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Flood Insurance Violation if Didn't Originate Loan

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Question: 
We are looking to purchase a portfolio of 2nd mortgages from an unregulated lender, who was not following flood insurance regulatory processes. As a regulated institution could we be cited for flood insurance violations by FDIC even though we did not originate these loans?
Answer: 

Possibly. If you encounter a "trip wire" then you much require flood insurance. The trip wires include knowledge of uninsured or underinsured properties. So if you have knowledge that any of these loans are secured by collateral in a SFHA, then you must notify the borrowers and require flood insurance.

First published on BankersOnline.com 11/12/12

First published on 11/12/2012

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