Consumer Compliance Outlook: Second Quarter 2014

Compliance Spotlight

Congress Passes the Homeowner Flood Insurance Affordability Act of 2014

On March 21, 2014, President Barack Obama signed into law H.R. 3370, the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA).1 PDF The law repeals and modifies certain provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 (BWA) and makes other changes to the National Flood Insurance Program (NFIP).

Congress enacted the BWA, in part, to address the NFIP’s growing deficit. The BWA directed the Federal Emergency Management Agency (FEMA) to phase out subsidies and grandfathered rates and implement actuarially sound pricing for flood insurance to reflect the risk of floods. After updating flood insurance rate maps (FIRMs) in some parts of the country, FEMA began publishing preliminary notices with premiums in some cases that had increased substantially as a result of the remapping activities. Many policyholders affected by these changes expressed concerns that the new premiums were unaffordable.

The banking industry closely followed these developments because of concern that higher flood insurance premiums might contribute to increased mortgage delinquencies or defaults. Real estate sales in areas with significant rate increases were also being adversely affected because some potential homebuyers could not afford the new premiums. Congress passed the HFIAA to address those concerns and implement other changes to the NFIP.

Among the HFIAA’s key provisions are:

Additional information on the HFIAA and its implementation is available on FEMA’s website. External Link