United States

Flood Insurance Reform and Modernization Act of 2012


President Obama signed the Biggert-Waters Flood Insurance Reform and Modernization Act of 2012 into law this past July, as part of the greater Moving Ahead for Progress in the 21st Century Act, also known as MAP-21.

Two of the Biggert-Waters Act’s main provisions affecting financial institutions, and effective immediately upon signing of the Act are Sections 100208 and 100203. Section 100208 provides for an increase in civil monetary penalties, from $350 to $2,000 per flood violation, and eliminates the annual maximum of $100,000. Section 100203 reauthorizes the National Flood Insurance Program (NFIP) for five years, through Sept. 30, 2017. Previously, the NFIP was extended for only short periods at a time and required regular government intervention to re-extend the program.

Other sections of the Act appear to require implementing regulations and applicable guidance from the regulatory agencies before they can be implemented, including, but not limited to, Sections 100204, 100209, 100222, 100239 and 100244. These sections are examined in detail below:

  • Section 100204 increases coverage limitations on multi-family structures from $250,000 to the commercial limit of $500,000. This section requires an adjustment to the coverage limitations set by the Federal Emergency Management Agency’s Administrative Director. Additionally, implementing guidance from the regulating agencies will be required to clarify the effective date and applicability of the limit to existing loans.
  • Section 100209 requires financial institutions to establish escrow accounts for flood insurance premiums for all new and existing residential real estate and mobile home-secured loans within a flood zone (the Act does not require escrow accounts on commercial properties). This section of the Act will require implementing regulations by the federal regulatory agencies and is effective July 7, 2014. This section does include a safe harbor for institutions with total assets of less than $1 billion on or before July 6, 2012, which was not required under Federal or State law to escrow for flood insurance premiums on residential real estate, and did not have a policy requiring all borrowers to escrow for property taxes and hazard insurance.
  • Section 100222 amends the Real Estate Settlement Procedures Act (RESPA) to require a disclosure be given at application explaining flood insurance. The Consumer Financial Protection Bureau (CFPB), which currently administers RESPA, has been directed to revise the current Special Information Booklet to include the required flood disclosure. Once the applicable revisions are made, the CFPB will announce the availability of the revised disclosure booklet.
  • Section 100239 provides clarification on acceptance of private flood insurance to satisfy the mandatory purchase requirements and provides a formal definition of private flood insurance. Specifically, the Act requires lenders, the Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac) to accept private flood insurance coverage provided that the private insurance meets certain requirements which have yet to be defined. Lastly, the Act requires lenders to provide a private flood insurance notice to borrowers which explains that private insurance can offer the same level of coverage as insurance through the NFIP and encourages borrowers to compare coverage terms. Other sections of the Act touch on private flood insurance policies (waiving the 30 day waiting period for the effective date of flood policies if property was affected by flooding on federal land and force-placed flood insurance).
  • Section 100244 amends forced placed insurance requirements to provide greater consumer protections. Specifically, the section clarifies that although a bank cannot force place until 45 days after notification of a lapse, the bank may charge the borrower for the cost of premiums and fees incurred for coverage beginning on the date on which flood insurance coverage lapsed. At the same time, lenders and servicers must fully refund all forced placed insurance premiums and fees paid by the borrower when an overlap occurs between the borrower’s insurance and the forced-placed policy. Additionally, when proof of insurance is received by the lender or servicer, forced placed policies must be cancelled within 30 days. Finally, the Act states that proof of insurance includes “an insurance policy declarations page that includes the existing flood insurance policy number and the identity of, and contact information for, the insurance company or agent.”

Additional provisions of the Act which may not have a direct impact on lenders include but are not limited to Sections 100210 and 100205. Section 100210 sets minimum deductible requirements for claims under the NFIP and was effective upon signing of the Act on July 6, 2012. Section 100205 phases out subsidies on certain flood insurance premiums and adjusts the cap on annual premium increases from 10 to 20 percent. This section was effective Oct. 6, 2012.

View the full MAP-21 Act, including Division F, which addresses the flood insurance provisions starting on page H. R. 4348—512.

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Kelly Housh
Regulatory Compliance National Support
Minneapolis, MN


Ty Beasley
Regulatory Compliance National Leader
Dallas, TX