Our doc prep software has the ability to produce a Flood Notice to the Borrower. However, I am finding that, more times than not, the notice is being signed at closing. The lender will notify the borrower that the property is in a flood zone and that insurance must be in place prior to closing, but then they have the borrower sign the hard copy notice at closing.

The servicer that performs our determinations provides a Notice to the Borrower along with the Flood Hazard Determination form. I'm thinking about utilizing this form instead of the loan doc software form by changing our written procedures to say that this notice will be mailed immediately when received. But my dilemma is this. How would we evidence the fact that the notice was mailed? Will our written procedures be enough?

How do some of you deliver the notice?

If it's in a designated zone, perhaps return receipt. If not, and you are providing for customer service purposes (and possible future protections), notating it should be fine.

If located in a SFHA your written procedures will not suffice. The borrower must acknowledge receipt of the notice. We send ours through the USPS with a return receipt requested.

We're a pretty big bank (36 branches - 2 bil in assets). I would be interested in knowing how other banks this size or larger, handle providing the notice. Do you centralize it? Or does each lender perform flood related tasks independently?

Asking lenders to send the notice certified mail with return receipt will go over like a lead balloon. What about including a copy of a dated cover letter in file?

Your input is appreciated. I'm up against a brick wall and need some ammunition!

If other BOLers use certified mail RR, would you please respond to the affirmative or tell what your method is for complying?

Show them the Mandatory Purchase Guidelines, page 35:

Lenders must retain a record or evidence of the borrower’s receipt of the notice throughout the period the lender owns the loan. This record can be the borrower’s statement or initials that the notice was received directly, or the U.S. Postal Service return receipt in either hard copy or electronic format. The lender need not retain a hard copy version of the notice to the borrower and loan servicer.

You have no choice in the matter. A cover letter is no better than an unsigned notice.

Gosh! I feel like such an idiot. Somewhere, I read (and was under the impression) that there were really no significant changes in the 2007 Fema Guidelines. So I've put off going through it due to HMDA filing, examiners, etc, etc, etc. I now DO see the paragraph you refer to, which is not in the old guidelines (or if it is, I cannot find it). What else am I missing, I wonder?! I guess I had better bite the bullet and go through the book!

Thanx everyone. Now, my Friday is ruined.

That was in the old guidelines. Page 30.

Is everyone still of the opinion that if Bank records reveal that the notice is consistantly signed at closing even if flood insurance is in place at closing, examiners will more than likely criticize? For instance, the bank mails the notice on the day the determination is obtained and notates this fact in file. The borrower, however, does not sign the notice (for the record of receipt) until closing.

Actually, I've never perceived this to be in issue since I naively assumed that lenders were having the customer come in and sign the notice. I guess I had my head in the sand.

The problem I see with having them consistently signed at closing is it would give me the impression that is when you are providing the "written" disclosure regardless what your "cover" letter or procedures say.

Quote:

Lenders must retain a record or evidence of the borrower's receipt of the notice throughout the period the lender owns the loan. This record can be the borrower's statement or initials that the notice was received directly, or the U.S. Postal Service return receipt in either hard copy or electronic format. The lender need not retain a hard copy version of the notice to the borrower and loan servicer.

I'm back to this again. The mere mention of requiring the notice to be mailed RR sent everyone into a tiz. What if the lender sent the notice with a cover letter and a postage-paid envelope for return of the signed notice?.....'course....all that mail time....the borrower might show up to the closing, the bank never having received the mailed-back signed notice.

Do any of you have any good amo for me?

Try showing the employees the fact that flood penalties are now going to be $2,000 a pop (Flood Insurance Reform and Modernization Act of 2007 passed 5/13/08) and see how they feel about their "tiz" for "doing their job".

Well put.....however, I'll have to soften it a little bit.

I had forgotten about the increase in monetary penalty....good amo....thanx!

I'm dredging this back up......again. OK....suppose the Bank sends notices USPS RRR. Many of our loans are very quick turn around. We do not order a determination until the loan request has been approved. What if the closing occurs without having received the return receipt back from the postal service? As long as there is evidence of flood insurance at closing and we follow up on getting the return receipt back....eventually, are we OK? And what if something goes afoul with the post office and we never receive the receipt?

Next, what if approval takes place on a particular day, the determination is obtained and the notice is mailed that day, but the closing is then scheduled for the following day. There's no way the borrower could have received the notice.....though the flood insurance may already be in place, or ordered and paid for. Is that scenario a problem?

Finally, I know that the bank is not required to keep a signed copy of the notice......just evidence that borrower received it. What if we made it a practice, though, to have the borrower also sign a copy at closing?

Thanx bunches for all help and advice.

I don't want to deemphasize the importance of the borrower acknowledging receipt of the notice. But let's not get hung up on a certain time frame or only one way of delivering the notice.

From page 34 of the MPFIG:

The notice must be provided a reasonable time before completion of the loan transaction to ensure that a flood zone determination is made as a condition of a loan being closed. The regulations do not establish a fixed time period in which a lender must provide the notice. What constitutes a reasonable time will necessarily vary according to the circumstances of the particular transaction. Timely completion and delivery of the notice serves both to inform the borrower and to protect the lender.

You should have a "standard" procedure for providing the notice in a timely manner and acquiring the acknowledgment of its receipt before the loan closes. But as the above exert recognizes there will be situations where a "one size fits all" procedure will not always be reasonable. As long as you have procedures in place and you can demonstrate the procedures are working and you are acquiring the acknowledgment before the loan is made then I do not think you will have any serious problems.

One thing that I do not hesitate doing is discussing these issues with my EIC to get her input if I have some question whether they will accept the procedure as being compliant.

Our compliance consultant firm assisted us with revising our flood notice procedures and they said that it was not required to mail it via certified mail or RR. They said that having a copy of the cover letter and notice of SFHA in the file would be sufficient. The logic was since you cannot close the loan anyway without flood insurance, the fact that the borrower provides you a copy of their policy declarations page prior to closing is sufficient to show that you notified them and they acknowledged that coverage was required.

But, when I read that the rule says that the notice must be sent via USPS RR, it seems like we need to send it that way. Right?

No, that is just one alternative to show acknowledgment of the receipt of the notice.

Also, I disagree with your compliance consultant that a copy of the cover letter, notice and the presentment of a insurance policy represents acknowledgment of the receipt of the notice. I could tell my borrower they need flood insurance over the phone and they can bring me a policy without me ever sending the written notice. Even though I had flood insurance at the closing, and a copy of the notice in file, I did not provide the notice, nor do I have acknowledgment the notice was received, therefore I have a violation that is subject to a CMP, and with the passage of the new flood reforms that is a $2,000 violation.

From FDIC Rules and Regs 339.9

(d) Record of receipt. The bank shall retain a record of the receipt of the notices by the borrower and the servicer for the period of time the bank owns the loan.


Again the mere presentment of a policy does not acknowledge the receipt of the written notice.

That makes a lot of sense. I see what you mean. Looks like I'll be changing some procedures.

Thanks Dan!

Would you happen to have a link. I might want to attach this to my recommendations.

Google Flood Insurance Reform and Modernization Act of 2007 and you will find several links and summaries to choose from.

It reads in one of the summaries that the new NFIP limit is increasing to $330,000 (residential) and $670,000 (commercial).

Is this effective immediately?

I haven't read any of the summaries yet, It was passed on 5/18 as Randy indicated earlier but I'm not sure what the "effective" date is and I have yet to see any formal announcements from the regulatory agencies.

We recently went through a FDIC Compliance Exam and suffered some CMPs for flood violations. We were told that if our policy and practice was to mail the notice to the customer immediately after determining the property was in a flood zone, along with a dated letter, provided we obtained the signed copy of the notice at closing and flood insurance was in place at closing, that would be sufficient evidence that the notice was provided timely.

We were also cited for not having evidence that the notice was provided timely. They said that even thought the revised book does not state that 10 days is deemed sufficient notice anymore, they used that as the guideline none the less. We were cited if the date of the original notice was less than 10 days prior to settlement. The only exception to that (we were told) was if we received the application and closed in less than 10 days. Then if it was provided shortly after application, we wouldn't be cited.

What if our procedure were to 1) call the customer, 2) drop a copy in the mail and 3) put the date of call/mailing on another copy of the notice that the customer will sign at closing?

This is absolutely incorrect. You were incorrectly cited. This changed in 1996. It's your battle to fight, but with the severity of flood violations (and repeat flood violations) I would push back and insist this be removed.