Per management's request, I have been searching for any exemption to the flood notice requirements when the bank does an extension of the loan term for a loan secured by property in a flood zone. Management's argument is that if we are only extending the term a few months, we should not have to comply with this requirement. As I have informed them, the word 'extend' is not defined for this regulation. I know the purchase requirement does not apply if the loan is for $5,000 or less and a year or less in term, but those parameters do not apply when considering an extension and the notice requirements, correct?

There are no 'exemptions' to this rule, unfortunately. Now - truth be told - I think this is one of the 'dumbest' rules out there; however it is required.

We add the following the statement at the beginning of the notice.

You are being provided this notice which is required under Federal regulations.

We are in possession of the necessary flood insurance documentation for your loan renewal and no action is necessary on your part.

As Skittles said, there are no exceptions. When you Make, Increase, Renew or Extend a loan secured by improved real estate, you trigger all of the flood requirements. The word "extend" may not be defined, but I believe that is because is commonly understood to mean anytime you move the maturity date out from what it originally was.


You say "I know the purchase requirement does not apply if the loan is for $5,000 or less and a year or less in term, but those parameters do not apply when considering an extension and the notice requirements, correct?"
Correct. The $5,000/1 year exemption is only when the ORIGINAL loan met those conditions (very rare).

I don't understand the problem:
1. You probably can rely upon a previous determination (or get a recertifications within minutes);
2. Yes, you need to give a Notice but only if they are in a SFHA. These rules say it must be delivered within a "reasonable" period of time prior to closing;
3. You have to ensure they have adequate insurance - but why would you want to do the extension if they didn't have adequate insurance;
4. You may have to escrow if it's a residential loan. You might already have this set up. If not, it's good to have it.

Is there a particular hold up in these requirements that management doesn't like or want to deal with?

I know we've tried to make our extension process easy for the lenders, with as few documents as possible. We have a large flood portfolio at the moment so I suppose this seems like a time consuming task. Unfortunately, we recently received a violation in a compliance exam for failure to provide the notice at an extension, so we will just have to suck it up and do it. I believe I have read during my research that the original notice provided when we first pulled a flood certificate and informed the customer their property was in a flood zone cannot be reused. We're trying to figure out how to provide the notice when it is required without pulling a new certificate, and not have to make the lender manually type in all of the customer and property information every time.

Re-date it. Should be simple with today's technology.

You're right. You may be able to reply upon a previous determination, but you must provide a new notice every time. As Randy said, just re-date it.

Great, thank you for the help!

Check out the Fed's Consumer Affairs Letter 20-7, which addresses extensions, force-placement, and the 120-day grace period for NFIP policy renewals.

But also notice that is the Fed and not an interagency announcement.

The FDIC updated their Covid-19 FAQs for banks today and question #30 mimics the Fed's letter. https://www.fdic.gov/coronavirus/index.html

If we charged customers for force-placed flood policies since February 13, should we issue refunds until June 15th has passed? More often than not, our force-placed policy charges are added back to the loan or we are creating escrow accounts.

The way I read the guidance, it would not be necessary. One, the guidance came out May 7th and the last bullet point says:

Lenders should be aware that if they force place flood insurance for NFIP policies that expire during the FEMA emergency period prior to the expiration of the 120-day grace period and the borrower pays the premium by the end of the 120-day grace period, the lender would be required under existing flood insurance regulations to refund the borrower for any overlapping flood insurance coverage.

Second, the first bullet also uses the word "may". So, I read the guidance as what a lender may do and not that they are required to alter their normal flood force placement policies, if they chose not to.

A lender may provide the required notice to the borrower after determining the policy has expired with an indication that the NFIP grace period has been extended for 120 days. Lenders may inform borrowers that, in light of Bulletin W-20002, force placement will not occur until the end of the 120-day period.