Lapas attēli
PDF
ePub
[blocks in formation]

The Mayor and City Council of Ocean City has followed the progress of the above referenced bill and have studied the current version. We wish to advise you of our support for 3.1405 in its current form.

Our support is based on the following observations;

1. Complianco and Increased Pardoipation. Improved lander
compliance in requiring flood insurance will increase the
number of participants in the program. Although we
understand that Ocean City has a high percentage of
covered properties, many areas that are flood-prone
(particularly riverine areas) are not adequately insured.
It is our hope that increased compliance will make the
program stronger and lead to stable or reduced premium

rates.

2. Community Rating System. The Town of Ocean City is an
active participant in the CRS and we strongly support it as
an incentive for flood protection. Formally authorizing
the CRS is an important part of S.1405, as is the provision
that communities that manage erosion hazards will be
eligible for additional credit.

3. Determination of Erosion Rates and Consideration of
Mitigation Activities. From Ocean City's perspective, it
is imperative that, in identifying erosion hazard areas,
FEMA shall determine erosion rates based on the presence
of any community erosion control measures and erosion of
the area in the absence of the project. The Director shall
use the lower estimated erosion rate in the determination
of erosion hazard areas." (Section 804 (b) (1) (3)).

Senator Paul Sarbanes
September 14, 1993
Page 2

As you know, the Atlantic Coast of Maryland Hurricane
Protection Project, as constructed and maintained, provides
100-year storm protection to properties in Ocean City. The
project's impact, and not historic erosion rates, must be
We would
recognized in identifying erosion hazard areas.
expect that, as long as the project is maintained to its
design affectiveness, Ocean City's erosion rate would be

zera.

4. Mitigation Grants and Insurance.

Mitigation incendvės

should positively affect the flood resistance of

flood-prone areas and the fiscal stability of the flood
insurance program.

In Ocean City, we recognize the importance of the National Flood Insurance Program, and we support your efforts to make it more effective. We therefore support S.1405 assuming that the points raised in this letter are retained.

[merged small][ocr errors][merged small][merged small][merged small]

STATEMENT OF THE AMERICAN BANKERS ASSOCIATION

Mr. Chairman and Members of the subcommittee, the American Bankers Association is pleased to submit its views regarding S. 1405, the "National Flood Insurance Reform Act of 1993."

The American Bankers Association (ABA) is the national trade and professional association for America's commercial banks, from the smallest to the largest. ABA members represent about 90 percent of the industry's total assets. Approximately 94 percent of our members are community banks with assets of less than $500 million.

This committee's action, and particularly the efforts of Senator John Kerry, to examine the status of the Federal Flood Insurance Program are both timely and important. Lenders have a great deal at risk if the properties that provide the collateral for their loans are located in flood hazard areas and are not covered by flood insurance. The ABA believes that insured financial institutions have made a strong effort to comply with the requirements of the Flood Disaster Protection Act of 1973, and will strengthen their efforts on compliance in the future.

The National Flood Insurance Program was established to protect the taxpayer from risk and exposure to flood emergencies. Congress mandated financial institutions to require flood insurance as a condition of making or renewing, extending, refinancing, or increasing a loan. Congress did not require flood insurance on properties that are not financed through a Federally insured financial institution or with a Federally insured mortgage. About 50-60 percent of all homeowners carry no mortgage on their home and therefore do not have to comply with the requirement to purchase flood insurance if they are in a flood hazard area. This makes 100 percent compliance with the program virtually impossible.

MAP UPDATES

We commend the language contained in S. 1405 which would require FEMA to publish every six months a compendium of all changes and revisions to the flood insurance map panels in the Federal Register, or through some other comparable method.

This will allow mortgage lenders and servicers quick and ready access to flood remappings which may affect loans in their servicing portfolios. There is currently no requirement that FEMA publish this information, adding a layer of regulatory burden on lenders to have to research which properties may have been remapped into flood hazard areas. This provision should make it easier for mortgage lenders and servicers to improve their ongoing compliance with flood insurance laws. FORCE PLACING FLOOD INSURANCE

We also strongly support the section of S. 1405 which will allow mortgage lenders to "force place" flood insurance anytime during the term of the loan if the lender determines that the property is in a flood hazard area and the property is not covered by flood insurance. The legislation provides that if the lender determines the property to be in a flood hazard area and not covered by flood insurance, he shall notify the borrower that the borrower must obtain flood insurance for the term of the loan. If after 60 days, the borrower fails to obtain flood insurance, the lender shall purchase the insurance on behalf of the borrower and charge the borrower for the insurance premiums.

This provision should also improve ongoing compliance with flood insurance laws for mortgage lenders and servicers by providing a vehicle to legally force place flood insurance for homeowners who refuse to purchase the required insurance voluntarily.

ESCROW REQUIREMENTS

S. 1405 would require lenders who currently escrow for a loan for other purposes (i.e., taxes, insurance premiums) to escrow for premiums for flood insurance. This provision should not cause lenders any undue burdens since it only pertains to loans which would have escrows established for other purposes as well. In fact, it should act to increase ongoing compliance since the mortgage lender or servicer will have control over the payment of premiums to keep flood insurance policies in force on affected properties resulting in fewer lapsed flood insurance policies.

STANDARD DETERMINATION FORM

S. 1405 directs FEMA, in consultation with Federal lending regulators, to develop a standard flood hazard determination form for use in connection with every loan secured by property in a flood hazard area.

ABA would recommend that language be added to require the regulators to receive comments from financial institutions on the development of this form. While

uniformity and detail of data used to determine if a property is in a flood hazard area are the goals of the standard determination form, lenders will want to ensure that the form does not become so elaborate as to cause an increased regulatory burden on those completing the form.

The legislation includes a requirement that if a third party provides the information on the determination form that that third party must guarantee the accuracy of the form. Currently, many lenders rely on appraisers to do the flood determination, and it is unlikely that appraisers will bear the additional cost or risk of guaranteeing their determinations. We are concerned that fewer lenders, particularly smaller community banks will be able to find a third party to provide the information, or will have to complete the flood determination form themselves.

PENALTIES AND EXAMINATIONS

For the first time in history, the law will require that bank regulators determine compliance with the requirements of the National Flood Insurance Program during banks' regularly scheduled on-site examinations. While it is occasionally the practice of the examiners to look at a lender's loan portfolio for flood insurance compliance, it has not previously been statutorily mandated.

In addition, S. 1405 provides for civil penalties if a lender is found to have a "pattern or practice" of violations pertaining to flood insurance. The penalties may not be more than $350 per violation and up to $100,000 per year. Also, the regulator may require the lender to take remedial actions if the lender, in the view of the regulator, has not demonstrated measurable improvement in compliance despite the issuance of penalties.

While the ABA recognizes that lenders will not face civil penalties unless there is a pattern or practice for violation of the National Flood Insurance Program, nonetheless, this is the first time that the statute will require on-site examinations for flood insurance compliance and a framework for penalties. Both of these provisions cause us concern. Increased bank examination for flood insurance compliance will add to the cost and time involved in completing a bank examination. At the outset, we are unsure that the examiners will understand the complexities of the determination process of the National Flood Insurance Program and may not be able to accurately judge the bank's performance in this area.

IN CONCLUSION

The ABA strongly supports language in S. 1405 which allows lenders to force place flood insurance anytime during the life of the loan. We do recognize that the lending industry needs to be diligent with regard to flood insurance compliance at both the time of loan origination and throughout the life of the loan in order to keep flood policies in force. We believe that the goals of S. 1405 are to promote greater compliance without adding undue burden to the lending industry and, to that end, most of the provisions contained in S. 1405 make good business sense. We look forward to continuing to work with the committee in developing a workable approach to compliance with the flood insurance program.

[blocks in formation]

KATHLEEN M. BATSON
F.I.S.C.A.A. Secretary
Bankers Insurance Company

LARRY W. PALMER
F.IS.C.A.A. Treasurer
Redland Insurance Company

VIOLETTA A. WHITING
Amencan Bankers Insurance Company
of Flonda

BARBARA J. SOLOMON PAPA
Bankers & Shippers Insurance Company

JOAN D. WILSON

Consolidated International Insurance
Group, Inc

DAVID A LEADBITTER
Seibels Bruce Insurance Company

Paul Weech/Chris Warren
Senate Banking

535 Dirkson SOB

Washington, D.C. 20510

Dear Mr. Weech & Ms. Warren:

Two years ago, some of the more active and involved companies in the National Flood Insurance Program's Write-Your-Own (WYO) program, formed an association to represent their interests before Congress on legislation impacting the flood insurance program. The organization was incorporated as a non-profit association and named the Flood Insurance Servicing Companies Association of America, Inc. (FISCAA).

This is our first opportunity to formally comment on pending legislation as we were still organizing when the hearing on S. 2907 occurred.

The enclosed position paper represents our written testimony on S. 1405, the "National Flood Insurance Reform Act of 1993".

We have commented on various titles in the legislation but focused on Title II which is designed to improve compliance with the National Flood Insurance Act of 1968. We have a strong perspective on the inherent weaknesses of the current Act in the marketplace as well as some possible solutions to these problems. There is no question the legislation is needed if the Program is to meet the visionary goals of the original legislation. Unfortunately, we don't believe S. 1405 in its current configuration does that. With a little help, it can.

« iepriekšējāTurpināt »