Print ArticleCongress Extends the National Flood Insurance Program and Amends the National Flood Insurance Act and the Flood Disaster Protection Act
On July 6, 2012, President Obama signed into law H.R. 4348, the Moving Ahead for Progress in the 21st Century Act. Title II of this law contains the Biggert-Waters Flood Insurance Reform Act of 2012 (the Biggert-Waters Act),* which extends the National Flood Insurance Program (NFIP) until September 30, 2017, and amends the National Flood Insurance Act of 1968 (NFIA) and the Flood Disaster Protection Act of 1973 (FDPA).
Community banks should be aware that some of the Biggert-Waters Act’s provisions provide for the following changes:
- Increasing civil money penalties (CMPs) against regulated lending institutions with a "pattern or practice" of violating certain flood insurance requirements from $385 to $2,000 for each violation and removing the $135,000 statutory cap on the amount of CMPs that may be assessed against an individual financial institution in a single calendar year. The changes will likely result in significantly higher CMPs on financial institutions that are determined to have engaged in a pattern or practice of violations of the federal banking agencies’ flood insurance regulations implementing the NFIA and the FDPA.
- Requiring lenders or servicers, within 30 days of receipt of a confirmation of the borrower’s existing flood insurance coverage, to terminate force-placed insurance and refund any premiums paid by the borrower for the force-placed insurance (and any related fees charged to the borrower with respect to the force-placed insurance) during any period when both the borrower’s policy and the lender’s policy were in effect.
- Allowing financial institutions that purchase force-placed flood insurance to cover the 45-day notice period for force-placed insurance to pass on the cost of the insurance and fees to the borrower.
- Requiring each federal entity for lending regulation, including the Federal Reserve Board, to direct regulated lending institutions, by regulation (after consultation and coordination with the FFIEC), effective July 6, 2014, to establish escrows for flood insurance premiums for residential improved real estate or a mobile home unless the institution:
- has total assets of less than $1 billion; and
- on or before July 6, 2012, the regulated lending institution:
- was not required under federal or state law to deposit taxes, insurance premiums, fees, or any other charges into an escrow account. The preceding exceptions may not be applicable if state law requires the escrow of flood insurance premiums; and
- did not have a policy consistently and uniformly requiring the escrow of taxes, insurance premiums, fees, or any other charge.
- was not required under federal or state law to deposit taxes, insurance premiums, fees, or any other charges into an escrow account. The preceding exceptions may not be applicable if state law requires the escrow of flood insurance premiums; and
- has total assets of less than $1 billion; and
In addition to these changes, President Obama signed into law S. 3677 on January 16, 2013, to clarify the escrow requirements in Section 100209 of the Biggert-Waters Act. As originally written, the escrow requirements appeared to apply to both residential and commercial real estate. The amendment clarifies that the escrow requirements apply only to residential improved real estate.
