Proposed FEMA flood rule could have big lender implications

by Rachel.Norvell10 Nov 2014
Mortgage professionals that lend money for residential properties near water could see new regulations in regards to flood insurance coverage.

FEMA has proposed a new rule, which specify that property owners in flood-prone areas would be required to have their insurance premiums automatically set aside in escrow accounts, satisfying the requirement that borrowers from federally regulated lenders have and pay for flood insurance. Proponents say the regulation would also help homeowners pay those bills on time.

Additionally, some flood insurance policyholders may find themselves no longer required to carry the expensive coverage for certain portions of their property.

FEMA’s proposal would eliminate the requirement to purchase flood insurance for structures that are part of a residential property located in a special flood hazard area, if that structure is detached from the primary residential structure and does not serve as a residence.

The escrow requirement would affect new and refinanced loans made after Jan. 1, 2016.

Flood insurance has been under high scrutiny since 2012, when the Biggert-Waters Act — intended to stabilize the floundering National Flood Insurance Program — led to steep premium hikes of up to 1,000 percent.

The legislation caused a backlash among both policyholders in flood-prone areas, as well as the insurance producers representing them. Fearful for the stability of the housing market, Congress rolled back the increases in premiums to become more gradual.

NFIP has been under financial strain since the 2004 and 2005 hurricane seasons brought in more than $16 billion in losses. Another $7.8 billion from Superstorm Sandy in 2012 made protecting the program, which covers 5.3 million consumers and businesses, even more essential.


  • by | 11/10/2014 10:39:55 AM

    No one is forced to purchase in a flood zone. It is strictly a volunteer decision. If someone wants to risk their lives and property so be it! But don't expect the taxpayer or Big Brother to subsidize one's folly. It is no different than property owners who build custom homes in high risk wildfire areas in the West or the wealthy who build waterfront homes that get washed away by the tides in Malibu Beach. The fire zone and beachfront people know the risk up front, are willing to pay the price for coverage and don't snivel for disaster funds when it happens.
    Through the years we read where Fargo and other middle west towns get washed out again and again, and by gum and by golly, the locals are determined to rebuild in the flood zones…………..with government disaster allowances and urban renewal funds. Flood zones have been delineated for decades now which enables homeowners to make informed decisions prior to purchase. There is no excuse for repeating a foolish gamble and expecting your neighbor to cover it, no more than I should expect my neighbor to cover my losses at the track.

  • by | 11/10/2014 12:19:01 PM

    Many people purchased their homes BEFORE FEMA put that area into a flood zone.

  • by | 11/10/2014 1:03:31 PM

    It's not that FEMA put that area into a flood zone, it's that the area was finally mapped as being in the floodplain. People should have a general expectation that if they are buying a home near the water, there is a fairly good chance that it's going to be in or near a floodplain.


Is TILA-RESPA a good or bad thing long term?