Joint Comment Letter on Biggert-Waters Proposed Rule regarding Escrow Requirements for Flood Insurance

Ladies and Gentlemen:
The American Bankers Association, its insurance subsidiary, the American Bankers Insurance Association, and the Consumer Bankers Association (the Associations) appreciate the opportunity to comment on the proposal by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Farm Credit Administration, and the National Credit Union Administration (the Agencies) to amend their respective regulations regarding loans in areas having special flood hazards to implement provisions of the Biggert-Waters Flood Insurance Reform Act.

I. Summary of Comment

The enactment of the Biggert-Waters Flood Insurance Reform Act of 2012 (the Act) on July 6, 2012, set in motion unprecedented change to the National Flood Insurance Program (NFIP). The law is ushering in sweeping reform of the flood insurance premium rate structure, flood hazard mapping, and floodplain management and mitigation. At the same time, the law made significant changes to lender flood insurance compliance requirements. Congress’ motivation for reforming the NFIP was clear and compelling: it sought to restore the financial solvency and stability of the federal flood insurance program. The statutory changes, however, affect all major components of the program and will have profound effects on consumers who own property located in a flood zone, on real estate markets, and on lenders charged with ensuring that borrowers purchase and maintain flood insurance over the life of the loan. Unfortunately, the full impact of these changes is only beginning to emerge as regulators are in the early stages of implementing the statute.
Although well intentioned, the legislation generates a number of interpretive issues that require careful regulatory implementation. The Agencies have addressed a number of these issues by expressly excluding commercial purpose loans and most subordinate lien loans from the escrow requirements. Nevertheless, there are additional problems that the proposal presents that warrant correction to ensure that the program goals Congress sought to advance are met. These include making additional exclusions to the escrow requirement; providing further clarity regarding force placement; and creating an additional path to safe harbor to promote the acceptance of private insurance policies. Finally, the rule must provide the industry with a realistic period of time to implement the required changes.

To read the full Comment Letter, download the PDF.