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HUD May Allow Private Flood Insurance for FHA Loans

The comment period has ended for a proposal that would allow FHA to accept private flood insurance. NAR strongly backed the change and urges immediate adoption.

WASHINGTON – Charlie Oppler, president of the National Association of Realtors® (NAR), issued a public comment about association backing for a proposed rule from the Department of Housing and Urban Development (HUD).

HUD announced the proposed change – called Acceptance of Private Flood Insurance for FHA- Insured Mortgages – and accepted comments until last week. The National Association of Realtors® (NAR) is now urging HUD to immediately adopt it.

“The 1.4 million members of NAR strongly supports the proposed rule, enabling FHA borrowers to obtain private flood insurance,” Oppler says. “Realtors agree that this proposal will provide substantial benefit to consumers and urge HUD to finalize the regulation as quickly as possible.”

Current FHA regulations don’t allow private flood insurance options to meet the federal mandatory purchase requirement, and FHA-insured loans for homes in special flood hazard areas have only one option: The National Flood Insurance Program (NFIP).

“While the NFIP remains an essential program, Realtors can also provide many examples where the private market offered higher quality coverage at lower cost,” Oppler says.

He says consumers should be allowed to choose between NFIP and private coverage, and that NFIP has created problems in the past.

In addition, Oppler says, FHA hasn’t kept pace with other federally backed loans, such as those issued under Fannie Mae and Freddie Mac.

“FHA’s 21-year-old rule must be updated not only to serve consumers but also to reflect current market realities. Otherwise, more FHA lenders will be forced to deny access to affordable flood insurance options,” Oppler says.

NAR lists five reasons HUD should immediately approve private flood coverage:

  • Statutorily law: The Biggert-Waters Flood Insurance Reform Act directs federal agency lenders to accept certain private flood insurance. Drawing a distinction between agencies that “insure” versus “lend” is a hyper-technical legal reading of the statute that does not comply with the spirit – if not the exact letter – of the law.
  • Good governance: Laws should be uniformly and consistently applied across the entire federal government. An agency should not exploit a technical drafting error to avoid compliance with a statute, especially when Congressional intent is clear.
  • Pro consumer: Once federal minimum coverage requirements are met, consumers are in the best position to decide whether NFIP or the private market best meets their flood insurance needs. Locking FHA borrowers into a lower quality, higher cost government product serves no one.
  • Affordable housing: The current rule is not consistent with FHA housing goals. All consumers, regardless of income, should have the same opportunities to obtain affordable flood insurance. FHA borrowers should not be barred from options available to others.
  • Fiscally prudent: Private flood insurance typically provides more coverage than an NFIP policy, making it less likely that FHA insurance will be required after floods. Providing for FHA lender acceptance of private policies not only bolsters the FHA Fund but also protects taxpayers.

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