On February 20, 2019, five federal regulatory agencies - the Federal Reserve, FDIC, OCC, Farm Credit and National Credit Union Administrations - published final regulations clarifying lender acceptance of private flood insurance. These rules will take effect on July 1.
The final regulations implement Section 239 of the Biggert-Waters Reform Act, which generally requires that lenders accept private flood insurance meeting a strict statutory definition. More specifically, the rules:
- Adopt the same definition of private flood insurance as the statute; this definition has been an ongoing source of confusion, particularly for smaller lenders.
- Provide 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.
- Clarify that lenders have broad discretion to accept private policies that don’t meet the strict definition if the policy provides sufficient protection of the loan consistent with safety and soundness principles.
NAR has been working as part of a coalition to make it easier for lenders to accept private flood insurance, which often offers better coverage at lower cost than the NFIP. Read our latest regulatory comment letter. These rules do provide lenders with important clarifications, compliance aid and regulatory certainty. They do not change FEMA or FHA guidelines that generally fail to recognize private flood insurance policies for purposes of federal assistance.
NAR will continue working with Congress and the Administration to clarify any remaining issues of continuous private flood insurance coverage and address these issues as part of NFIP reauthorization and reform legislation.