A new FHA Private Flood Insurance Rule has been announced and we are explaining the significance and details here for you.
FHA (Federal Housing Administration) loans are guaranteed by the government and designed to help low- to moderate-income families secure homeownership opportunities. Like most lenders, FHA-approved lenders require the mortgagee to hold certain insurances, and now, we are seeing a cohesive effort across loan designations:
On November 21st, 2022, the Department of Housing and Urban Development (HUD) issued a final rule allowing lenders to accept private flood insurance policies for FHA loans in Special Flood Hazard Areas (SFHAs).
This rule was intended to harmonize requirements across the industry and is consistent with the Flood Disaster Protection Act (FDPA) and private flood insurance requirements under the Biggert-Waters Act of 2012.
Prior to the issuance of this rule, National Flood Insurance Program (NFIP) policies were the only acceptable policies for FHA-insured mortgages.
This rule has an effective date of December 21st, 2022.
There are three main elements of note in the new Final Rule. Let’s break them down together:
1. Lenders may, but are not required to, accept flood insurance policies issued by private insurers only if the policy meets HUD’s definition of “private flood insurance”.
By allowing borrowers to obtain private insurance, HUD is deepening the pool of potential buyers, making homeownership even more accessible.
Additionally, HUD is enabling private insurance companies the chance to secure new business in this pool.
2. There is no discretionary acceptance provision in the rule. This differs from the Interagency Final Rule issued in 2019.
Only policies that meet HUD’s definition of private flood insurance are acceptable under this rule.
3. HUD provided a Compliance Aid Statement to assist lenders in determining if a policy meets HUD’s definition of private flood insurance.
The Compliance Aid Statement reads as follows: “This policy meets the definition of private flood insurance contained in 24 CFR 203.16a(e) for FHA-insured mortgages.”
As always, we hope this breakdown has helped you as you navigate the nuances of flood insurance regulation.
2022 has been a busy year for the industry. We are here to support your business as it evolves to meet changing compliance requirements.
If you have any questions about this rule, please feel free to reach out to me at ecarr@miniter.com.
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