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Feds file rule change to encourage private market alternative for flood insurance

Federal regulators have weighed into the flood insurance crisis, suggesting banks be required to accept private flood insurance on homes in high-risk areas.

The proposed rule change filed Friday was triggered by an overhaul of the National Flood Insurance Program that is causing huge flood insurance rate hikes for some, with property owners in flood zones in Florida particularly hard hit. It comes at the same time Florida insurance regulators are investigating whether the state could induce private companies to sell flood insurance.

If the federal change is approved, banks and other lenders would have to accept qualified private insurance on loans backed by properties in areas at risk for flooding. Lenders would also have to place in escrow flood insurance payments for certain residential properties and for mobile homes. The rule clarifies that lenders have authority to charge a borrower for the cost of force-placed flood insurance when a property owners fails to get the coverage.

The change in flood insurance rules, if adopted, would be unified for lenders on both the national and state level.

The new rules were jointly proposed Friday by five regulatory agencies: the Federal Reserve Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp., the National Credit Union Administration and the Farm Credit Administration.

The public has until Dec. 10 to review and comment on the proposal.

The lightning rod for the changes is the Biggert-Waters Act, a law passed by Congress last year which calls for stabilizing the national flood program by eliminating subsidies on older homes in flood zones. In some cases, the subsidizes are being phased out gradually with annual rate increases near 20 percent.

In some instances, like the sale of a property, the subsidy is being eliminated immediately beginning with renewals this month. That has triggered complaints from homeowners who have seen their annual flood insurance premiums spike from $2,000 to $14,000 or more in some cases.

-- Jeff Harrington, Tampa Bay Times