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WASHINGTON, D.C. — America’s Community Bankers urged the Senate Commerce Committee today to support natural disaster insurance legislation to help homeowners and lenders in disaster-prone areas avoid severe financial losses.

In a statement submitted for the record, Robert R. Davis, ACB’s director of government relations, said S. 1361, a bill introduced by Sen. Ted Stevens (R-Alaska) to create a federal disaster insurance program, “warrants the support” of the committee and Congress. The committee held a hearing on the bill today.

Davis said S. 1361 addresses a number of issues inherent in the operation of a federal natural disaster insurance program. Specifically, Davis said the bill does not impose an undue burden on taxpayers or the federal budget, and is structured to spread the insurance risk over a diverse geographic area.

“The absence of adequate natural disaster insurance in disaster-prone areas represents an enormous risk factor for lenders extending credit in those areas,” Davis said. ACB members provide financing for one-to-four family and multi-family residential mortgages and for community and business development.

“Without adequate insurance coverage, these community banks could suffer severe losses and funds for disaster recovery and credit for new development in disaster-prone areas would be severely restricted,” Davis added.

“It should be emphasized that secured housing lenders are faced with a particularly acute problem since they underwrite loans in reliance on the physical collateral,” Davis said. “Lack of adequate disaster insurance will reduce the availability of new loans and refinancings, and harm collateral on all outstanding mortgage loans.

“In the event of a major natural disaster, many community lenders would sustain severe losses on under-insured and uninsured loans,” he added.

Davis said ACB is working with state organizations and member institutions to obtain more information about the financial risks related to natural disasters and additional feasible solutions. He urged consideration of force-placing of insurance; the use of tax incentives to encourage insurance industry involvement; additional support for state natural disaster programs; and coordinating the existing flood insurance scheme with the new program covering earthquakes, hurricanes and volcanic eruptions.

Davis also said that a committed and realistic loss mitigation program should be an essential component of any federal disaster insurance effort. He said that the language in the bill relating to the development of state mitigation plans “should be more specific and provide more focused guidance in developing mitigation standards.”

A copy of the statement is linked.