FHA Proposes Private Flood Insurance Option for Single-Family Mortgages
The Federal Housing Administration last week published a proposed rule to allow a private flood insurance option, instead of insurance through the National Flood Insurance Program, when flood insurance is required by FHA.
The proposed changes would allow lenders to begin accepting private flood insurance policies for single-family insured loans for homes located in Federal Emergency Management Agency-designated Special Flood Hazard Areas, consistent with similar provisions in use by other industry participants.
“Our proposal would expand the options for obtaining flood insurance, rather than continuing to lock in borrowers to one federal option without any ability to comparison shop,” said Assistant Secretary for Housing and Federal Housing Commissioner Dana Wade. “We are also proposing important safeguards that will help protect borrowers, so their homes will have flood insurance coverage at a level at or above the level available through the National Flood Insurance Program.”
As part of the rule, FHA seeks public comment on a proposal to institute a compliance aid for private flood insurance policies. This would allow lenders to rely on the compliance aid to determine if a private flood insurance policy meets FHA’s requirements. FHA anticipates between three and five percent of FHA borrowers could obtain a private flood insurance policy for their FHA-insured mortgage if this option becomes available.
“This proposal will remove yet another unnecessary regulatory barrier to doing business with FHA and can also reduce costs to the federal government—costs that are ultimately born by the taxpayer,” said Deputy Assistant Secretary for Single Family Housing Joe Gormley. “Allowing participation by private insurers should generate the competition needed to ultimately reduce costs for consumers.”
The proposed rule will be published in the Federal Register in the coming days and will provide for a 60-day public comment period following such publication.
