Flood Risk in the Mortgage Market
On January 13, 2025, the CFPB put out a report entitled, Flood Risk and the U.S. Mortgage Market (Report), that looked at flood insurance coverage and the fact that “adequate coverage” is often tied to a borrower’s location and/or their financial standing. For example, the Report looked at the southeastern and central southwest regions of the U.S. and found that homeowners located near the coast often had adequate flood insurance coverage and the means to recover more than those located inland near rivers and streams. The analysis shows that the flood risk exposure of the mortgage market is more extensive and more geographically dispersed than previously understood...key findings include:
- Current flood insurance maps may not capture accurate flood risk exposure.
- Over 400,000 homes may be underinsured for flooding events in the southeast and central southwestern parts of the country alone.
- Homeowners who may be underinsured for flood risk also are least likely to be able to self-insure and recover from flooding.
Financial institutions are tasked with ensuring that properties located in a Special Flood Hazard Area that secure a loan are covered with adequate flood insurance. And you are probably aware of the “lesser of three” calculation that must be met. Specifically, flood insurance coverage must be obtained in an amount equal to the lesser of the following:
- The outstanding principal balance of all loans secured by the property.
- The overall or “insurable” value of the property minus the land value.
- The maximum amount of insurance available under the principal flood insurance program/NFIP.
Determining the “insurable value” is the one that we see financial institutions struggle with the most. David discussed it in more detail during our January 2025 Monthly Connection.
Published
2025/02/05
David Dickinson
David’s banking career began as a field examiner for the FDIC in 1990. He later became a Compliance Officer and Loan Officer for a small bank. In 1993, he established Banker’s Compliance Consulting. Along with his amazingly talented Team, he has written numerous compliance articles for prestigious banking publications and has developed compliance seminars that Banker’s Compliance Consulting produces.
He is an expert in compliance regulations. He is also a motivational speaker and innovative educator. His quick wit and sense of humor transforms the usually tiring topic of compliance into an enjoyable educational experience. David is on the faculty of the American Bankers Association National Compliance Schools and has served on the faculty of the Center for Financial Training for many years. He also is a frequent speaker at the ABA’s Regulatory Compliance Conference. He is also a trainer for hundreds of webinars, is a Certified Regulatory Compliance Manager (CRCM) and has been a BankersOnline Guru for many years. The American Bankers Association honored David with their Distinguished Service Award in 2016.
David and his wife Karen have three adult children, four grandchildren (none of whom live at home!) and two cats (of which Dave is allergic … the cats, not the children!). They recently moved to an acreage outside of Lincoln, Nebraska where he gets to play with his tractor. When possible David can be found fishing, making sawdust in his shop, or playing the guitar and piano. He also enjoys leading worship at his church.