MBA Weighs in on Flood Insurance Bills
Ahead of a series of votes scheduled today on several House bills addressing flood insurance, the Mortgage Bankers Association sent a letter to members of the House Financial Services Committee expressing support for some measures but raising concern over others.
In the letter to Committee members, MBA Senior Vice President of Legislative and Political Affairs Bill Killmer said MBA strongly supports a long-term extension of the NFIP, of at least 7-10 years, to provide certainty to homeowners and businesses that depend on the program for flood damage protection.
“A long-term reauthorization will protect residential and commercial real estate markets from serious harm, and provide stability for those that sell and administer the policies to millions of consumers across the country,” Killmer said.
The Committee will consider several bills as part of the NFIP reauthorization package. MBA said H.R. 1422, the Flood Insurance Market Parity and Modernization Act (https://financialservices.house.gov/uploadedfiles/bills-115hr1422ih.pdf), 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.
Killmer 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 has 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.
“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 the 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,” MBA said. “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. By clarifying that private coverage satisfies the continuous coverage requirement, H.R. 1422 will help to make these policies a more viable option for consumers.”
MBA noted it strongly supports an exemption for commercial and multifamily properties from the mandatory purchase requirements of the NFIP.
“Imposing the structure designed for one borrower, one home, one policy on commercial and multifamily transactions is difficult for borrowers and lenders,” MBA said. “The current limit of $500,000 for commercial and multifamily properties is insufficient based on the value of many of the properties in question. Additionally, characteristics that are customary in the insurance markets (i.e. replacement cost coverage, use of blanket policies contents, immediate coverage (no 30 day waiting period), higher storm surge limits, loss of rents, etc.) are not provided for under the NFIP program. Lenders generally require flood insurance coverage far in excess of that available under the NFIP for loans secured by commercial and multifamily properties. That said, we believe it is important that the NFIP remain an option for commercial and multifamily property owners should they choose to participate in the program.”
MBA asked clarification on H.R. 2246, the Taxpayer Exposure Mitigation Act (https://financialservices.house.gov/uploadedfiles/bills-115hr2246ih.pdf), which would eliminate the NFIP’s mandatory purchase requirement for all commercial properties, while preserving the eligibility of commercial properties voluntarily to purchase NFIP coverage.
“While MBA supports these provisions, we would encourage further clarification that links multifamily and commercial properties (as in BW-12) and specifies that multifamily properties, as a subset of commercial properties, are covered by this provision,” MBA said. “MBA believes that NFIP coverage should remain available as an option for commercial (including multifamily) property owners, but would prefer to allow federally regulated lenders to require and evaluate flood insurance coverage in the same manner that other insurance coverage is evaluated.”
MBA expressed strong opposition to increases in civil money penalties as called for in H.R. 2874, the 21st Century Flood Reform Act (https://financialservices.house.gov/uploadedfiles/bills-115_duffy054_pih.pdf). MBA noted penalties were increased in the last NFIP reauthorization and there is no current data to suggest lenders are not complying with the mandatory purchase requirements.
MBA also expressed concern about the impact on communities caused by removal of certain properties or even entire communities from the NFIP. MBA noted H.R. 1558, the Repeatedly Flooded Communities Preparation Act (https://financialservices.house.gov/uploadedfiles/bills-115hr1558ih.pdf) could have a detrimental impact on existing policyholders if a community is suspended from the NFIP due to a small number of repetitive-loss properties. “This would also have significant economic impacts as entire geographic areas could have their housing markets rendered valueless,” MBA said.
MBA said H.R. 2874 also would remove new structures built in flood hazard zones after January 2021, and new or renewed residential properties with a replacement value of $1 million or more.
“Newly constructed properties in participating communities are required to be built in accordance with current floodplain management standards to ensure that they are well-built and flood resistant,” MBA said. “These are ‘good risks’ that are beneficial to have in the NFIP pool.”
The committee hearing begins at 10:00 a.m. ET in Rayburn House Office Building room 2128 and can be accessed online at http://www.financialservices.house.gov/calendar/eventsingle.aspx?EventID=402001.
