Federal regulators are wading into the flood insurance crisis, suggesting that banks be required to accept private flood insurance on homes in high-risk areas.
The proposed rule change filed Friday was mandated as part of the Biggert-Waters act, the same 2012 law that is causing huge flood insurance rate hikes for some. It comes at the same time Florida insurance regulators are investigating how the state could induce private companies to sell flood insurance.
If the federal change is approved, banks and other lenders would have to accept qualified private insurance on loans backed by properties in areas at risk for flooding. Lenders would also have to place in escrow flood insurance payments for certain residential properties and for mobile homes. The rule clarifies that lenders have authority to charge a borrower for the cost of force-placed flood insurance when a property owner fails to get the coverage.
The change in flood insurance rules would be unified for lenders on both the national and state levels.
The new rules were jointly proposed Friday by five regulatory agencies: the Federal Reserve Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp., the National Credit Union Administration and the Farm Credit Administration.
The public has until Dec. 10 to review and comment on the proposal.
The Biggert-Waters act calls for stabilizing the national flood program by eliminating subsidies on older homes in flood zones. In some cases, the subsidizes are being phased out gradually with annual rate increases near 20 percent.
In certain instances, such as the sale of a property, the subsidy is being eliminated immediately, beginning with renewals this month. That has triggered complaints from homeowners who have seen their annual flood insurance premiums spike from the $2,000 range to $14,000 or more in some cases.