I have received a letter from a previous flood determination vender that we used to request life of loan monitoring. The letter states that a flood zone change has occurred for a piece of property and it is now in a flood zone.

The determination is dated 8/2000 and the loan has been paid off, however we have another loan with the same piece of property as collateral. The life of loan flood determination for the open loan we requested from our current vender, dated 8/2006, shows that it is not in a flood zone and we have not recieved a notice of change from them.

Since we have received a determination stating the property is in a flood zone, are we required to notify the borrower that flood insurance is now required?

Thanks

No, but you are required to figure out which one is correct.

And if the one you got stating they are now in SFHA is correct then you will be required to notify the customer and require flood insurance. And this is a matter you want to resolve now, not later.

There were map changes in June so it is possible that the 8/2006 was correct at that time. If the letter does not explain the change I would call the vendor and ask what happened to change the status. Then you should go to the company with the 8/2006 determination and ask them to re-certify.
The examiners can ask for a report from your vendors of the properties in a flood zone. If they do that the property referenced in the letter will show up in the flood zone. So, that is another reason to make this a priority and investigate until you are firmly satisfied and can document the present status. Also, but not in place of re-certification, , try the FEMA site yourself as well and see if it is clearly in or out of a flood zone.

Also, most flood vendor contracts requirement the bank to notify them when a loan pays off and the life-of-loan contract is to be cancelled. I find few banks that fulfill that part of their contracts. Technically, the flood vendor could probably sue the bank for breach of contract and demand payment for all of the cost associated with the now defunct certificates that they are tracking that should no longer be on their systems.

Additionally, if you are not doing this and there is a massive remap in your area - you are going to be inundated with flood map change notices and it is going to be a real pain to figure out whether or not these loans are still active if you have a large portfolio.

Randy, you are right. I think that is on the low end of most institution's priority list. I would like to hear if anyone has ever experienced a negative impact of not reporting paid off loans to the vendors. It should be important to report these.

I've often wondered about this myself. I've never heard of a bank getting into any kind of trouble for this, but it's certainly possible.

The only trouble I have seen at a bank; is one of my larger clients had my latter example happen to them. They had a real large real estate portfolio and had not properly maintained their database of life of loan coverages with the FHD company and on a large scale remapping they had hundreds of notices of remap show up. It was a mess, especially since it was common practice to invoke the seven year rule on previous determinations. Some of these loans had renewed a dozen times and it took forever to track everything down. Ohhh, and did I mention they had separate consumer, commercial and mortgage servicing divisions and they all used the same company and subscriber number??

I need to revive this thread. We recently met with our flood vendor and he told us that after a flood map change (which we know they are working on in our primary trade area), it will take them 90-120 days to notify us of which loans in our portfolio have been remapped into a SFHA. Does 90-120 days seem excessive to you? With the 45 day period following notification, some borrowers may go almost 6 months without insurance.

Thanks.

A map change is not a triggering event that trips the force placement requirements. See page 55 of the MPFIG.

The only thing you would have to do, since you are aware of the map change, is with any new loan, renewal, increase or extension of a loan on the property would require you to do a new flood determination. Since you are aware of a map change you cannot rely on the previous determination.

I can't say if the 90 to 120 days is excessive or not. A lot will depend on their technology and the number of loans they service.

Thanks Dan!

I think I am confused (nothing new)

If I understand this thread correctly, if we get a notice that a property that, when the loan was made, was NOT in a flood zone, but NOW is in a flood zone - we do NOT have to notice the borrower and, if they don't get flood insurance, force place, UNLESS we make, increase, renew or extend the loan? Is that right?

If so, why do we order life of loan monitoring?

Sometimes, what is required (Compliance) is not what is necessarily prudent (Safety & Soundness).

So that is correct - even though we know the property is now in flood zone - we are not required to notify the customer or, if necessary, force place insurance - UNLESS we MIRE the loan?

That seems a little counter-productive to me, but what do I know?

If you had obtained a "one-time" determination, this wouldn't even come up, UNLESS you MIRE the loan.

Compliance be "counter-productive" -- What???

LOL monitoring is for the FI's benefit. Questions you might consider: Is your security interest protected should zones change? Does your client have the financial means to payoff the note if they lose everything in a flood?