The House of Representatives recently voted in favor of a legislation that allows the use of private flood insurance policies as an alternative to the federal National Flood Insurance Program (NFIP). If enacted, the private flood insurance is deemed to satisfy mortgage lenders’ requirements in areas at high risk of flooding.
However, the Senate struck this provision from an omnibus bill that seeks disaster tax relief, an extension for funding the Federal Aviation Administration (FAA) and more. Senators Bill Cassidy and John Kennedy reasoned that the move for private flood insurance should be included in a wider reform of the NFIP.
“Private Flood Insurance” Act
Introduced in June 2015, House Bill 2901 is a measure that amends the Flood Disaster Protection Act of 1973 or FDPA as it pertains to flood insurance coverage required under the NFIP or private flood insurance.
Under current statutes, a flood insurance coverage must be equal to:
- Project costs of the building, mobile home, or personal property minus the land costs,
- Mortgage’s outstanding principal balance, or
- Federal flood insurance coverage maximum limit as per the type of property, which is lower.
The bill states that Fannie Mae’s and Freddie Mac’s requirements with respect to private flood insurance on their guaranteed loans will not violate any state law, regulation or procedure. And it also recognizes insurance companies who are eligible to issue a flood insurance policy in the state where the property is located.
Last year, the House voted 419-0 for the bill and just last week, it garnered 264-155 votes. Rep. Dennis Ross (R-Fla) who sponsored the bill with Kathy Castor (D-Fla) said:
“The recent major flood events across the country have provided a much-needed sense of urgency to our efforts to provide consumers with private sector flood insurance options. Currently, many homeowners in Florida and across the country face unaffordable flood insurance premiums and a lack of coverage options, largely due to federal regulatory barriers that give the National Flood Insurance Program a harmful monopoly over the marketplace.”
Flood Insurance As It Stands
As it stands, the NFIP is the go-to program for residential and commercial property owners to buy flood insurance. It serves to supplement standard homeowners insurance and renters insurance that exclude protection from flood-related losses.
If you buy a home in a flood- or as recent events show, hurricane-prone area, a flood insurance is mandatory. Furthermore, lenders who are approved by federal agencies such as FHA, VA or USDA to make their guaranteed loans are mandated to require flood insurance.
The problem with the government-run program is that it pays more in claims and collects less in premiums. This means that taxpayers would have to shoulder the costs of insuring at least 5 million households.
“To protect homeowners, flood insurance must be addressed whole piece not piecemeal,” according to Sen. Cassidy in a press statement.
“As hurricanes Harvey and Irma showed this year and the Louisiana floods showed last year, flooding can destroy a family’s biggest asset in very little time. The National Flood Insurance Program helps families across the U.S. rebuild after devastation strikes. Comprehensive reform is needed to ensure the program is affordable and sustainable. Now we can focus on smart reforms that maximize taxpayer dollars without financially crippling families.”Click to See the Latest Mortgage Rates»