Borrowers who want to buy a home in a federally designated flood hazard area using a Federal Housing Administration mortgage are required to secure flood insurance, but for many years, the only way to get that insurance was through the National Flood Insurance Program.
But that might not be the case for much longer.
That’s because the FHA recently moved to allow borrowers to secure private flood insurance rather than using the federal program.
According to the FHA, the proposed rule would allow lenders to begin accepting private flood insurance policies for loans on single-family homes located in Federal Emergency Management Agency-designated Special Flood Hazard Areas.
“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,” Assistant Secretary for Housing and Federal Housing Commissioner Dana Wade said.
“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,” Wade added.
According to the FHA, if the rule is enacted, it expects between 3% and 5% of FHA borrowers could take advantage of the private flood insurance option.
As this is only a proposed rule at this stage, the FHA’s current policies remain in place until any changes are officially adopted.
“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.”