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Friday, September 19, 2014

ABIA, ABA Comment letter on Massachusetts New Flood Insurance Law

In July, Massachusetts passed a new flood insurance bill (H.R.3783/SB.2229), which prohibits creditors from requiring homeowners to purchase flood insurance in an amount exceeding the outstanding balance of their mortgage and the deductible cannot be less than $5,000.

In a joint comment letter to the Massachusetts Division of Banks, ABA/ABIA detailed concerns over the unintended consequences of this law, including:
  • The need for further guidance clarifying how servicers must treat borrowers who already have flood insurance in amounts greater than the outstanding balance of the loan.
  • How to advise consumers who have chosen to buy flood insurance policies that provide benefits on a replacement cost basis.
  • Could there be a conflict of law issues between federal statutes and the new Massachusetts’s law. For example, do nationally chartered banks have to adhere to the Massachusetts’s statute? 
  • How would a lender notify a borrower that they must also change their flood insurance after securing a HELOC? Or, what is the flood standard to be applied in a Lender Placed (LPI) environment?
The letter also addressed issues pertaining to the timing and content of disclosure, "there should be clear, conspicuous language informing consumers of their right to manage flood risk. The disclosure should have to be acknowledged by the borrower. The disclosure should include a clear and distinct comparison of a borrower’s flood coverage benefits after loss; for example, it should be made plain to borrowers that buying coverage for the outstanding balance of their loan only means that in the unfortunate event of total loss of their dwelling, they will not have a balance left on their loan but they may not receive an insurance settlement sufficient to rebuild."

Read the joint ABA/ABIA Letter.  

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