Flood insurance changes

In July 2012, Congress reauthorized the National Flood Insurance Pool (NFIP) for five years under the Biggert-Waters Flood Insurance Reform Act (BWA). This action supported real estate transactions for more than 5 million business owners and homeowners in 20,000 communities nationwide who rely on the NFIP and where flood insurance is required for a mortgage, according to the American Bankers Association.

On March 21, 2014, President Obama signed the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA) into law, effectively repealing and modifying certain provisions of the BWA. Changes of particular interest to financial institutions include:

HFIAA Section 13 amends Section 102 of the Flood Disaster Protection Act (FDPA). Section 102 was intended to allow financial institutions to offer residential borrowers the option to exclude from the mandatory purchase of flood insurance a structure that is detached from the primary residence, such as a garage or shed, if it is not used as a residence. By noting that flood insurance “shall not be required” as opposed to “may not be required,” the HFIAA amendment requires the addition of the following disclosure to RESPA’s Special Information Booklet:

Although you may not be required to maintain flood insurance on all structures, you may still wish to do so, and your mortgage lender may require you to do so to protect the collateral securing the mortgage. If you choose not to maintain flood insurance on a structure and it floods, you are responsible for all flood losses relating to that structure.

HIFAA Section 25 extends the effective date for mandatory escrow from July 6, 2014 to January 1, 2016. Mandatory escrow applies to loans that are originated, refinanced, increased, extended or renewed on or after January 1, 2016. The following types of loans do not require mandatory escrow:

  • Commercial loans secured by a residence
  • Second liens (if at the time of origination the first lien is properly insured)
  • Condominium and coop loans (assuming the RCBAP is properly insured)
  • Home equity lines of credit
  • Nonperforming loans
  • Loans with a term of less than 12 months

The HFIAA amendments to BWA also:

  • Repeal FEMA’s authority to raise premium rates at the time a property is sold, so the rate stays and transfers with the property, not the owner.
  • Allow gradual rate increases to properties now receiving artificially low (or subsidized) rates instead of immediate increases to full-risk rates. With limited exceptions flood insurance premiums cannot increase more than 18 percent annually.
  • Place a surcharge on all policyholders to offset the subsidized policies. A policy for a primary residence will include a $25 surcharge. All other policies will include a $250 surcharge.
  • Phase out “grandfathered” status. Previously, properties built before flood maps existed or those built according to older flood maps paid premiums based on the old maps. Now, when new maps are issued, premiums will be based on risks presented by the new maps. Legislatively- mandated requirements for the new mapping program include the identification of residual risk areas, coastal flooding information, land subsidence, erosion, and expected changes in flood hazards with time.
  • Create a flood insurance advocate for homeowners to challenge faulty rates or maps.

Read a FEMA report on HFIAA changes here.

Read the ABA Staff Analysis Paper here.

Meet The Rehmann Team

Start typing a name ...
Searching for "{{nameQuery}}"...
Start typing an experience ...
Searching for "{{experienceQuery}}"...
Start typing a location ...
Searching for "{{locationQuery}}"...
Or view a list of team members

get rehmann expertise to drive your business in your inbox every week