Feds Propose New Flood Insurance and Floodplain Management Rules

Last month, proposed regulations were issued by a group of federal agencies responsible for regulating mortgage lenders’ acceptance of private flood insurance on loans backed by property in flood-prone areas. Because the proposal aims to clear up confusion regarding when a lender may accept private flood insurance under federal law, it would impact individual and business access to private flood insurance if finalized.

Signed into law in 2012, Biggert-Waters aimed to encourage the purchase of private flood insurance policies to satisfy federal mandatory purchase requirements for properties in the Special Flood Hazard Area (SFHA). Accordingly, the agencies’ proposal aims to help lenders determine when they can and cannot accept private flood insurance under Biggert-Waters. It also clarifies when lenders have discretion regarding which private flood insurance policies they accept. The draft proposal follows an initial proposal in 2013 that was rescinded.

The Big “I” supports allowing the private market, where possible and practical, to offer flood insurance policies as a complement to the NFIP—provided the policies are properly regulated at the state level. The association is pleased that the Obama Administration is taking steps to implement the private flood insurance provisions of Biggert-Waters. However, the Big “I” continues to support legislative efforts to clarify when private flood insurance can and should be accepted, including issues related to grandfathered rates and continuous coverage which cannot legally be remedied via regulation.

Big “I”-supported legislation that would encourage acceptance of private flood insurance—and also ensure that policyholders who obtain private coverage can later purchase an NFIP policy without losing their grandfathered rate status—is pending in Congress. H.R. 2901, the “Flood Insurance Modernization and Parity Act” by Reps. Dennis Ross (R-Florida) and Patrick Murphy (D-Florida), passed the U.S. House of Representatives earlier this year by a vote of 419-0, but the Senate has not acted on it.

Also last month, the Department of Housing and Urban Development (HUD) issued proposed standards that would require HUD-assisted or financed projects—including commercial and residential buildings—involving new construction or substantial improvements that are located in the SFHA to be elevated or flood-proofed between two and three feet above base flood elevation.

The purpose of the proposal is to ensure compliance with a 2015 Executive Order on Floodplain Management and Federal Flood Risk Management. The HUD proposal marks the first time in 40 years that building standards for HUD-financed projects in flood prone areas have been updated.

Jennifer Webb is Big “I” federal government affairs counsel.