VIDEO: What Triggers Flood Compliance Requirements
In this Compliance Clip (video), Adam explains the key events that trigger a financial institution's flood insurance compliance requirements. Learn when flood rules apply and why understanding these compliance triggers is essential for ensuring your institution meets its regulatory obligations.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to talk about what triggers flood compliance requirements.
We have this question: When must a lender comply with the flood insurance rules for financial institutions? This includes banks, credit unions, mortgage lenders, and other financial institutions that have federally backed loans that are subject to the flood insurance rules.
Well, what we have is tripwires. So, there is a general requirement that says flood insurance, either issued through the National Flood Insurance Program or from a private insurance provider, is required for the term of the loan on buildings or mobile homes whenever the institution makes, increases, extends, or renews a designated loan when all three of the following factors are present.
We'll come back to this “make, increase, extend, or renew”, but there are three factors that tell us that flood insurance is required.
The first is the loan, whether it's commercial or consumer, secured by improved real estate or a mobile home, so we have a building or structure that is affixed to a permanent foundation. That's the first thing: we have a building or structure that's part of our collateral. Number two is the property securing the loan is or will be located in a standard flood hazard area, otherwise known as a high-risk flood zone, as identified by FEMA. So we've got a building or structure that's going to be secured as collateral in a high-risk flood zone. And number three, the community participates in the National Flood Insurance Program. Believe it or not, some communities don't participate, so the rules are slightly different. But if the community does participate, you have to require flood insurance.
That's the main requirement.
Now, as far as an institution, we kind of have this tripwire requirement that says a regulated lending institution may not make, increase, extend, or renew any loan secured by improved real property that is located in a high-risk zone unless the improved real property is covered by the minimum amount of flood insurance required by statute.
So, what triggers the flood insurance requirements?
What triggers it is this “Make, Increase, Extend, or Renew.” And in the industry, this is an acronym we call MIRE. M-I-R-E. MIRE stands, of course, for Make, Increase, Renew, or Extend. MIRE is the tripwire that requires all flood insurance rules. It requires a flood determination, a flood notice, it requires sufficient insurance, it requires escrow, and it requires force placement if there's insufficient coverage.
So, it's not just a brand-new loan to your bank, which is making a loan, but it could be a modification, like an increase, renewal, or extension.
Now, not all modifications are covered. For example, if you just do a rate modification, it's not likely going to increase, renew, or extend. It could be renewing the loan, depending on the case. So, not all modifications are covered, but most of them are. And so, it's not just a new loan; it's any time you make, increase, renew, or extend. Those are the tripwires that require flood insurance compliance in your financial institution.
Now, this is an exact slide that I just used in some of our training programs. In fact, three training programs that we've put together. If you're interested in taking a deep dive, the first training program is the Flood Compliance Foundations. This is a four-hour training program that's designed for compliance officers, auditors, and those who are responsible for managing your flood program.It's a four-hour deep dive into the nuances and some of the FAQs, and that's our big program.
Now, that's too much for lenders. Lenders need less, and some believe they need a lot less, so we have a Flood for Lenders program. We actually have two versions. We have the essentials version that's 30 minutes long, and we have the advanced version that runs an hour and 15 minutes for those financial institutions that want their lenders, processors, and loan staff to take a little bit of a deeper dive. So we've got a 30-minute version and an hour and 15-minute version as well.
We also, we have a version for the board of directors to help them understand their fiduciary responsibility as it comes to flood compliance, and that also runs at 30 minutes long.
If you're interested in these programs or any other topics, take a look at our store at compliancecohort.com/store.
That's all I have for this compliance clip. I hope I made a little bit of a splash or made waves in your knowledge of regulatory compliance and flood insurance rules.