Lenders Must Accept Private Flood Insurance Policies After July 1

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WASHINGTON – June 18, 2019 – The threat to home closings during a National Flood Insurance Program (NFIP) shutdown may be muted or nonexistent should Congress fail to extend the program in the future. After July 1, a federal law forces mortgage lenders to accept private coverage if it satisfies criteria outlined in the Biggert-Waters Flood Insurance Reform Act of 2012.

In February, five federal regulatory agencies – the FDIC, Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, National Credit Union Administration and Farm Credit Administration – issued a joint final rule to implement provisions of the Act, which outlines the new private flood insurance mandate and the steps insurance companies and mortgage lenders must follow.

The rule, which takes effect July 1, 2019:

  • Implements the Biggert-Waters Act requirement that regulated lending institutions accept private flood insurance policies that satisfy criteria specified in the Act

  • Allows institutions to rely on an insurer's written assurances in a private flood insurance policy stating the criteria are met

  • Clarifies that institutions may, under certain conditions, accept private flood insurance policies that do not meet the Biggert-Waters Act criteria

  • Allows institutions to accept certain flood coverage plans provided by mutual aid societies, subject to agency approval

Private flood insurance could be offered as a stand-alone policy or as an endorsement attached to a full property insurance policy. Lenders won't have to verify that a flood policy or endorsement is acceptable, providing it includes the following endorsement: "This policy meets the definition of private flood insurance contained in 42 U.S.C. 4012a(b)(7) and the corresponding regulation."

However, the law also allows a lender to do its own due diligence if it prefers not to rely on the statement.

A full copy of the 90-page order is posted on the U.S. Department of the Treasury's Office of the Comptroller of the Currency website.

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