MBA Asks House to Strengthen Flood Insurance Bill

The Mortgage Bankers Association, in a letter to House leadership, expressed strong support for inclusion of provisions that would strengthen and expand the private flood insurance market within Title IV of the FAA Reauthorization bill slated for floor consideration this week.

The reauthorization bill addresses two primary impediments to development of a private flood insurance market: lack of clarity as to what constitutes acceptable private flood insurance and uncertainty about the effect of private insurance on the continuous coverage requirement. MBA noted while the intent of the Biggert-Waters Flood Insurance Reform Act of 2012 was for private flood insurance to satisfy the mandatory purchase requirement, lack of clarity in the statutory language had the unintended effect of making it more difficult for lenders to accept private flood insurance policies. Prior to the enactment of BW-12, lenders were permitted to accept private flood insurance to meet the mandatory purchase requirement of the National Flood Insurance Reform Act of 1994.

MBA noted the Federal Emergency Management Agency published guidance with criteria to assist lenders in deciding whether to accept a private flood insurance policy, though lenders still had the discretion to accept a policy that did not meet the FEMA criteria if they were satisfied that the policy adequately covered the collateral. BW-12 incorporated the FEMA criteria into the definition of private flood insurance and required that private policies be “at least as broad as” an NFIP policy in order for a lender to accept it.

“The BW-12 requirements have made it difficult for lenders to determine whether a private policy provides the necessary coverage under the definition,” MBA said. “With the risk of federal liability for accepting less than an NFIP policy, lenders have (to date) been reluctant to accept private policies.”

In addition, MBA noted the legislation clarifies that continuous coverage by private flood insurance satisfies any statutory, regulatory or administrative continuous coverage requirements. Under current NFIP rules, a policyholder would likely lose any subsidy or “grandfathered” status if they left the NFIP and opted to obtain coverage with a private flood insurance policy.

“This has created a disincentive for policyholders to choose a private policy in lieu of the NFIP and thwarts congressional intent to encourage the development of a more robust private flood insurance market,” MBA said. “By clarifying that private coverage satisfies the continuous coverage requirement, these provisions will help to make these policies a more viable option for consumers.”

MBA Senior Vice President, Legislative and Political Affairs Bill Killmer pointed out “given the recent natural disasters that have devastated portions of Texas, Louisiana, Florida and Puerto Rico, it is more important than ever that we take the necessary steps to strengthen and expand the private flood insurance market going forward.”