Transcript Slide 1

Interagency Q&As
Agenda
Introductions
The Basics
The Highlights
The Details
The Future
Questions
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NFC 2010 Workshop | April 2010 | San Diego, CA
Introductions
• Hollee Osborne, CRCM
– Senior Compliance Examiner
– FDIC
• Pamela Lea Mount, NBE
– Compliance Policy Division
– Office of the Comptroller of the Currency
• Tuula Young
– Lender Compliance Officer
– FEMA
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Overview
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The Basics
The Highlights
The Details
The Future
Questions
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The Basics
• Borrower notification requirement
– All loans secured by improved real estate
• Designated loans
– Secured by improved real estate or a mobile home
– Located or to be located in a SFHA
– Located in a participating community
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The Basics
• Standard Flood Hazard Determination Form
– Prior determinations
• Purchase requirements
– Coverage amounts
– Life of loan
• Enforcement requirements
– Pattern or practice
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The Highlights
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Reorganized/edited for clarity
All Q&As consecutively numbered
More examples
Focus on concept of “insurable value”
In response to industry’s questions and in
coordination with FEMA
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The Highlights
• New Q&As in the areas of:
– Junior-lien mortgages
– Loan syndications/participations
– Private policies
– Imposition of civil money penalties (CMPs)
– Flood zone discrepancies
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The Highlights
• Substantive modifications to previous Q&As
in the areas of:
– Construction loans
– Loans for residential condos
• Proposed additional questions in the areas of:
– Insurable value
– Force placed coverage
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The Details – Residential Condo Units
• For residential condominium loans made,
increased, renewed, or extended after
September 21, 2009
– Must have insurance coverage equal to the lesser
of the:
• Outstanding principle balance
• Maximum limit of coverage available under the NFIP
• 100% of the insurable value of the property
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The Details – Residential Condo Units
• Insurable value relates solely to the replacement
costs of the condo building and its foundation
and supporting structures
• Calculating coverage requirements for
individual units, divide the insurable value of
the building by the number of units in the
building
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The Details – Construction Loans
• Borrower must have flood insurance in place:
– at loan origination or
– when construction beings
• foundation slab poured/elevation certificate issued
• lender has adequate policies and procedures
• Common misconception that coverage is not
available until the structure is walled and
roofed
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The Details – Junior Liens
• Coverage must be the lesser of either the:
– Combined total outstanding principal of both the
first and junior mortgage's)
– Maximum amount available under the program
– Insurable value of the property
• Cannot comply by merely requiring flood
insurance in an amount to cover the junior
mortgage without regard to the first
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The Details – Syndication/Participations
• After loan is made
– Does not trigger requirements of the act
• When loan is made
– Participating lender expected:
• to undertake due diligence to ensure that lead lender or
agent takes steps to ensure borrower obtains flood
insurance where necessary, and
• have controls to monitor for compliance
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The Details – Syndication/Participations
• Agreements should require lead or agent to
provide information to participants
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The Detail– Private Flood Policies
• Gap or blanket coverage generally not adequate
substitute for NFIP insurance.
– Private policy may be adequate substitute if meets
criteria set forth by FEMA in Mandatory Purchase
Guidelines (pp. 57-58).
– Non-equivalent coverage may be useful to protect
lender, but may not be relied on to meet mandatory
purchase requirements.
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The Details– Flood Zone Discrepancies
• Have a process in place to identify and resolve
flood zone discrepancies.
• Be concerned about a discrepancy between a
high-risk zone (A or V) and a low- or
moderate-risk zone (B, C, D, or X) not so
much within subcategories.
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The Details– Flood Zone Discrepancies
• A pattern or practice of unresolved
discrepancies due to a lack of effort on the
lender’s part to resolve, may result in a
violation.
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The Details– Flood Zone Discrepancies
• Federal law sets the ultimate responsibility to
place flood insurance on the lender, with
limited reliance permitted on third parties to
the extent that the information that those third
parties provide is guaranteed.
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The Details– Flood Zone Discrepancies
• What resolution steps?
– Determine whether legitimate difference
(grandfathering) or mistake that can and is
corrected
– If not, notify insurance company reminding of
FEMA’s April 16, 2008 instruction to write to
higher risk;
– Substantiate in file
– No further action required
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The Detail– Civil Money Penalties
• Pattern or practice of failure to:
– Purchase flood insurance
– Force place insurance
– Escrow flood insurance
– Provide notice borrower
– Provide notice of servicer or change
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Civil Money Penalties
Number of Financial Institutions
Year End 2009
406
6%
1,463
20%
844
12%
4,533
62%
FDIC
FRB
OCC
OTS
The Detail– Civil Money Penalties
• Penalty amounts increased Dec. 10, 2008
– NTE $385 per loan
– NTE $135,000 per calendar year
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The Detail– Civil Money Penalties
• Penalty amounts increased Dec. 10, 2008
– NTE $385 per loan
– NTE $135,000 per calendar year
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Civil Money Penalties
Number of CMP's From 1999 - 2009
54
11%
28
5%
FDIC
FRB
OCC
OTS
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10%
377
74%
The Detail– Civil Money Penalties
• Penalties are paid into the National Flood
Mitigation Fund held by the Treasury Dept. for
the benefit of FEMA.
• Agencies also have authority in 12 USC
1818(i) to assess civil money penalties for
violations.
– OCC has exercised this twice
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Civil Money Penalties
Average CMP Amount for 1999 - 2009
$6,785
14%
$7,157
14%
$12,436
25%
$23,353
47%
FDIC
FRB
OCC
OTS
Civil Money Penalties
Total Dollar CMP Amount for 1999 - 2009
$263,415
4%
$2,190,954
35%
$817,885
13%
$3,060,580
48%
FDIC
FRB
OCC
OTS
The Future – Proposed Q&As
• Comments were due September 21, 2009
• Interagency working group has drafted
responses and answers
• FFIEC Consumer Compliance Task Force has
voted
• Agency principles must sign off
• Publish in the Federal Register
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The Future – Useful Resources
• 2009 Final Interagency Flood Q & As
http://www.fdic.gov/news/news/financial/2009/fil09042.html
• FEMA Answers to Questions About the NFIP
http://www.fema.gov/business/nfip/intnfip.shtm
• FEMA’s 2007 Mandatory Purchase of Flood Insurance
Guidelines
http://www.fema.gov/library/viewRecord.do?id=2954
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The Future – Useful Resources
• Examination Procedures
• FDIC http://www.fdic.gov/regulations/compliance/handbook/
• FRB http://www.federalreserve.gov/boarddocs/supmanual/su
pervision_cch.htm
• OCC http://www.occ.treas.gov/handbook/compliance.htm
• OTS http://www.ots.treas.gov/?p=ExaminationHandbook
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Questions
Jackson, KY, June 4, 2009
Rob Melendez/FEMA
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Thank you
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