Private option would ensure access to flood insurance

January 22, 2021

CUNA generally supports the Federal Housing Administration’s (FHA) proposal on acceptance of private flood insurance for FHA-insured mortgages, it wrote to the agency Friday. The proposal would allow owners the option to purchase private flood insurance on FHA-insured mortgages for properties located in Special Flood Hazard Areas (SFHAs).

FHA's current rules do not permit private flood insurance as an option to satisfy the mandatory purchase requirement under the Flood Disaster Protection Act of 1973. Currently, owners must obtain and maintain National Flood Insurance Program (NFIP) flood insurance during such a time as the mortgage is insured.

“We believe that allowing a private flood insurance option for FHA-insured mortgages located in SFHAs would ensure owners have access to flood insurance during potential lapses in the NFIP, expand the availability of lower cost alternatives to the NFIP, and potentially reduce the waiting periods associated with the processing of new originations,” the letter reads.

CUNA also notes the proposal would better align FHA rules with the Biggert-Waters Flood Insurance Reform Act of 2012, and the 2012 final rule implementing the private flood insurance provisions of that bill.

“Credit unions believe consistency across the housing market with respect to private flood insurance would not only benefit consumers but also mitigate any lender confusion. As a result, we recommend HUD adopt definitions of ‘private flood insurance’ and compliance aid provisions that are identical to the language used by the federal banking regulators to assert the insurance policy meets the definition of ‘private flood insurance’ and fulfills the requirements of both the federal regulators and HUD,” the letter reads. “Aligning the FHA’s rules with the private flood insurance procedures established by the federal banking agencies would best protect the interests of both borrowers and lenders."