Provisions in the Amendments to the National Flood Insurance Program will negatively impact the availability of mortgage financing, mortgage bankers wrote in a letter to the U.S. Senate.
"While we support the goal of reforming the [flood program] and shoring up this program for the future, we are concerned that some of the provisions included in the committee-passed bill will have adverse, and perhaps unintentional, effects on lenders and homeowners," the Mortgage Bankers Association wrote in a letter to Sen. Richard Shelby and Sen. Paul Sarbanes, chairman and ranking member of the Senate Committee on Banking, Housing and Urban Affairs.
Several of the bill's provisions will require "difficult and costly changes" to mortgage lenders, the letter said.
MBA said it opposes proposed increased penalties and the elimination of maximum caps on annual penalties.
"We have found that events of non-compliance are rarely a willful neglect of the law, but are technical errors, problems with interpretation, and overly broad regulatory policies that generally do not work in the private market," the letter read. "It is very difficult for a company to be error-free -- no matter what level of resources are dedicated to catching mistakes."
MBA went on to say that mortgage lenders "have done a superb job" as the only enforcers of the flood insurance program, but language needs to be included in the bill to provide protection and safe harbor for servicers.
Another concern expressed in the letter is an expansion of mandatory purchase requirements to state-chartered banks not insured by FDIC -- which MBA opposes. The trade group noted the pending bill might even enable the states to develop additional flood insurance guidelines.
"There is no credible evidence that independent mortgage companies and other state financial institutions do not comply with the law," the letter said. "A patchwork of state and federal flood insurance laws will entangle many national businesses and increase the cost of lending and servicing."
The mortgage bankers went on to express concern over mandatory escrow of flood insurance payments because of the many lenders that do not currently have the capability to maintain escrow accounts. "Because servicers do not escrow, it does not mean servicers are not aware when policies lapse."
MBA also noted its opposition to the phase-in of full actuarial premiums on "pre-FIRM" properties and language that would require lenders to inform lessees of the flood risk.