Please advise as there is a debate going on here now.
Scenario: We extended a loan's maturity (loan was not and is not in a flood zone). The prior determination was less than 7 yrs old at time of extension of maturity. We have LOL monitoring and I have seen that we do get notified of map changes via the LOL reports, even if the flood zone has not changed. In the current processes, nothing else is done with that information (map change but no actual flood zone change).
At the time of the extension, the prior determination was relied on without verifying that the map was not updated.
Management's argument against having to see if the map changed is that if it moved into a flood zone, the Bank would be notified by our LOL vendor, therefore, checking if the map had changed is not required. In addition, the argument is the LOL vendor does show on monthly reports if the map was updated regardless of flood zone change.
My argument is you cannot rely on the prior determination if the map changed, regardless if the flood zone did not change. Therefore, to determine if you can rely on the prior determination, you would have to see if the map was updated. If no, then you can rely on the prior determination. If the map was updated, you need to document a new determination.
We all know some of the flood rules are silly (like providding a new flood notice when increases, extending, or renewing a loan when the borrower knows he is in a flood zone and already has insurance), so the common sense part of this is moot.
Please advise as to your opinion.
Thanks.
Here are sources of the requirment:
From the OCC FDPA Examination Handbook:
http://www.occ.treas.gov/publications/publications-by-type/comptrollers-handbook/flood.pdf Reliance on Prior Determination
An institution may rely on a previous determination when it increases, extends, renews, or purchases a loan. Prior determinations may not be used when a bank makes a loan. However, subsequent transactions by the same institution with respect to the same property, such as assumptions, refinancings and junior lien loans, are considered renewals. A new determination would not be required in those circumstances, assuming the following conditions are met:
• The previous determination is not more than seven years old; and
• No new or revised flood map has been issued in the interim; and
• The determination was recorded on the SFHDF.
From the Act
http://www.fema.gov/media-library-data/20130726-1545-20490-9247/frm_acts.pdf (pages 63 and 64 [73 and 74 of the pdf])
e) Reliance on previous determination
Any person increasing, extending, renewing, or purchasing a loan secured by improved real estate or a mobile home may rely on a previous determination of whether the building or mobile home is located in an area having special flood hazards(and shall not be liable for any error in such previous determination), if the previous determination was made not more than 7 years before the date of the transaction and the basis for the previous determination has been set forth on a form under this section, unless-
1) map revisions or updates pursuant to section 4101(f) of this title after such previous determination have resulted in the building or mobile home being located in an area having special flood hazards; or
(2) the person contacts the Director to determine when the most recent map revisions or updates affecting such property occurred and such revisions and updates have occurred after such previous determination.