The Federal Housing Administration proposed a rule on Tuesday that would allow lenders to use a private flood insurance option rather than go through the National Flood Insurance Program.
The proposed rule would allow lenders to use a private insurance on single-family mortgages where it is required by the FHA, that is, those located in the Federal Emergency Management Agency’s designated Special Flood Hazard Areas.
“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.”
The FHA is seeking public comment on its 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.
The FHA said it 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.
The NFIP provides stability for the housing market. As part of its Flood Services business, CoreLogic completes flood zone determinations for banks and mortgage companies to support their compliance with the mandatory purchase requirements.
Presented by: CoreLogic
“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,” Deputy Assistant Secretary for Single Family Housing Joe Gormley said. “Allowing participation by private insurers should generate the competition needed to ultimately reduce costs for consumers.”
Back in October, President Donald Trump signed a continuing resolution in the early hours of the morning of Oct. 1 to avert a government shutdown that also contained a measure to extend federal flood insurance for another year.
Congress has authorized about a dozen short-term extensions for the NFIP since 2017 as it wrangled over reforming the program that protects over 5 million U.S. homes.
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.