The Federal Housing Administration (FHA) today published a proposed rule on its website that would allow a private flood insurance option instead of insurance through the National Flood Insurance Program (NFIP), when flood insurance is required by FHA.
In September, the White House signed a resolution that included an extension for the NFIP until September 30, 2021.
The changes, proposed Tuesday, 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,” 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 also is seeking public comment on a proposal to institute a compliance aid for private flood insurance policies. According to an FHA press release, 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 3-5% 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 will allow a 60-day public comment period following such publication. Comments should be submitted to FHA only through the methods specified in the notice to be published in the Federal Register.
The FHA added that this is only a proposal; "current flood insurance policies remain unchanged at this time, including the requirement that minimum flood insurance be obtained through the NFIP."