Mortgage

Why ‘enterprise as typical’ will not do for flood portfolio administration

The continuing rise in the number and severity of storms across the U.S., coupled with more stringent audits and their related penalties, is shining a light on the critical importance of strategic flood portfolio management. A business-as-usual approach simply won’t cut it anymore — not if lenders and servicers want to adequately protect their properties, customers and reputations.

The big challenge is keeping up with flood map revisions. Properties that were not in a FEMA flood zone yesterday may be reclassified as high-risk tomorrow. It’s up to lenders and servicers to stay on top of this information and make certain properties are appropriately insured. And while flood portfolio management is not a difficult undertaking, it often gets pushed to the back burner as more pressing issues demand attention.

If you’ve been meaning to tighten up your flood protocols but haven’t had a minute to think about it, you’re not alone. The relentless pace and volume of originations over the past couple of years has understandably taken precedence. But the time burden of instituting a few proactive measures is minimal if you work closely with your flood services provider. Building a strong relationship with your flood team can help you manage your portfolio with ease.

Steps you can take today to assess and mitigate flood risks
Reducing the amount of risk in your portfolio begins with having a good sense of where your properties stand today in terms of flood risk, and then having systems in place to identify and alert you of changes as they arise. Here are some actions you can put into motion right away:

Know which properties require flood insurance.
While only a small percentage of your properties may require flood coverage at the moment, it’s critical to keep a constant, watchful eye over all of your properties. You never want to take the chance that any of them requiring coverage might be under- or uninsured.

A flood vendor monitors active portfolio loans for flood map revisions and notifies lenders or servicers of any flood hazard or community participation status changes. The current servicer, in turn, reaches out to affected borrowers with an update as to how the change will affect them and what steps, if any, the borrower needs to take.

Keep open lines of communication with your flood vendor
Efficient two-way communication is essential for a couple of reasons: (1) Since your flood vendor is conducting due diligence on your behalf, it’s important to keep them apprised of cancellations, payoffs and transfers so that they are tracking only your active properties; and (2) you want to be informed of map revisions as quickly as possible. Ensure that reliable contacts are in place and that you have a mutual agreement about how communication will take place and be addressed.

Monthly calls and perhaps a scorecard system can help ensure you stay up to date on the state of your portfolio at any given time: how many orders your provider is tracking, how many properties require flood insurance, which properties should be removed due to cancellations, payoffs or transfers, etc. Keeping in sync with your flood provider gives you an edge.

Have insurance tracking in place
In addition to mapping updates, you should be tracking flood insurance policies to ensure that when a flood policy has expired, it is renewed. These policies renew every year, and it is incumbent upon you as the lender or servicer to make sure your borrowers continue to carry sufficient flood coverage.

Reassess your flood provider
You’re putting a lot of responsibility into the hands of your flood services provider. Make sure that provider is a true partner, proactively looking out for you and your loan portfolio, and prioritizing your requirements for quality and security. The ideal flood partner has longevity, a solid track record, financial stability and a strong disaster recovery plan.

Technology builds efficiency into flood services
Emerging technology is making flood tracking and management quicker, easier and more cost-effective. Here are a few of the innovations helping move the industry forward:

Aerial exhibits can be a valuable tool when flood insurance is required
They provide a visual representation of the proximity to the FEMA flood zone. The exhibit should incorporate high-resolution FEMA images, digital road layers and full-color satellite and aerial images to illustrate why flood insurance is required.

Subscription reporting provides updated portfolio snapshots
Whether you prefer to review the status of properties in your portfolio weekly, monthly or quarterly, subscription reporting offers you a regularly scheduled look at flood zone status and insurance requirements.

Servicing integrations enable automatic updates
FEMA map revisions, changes, cancellations and payoffs can be updated automatically through servicing integrations provided by your flood partner.

Why an “Always On” approach to flood portfolio management is best 
Lenders and servicers that are plugged into automated, ongoing reporting; that regularly review their flood portfolios; and that communicate openly and frequently with their flood partners are more likely to pass OCC exams quickly and easily, and avoid penalties for errors or negligence.

Consistent reporting, weekly or monthly, enables you to stay up to date regarding your flood portfolio so that when you are audited, you can automatically comply with requests for flood information on your loan portfolio. You want that information to be current and to represent your true portfolio, not some properties that you’re holding and others that have been paid off or cancelled.

Having clear, concise, current information on hand is not only possible — it should be your new business-as-usual approach to managing your flood portfolio. “Always on” means managing your portfolio consistently, efficiently and strategically, with a little (or a lot of) help from your trusted flood services provider.

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