Acceptance of Private Flood Insurance for Federal Housing Administration-Insured Mortgages

Maria Chelo Manlagnit De Venecia
U.S. Department of Housing and Urban Development

The views expressed in this article are those of the authors and do not represent the official positions or policies of the Office of Policy Development and Research, the U.S. Department of Housing and Urban Development, or the U.S. Government.

On November 23, 2020, the Federal Housing Administration (FHA) proposed a rule that would allow a private flood insurance option instead of insurance through the National Flood Insurance Program (NFIP), when FHA requires flood insurance. The Flood Disaster Protection Act of 1973 (FDPA) requires the owner of a property mapped in a special flood hazard area (SFHA) and located in a community participating in the NFIP to purchase flood insurance as a condition of receiving a federally backed mortgage. Current regulations of the FHA do not permit private flood insurance as an option to satisfy the mandatory purchase requirement under the FDPA; instead, FHA requires owners to obtain and maintain NFIP flood insurance during such a time as the mortgage is insured, to the extent that NFIP insurance is available. The proposed rule will amend the FHA regulations to allow mortgagors the option to purchase private flood insurance on properties located in SFHAs, in satisfaction of the mandatory purchase requirement for FHA-insured mortgages. This amendment also reflects the intent of the Biggert-Waters Insurance Reform Act of 2012 (Biggert-Waters Act) to encourage private-sector participation in the provision of flood insurance.