The Louisiana flood disaster unfortunately brings to the fore a unique set of issues for banks and financial institutions, both those located in south Louisiana and those who have customers impacted by the flooding. Many financial institutions have branches, offices, and operation centers that sustained flood damage. Many more have customers whose homes were flooded and who may not yet have returned to work.
While there likely will be a significant amount of legislative and regulatory guidance in the weeks and months to come, there are a number of topics and issues that banks and other financial institutions should consider in the interim. We expect to provide more detailed analyses on these topics as the regulatory guidance is issued.
The Louisiana flood disaster unfortunately brings to the fore a unique set of issues for financial service businesses, including banks, mortgage servicers, mortgage lenders, and loan companies. These issues would impact both those financial service providers located in south Louisiana and those who have customers impacted by the flooding. Many banks and loan companies have branches, offices, and operation centers that sustained flood damage. Also, many financial service companies have customers whose homes were flooded and who may not yet have returned to work.
While there likely will be a significant amount of legislative and regulatory guidance in the weeks and months to come, there are a number of topics and issues that financial service providers should consider in the interim. We expect to provide more detailed analyses on these topics as the regulatory guidance is issued.
Loan Payment Assistance to Impacted Borrowers
Many lenders are already putting into place various payment assistance programs to help borrowers whose homes or cars have sustained flood damage or who have an interruption in their employment. Lenders and servicers will of course need to consult and consider guidance issued by the appropriate regulators, as well as any requirements or guidance of the investors who own the loans.
Branch/Office Closures Due to Flooding
Given that many banks and other financial service providers have sustained flood damage to branches and other offices, those companies will need to consider regulatory requirements for the closure and/or relocation of branch offices. Those institutions will also have to consider any damage to safety deposit boxes as well as loan collateral documents. Indeed, the Louisiana Office of Financial Institutions recently reminded those banks regulated by the OFI of its Emergency Preparedness Guide & Script.
In-Process Loan Modifications, Loss Mitigation Efforts, and Foreclosure Moratoriums
Many borrowers impacted by the flooding may have already been undergoing the process for a loan modification or other loss mitigation option for their loan. Lenders and servicers will need to consider investor guidelines and regulatory guidance as to how long those loss mitigation efforts can be delayed in light of the flood impact. Financial service providers will also have to consult the executive and judicial orders issued in the wake of the flooding to determine the impact of any deadlines associated with foreclosures.
Insurance Proceeds Held in Escrow
Over the next several weeks and months, borrowers and servicers will likely start receiving insurance proceeds for the losses sustained by the flood. Legislation enacted after Hurricanes Katrina and Rita imposed certain requirements with respect to insurance proceeds held in escrow. Lenders and servicers will likely want to revisit those requirements as well as monitor any similar legislation or regulatory guidance that may be issued in connection with this disaster.
In addition to flooding in their own branches and offices, many institutions will have contracts and relationships with third-party vendors who themselves sustained some degree of flood damage. Banks and other financial service providers will have to analyze the impact of force majeure and disaster recovery clauses in those vendor contracts with respect to services from those vendors. These companies should also consider whether the flood damage sustained by any vendor has the potential to impact the integrity of any customer data maintained by those outside vendors.
Attorneys in McGlinchey Stafford’s consumer financial services group and banking regulatory practice areas have a wealth of experience in all of these topics. For any questions or further information, please contact Lauren Campisi, Laura Brown, or Gabe Crowson.