Avoid Getting Carried Away

October 22, 2013 at 7:26 am Leave a comment

imagesFlood insurance is in the news.  The cost of obtaining it is rising; new federal regulations are under consideration; and so-called “super storms” like Sandy — which is nearing its first anniversary — have underscored the importance of the product to both consumers and lenders.  Unfortunately, I get the sense that at least some credit unions make the issue of mandatory flood insurance more difficult than it has to be.

For example, let’s say a member comes to you for a mortgage.  The map says he’s in a flood insurance zone, but the member claims he isn’t.  Your credit union is violating federal law if it knowingly gives a mortgage on property in a flood zone.  In other words, you aren’t doing your member any favors by overlooking this requirement.  You are simply putting your other members at risk for the potential cost of uninsured flood damage.

I know that there are circumstances where there are reasonable disputes as to whether or not a given piece of property actually requires flood insurance to qualify for a mortgage.  Remember, there are already mechanisms in place where an aggrieved member can contest mandatory flood insurance with the federal government, specifically our good friends at FEMA.  This may be little comfort to your member, but the bottom line is your credit union simply does not have a dog in this fight.

Finally, keep in mind that the insurance is actually mandated to protect the lender.  The member whose contesting the need for flood insurance today will undoubtedly forget this fact if his house becomes flooded tomorrow.  The cost of flood insurance is rising, but your credit union faces potential liability if it fails to require flood insurance for mortgages where it is necessary.

These are all basic steps, and for those of you already taking them, I apologize.  But for those of you who aren’t, and I know you’re out there, it’s time to re-examine your approach.

Entry filed under: Compliance, Regulatory. Tags: , , , .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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