Joint Trades Letter to FEMA on the SFIP Proposal

To Whom It May Concern:

The American Bankers Association and Mortgage Bankers Association (the Associations) appreciate the opportunity to comment on the Federal Emergency Management Agency's (FEMA's) proposal to revise the Standard Flood Insurance Policy (SFIP) form, which has not been substantially updated since 2000. The SFIP defines the coverage, limitations, and exclusions for National Flood Insurance Program (NFIP) policies and includes terms and conditions that are unique to the NFIP. Currently, FEMA's SFIP outlines flood insurance coverage for a one-year policy term under three different forms: (1) the Dwelling Form; (2) the General Property Form; and (3) the Residential Condominium Building Association Policy (RCBAP) Form.

FEMA is now proposing to create a new, fourth SFIP form—the Homeowner Flood Form (hereafter referred to as the "new Form")—to supersede the existing Dwelling Form in providing coverage for homeowners of one-to-four family residences. FEMA's proposal also introduces five new endorsements, specifically tailored for use exclusively with this new Form. According to FEMA, the new Form and its accompanying endorsements are designed to more closely align with property and casualty homeowners insurance policies and to provide increased options and coverage in a more user-friendly and comprehensible format. Additionally, these new endorsements are designed to provide policyholders with the flexibility to customize their coverage to align with the individual risks of their property.

While the Associations acknowledge that the proposed Form is generally more user-friendly and may improve policyholder comprehension, we have two primary concerns. First, certain changes may have the opposite effect and may inadvertently increase confusion for policyholders. In the following comments, the Associations identify these specific areas of concern and offers recommendations to FEMA to bolster clarity and understanding for policyholders.

Second, aspects of the new Form are unclear, which will present challenges for lenders and servicers charged with complying with the Flood Disaster Protection Act (FDPA). These include: (1) the revised definitions; (2) the new Coverage B section; (3) the new provision assigning replacement cost value as the default loss settlement methodology; (4) the new provision on advanced payments; and (5) the new endorsements. Because our members are mortgage lenders and servicers subject to supervision and examination by federal consumer compliance and prudential regulators and to requirements issued by the Federal Housing Administration, Department of Veteran Affairs, Department of Agriculture, and government-sponsored entities (GSEs), the majority of our comments concentrate on areas necessitating additional guidance from these regulators. Before FEMA finalizes its proposal, it is essential that FEMA collaborate with these regulators and issue guidance to ensure that the lending community's implementation and utilization of the new Form is consistent with the Flood Disaster Protection Act (FDPA) and its implementing regulations.

Download the comment letter to read the full text.