WASHINGTON (12/5/11)--The Credit Union National Association (CUNA) has backed a proposed interagency National Flood Insurance Program question-and-answer documents that aims to provide clearer guidance about the forced placement of flood insurance, to clarify additional areas, and avoid potential misunderstandings.
The guidance was issued by the National Credit Union Administration (NCUA) and other federal financial regulators, and will serve as an update of guidance on flood insurance requirements for credit unions and other financial institutions, agency personnel, and the public, that was issued in 2009.
In a comment letter, CUNA notes that credit unions and other financial institutions are currently required to force place flood insurance when a borrower has inadequate or lapsed flood insurance during the term of the loan that must have flood insurance. If a credit union determines the borrower has inadequate or lapsed flood insurance, the credit union must notify the borrower that adequate coverage is required. If the borrower does not provide evidence of adequate flood insurance coverage within the 45-day notice period, the credit union must arrange for the insurance on the borrower's behalf and may charge the borrower for the cost of the insurance, CUNA said.
Under the guidance, NFIP insurance must be provided if:
- the lender determines that the property securing the loan is located in an Special Flood Hazard Area;
- flood insurance is available for the property securing the loan;
- the lender determines that flood insurance coverage is not adequate or does not exist; and
- after required notice, the borrower fails to purchase the appropriate coverage within 45 days.
One portion of the new guidance, known as Q&A 62, states that a lender that provides flood insurance during the 45-day notice period may charge a borrower for any part of the 45-day notice period.
Proposed Q&A 60 would require a lender or its servicer to send a force placement notice to a borrower when flood insurance on the collateral has expired or is less than the amount required for the property, and recommends that the lender also advise the borrower when flood insurance is about to expire to maintain continuous coverage, CUNA said. CUNA does not oppose this recommendation, but said lenders should not be required to provide a separate notice that is not required by the statute.
For the full comment letter, use the resource link.