Starting Dec. 21, 2022, homeowners located in FEMA special flood hazard areas (SFHA) that have Federal Housing Administration-insured mortgages will be able to obtain flood insurance through the private market, the U.S. Department of Housing and Urban Development (HUD) reported.
Mortgages insured by the Federal Housing Administration (FHA) are required to have flood insurance if the property is located in an SFHA. Prior to the new regulation, only coverage from the National Flood Insurance Program was allowed for FHA-backed mortgages, which limited policyholders’ insurance options, HUD reported.
Once the rule change is in effect, the FHA will require lenders to provide detailed flood insurance coverage information when submitting mortgages for FHA insurance electronically for properties in SFHAs.
“We know borrowers face affordability challenges right now, yet a flood can be devastating to a family who is not properly insured,” Federal Housing Commissioner Julia Gordon said in a release. “The choice to select a private flood insurance option may enable some borrowers to obtain policies that are less expensive or provide enhanced coverage.”
HUD reported that during the comment period for the proposed rule change, many commenters voiced support for permitting FHA borrowers to buy private flood insurance. Commenters also noted that the change would “save homeowners money, increase affordability and options for buyers and make broader coverage available at lower prices.”
The allowance of private market flood coverage has been a long time coming, as the Biggert-Waters Flood Insurance Reform Act of 2012, and amended in 2014, aimed to encourage private-market participation. Among other things, Biggert-Waters directs lenders to accept private flood insurance to satisfy the mandatory purchase requirement, instead of NFIP insurance, if the private flood insurance meets the conditions defined further in federal statute.
Craig Poulton, CEO of Poulton Associates, LLC, told PropertyCasualty360.com that the new rules will be beneficial for hundreds of thousands of flood-exposed homeowners. However, he noted it was unfortunate that the FHA denied and delayed borrowers’ ability to buy flood insurance from the same companies they were required to use for home insurance.
“It was counterintuitive then and it’s counterintuitive now that they would take such a position, especially after Congress required the lending community, in general, to accept private flood insurance years ago,” Poulton said. “This needless delay is an example of administrative bloat which seems to be everywhere present in the federal government.”
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Alice J. Roden started working for Trending Insurance News at the end of 2021. Alice grew up in Salt Lake City, UT. A writer with a vast insurance industry background Alice has help with several of the biggest insurance companies. Before joining Trending Insurance News, Alice briefly worked as a freelance journalist for several radio stations. She covers home, renters and other property insurance stories.