Mortgage bankers are stewing over the language of the federal flood insurance bill that will extend nearly every bill requirement to virtually all lending institutions. The bill passed through a House Banking subcommittee on Oct. 6.
The Mortgage Bankers Association of America opposes the use of the term "other mortgage lender" that is used throughout the bill and makes mortgage bankers accountable for most of the bill's requirements.
Those mandates include requiring the escrowing of flood insurance even if no escrow accounts have been established for other items, such as taxes and insurance.
Purpose of the bill is to ensure that home owners in flood hazard areas are properly covered.
Hopes for removal of the term dimmed, however, when Rep. Doug Bereuter, R-Neb., author of a similar bill floating through the House, offered an amendment to strike the term during markup of the bill in subcommittee.
Although the proposal was defeated, Sharon Canavan, MBA legislative counsel, said the trade group would try to get the clarification added as a floor amendment.
The National Flood Insurance Reform Act, H.R. 3191, introduced by Rep. Joseph Kennedy, D-Mass., is the third flood insurance bill to reach Congress this year. The Kennedy version now goes before the Banking Committee. Sen. John Kerry, D-Mass., also introduced legislation.
Insufficient coverage has led to the depletion of the Federal Emergency Management Agency's flood insurance fund.
Citing last year's 388-18 approval as evidence, a committee spokesman said he expects an easy passage. Last year's bill, however, was killed in the Senate by lobbying forces, he said.
The MBA would like another chance to change Congress' mind, but it's uncertain whether it will succeed before the bill is voted on, reportedly as early as next week.
The House Banking Subcommittee on Housing has asked to review the bill, which could mean another delay.
The trade group also focused its efforts on altering other provisions. Among them, a requirement calling for the originating lender, as well as subsequent owners and servicers of a loan, to notify the Federal Emergency Management Agency when there has been a change in the seller/ servicer of the loan.
"It makes sense to tell the insurer when the flood area has changed." said Canavan. "But it also requires us to tell FEMA. and we don't understand what the requirement would serve.'
She added that FEMA wasn't equipped to handle the potential deluge of notices and that the owner of a loan is irrelevant information for either FEMA or the insurer
"These parties should only be responsible for knowing who the servicer is in order to send the premium notices," she said.
The bill would also:
* impose a $350 per violation fine on lenders for the pattern or practice of failure to require flood insurance, failure to notify home buyers or home owners of flood hazards and failure to escrow for flood insurance. Total penalties may not exceed $100,000 in any one year. Civil penalties may be enforced against government-sponsored enterprises;
* require lenders to develop standard hazard determination forms that must include the complete area map with flood hazard areas designated, as well as a date; and
* require the Office of Federal Housing Enterprise Oversight, as part of scheduled on-site examinations, to determine whether an institution is complying with requirements of the National Flood Insurance Program and report finding to Congress.