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Fannie Mae and NAR at odds over consumer privacy in flood-risk disclosures

Powerful entities differ in how to provide greater consumer transparency

HW+ Fannie Mae building

Two of the most powerful U.S. housing entities are at odds over consumer privacy issues related to the federal government’s cash-strapped flood insurance program.

The National Association of Realtors, which represents real estate agents, brokerages and consumers, wants the Federal Emergency Management Agency to carve out a privacy law exception, and require that the history of a property’s flood claims be disclosed to “buyers and renters, as well as owners before real estate transactions are completed,” according to a letter NAR fired off to FEMA this week.

But Fannie Mae, the government-sponsored entity that backstops a significant portion of the country’s mortgages, does not seek an exception to the 1974 Federal Privacy Act. Instead, Fannie seeks, “continuing to protect the personal privacy of individual policyholders consistent with the Privacy Act,” according to a letter the GSE wrote to FEMA in January 2022. 

Fannie Mae does not see a major difference with NAR, with both groups pushing for greater consumer transparency. The GSE believes greater transparency surrounding flood insurance historic claims could be offered to the industry without a Privacy Act exception.

Fannie also wants FEMA and perhaps Congress to create uniform flood risk disclosure rules. NAR, meanwhile, no longer wants to see states excluded from the federal government’s flood insurance program due to not meeting FEMA standards.

The differences emerged as FEMA seeks public input on revisiting the National Flood Insurance Program, or NFIP, the federally administered program to make flood insurance and federal relief available to homeowners. NFIP has been around since 1968, and there have been periodic attempts to update it the last 20 years amid a fast-growing number of household claims.

After Hurricane Sandy in 2012, Congress increased NFIP’s borrowing limit to $30.5 billion, according to the Congressional Research Service. As of December, NFIP’s borrowing authority had dwindled to $9.9 billion, per Congress’s research arm, while still being on the hook for $2.9 billion in reinsurance payments.

NFIP provides over 5 million policies, according to CRS, in jurisdictions that meet federal criteria on building, design standards, and risk index. 

Despite the NFIP servicing a significant chunk of homeowners, the program has struggled with its financial wherewithal, partially due to the fact that Congress requires NFIP to charge discounted premium rates to policyholders. 

A report published by the Government Accountability Office in July 2021, found that as of August 2020, FEMA’s debt was $20.5 billion, despite Congress having canceled $16 billion in debt in October 2017.

Both NAR and Fannie Mae seek a policy that requires more disclosure – especially amid a real estate or mortgage transaction – about a home’s flood history and future risk assessment. 

But the key ideological difference is that Fannie Mae wants the federal government to establish laws mandating flood-risk disclosures at the time of the property sale. The GSE would like either Congress or FEMA to standardize a way in which more FEMA flood data is published, and available for consumers.

NAR, meanwhile, believes that state and local government should set requirements. As for mandatory disclosure, the trade group sees a work around: Simply allow prospective homebuyers to see a home’s Comprehensive Loss Underwriting Exchange, or CLUE report, which would require a Federal Privacy Act exception. 

The public comment period ended Thursday. Unclear is FEMA’s timetable to adopt recommendations, but a spokesperson told HousingWire that FEMA will review all of the comments and publish a summary “in the future.”

UPDATE: This story was updated on Friday Jan. 28, after Fannie Mae returned messages for the story.

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