COMMENTS OF THE NATIONAL CREDIT UNION ADMINISTRATION

Chairman Sarbanes, Senator D'Amato and Senator Kerry, the National Credit Union Administration welcomes your request to comment on the National Flood Insurance Reform Act of 1993 ("the Act"). The Act, S. 1405, proposes substantial changes to the National Flood Insurance Act of 1968 (P.L. 90-448), as amended.

This most recent debate in Congress on reforming NFIP goes back to the early days of the 101st Congress with formal legislative action first occurring in the former House Banking Subcommittee on Policy and Research's markup of H.R. 1236, March 6, 1991. Congressional action has been spurred by what Senator Kerry has characterized as an "unacceptable rate" of participation in NFIP. It is currently estimated that only 2.4 million of the estimated 11 million structures in flood hazard areas are covered by flood insurance. NCUA agrees that this compliance rate of less than 20 percent would seem to compromise a principal intent of P.L. 90-448: reduce total government outlays in instances of disaster relief. In this context, NCUA supports the thrust of S. 1405.

The Act is designed to increase compliance with and therefore participation in the National Flood Insurance Program (NFIP) created by the 1968 legislation. The proposed legislation has three distinct components as suggested by the three principle titles of the Act: Title II, Compliance and Increased Participation; Title III, Ratings and Incentives for Community Floodplain Management Programs; and Title IV, Mitigation of Flood and Erosion Risks.

We will limit our comments to those provisions directly affecting this agency, Federally insured credit unions and their members. These latter provisions are primarily contained in Title II of S. 1405.

The agency does concur with comments made to the subcommittee by the Federal Deposit Insurance Corporation in its receivership capacity with reference to reviewing loans of failed institutions. Similar to the FDIC, it would be extremely difficult for the NCUA to check loans (for flood insurance compliance) of a failed credit union during potentially short interim periods when the agency completes purchase and assumption or other agreements transferring assets. While the Act does not appear to require NCUA to review loans under the aforementioned circumstances, we would support language clarifying this intent.

NCUA'S RULES AND REGULATIONS

As set out in 12 CFR 760, NCUA requires Federally insured credit unions to consult our regulations in this area when these financial cooperatives are going to make, increase, extend or renew a loan secured by improved real property or a mobile home. The credit union member/borrower has to buy flood insurance if the improved real property or the mobile home is or will be located both in a special flood hazard area and in a community participating in the National Flood Insurance Program. The borrower can buy flood insurance from any property insurance agent or broker licensed to business in the State where the property is located.

If a Federally insured credit union determines that the improved real property or mobile home is or will be located in a special flood hazard area, then before a mortgage or any other security agreement is signed, a credit union has to give the borrower written notice of that fact. This notice does not have to be given if the seller or lessor of the property states in writing that he or she has already given the notice to the borrower and the borrower acknowledges such notice.

It has been a long standing policy of NCUA that every Federal credit union is examined each year. Compliance for flood insurance is part of this examination regi

men.

This month NCUA completed and sent to all Federally insured credit unions, a reference guide to better assist credit union management, compliance officers, and other internal review personnel whose responsibilities include compliance matters, in ensuring that each credit union has established appropriate internal systems to promote a strong approach to compliance responsibilities. That portion involving flood insurance compliance is attached to these comments.

TITLE II, NATIONAL FLOOD INSURANCE ACT OF 1993

$202 of the Act adds a new requirement for lenders in flood hazard areas. It directs NCUA, after consultation and coordination with the Federal Financial Institutions Examination Council (FFIEC), to issue a regulation providing that if a Federally insured credit union requires the escrowing of taxes, insurance premiums, fees, or any other charges for loans secured by residential real estate, it also escrow all charges for flood insurance. § 202 provides that escrow accounts used to collect flood insurance charges are subject to 810 of the Real Estate Settlement Procedures Act, which limits required advance deposits in escrow accounts and provides for state

ments regarding such accounts. This provision would apply to any loan made, increased, extended, or renewed from one year after enactment.

8203 of the Act would direct NCUA, after consultation with the FFIEC, to issue a regulation requiring a Federally insured credit union to issue a notice that informs the borrower both of flood hazards and of the need to purchase and maintain flood insurance. Current flood insurance law directs NCUA to issue a regulation requiring a Federally insured credit union, as a condition of making a loan secured by property in a flood hazard area, to notify the purchaser (or obtain satisfactory assurance that the seller has notified the purchaser) of such hazards. The new (model) notice requirement would be established by the Director of the Federal Emergency Management Agency.

8204 provides that if, at any time during the term of a loan secured by property located in a flood hazard area, a Federally insured credit union determines that the property is not covered by flood insurance in the required amount, the credit union must notify the borrower that the borrower must obtain such insurance at his or her expense. §204 further provides that if the borrower fails to purchase insurance within 60 days of receiving the notification, the credit union must purchase it on behalf of the borrower and may charge the borrower for the cost of premiums and fees. §204 is applicable upon enactment.

In addition to the "forced placement" requirement of § 204, it should be noted that the provision would require a credit union to ensure, even when it purchases a loan secured by property in a flood hazard area, that the property is covered by flood insurance. Current law does not extend to purchased loans.

§ 205 instructs the Director of FEMA to consult regulatory agencies, including NCUA, to develop a standard flood hazard determination form for use in connection with loans secured by property located in flood hazard areas.

§ 207 authorizes NCUA to assess a penalty against credit unions found to have a pattern or practice of violating the flood insurance requirements. A penalty may be assessed only after notice and an opportunity for a hearing on the record. Under this subsection, NCUA may assess a civil money penalty of not more than $350 per violation with the total amount of penalties per a Federally insured credit union not to exceed $100,000 in any calendar year.

8208 authorizes the FFIEC to consult and assist the regulatory agencies, including NCUA, in developing and coordinating uniform standards and requirements.

It must be noted that the provisions in Title II, particularly §202 and $204, will increase participation in NFIP, but at an increased cost and burden to credit unions, their members and this agency.

Outside Title II of the Act, §601 increases the coverage amounts from $100,000 to $250,000 for single family residences and coverage for non-residential properties increases from $250,000 to $2.4 million. As set out in §501, NCUA would be included in the Flood Insurance Task Force, interagency group called upon to conduct a two year study with recommendations on a wide-ranging set of issues pertinent to NFIP.

CONCLUSION

In recent years NCUA examiners have witnessed first hand the property devastation and human toll wrought by a rash of natural disasters including Hurricanes Andrew and Iniki, and the severe flooding in the Midwest. Our examiners have worked side-by-side with credit unions and others to do whatever is necessary to ensure the safety of credit union staff, keep facilities and operations available to members, and assist credit unions in providing cash and loans as needed by members. NCUA supports measures which provide efficient and meaningful relief to victims of natural disasters. NCUA supports the National Flood Insurance Program as an important (cost saving) mechanism in assisting credit union members and the general public who fall victim to flooding.

Flood Disaster Protection Act Checklist

Re:

The National Flood Insurance Reform Act of 1993, S. 1405

Dear Senator Kerry:

On behalf of the American Congress on Surveying and Mapping (ACSM) and the American Society for Photogrammetry and Remote Sensing (ASPRS), we would like to commend you and your staff, as well as other Senators involved, for your efforts and craftsmanship in assembling positive reforms to our nation's flood insurance program as outlined in S. 1405.

We appreciate the opportunity to comment on this legislation and respectfully request that our written statement be placed in the subcommittee hearing record of September 14-15, 1993.

ACSM and ASPRS are national professional, scientific and technical associations with a combined membership of nearly 15,000 individuals. The associations are dedicated to advancing knowledge and improving understanding of the surveying and mapping sciences. Our members are employed in the public, private and academic sectors and engage in surveying, cartography, geodesy, photogrammetry, remote sensing and geographic information systems technologies.

Due to our members technical knowledge and expertise in the mapping sciences and with public spatial databases, the majority of our comments will focus on issues related to the quality of the Federal Insurance Administration's flood insurance rate maps (FIRMS). Professional surveyors are the only professionals authorized to complete Federal Emergency Management Agency (FEMA) flood elevation certificates submitted to flood insurance companies. In addition, surveyors are the primary professionals consulted on technical matters related to FIRMS. Based upon our members' familiarity and involvement with FEMA flood elevation certificates and interpretation of FIRMS, we offer our thoughts and suggestions on S. 1405, the National Flood Insurance Reform Act of 1993.