Interagency Q&As

Introductions The BasicsThe HighlightsThe DetailsThe FutureQuestions

1NFC 2010 Workshop | April 2010 | San Diego, CA

Agenda

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 • 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• 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

4,533 62%

844 12%

1,463 20%

406 6%

FDIC

FRB

OCC

OTS

Number of Financial InstitutionsYear End 2009

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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377 74%

51 10%

54 11%

28 5%

FDIC

FRB

OCC

OTS

Civil Money Penalties Number of CMP's From 1999 - 2009

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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Average CMP Amount for 1999 - 2009

$7,157 14%

$12,436 25%

$23,353 47%

$6,785 14%

FDIC

FRB

OCC

OTS

Civil Money Penalties

Civil Money Penalties

$3,060,580 48%

$817,885 13%

$2,190,954 35%

$263,415 4%

FDIC

FRB

OCC

OTS

Total Dollar CMP Amount for 1999 - 2009

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/supervision_cch.htm

• OCC - http://www.occ.treas.gov/handbook/compliance.htm

• OTS - http://www.ots.treas.gov/?p=ExaminationHandbook

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Questions

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Jackson, KY, June 4, 2009 Rob Melendez/FEMA

Thank you

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