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David J. Cotney
Commissioner
Division of Banks
Boston, MA
Re: 209 CMR 57.00: Flood Insurance
Dear Commissioner Cotney,
On behalf of the cities and towns of the Commonwealth, the Massachusetts Municipal Association is contacting you regarding draft regulations to fully implement Chapter 177 of the Acts of 2014, or the new flood insurance law. We strongly urge you to amend these regulations by including language to ensure that the law is applicable to all existing homeowner mortgages, and not just new mortgages, in order to remain true to the intent of the law.
Last year, we were pleased to strongly support An Act Relative to Flood Insurance, sponsored by House Speaker Robert DeLeo and former Attorney General Martha Coakley. The cost of flood insurance greatly impacts homeowners in communities across the state, and controlling those costs is increasingly important to community stability and equity.
The law outlines a practical set of changes to flood insurance policy at the state level designed to protect homeowners from excessive insurance costs in three ways. First, the statute prohibits any creditor from requiring a homeowner to purchase flood insurance on the home in an amount that exceeds the value of the mortgage. Second, it prohibits a creditor from requiring the purchase of flood insurance on the contents of the home. Lastly, it prohibits a creditor from requiring the purchase of a flood insurance policy with a deductible lower than $5,000.
This state law came at a time when federal flood insurance policy changes threatened to destabilize communities by making homeownership unaffordable to many. In 2012, Congress passed the Biggert-Waters Flood Insurance Reform Act. The Act reauthorized the National Flood Insurance Program for five years and included measures to close the significant deficit under which the program has historically operated. To increase revenue brought into the program, the law raised premiums for enrolled homeowners so that their payments reflected true risks. In many cases, these increases were dramatic and unaffordable for ratepayers. The Act also expanded flood plain maps to require more homeowners with properties at risk of flooding to purchase flood insurance. In 2014, the Homeowner Flood Insurance Affordability Act was passed by Congress to address some of the financial turmoil created by Biggert-Waters, but serious affordability challenges remain.
While the draft regulations do not indicate which mortgages fall under the purview of this law, we understand that the Division has indicated on its website that the law will “apply to loan applications received on or after November 20, 2014 as well as to any loan application which is in a pending status on November 20, 2014 for which the determination of the need to purchase flood insurance is made on or after November 20, 2014.” This would have the practical effect of unfairly excluding homeowners with mortgages originated prior to November 20 of last year from accessing the cost-saving opportunities created by this law, primarily the ability to purchase flood insurance equal only to the amount of the remaining home mortgage.
We strongly urge the Division, in its final regulations, to create and formalize a policy consistent with the Legislature’s clear intent, which is to protect all homeowners, not just those with new or newly refinanced mortgages. We understand that the office of the former attorney general and several dozen legislators have written to you to explain the intent of the law – to allow a choice as to the amount of insurance to purchase for all homeowners required to purchase flood insurance. If existing homeowners are denied the ability to opt for lower flood insurance payments based only on the amount of their existing mortgages, cities and towns across the Commonwealth risk the type of neighborhood destabilization seen during the foreclosure crisis.
In Massachusetts, approximately 60,000 homeowners purchase flood insurance through the National Flood Insurance Program. This a major concern for city and town officials beyond coastal communities – cities and towns with lakes, ponds, rivers and streams are greatly impacted as well. Flood insurance premium increases of significant magnitude will have a destabilizing effect on the fabric of all these communities. The Division of Banks has the opportunity to protect municipalities by creating final regulations that offer the law’s protections to all homeowners, as intended by lawmakers.
Flood insurance affordability remains, in many cases, an issue of community and neighborhood stability. The 2014 flood insurance law passed by the General Court created an excellent and practical opportunity to mitigate the real financial threat to homeowners posed by increasing flood insurance premiums. We urge you amend the draft regulations to reflect the intent of the law by including language to indicate that the law applies to both new and existing mortgages. If you have any questions, please do not hesitate to have your staff contact Catherine Rollins of the MMA staff at (617) 426-7272 at any time.
Thank you very much.
Sincerely,
Geoffrey C. Beckwith
MMA Executive Director & CEO