days prior to closing Kathleen O. Blanchard
Rubaiyat Offline
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I agree 100%. But, I'm getting push back from a particular department about this. Guess which one... whistle
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#1582234 - 07/22/11 09:39 PM Re: Flood Notice 10 days prior to closing Rubaiyat
Dan Persfull Offline
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Bloomington, IN
Page 34 of the Mandatory Purchase Guidelines

A lender also must complete the SFHDF
(see Appendix 3, Standard Flood Hazard
Determination Form) prior to concluding
loan processing.


Once you go to closing processing has been completed. Unless you are processing a loan and closing the same day then you have potential problems waiting until closing to get the determination.
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#1652446 - 01/18/12 09:05 PM Re: Flood Notice 10 days prior to closing tlevandoski
lucyc Offline
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If the 10 days reference has been removed the regulation and the MPFIG but is still in the register is it still enforceable.

The reason why I'm questioning this is because our FDIC examiner is about to write us up for not providing the notice at least 10 days prior to closing. For example, one borrower was provided a notice 9 days prior and another was provided a notice 5 days prior. She is also citing us for a loan of ours that we refinanced and the date of the notice is the same as the closing date of the refinance.

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