The Federal Housing Administration (FHA) proposed a rule that would allow private insurance to become an option instead of getting FHA-required insurance through the National Flood Insurance Program (NFIP).
NFIP was recently extended, along with other expiring federal programs, until September 2021 by the White House on a signed resolution.
The proposed changes on 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.
How exactly borrowers on a single-family mortgage would benefit this proposed change?
The proposal would give the borrowers options for obtaining flood insurance. Instead of being locked in to one federal insurance option, borrowers will be able to choose flood insurance offered by private companies.
Borrowers will have the ability to comparison shop.
Dana Wade, Assistant Secretary for Housing and Federal Housing Commissioner assures that their proposal would include important safeguards that will protect borrowers. Borrowers will either get flood insurance at a level at or above the level from what is offered by the National Flood Insurance Program.
Borrowers will have their chosen flood insurance policy that still meets FHA’s requirements.
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.
Estimatedly, between 3-5% of FHA borrowers could obtain a private flood insurance policy for their FHA-insured mortgage if this option becomes available.
Joe Gormley, Deputy Assistant Secretary for Single Family Housing, said that the proposal will remove another unnecessary regulatory barrier to doing business with FHA.
With a privately offered flood housing policy, it will reduce costs to the federal government – another benefit to the Americans.
Most importantly, allowing participation by private insurers should generate the competition needed to ultimately reduce costs for consumers..
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