Lenders Defend Role They Play in Making Sure Borrowers Have Flood Coverage
Lenders are not lax in making sure borrowers get flood insurance when buying or financing a home in a flood plain, according to the Mortgage Bankers Association.
MBA chair Regina Lowrie told the Senate Banking Committee last week lenders and servicers have instituted significant procedures to ensure compliance with the mandatory flood insurance purchase requirements of the National Flood Insurance Program.
Based on a conservative estimate, the MBA believes noncompliance is less than 5%, Ms. Lowrie testified.
At a previous flood insurance hearing, a Federal Emergency Management Administration official who oversees the flood insurance program estimated that the level of lender noncompliance with the mandatory purchase requirement was between 40%-60%.
The FEMA official acknowledged that he based his estimate on a surprising lack of flood insurance in disaster areas and not on hard data.
However, the Bush administration is recommending that Congress increase penalties on federally regulated lenders for noncompliance with the flood insurance purchase requirements.
"As a representative of the mortgage industry, I want to assure you that lenders take very seriously compliance with the flood laws and do what is in our power to ensure compliance. As a result, we would oppose increased sanctions on the industry or expanding lender obligations," the MBA chair said.
Senate Banking Committee chairman Richard Shelby, R-Ala., is holding a series of hearings on ways to reform the flood insurance program and shore up its financial position.
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