WASHINGTON (4/26/12)--Some good news--temporary though it may be--for credit unions and other mortgage lenders who have been watching the National Flood Insurance Program escape demise through a series of temporary extensions: a new short-term reprieve has been introduced in the U.S. Senate.
The NFIP is currently set to expire on May 31; somewhat ironically that is the day before the nominal start of the Atlantic hurricane season. Credit unions, as well as other lenders, cannot write certain mortgages without NFIP coverage, and in the past the program has lapsed for brief periods--three times in 2010.
Sen. David Vitter, a Republican from Louisiana, introduced S. 2344 Tuesday night to extend the NFIP through the end of this year. The bill was placed directly on the Senate's legislative calendar, thereby circumventing the banking committee, which has been working on controversial on NFIP reform issues for years.
The Credit Union National Association (CUNA) strongly supports the NFIP program and backs short-term extensions, but also advocates for longer-term approval.
The reforms proposed in the Senate, and which appear to be holding up any long-term reauthorization, are problematic for credit unions, CUNA has noted. In fact, CUNA has warned lawmakers, they could have the unintended effect of driving some small mortgage lenders, including credit unions, out of the mortgage business.
Particularly at issue is a section of the Senate Banking Committee's NFIP reform discussion draft, which would require all mortgage lenders to escrow for NFIP premiums.
Current law only requires lenders that escrow for taxes and insurance to also escrow for NFIP premiums. CUNA has alerted key Senate lawmakers that there is a significant cost involved with establishing escrow accounts, particularly for credit unions, community banks, and community-based lenders that have small lending volumes.