S. 3677: A bill to make a technical correction to the Flood Disaster Protection Act of 1973

S. 3677

A bill to make a technical correction to the Flood Disaster Protection Act of 1973

Sen. Tim Johnson

January 1, 2013 (113th Congress, 1st Session)

Staff Contact

Floor Situation

On Tuesday, January 1, 2013, the House is scheduled to consider S. 3677, a bill to make a technical correction to the Flood Disaster Protection Act of 1973, under a suspension of the rules requiring a two-thirds majority for approval. The bill was introduced on December 12, 2012, by Sen. Tim Johnson (D-SD) and approved in the Senate on December 12, 2012, by unanimous consent.

Bill Summary

S. 3677 would amend the Flood Disaster Protection Act of 1973 regarding flood insurance purchase and compliance requirements by inserting the word “residential” before “improved real estate” each place that term appears. The bill would have the effect of limiting a requirement that premiums and fees for flood insurance be paid with the same frequency as the loan payments for property to residential properties only.


In 1968, Congress created the National Flood Insurance Program (NFIP) to address the nation’s flood exposure and the need to alleviate taxpayers’ responsibility for flood losses paid out in the form of post-disaster relief following annual flooding and severe flooding following hurricanes.  At the time, Congress recognized that the inherent challenges of managing flood risk were too great for the private sector and that no viable private sector insurance alternative existed.  The Flood Disaster Protection Act of 1973 established a mandatory flood insurance purchase requirement for structures located in identified Special Flood Hazard Areas.

Under the 1973 Act, federally regulated lenders were obligated to require flood insurance on any mortgage issued or guaranteed by the federal government in a designated SFHA in a participating community.  By 1994, lax enforcement of the mandatory purchase requirements led Congress to require lenders to purchase coverage on behalf of—and bill premiums to—mortgagees who failed to purchase coverage on their own (called ‘‘forced placed insurance’’).  Since 1994, lenders who fail to enforce the mandatory purchase requirement have been subject to civil penalties. 

Eligible homeowners, renters, and business owners purchase coverage under the program either directly from the NFIP or, more often, from private insurers that voluntarily participate in the Write Your Own (WYO) program.  WYO insurers take responsibility for policy administration and claims processing but assume no financial risk in settling claims.  As of 2010, there are approximately 5.6 million residential and commercial policyholders under the NFIP.

The NFIP is administered by the Federal Emergency Management Agency (FEMA), which is housed in the Department of Homeland Security.  The NFIP reduces future flood losses through: (i) flood hazard identification; (ii) floodplain management (e.g., land use controls and building codes); and (iii) insurance protection.  The NFIP generated premium income of approximately $3.3 billion in 2010.  The 2005 hurricane season resulted in significant claims which the program’s annual premium income could not cover.  To pay the claims, the NFIP borrowed from the U.S. Treasury.  Prior to 2005, the NFIP’s borrowing authority had been limited by statute to $1.5 billion. Congress made up for the shortfall by increasing the program’s borrowing authority three times between September 2005 and January 2007 (from $1.5 billion to $20.8 billion).  The NFIP currently owes $17.775 billion to the U.S. Treasury. 

Since 2006, the Government Accountability Office (GAO) has identified the NFIP as ‘‘high-risk’’ because of inadequate management and insufficient funds.



There is no Congressional Budget Office (CBO) cost estimate for this legislation.