On January 25, 2019, Federal banking regulators released a final regulation clarifying lender acceptance of private flood insurance. Download an unofficial copy of the rule, which will soon be published in the Federal Register and takes effect on July 1.
The final regulation implements Section 239 of the Biggert-Waters Flood Insurance Reform Act of 2012, which generally requires lenders to accept private flood insurance meeting a strict statutory definition. More specifically:
- Adopts the same definition of private flood insurance as the statute; this definition has been an ongoing source of confusion, particularly for smaller lenders.
- Provides compliance aid for lenders to determine whether a private policy meets the definition and thus must be accepted in satisfaction of federal flood insurance requirements.
- Clarifies that lenders also have broad discretion to accept private policies that don’t meet this strict definition if the lender finds that the policy provides sufficient protection of the mortgage loan consistent with safety and soundness requirements.
NAR has been working as part of a broad coalition to make it easier for lenders to accept private flood insurance that often offers better coverage at lower cost than the NFIP. Read our latest regulatory comment letter. While the rule does include some important clarifications and lender compliance aid, NAR will be following up with the regulators to clarify some issues that were not fully addressed by the rule (e.g., whether surplus lines residential coverage is included).
Also this rule does not change FEMA’s guidelines, which currently do not recognize private flood insurance as “continuous coverage” under the National Flood Insurance Program for purposes of grandfathering. That is a separate regulatory matter and another top priority for NAR.
NAR will continue working with the regulators, FEMA and Congress to clarify any remaining issues and address in legislation whatever cannot be addressed by regulation.