MA Regulator Finalizes Flood Insurance Guidelines

The Massachusetts Division of Banks published a final regulation this week that prohibits creditors from requiring residential property owners to buy flood insurance in an amount that exceeds the balance of their mortgage or the value of a home equity line of credit.

NRMLA submitted comments on behalf of the Servicing Committee last December to address potential conflicts between the proposed regulation and existing federal law.

The regulation, which takes effect on September 15, 2015, prohibits creditors from requiring flood insurance to cover the contents of the home, and bars policies from having a deductible of less than $5,000.

Before requiring a homeowner to purchase flood insurance, a creditor must also provide notice that says the following in clear and conspicuous print: “Please note that the flood insurance we are requiring you to purchase will only protect your creditor/lender’s interest in your property. It may not be sufficient to pay for many needed repairs after a flood and may not compensate you for your losses in the property due to the flood. If you wish to protect your home or investment, you may wish to purchase more flood insurance than the amount we are requiring you to buy.”

The regulation resulted from legislation passed last summer at the request of the state’s Attorney General who said that tying the amount of required coverage to the outstanding mortgage balance, instead of a higher amount, will keep premiums lower for homeowners in the National Flood Insurance Program.