Updated October 19, 2022
Starting in '73, here's an overview of the joint agencies' rulemaking regarding federal flood insurance regulations
Introduction
Many loan servicers have spent their careers observing the ever-changing federal flood insurance regulations.
This article will provide a primer on the history of the Agencies' flood insurance regulations, and provide links to the actual language as published in the Federal Register.
In addition, this article provides a chronological DIY reference to the Joint Agencies' rulemaking for lenders since their inception in 1994.
Acts vs. Regulation
The 1973 Flood Disaster Protection Act (FDPA) brought Congress and the lending industry together to increase flood insurance usage in flood-prone areas. The NFIP needed to increase flood
insurance premiums by mandating flood insurance purchases for properties in flood zones.
Lenders providing mortgages to these property owners could be used as gatekeepers. The FDPA required mandatory flood insurance purchase for loans made by Federally Regulated
Lenders in flood-prone areas. The FDPA started the rocky relationship between
- Congress,
- lenders,
- and regulators.
Congress would formalize its relationship with the regulators with the 1994 National Flood Insurance Reform Act (The Reform Act). The Reform Act created the Joint Agencies, now
called "Agencies," which included the
- OCC,
- Federal Reserve Board,
- FDIC,
- OTS,
- NCUA,
- and FCA banking regulators.
The Agencies were now the police department for the NFIP.
Congress has created two additional flood insurance Acts since 1994. These Acts resulted in eight different Q&As to be released by the Agencies. Each subsequent Q&A attempted to
clarify their regulation. Unfortunately, there have been more questions than answers for most of the last 18 years.
2022 may be the year that the Agencies finally catch up with Congress.
History of the Agency's Q&As
After being created in 1994, the Agencies published their first final rule in 1996 to implement the National Flood Insurance Reform Act of 1994. This final rule generated many questions from servicers. Accordingly, in 1997, the Agencies created 49 Q&As to address the servicers' concerns.
In 2009, after 12 years, the Agencies published additional Q&As. The Q&As now totaled 77 questions, including five new questions relating to force-placed insurance. The industry
comment period for these questions ended in October of 2011.
The Agencies did not publish the final rule before Congress passed the 2012 Biggert Waters Flood Insurance Reform Act
(BW-12). Therefore, the 2011 final rule was never published.
What is BW-12?
BW-12 was an attempt by Congress to shore up the NFIP financing after the devastating hurricane losses during the first decade of the 21st century. Unfortunately, BW-12 significantly
increased flood insurance premiums for homeowners. Dramatically higher premiums created a voter uprising in New York and New Jersey as many voters who owned oceanfront vacation homes on the Jersey Shore were adversely affected by BW-12.
Biggert-Waters introduced significant changes to flood regulation. Once signed into law, the agencies went to work and quickly introduced additional Q&A in October 2013. But, once again, the Agency's work was interrupted by Congress's response to appease voters.
As a result of this voter revolt, Congress passed the 2014 Homeowner Flood Insurance Affordability Act (HFIAA). HFIAA immediately retracted the punitive premium rate increases and replaced them with gradual increases over time. In addition, both BW-12 and HFIAA made significant changes regarding
- escrow of premium,
- force-placed insurance,
- and private flood insurance.
As a result, many new regulations would need to be created by the Agencies.
After BW-12 passed in 2012, loan servicers struggled with their regulators regarding NFIP compliance until the Agency published its Q&A in 2015. From 2012 to 2015, we at Miniter
Group turned to the NFIP's MPPP guidance, the 2007 Final Rule, and the 2011 Q&As to help our lenders stay compliant.
In October 2014, the Agencies released for comment a Final Rule which was combined with the 2013 rule and made significant headway in defining NFIP regulation to lenders.
- Escrow,
- force-placed insurance,
- and detached structures
were mainstream changes with dozens of small regulatory changes.
The Agencies left private flood insurance for future work. This
rulemaking became the Agencies 2015 Final Rule.
What Came Next?
In November 2016, the Agencies introduced a Notice of Rulemaking for Private Flood Insurance to complete regulations for BW-12 and HFIAA. This effort led to the completion of the Private Flood Insurance Final Rule in February 2019. However, after releasing this final rule, the Agencies held a Private Flood Insurance Webinar in June of that year.
The Agencies released a final rule in May of 2022 to reorganize and revise the 2007 & 2011 Q&As. In addition to the reorganization of the Q&As, the Agencies also included 24 Q&As regarding private flood insurance. This guidance document supersedes all previous Q&A guidance documents.
Conclusion
As the Agencies finalized and reorganized flood regulation for lenders in 2021 and 2022, FEMA introduced Risk Rating 2.0, which fully went into effect in April 2022.
At Miniter Group, we will continue to stay abreast of flood insurance regulations for our lenders. Since this article is for loan servicers' reference, please use the chronological reference section below for pdf documents of all rules published by the Agencies.
References
These links download a .pdf document directly to your device
August 1996
July 1997
October 2011
2011 Agencies Q&A - Request for Comment
October 2013
July 2015
November 2016
Private Flood Insurance – Proposed Rule
February 2019
Private Flood Insurance – Final Rule
June 2019
Webinar: Private Flood Insurance
July 2020
Revised Q&A – Request for Comments
March 2021
Private Flood Insurance Q&A – Request for Comment
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