Alert February 26, 2008

OCC Publishes Bulletin Warning of Faulty Flood Hazard Determination Practices

The OCC issued a bulletin that identifies two concerns regarding certain practices relating to flood hazard determinations that may expose national banks to compliance and operational risks.

First, the OCC warns that some companies that provide flood determinations to national banks are not using the Community Status Book when obtaining community status information for their flood determinations. Instead, these companies rely solely on the information available through the Flood Map Status Information Service, the Federal Emergency Management Agency’s electronic flood data that is provided to subscribers on a monthly basis. This also may be true for national banks that are performing determinations for their own portfolio. FEMA has indicated that CSB is the final authority for community status information and that the community status information in FMSIS may not always be current. If the company making a flood determination fails to rely on CSB when obtaining community status information for flood determinations, the company could make incorrect flood determinations, which, in turn, could expose national banks and their customers to a risk of financial loss. Therefore, the OCC strongly encourages national banks to review their third-party vendor relationships and their own practices and procedures to ensure that appropriate information is used when performing flood determinations.

Second, the OCC also warns that some flood determination companies do not note on the Standard Flood Hazard Determination Form that they have revised or updated their determination. This also may be true for national banks that are performing determinations for their own portfolio. If the company revising or updating the form does not record the revised or updated date, national banks may not be able to determine or track compliance with the OCC’s flood insurance regulations. The OCC recommends that flood determination companies and national banks indicate any

dates of revision in the “comments” section of the Standard Flood Hazard Determination Form when a determination has been revised or updated.

Click here for a copy of the bulletin.