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#2046752 - 10/28/15 07:23 PM
Flood Insurance - After the LE is Issued
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Joined: May 2001
Posts: 715
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After the LE was issued, we received notification from our flood vendor that the property is in a flood zone. based on values surrounding the area, we have a pretty good idea what the flood premium will be.
Is this the type of changed circumstance the regulation pertains to such that we are required to provide an updated LE, or is the fact they will receive the flood notice (and accompanying) information from us sufficient?
thanks.
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#2046864 - 10/29/15 01:28 PM
Re: Flood Insurance - After the LE is Issued
Gotwood
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Gold Star
Joined: Feb 2007
Posts: 289
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I would consider this a valid change in circumstance that requires a revised LE if you want to impose the increased cost of flood insurance on to your borrower. A flood notice does not satisfy the disclosure requirements for TRID.
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#2046875 - 10/29/15 01:35 PM
Re: Flood Insurance - After the LE is Issued
Gotwood
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Agree with Monica.
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#2046884 - 10/29/15 01:51 PM
Re: Flood Insurance - After the LE is Issued
Gotwood
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I agree that flood insurance is an unlimited tolerance and redisclosure may not be technically required, but where the fee is new due to a change in circumstance, I would avoid that battle with an examiner and redisclose. Perhaps overkill but safe.
I know that some may say the CFPB does not want unnecessary LE's being issued and this rule limits the bank's ability to reset tolerances via revised LE's, but for the sake of needing a new service -- we are redisclosing, even if the item is not subject to a tolerance.
Another argument that could be made is that items in the "not subject to a tolerance" category are only free from tolerance if they have been disclosed based upon the best information ...since the flood insurance was never disclosed as required, perhaps it loses its "not subject to a tolerance" status. We could shoot holes in this too, but why not avoid that and just disclose it?
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#2046897 - 10/29/15 02:17 PM
Re: Flood Insurance - After the LE is Issued
Gotwood
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Since you can't subject the applicant to any fees except a credit report fee prior to getting the intent to proceed, how could it be argued that you should have pulled a flood cert PRIOR to issuing the LE? I mean, if it's a refinance and you know the property is in a flood zone already, then it's a different story, but i don't think that's what we're talking about here.
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#2046944 - 10/29/15 03:43 PM
Re: Flood Insurance - After the LE is Issued
Gotwood
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Joined: Feb 2007
Posts: 289
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I agree with you Raitch, that redisclosure is not technically required assuming we didn't know about the flood zone status at the time the original LE was issued.
As for the argument, I'm not saying an examiner would "win" if they argued that items are only free from tolerance if they were in fact disclosed to begin with -- I would take the same position which is that we didn't know that the flood insurance was required at the time of the original LE, therefore we didn't disclose it and since the item is not subject to a tolerance, there is no violation. However, I'm just saying to avoid the discussion entirely, you could redisclose to avoid questions from the client or examiners who are used to redisclosure when flood insurance is added as a requirement.
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#2046948 - 10/29/15 03:51 PM
Re: Flood Insurance - After the LE is Issued
Gotwood
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I get what you're saying. For my shop, i would prefer to avoid unnecessary re-disclosures because of the possibility of mistakes in doing so.
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#2050291 - 11/18/15 05:30 PM
Re: Flood Insurance - After the LE is Issued
time flies when you're having fun
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If you re-disclose the LE for flood insurance, how are you determining the flood insurance premium?
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#2178082 - 05/15/18 01:12 PM
Re: Flood Insurance - After the LE is Issued
Gotwood
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Joined: Oct 2015
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I have never been a frontline banker, so excuse my ignorance on this topic. Do lenders often not run the SFHDF until they get an appraisal that lets them know the loan is in a flood zone? I'm just wondering why a lender wouldn't have knowledge of a property being in a flood zone when they issue the initial LE, as part of having a TRID "application" is having a property address. Why not use your flood determination vendor and run the proposed property address right away? Potential for too much wasted money if the applicant changes properties several times?
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#2178088 - 05/15/18 01:23 PM
Re: Flood Insurance - After the LE is Issued
Gotwood
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Galveston, TX
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Most banks will not run a FHD until they get an intent to proceed. It is suggested that you run it before you order an appraisal so the bank requires the appraiser to not skip the replacement cost analysis. Flood insurance premiums have no tolerance and adding flood insurance later on the next required disclosure issued is all that would be required. If you didn't know that the property was in a flood zone when you issued the original LE, it would be deemed to have been issued in good faith.
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#2178181 - 05/15/18 05:37 PM
Re: Flood Insurance - After the LE is Issued
Gotwood
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Okay, thank you. I understand this is the common take on it. I guess an argument could be made, from a good faith standpoint, that the lender could have easily known if they ran the FHD upfront. But, I suppose that gets into a cost issue and I am not aware of any Regulators having such expectations.
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#2178204 - 05/15/18 06:21 PM
Re: Flood Insurance - After the LE is Issued
Gotwood
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Joined: Sep 2010
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It's been years since I have been a front line lender, but as an auditor I ran into a few instances where I discovered "secret files" that I wasn't supposed to see. Files where lenders had open applications that they didn't consider an application because they didn't think the applicant was coming back - meaning they didn't want to waste their time (or the bank's money) if the application wasn't really going anywhere.
From my experience, it often seems to come down to cost where the bank wants the intent to proceed first, as Randy stated. In addition, I have see where it would be logistically challenging (several factors) to consistently get a flood determination back in time to issue an accurate LE.
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#2178206 - 05/15/18 06:27 PM
Re: Flood Insurance - After the LE is Issued
Gotwood
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As stated, if you want to pull it prior to LE issuance, you are basically committing to paying for it. We'd be paying not only for the ones that originate, but all the ones that don't too. My bank isn't willing to bear that cost (and we aren't alone).
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#2178209 - 05/15/18 06:30 PM
Re: Flood Insurance - After the LE is Issued
time flies when you're having fun
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Cape Cod
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I agree that flood insurance is an unlimited tolerance and redisclosure may not be technically required, but where the fee is new due to a change in circumstance, I would avoid that battle with an examiner and redisclose. Perhaps overkill but safe.
I know that some may say the CFPB does not want unnecessary LE's being issued and this rule limits the bank's ability to reset tolerances via revised LE's, but for the sake of needing a new service -- we are redisclosing, even if the item is not subject to a tolerance.
Another argument that could be made is that items in the "not subject to a tolerance" category are only free from tolerance if they have been disclosed based upon the best information ...since the flood insurance was never disclosed as required, perhaps it loses its "not subject to a tolerance" status. We could shoot holes in this too, but why not avoid that and just disclose it? I agree that this is a cost for which there is no tolerance calculation (§1026.19(e)(3)(iii)) and you don't HAVE to provide a timely revised LE. But if this change is going to impact the borrower's estimated cash to close, I'd recommend an informational revised loan estimate anyhow.
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#2178220 - 05/15/18 06:59 PM
Re: Flood Insurance - After the LE is Issued
Gotwood
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Joined: Aug 2015
Posts: 756
Land Lacking in Lakes, IL
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FWIW, I heard a presenter speak the other day who said that a case can be made for ordering the flood determination prior to issuing the LE, because you may have a borrower say that they don't want to buy the house if they have to buy flood insurance, and that saves you time to not issue an LE and instead just issue a denial for refusal to purchase flood insurance.
In a shop like mine, that's totally feasible. Not sure how that'd look in a larger shop.
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#2178248 - 05/15/18 08:59 PM
Re: Flood Insurance - After the LE is Issued
Gotwood
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Joined: Jul 2001
Posts: 83,371
Galveston, TX
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If a borrower is coming to the bank to figure out that the house they might be buying and plunking down multiple hundreds of thousands of dollars on is in a flood zone or not only to back out of the transaction because of flood insurance premiums - then they need a better real estate agent.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com
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#2178328 - 05/16/18 03:24 PM
Re: Flood Insurance - After the LE is Issued
Gotwood
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Joined: Oct 2015
Posts: 1,669
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Yeah, I don't think it would result in many withdrawals, especially not when compared up against how many times there won't be a withdrawal and the creditor foots the bill.
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