Congress Amends 2012 Flood Reform Law

The new law delays implementation of certain provisions regarding insurance.

May 1, 2014

Congress enacted legislation (H.R. 3370) in March to delay the implementation of certain provisions of the Biggert-Waters Flood Insurance Reform Act of 2012.

Biggert-Waters extended the National Flood Insurance Program’s authority through Sept. 30, 2017, and mandated major flood insurance reforms, including phasing out subsidies for many properties and raising the cap on annual premium increases.

The new law—the Homeowner Flood Insurance Affordability Act of 2014—reinstates lower insurance rates for grandfathered properties that were repealed by Biggert-Waters and extends the effective date of the pending flood insurance escrow rules from July 6, 2014, to Jan. 1, 2016.

The law also clarifies that escrow requirements apply to loans closed on or after the new effective date, and that certain loans wouldn’t be subject to the escrow requirements (e.g., second liens if proper coverage is in place in connection with the first lien, home equity lines of credit, commercial loans secured by a residence, etc.).

NCUA and the federal banking agencies proposed Biggert-Waters regulations last fall that would:

Require institutions to accept private flood insurance to satisfy the mandatory purchase requirements;

Require institutions with more than $1 billion in assets to escrow payments and fees for flood insurance for any new or outstanding loans secured by residential improved real estate or a mobile home;

Include new and revised sample notice forms and clauses concerning the availability of private flood insurance coverage and the escrow requirement; and

Clarify that institutions have the authority to charge a borrower for the cost of force-placed flood insurance coverage beginning on the date on which the borrower’s coverage lapsed or became insufficient; and would stipulate the circumstances under which a lender must terminate force-placed flood insurance coverage and refund payments to a borrower.

The comment period ended Dec. 10, 2013. These regulations were still pending at press time and will need to be modified to reflect the recent statutory changes to the escrow provisions.