FLOOD INSURANCE
Protect Investments, Preserve Dreams
The FIA Administration Calls Upon The Lending Community
To Do A Better Job In Fulfilling Flood Insurance Requirements
...Continued from Previous Page
The risks are unacceptable
Each of us charged with serving others in the important business of protecting people and
financial risks must take stock and see how we can do a better job.
What I promise is that the Federal Insurance Administration (FIA) will continue to make every improvement we can to the National Flood Insurance Program (NFIP) to ensure that everyone who is legally required to have flood insurance will be protected by insurance rather than be dependent on federal disaster aid after the next flood.
I also urge the government-sponsored enterprises for housing, Fannie Mae and Freddie Mac,
and the federal agencies that regulate lending institutions to consider requiring a signed guarantee of accuracy by map determination companies for each determination.
Regulators and lenders can accomplish this by demanding a written certification for each
determination or, at a minimum, ensuring adequate guarantee language in contracts between lenders and map determination companies. This will ensure that each map determination company will stand behind its work with written guarantees.
Homebuyers and borrowers can help themselves by taking a more active role in the
determination. If someone says to a home buyer that he or she doesn't have to buy flood insurance as a legal requirement, fine, but the home buyer should make sure that he or she agrees with the determination. All property owners, too, should consider buying flood insurance anyway, not because it's required by law, but because they may be in a marginal area subject to flooding and outside a SFHA.
And it's not what's in your loan file that will protect you from flood losses, only flood insurance will. And, in that connection, I would point out that the standard Congress expects us to use in mapping flood-prone areas is the medium frequency flood. That doesn't mean that floods of a greater magnitude won't occur outside our designated SFHA and ruin dreams and damage a home or business. In fact, nearly 25% of insured losses occur to structures outside a SFHA.
It pays to double-check
Are consumers required to accept the flood hazard determination on face value? Absolutely not. Many consumers are not shy about checking and double-checking the maps when they have to buy flood insurance. They shouldn't be shy about checking determinations for themselves when they don't have to buy flood insurance.
What I am suggesting is that lenders and consumers take a more active role in protecting their interests from flood losses. It would be tragic indeed if a homeowner or a small-business owner were to suffer a crippling flood loss without flood insurance and be told that all the legal requirements had been met, that every "i" was dotted and "t" crossed at settlement, but that somebody made a mistake about their flood zone determination - someone who made a hasty decision and failed to stand behind his or her work.
Let's not kid ourselves. We can be legally precise in the matter of flood insurance, but in the end not serve the needs of the taxpayers or our customers.
In short, I invite regulators, GSEs, lenders, flood zone determination companies and consumers to join me in making the NFIP work better in protecting investments and preserving dreams.
Jo Ann Howard is administrator of the Federal Insurance Administration, which administrates the National Flood Insurance Program.
This article was previously published in the March 2000 Issue of Servicing Management.
