May 03, 2019
The Potential Effect of New Flood Insurance Regulations on Lenders
In a recently released statement, a number of regulatory organizations—the Federal Deposit Insurance Corporation, the Federal Reserve, the Farm Credit Administration, the Office of the Comptroller of Currency (OCC) of the Department of the Treasury, and the National Credit Union Administration—in which they detailed their intention to amend their regulations covering the requirements imposed on lenders regarding private flood insurance.
In particular, these regulations apply to areas with “special flood hazards,” and are a further implementation of the provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 (as revised in 2016).
Lenders continue to be required to accept private flood insurance as defined in the Act. But, in response to comments and suggestions received by industry players, the new rules also contain a “streamlined compliance aid provision.” This permits lenders to use their own discretion in determining what sorts of insurance qualify as meeting the definition of “private flood insurance” under the statute, without their decisions being subject to review, so long as the policy contains the language: “This policy meets the definition of private flood insurance contained in 42 U.S.C. 4012a(b)(7) and the corresponding regulation.”
The new regulations will also permit lenders—in limited circumstances that are subject to restrictions—to accept flood insurance policies that are issued by private insurers and by “mutual aid societies” that do not precisely qualify as “private flood insurance” under the statute. The restrictions include that the policy must “provide sufficient protection for a designated loan, consistent with general safety and soundness principles,” and that “the regulated lending institution [must] document its conclusion regarding the sufficiency of protection in writing.”
All told, what the regulators have done with this rule—which will take effect on July 1, 2019—is to allow lenders to rely on insurers for the determinations of whether the provided insurance in fact meets the standards put forth by the Biggert-Waters Flood Insurance Reform Act. This has the effect of decreasing the concern that lenders must get official review of the policies they bought for their properties or undertake such review on their own. This aims to decrease the man-hours required on the purchaser end of the transaction.
At Topouzis & Associates, P.C., we perform title searches and remedy problems with title in Massachusetts, Rhode Island and Florida. We back these services with title insurance for both lenders and owners. Contact us if you’re considering purchasing a new property, whether for yourself or as an investment, so we can help ensure that you achieve true ownership without having to deal with unforeseen hassles arising from problems created by someone else in the past.