A new proposed rule by the Federal Housing Administration (FHA) calls for a private flood insurance option, which could give homeowners an alternative to the National Flood Insurance Program (NFIP).
FHA is proposing changes that would enable home financing lenders to accept private flood insurance policies for single family insured loans, for properties located in Federal Emergency Management Agency-designated Special Flood Hazard Areas (SFHAs).
“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 in a statement.
Wade added that the FHA is also proposing safeguards that would help borrowers secure flood insurance coverage “at a level at or above the level” available through the NFIP.
As part of the new rule, the FHA is also looking for public opinion on a proposal to establish a compliance aid for private flood insurance policies. Said compliance aid will help lenders determine if a private flood insurance policy meets the FHA’s standards.
A government release stated that the FHA is anticipating between 3% and 5% of FHA borrowers obtaining a private flood insurance policy for their FHA-insured mortgage should the proposed rule be enforced.
“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.”