FHA Proposes Private Flood Insurance Option
It would allow lenders to accept private flood insurance policies for single-family mortgages instead of NFIP insurance if coverage is required for FHA loan approval.
WASHINGTON – The Federal Housing Administration (FHA) has published a proposed rule on its website – a proposal to allow a private flood insurance option instead of insurance through the National Flood Insurance Program (NFIP), when FHA requires flood insurance.
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 (SFHAs), 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,” says 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.”
FHA is seeking public comment on a proposal to institute a compliance aid for private flood insurance policies that would allow lenders to rely on the compliance aid to determine if a private flood insurance policy meets FHA’s requirements. FHA anticipates between 3% and 5% 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 provide for a 60-day public comment period following publication. Comments should be submitted to FHA only through the methods specified in the notice to be published in the Federal Register.
Since this still only a proposal, FHA’s current flood insurance policies remain unchanged at this time, including the requirement that minimum flood insurance be obtained through NFIP.
© 2020 Florida Realtors®