Managing Mortgage Risk and Member Experience in Extreme Weather Events

Weather-related disasters are inevitable. While there’s no way for credit union mortgage departments to avoid them, they can prepare for them.

Those who treat extreme weather as a leadership and communication issue rather than an IT problem are positioned to thrive.

While investing in the right platforms and remote tools is important, credit unions that maintain operations during a flood or tornado are the ones where leadership has established clear decision-making authority before the storm, not during it.

FEMA refers to this concept as “pre-positioning.” It’s about knowing who has the authority to make what call at 2:00 in the morning when primary systems are down.

Unfortunately, most credit unions have a written continuity plan, but have never actually tested the human chain of command inside it. That’s where weaknesses emerge.

Addressing this gap can improve member service and strengthen overall operational resilience when a flood, tornado, or winter storm hits.

Managing Risk Across the Loan Lifecycle

Risk identification must be an ongoing process for credit unions, beginning at loan origination and continuing throughout the loan’s lifecycle.

It’s imperative that credit unions request flood zone determinations at loan origination. These are used to determine whether a property is located in a Special Flood Hazard Area (SFHA) as defined and mapped by the Federal Emergency Management Agency (FEMA).

“Federally regulated lenders are required to mandate flood insurance for properties in Special Flood Hazard Areas (SFHAs). However, with increasing flood damage outside these zones, more lenders are extending requirements into moderate- and low-risk areas,” said Doug Winkler, risk management professional and director of business development, at AFR Services.

In fact, FEMA reports that about 30% of all claims are outside the 100-year floodplain. Credit Unions must define what level of risk they are willing to take on and adjust their underwriting requirements accordingly.

After origination, it is just as important for them to monitor their lending portfolio to ensure all collateral securing the loans maintains the correct level of insurance. This includes reviewing insurance renewals and staying informed about FEMA map changes, which could affect the level of flood insurance needed to fully protect the loan.

“This gets even more complicated when managing commercial property loans secured by multiple buildings or land parcels. For this reason, many lenders invest in life-of-loan (LOL) support, which tracks FEMA flood map changes over time and alerts the lender if a property’s flood zone status changes, automatically issuing an updated flood certificate,” Winkler explained.

LOL support is often combined with insurance tracking services and lender-placed insurance. Insurance tracking notifies lenders and borrowers when their insurance is insufficient to meet lender requirements or lapses. Lender-placed insurance serves as a fallback measure if property owners are unable or unwilling to secure insurance.

“With this three-pronged approach, lenders get accurate visibility and protection against extreme weather risk,” added Winkler.

Why Flood Risk Extends Beyond SFHA Boundaries

Many assume that properties outside SFHAs are immune to flooding. However, this is not the case. All properties have some risk and it’s vital for owners to be aware of it.

For example, if a flood map shows “Zone None,” this does not mean the property is outside a flood zone. Instead, it indicates the area has not yet been mapped by FEMA, and the level of risk is unknown.

Another common misconception happens when a property is located in a 100-year floodplain. All too often, people believe this to mean that a property will only flood once every 100 years.

“This is simply false. If a property is located in a 100-year floodplain, there is a 1% chance of flooding in any given year, or a 25% chance a property will flood over a 30-year period,” Winkler explained.

Insurance Literacy and Mortgage Support During Extreme Weather

Not all insurance policies provide the same level of protection. For this reason, providing clarity on deductibles, insurance caps, RCV vs ACV, and additional benefits such as living expenses can help members understand their potential out-of-pocket expenses when severe weather strikes, as well as potential gaps in coverage.

For example, for a residential property, the NFIP caps building coverage at $250,000 and contents at $100,000. However, according to Zillow, the average home value ranges between $360,591 and $512,800. This means the NFIP coverage would be insufficient to make a person whole if they experience a significant flooding event.

“This is why having strong relationships with insurance agents who specialize in flood is so important. They can help borrowers navigate the intricacies of obtaining and maintaining the right level of coverage for their budgetary needs, as well as serve as a guiding resource when claims arise,” said Winkler.

It’s also essential to note that borrowers cannot wait until a storm is approaching to purchase flood insurance. The NFIP has a 30-day waiting period from the date the premium payment is made until the policy becomes effective.

Additionally, some insurers will put a moratorium on writing flood insurance once a storm becomes a near certainty. For credit unions, closing these knowledge gaps early is key to helping members make informed decisions before extreme weather turns exposure into loss.

How Credit Unions Can Support Members in Real Time

Credit unions often wait until they have all the information they need before communicating with members. Unfortunately, that approach may erode trust.

Members who are sitting in a damaged home, wondering if their mortgage payment is still due on the first, do not need a perfect answer. Instead, they need acknowledgment that their credit union sees them and has a clear timeline for when they’ll answer.

Ideally, credit unions would implement a three-message cadence during weather disasters. The first message is an immediate acknowledgment within 24 hours, confirming they’re aware of the situation and working on it.

The second message is a follow-up within 72 hours with specific guidance or relief options. Lastly, members should receive a longer-term update once policies and operational decisions are finalized.

The framing is also critical. Members are not experiencing a routine service disruption—they are experiencing a disaster that involves their mortgage. Effective communication leads with empathy first, and policy second.

The information reported in this document, financial and otherwise, should not be construed as either legal or investment advice, nor does it represent the views of ACUMA, its Board of Directors, its staff or its members. The author presents information current at the time of publication and is designed to educate ACUMA members and others interested in the credit union mortgage lending industry.