Magazine article American Banker

Senate Banking's Flood Insurance Bill Stirs Worries

Magazine article American Banker

Senate Banking's Flood Insurance Bill Stirs Worries

Article excerpt

With hurricane season around the corner, bankers are worried the Senate Banking Committee may rush -- and bungle -- reform of the National Flood Insurance Program.

Legislation scheduled for a vote on Thursday would subject mortgage lenders to limitless annual penalties for failing to ensure that borrowers obtained required flood insurance. It would provide no safe harbor for good-faith efforts that fail because of outdated flood maps or similar reasons.

"Our top concerns are a lack of an exemption for nonmaterial violations and a lack of a cap on penalties," said Kurt Pfotenhauer, the senior vice president of government affairs for the Mortgage Bankers Association.

The bill's sponsor, Committee Chairman Richard Shelby, R-Ala., has made overhauling the flood insurance program a top priority. Observers expect the panel to approve the bill.

The industry prefers the version adopted March 16 by the House Financial Services Committee and sponsored by Rep. Richard Baker, R-La. That bill would cap penalties at $1 million a year and provide an exemption to institutions that tried to follow the law.

Both bills would raise penalties from $350 to $2,000 for each loan an institution makes without ensuring that a required flood insurance policy is in place.

Though the program requires homeowners in vulnerable areas to buy flood insurance, the government subsidizes the premiums for properties within the 100-year flood plain and in coastal areas. Last year's Gulf Coast hurricanes pushed the program $25 billion into the red and prompted lawmakers to try to make it more self-sufficient. …

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