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#1903187 - 03/07/14 02:27 PM Bank policy for flood loans
Johncrcm144 Offline
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Does law require banks to offer credit to borrowers when there are flood hazard areas in the counties where bank is located?

If not may the bank change the lending policy to prohibit granting new loans when collateral is located in special flood hazard area.

What special compliance issues does bank face by changing policy to prohibiting new applications for credit when the collateral is located in a flood zone?

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Flood Compliance
#1903189 - 03/07/14 02:30 PM Re: Bank policy for flood loans Johncrcm144
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If the flood areas also happen to be lower-income areas... you could be looking at redlining accusations from a Fair Lending standpoint if you refuse to lend in those areas.

Can I ask why management would consider a blanket policy to not lend in areas with flood zones?
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#1903193 - 03/07/14 02:31 PM Re: Bank policy for flood loans Johncrcm144
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And what would you do if the county was re-mapped and current loans are moved into an SFHA?
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#1903542 - 03/07/14 09:10 PM Re: Bank policy for flood loans manimal
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Risk committee is continually fielding questions regarding existing customer with loans that require flood insurance. The customers are not able to handle the increased flood insurance premiums. officers are needing answers to how to handle these issues as they occur. The committee is searching for possible answers. Beginning with the extreme end of spectrum, a dramatic change in policy. Another suggestion is to reduce the LTV thresholds for loan requests with collateral in the SFHA. The flood loans are a more expensive loan to monitor.

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#1903543 - 03/07/14 09:14 PM Re: Bank policy for flood loans Skittles
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The existing loans must be brought into compliance. As the officers learned of the change in maps. This has experienced in the past 3-4 years.

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#1903617 - 03/08/14 12:23 AM Re: Bank policy for flood loans Johncrcm144
Kathleen O. Blanchard Offline

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Why not wait to see what happens with the bills now passed by senate and house re premiums?
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#1904360 - 03/11/14 08:56 PM Re: Bank policy for flood loans Johncrcm144
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I'm in the same boat from a "want" standpoint. I "want" to "just say no" to flood zone loans and be done with it. But I understand I'd be slammed for redlining - even though many/most of the areas in my footprint with flood issues are high dollar home areas.
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#1904925 - 03/13/14 02:55 PM Re: Bank policy for flood loans Johncrcm144
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What reference document or opinion is everyone relying on that refusing to make a loan on property located in a SFHA would be redlining? Apparently I have not seen that document.

Redlining is the refusal to make loans in a specific area, not on a specific property.

We have a loan on a property located in a SFHA. The property next door and the properties located across the street are not in a SFHA. If I make a loan on the property next door but refuse to make a loan on the property in the SFHA how am I redlining? I'm simply saying the property in the SFHA is unacceptable collateral.

Fannie and Freddie will not purchase a loan on property located in a SFHA in a non-participating community due to flood insurance being unavailable. If I turn down a loan request on that property due to not being able to sell the loan to Freddie how is that redlining? Is Freddie guilty of relining for refusing to purchase the loan?

I'm not advocating not making these loans but I would advocate discussing it with your legal counsel and/or regulator if you are serious about not making loans on property in a SFHA.

I personally do not see this as redlining but that is just my non official opinion.
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#1904926 - 03/13/14 02:57 PM Re: Bank policy for flood loans Johncrcm144
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What I was suggesting above is that if there are Flood areas that also happen to be LMI areas or high-minority areas, it's possible regulators could flag the "we won't lend to flood properties" as a policy that creates disparate impact. No one said it was written in stone anywhere.
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#1904933 - 03/13/14 03:01 PM Re: Bank policy for flood loans Johncrcm144
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If you have a section of town that is in a SFHA and you choose not to make any loans on property in a SFHA and that also represents a high proportion of a protected class, that is disparate treatment.

Making a business necessity case surrounding the fact that you are just too lazy to monitor for flood insurance compliance would be a long haul in my estimation.

You need to weigh all the pertinent facts, but IMHO it would be an important consideration.
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#1904961 - 03/13/14 03:27 PM Re: Bank policy for flood loans Johncrcm144
Dan Persfull Online
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I don't disagree that you have to weigh the possibility of the policy having a disparate impact in relation to your market's demographics, but I do disagree that it would be "redlining".
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#1904987 - 03/13/14 03:47 PM Re: Bank policy for flood loans Johncrcm144
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Well, it may or may not have the same effect, but I agree, that is probably not how they would prosecute the case.

Also, impact on your CRA performance would also have to be considered whether or not there was a fair lending issue or not.
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#1904988 - 03/13/14 03:49 PM Re: Bank policy for flood loans Johncrcm144
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I see what you mean, maybe redlining was the wrong term to use, but I do think such a policy would bring with it a HUGE risk.
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#1906000 - 03/17/14 05:54 PM Re: Bank policy for flood loans Johncrcm144
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http://www.insurancejournal.com/news/national/2014/03/13/323273.htm?print

It has been ten days since my post on the legal reasons why a lending policy to prohibit loans granted if the collateral is in a special flood hazard area.

Good discussion resulted in 4 topics:
Fair Credit/ECOA
Redlining
Disparate treatment
Business necessity purpose or Laziness

Nearly all these have been topic of committee discussion as to why not to initiate policy to prohibit new loans to applicants with collateral located in the SFHA. The Lending Policy will take care of new but not existing loans with collateral located in the SFHA.

Another reason is HR3370 which was voted on in Senate according to the March 13th Insurance Journal article.
refer to the link above. My final thought, when including the total annual premuim and with loan amortized payment, will the borrower qualifiy for the application?

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#1906059 - 03/17/14 07:12 PM Re: Bank policy for flood loans Johncrcm144
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The Menendez-Grimm bill now goes to President Obama for his signature. The White House has expressed concern about rolling back the Biggert-Waters reforms.

That implies to me there could possibly be a veto of the bill. I don't expect it to happen due to the political fall-out the White House would receive but it is a possiblity.
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#1928158 - 05/30/14 07:06 PM Re: Bank policy for flood loans Johncrcm144
John Burnett Offline
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Well, the bill wasn't vetoed, and there will be some relief on the costs. The fact is, though, that unless we as a country start doing something about the problem, the costs are only going to go up.

On the policy question, though, can you imagine how that sort of policy would go over if the bank is located in a place like New Orleans?
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