Reminder: Flood Insurance Force Placement Requirements

Toolkit available on the WBA website

By Scott Birrenkott

The Wisconsin Bankers Association (WBA) has fielded a few flood questions this year, many on the topic of force placement. Rest assured, there have been no changes to the flood rules, but this article is designed as a refresher.

Force placement of flood insurance occurs if, at any time during the term of a designated loan, a building or mobile home (and any personal property) securing the loan is not covered by an appropriate amount of flood insurance. When such a situation occurs, the bank is required to send notice to the borrower and may be required to obtain flood insurance on the borrower’s behalf (“force place”).

The first component of force placement to highlight is that it occurs “at any time” during the term of a “designated loan” when flood insurance is inadequate. A designated loan means a loan secured by a building or mobile home that is located in a special flood hazard area

Compliance Column

Scott Birrenkott

in which flood insurance is available under the Act. This means that a bank might make, increase, extend, or renew a loan secured by property in a flood zone, for which a certain amount of flood insurance may or may not be required.

Subsequently, during the life of that loan, the amount of flood insurance required increases, the bank may be required to force place. In consideration of the “at any time” component — that depends on when the bank becomes aware that additional flood insurance is required. It is worth noting that nothing in the rule requires a bank to check the flood maps or otherwise regularly monitor the loan for this purpose, however, it may do so.

If, for any reason, the bank does become aware that existing flood insurance for the loan is deficient, it must be prepared to initiate force placement procedures. Another situation to note is that if the borrower permits the flood insurance purchased at origination to lapse — which would result in an inadequate amount of flood insurance — force placement would be triggered here as well.

An “adequate” amount of flood insurance depends upon the minimum purchase requirements, which can be found in the rule and in WBA’s recently released Flood Insurance Toolkit. Upon determining that an inadequate amount of flood insurance exists, the lender must provide notice to the borrower to obtain flood insurance. If the borrower fails to purchase flood insurance in the appropriate amount within 45 days, the lender must purchase insurance on the borrower’s behalf.

When the lender force places, it is permitted to charge

WBA Comments on FDIC’s Official Sign and Advertising Requirements Proposal

Summary of a recent comment letter below

In April, the Wisconsin Bankers Association (WBA) filed comments on the Federal Deposit Insurance Corporation’s (FDIC) proposed changes to its use of the official signage and insured depositor institutions advertising statements. FDIC has proposed these changes to clarify deposit insurance coverage and avoid misrepresentations, particularly in electronic channels such as services and advertising through websites and mobile banking. The proposal noted increased customer confusion due to misrepresentations by non-bank entities.

WBA commented that while the industry appreciates the desire for clarity, banks are not the ones making misrepresentations regarding deposit insurance. Customers are not confused about banks, and FDIC should focus on non-banks who are misrepresenting rather than hoisting further burdens upon banks. WBA provided comments and examples of how banks have already undertaken efforts to ensure customers are not confused or otherwise misled regarding FDIC insurance, be it in traditional or electronic channels.

View this and previous comment letters filed by WBA at www. wisbank.com/CommentLetters.

For copies of this or other WBA comment letters, please contact the WBA Legal Department at 608-441-1200 or visit www. wisbank.com/CommentLetters for insurance beginning on the date on which flood insurance coverage lapsed or did not provide a sufficient coverage amount. However, the bank must terminate force placed insurance within 30 days of receipt of confirmation of a borrower’s existing flood insurance coverage. Additionally, an institution must refund to the borrower all premiums and fees for force placed insurance paid by the borrower during any period of overlap between the borrower’s policy and the force placed policy.

While these are not new rules, it is helpful to those involved — both new to the process and experienced — to remind themselves of the force placement requirements. To summarize, if a bank becomes aware that a covered loan is not secured by an adequate amount of flood insurance at any time, for any reason, during the life of the loan, it must initiate force placement procedures. The bank should check its policies and procedures to understand whether it checks flood maps, receives reports from third-parties other sources, and what procedures are in place to ensure that force placement requirements are met. If the bank works with a servicer for flood insurance, it should ensure its servicer has procedures in place to meet force placement requirements. Compliance resources, including the Flood Insurance Toolkit, can be found on the WBA website at wisbank.com/ resources/compliance

Birrenkott is WBA director – legal. For legal questions, please email wbalegal@wisbank.com.

Note: The above information is not intended to provide legal advice; rather, it is intended to provide general information about banking issues. Consult your institution’s attorney for specific legal advice or assistance.