QUESTION
We have been told
that you provide flood insurance audits. Your firm was referred to us by a company
that you assisted in getting ready for their flood insurance policies review
prior to their examination. We have received notice that our company's forthcoming examination is going to include a flood insurance audit. What should
we do to get ready for the flood examination? Also, can you tell us about the Biggert-Waters Act?
ANSWER
Yes, we provide compliance audits, examination readiness, and policies
for flood insurance.
Contact us at Compliance@LendersCompliance Group for more
information or click the Contact button.
The first thing to do is review your policies, both written
and informal, and internal controls concerning flood insurance, particularly
the method you use to make the flood hazard determination. Make sure
you interview the appropriate personnel to ascertain that these policies are
implemented in the prescribed manner.
With respect to preparation, obtain and review copies of the
following:
- If you use a third-party provider, ensure that the contract requires the third party to use the most recent Community Status Book on the Federal Emergency Management Agency’s (FEMA’s) website.
- Written notices (and forms) that inform borrowers that the property securing a loan is in a standard flood hazard area (SFHA) and whether federal disaster relief assistance will be available if the property is damaged by flooding.
- Written acknowledgments from borrowers indicating their understanding that the property securing the loan is or will be located in an SFHA and that they have received the notice regarding the availability of federal disaster relief assistance.
- A sample of loans secured by real estate in all lending areas, including commercial lending.
- A list from your company’s third-party flood determination company of loans with properties in a flood hazard area that require insurance. Choose a sample of those loans to review.
Importantly, determine whether you have taken
steps to correct violations regarding flood insurance that may have been
exceptions in previous audits.
With regards to the Biggert-Waters Flood
Insurance Reform Act (“Biggert-Waters”), the banking agencies and the National
Credit Union Administration (NCUA) issued a joint final rule to implement
provisions of the Biggert-Waters, requiring regulated institutions to accept
certain private flood insurance policies in addition to National Flood
Insurance Program (NFIP) policies.
An overview of the rule, which took effect July 1, 2019,
would include these features:
- Implements the Biggert-Waters requirement that regulated lending institutions accept private flood insurance policies that satisfy the criteria specified in the Act;
- Allows institutions to rely on an insurer’s written assurances in a private flood insurance policy stating that the criteria are met;
- Clarifies that institutions may, under certain conditions, accept private flood insurance policies that do not meet the Biggert-Waters criteria; and
- Allows institutions to accept certain flood coverage plans provided by mutual aid societies, subject to agency approval.
Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director
Lenders Compliance Group
