A regulatory proposal that would allow banks and other mortgage lenders to accept private flood insurance does not go far enough, according to industry groups. The proposal would allow banks and lenders to accept private flood insurance on both residential and commercial properties.
While industry groups support the intent of the plan, they argue that it does not give lenders enough flexibility when it comes to relying on private flood insurance as an alternative to policies backed by the National Flood Insurance Program.
“We remain concerned that the proposed rules will not successfully foster the market for private flood insurance as contemplated by Biggert-Waters and will instead create delays and complications for borrowers,” Terry Ohr, who runs Bank of America’s flood enterprise process oversight, wrote in a Jan. 6 letter to the regulators.
A 2012 flood insurance bill, co-sponsored by Reps. Judith Biggert, R-III., and Maxine Waters, D-Calif., is at the center of the issue. The bill called for private flood insurance policies to be “at least as broad” as a standard NFIP policy.
In early November, the Office of the Comptroller of the Currency, Federal Reserve, Federal Deposit Insurance Corp., Farm Credit Administration and National Credit Union Administration issued a proposal in response to that mandate.
But the definition of “at least as broad” has “discouraged rather than encouraged the goal of expanding the private flood insurance options available to borrowers,” wrote Anjali Phillips, senior counsel with the American Bankers Association.
In the proposal, banking regulators tried to reduce the burden on lenders by suggesting the use of a “compliance aid.”
However, this aid would still require the “lender to review the written summary provided by the insurer and verify in writing that the private policy includes the provisions identified by the insurer and that such provisions ‘satisfy’ the criteria included in the definition of private flood insurance,” Ohr wrote.
He also noted that generally, lenders lack the expertise to evaluate the complicated insurance policies.
“In our view,” Bank of America said, “the proposal continues to rely too heavily on lenders’ conducting extensive evaluations of private flood policies, and thus unlikely to successfully promote a market for private policies.”
Wells Fargo also raised concern in regards to the plan. The company noted that the requirements “do not seem to aid or encourage greater use of private flood insurance as an alternative to NFIP policies,” according to David Moskowitz, executive vice president and deputy general counsel for the bank.
The fix might require the action of Congress. Congress has until September 30 to reauthorize the National Flood Insurance Policy.