When doing a review of flood compliance on purchased loans (these were NOT originated by any financial institution, but rather an unregulated entity), do we only need to worry about compliance with flood since the loan was purchased? These are already a "done deal" so there is no possibility of doing due diligence on them. I'm conducting a comprehensive review of all our loans subject to flood and these were already on the books for several years.

Unfortunately, your instituion is accountable as it was expected to perform due diligence before purchasing the loans. Your best bet is to write them up, ensure they are now in compliance, and incorporate them into a "lessons learned" as to the purchase of third-party loans. Oh, and hope a bunch of the violations occured more than 4 years ago.

Unless for some reason you are aware that they are in a flood zone, no action is necessary. The purchase is not a trigger:

From the Q & A:

2. Does the Regulation apply loans purchased from others?

Answer: No. The Regulation lists certain events that trigger its requirements: making, increasing, extending or renewing a designated loan. The purchase of a loan is not an event that requires a purchaser to make a new determination at the time of purchase. However, if the lender becomes aware at some point during the life of the loan that flood insurance is required, then the lender must comply with the Regulation. Similarly, if the lender extends, increases or renews the loan, the Regulation applies.

While, upon reflection, I agree with Randy, I would caution that you will open yourself up for criticism if you repeatedly purchase loans from an originator you know does not comply with the Act.