July 2, 2018 - As reported in Politico, the United States Senate last week easily passed a comprehensive $867 billion farm bill which will now have to be reconciled with a bill narrowly passed by the House. What does this have to do with the loan market? Attached to the Senate farm bill is a provision that would extend the National Flood Insurance Program (NFIP) in its current form for six months past the looming July 31st termination date. As we have previously noted, the NFIP requires federally regulated lenders to determine whether improved real property collateral securing a loan is located in an area designated by the Federal Emergency Management Agency (“FEMA”) as being subject to special flood hazards (“SFHA”), and, if so, to ensure that adequate flood insurance covers the structure. The obligations on the banks kick in through a number of “tripwire events” such as making, increasing, renewing or extending a loan. The crusher is that the banks are stuck with these requirements even if the real estate is not a meaningful or material part of the collateral package. Often the burdens far outweigh the value. The House of Representatives has passed legislation that largely would carve out the mandatory commercial property insurance requirement (and relieve the banks of their burden) but the Senate has not yet acted. Instead, they have repeatedly kicked the can down the road, simply extending the NFIP for a few months at a time. Alas, that appears to be the game plan at least one more time. We will continue to follow these important developments
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