Flood Insurance reform which had eluded Congress
for seven years is now going into effect with the
implementation of the Biggert-Waters Flood
Insurance Reform Act of 2012. The Act, part of
the larger transportation bill H.R. 4348, was signed
into law in July 2012.
Biggert-Waters ensures the availability of flood
insurance under the National Flood Insurance Program
(NFIP) through 2017. This 5-year extension contains
significant reform measures deemed necessary for the
survival of the NFIP program.
Most of the changes involve core parts of flood
insurance: coverage, cost, and property eligibility.
Currently, 5.6 million home and business owners rely
on the NFIP program for insurance.
However, Biggert-Waters also contains several
critical "regulatory" reforms aimed at mortgage
lenders and servicers:
Penalties (for non-compliance with mandatory
flood insurance purchase requirements) are
increased from $350 to $2000 per
violation – with no maximum annual penalty (it
In direct response to the new law, many
financial institutions have conducted internal
flood audits to avoid these potentially large
financial penalties in future regulatory audits.
The new law establishes an on-going National
Flood Mapping Program, and calls for a more
aggressive campaign of updating flood maps.
Lenders will need to rely on the accuracy of
their "Life of Loan" flood zone certifications,
as properties will be affected in both zone and
rating by new rules established for the NFIP and
Force Placed Flood Insurance
The new law defines rules for the force
placement of flood insurance. Forced placed
flood insurance must now be terminated, and the
unearned premiums refunded to the mortgagor,
within 30 days of receipt of proof of the
mortgagor’s updated flood insurance coverage
Standard flood Insurance
The new law allows for private flood
insurance to satisfy flood insurance coverage
requirements if it meets certain standards.
("Private" does not refer to insurance issued by
the many insurance carriers, which issue
policies as part of the "Write your Own"
partnership with NFIP.)
Amends the Real Estate Settlement Procedures
Act (RESPA) to require explanation of the
availability of flood insurance under the NFIP
or through private insurance for properties both
in and out of Standard Flood Hazard Areas (SFHAs)
Highlights of the Biggert-Waters Flood
Reform Act of 2012