The Department of Housing and Urban Development today proposed a rule to allow mortgagors the option to purchase private flood insurance on Federal Housing Administration-insured mortgages for properties located in Special Flood Hazard Areas. Comments on the proposal are due 60 days after publication in the Federal Register.
The proposed rule defines private flood insurance as an insurance policy that is, among other things:
- Issued by a licensed or approved insurer in the state or jurisdiction where the property is located
- Provides coverage that is at least as broad as those provided under a standard NFIP policy
- Includes a requirement for the insurer to give a written 45-day notice before nonrenewal or cancellation
- Includes information about coverage available under the NFIP
- Includes a mortgage interest clause
- Includes a provision requiring an insured to file suit not later than one year after a date of a written denial for all or part of a claim
- Contains cancellation provisions that are as restrictive as the provisions contained in an NFIP policy.
“In the event of a lapse in the [National Flood Insurance Program], the option of private flood insurance may reduce the likelihood of delays in the processing of new originations,” HUD said. “Acceptance of private flood insurance policies would additionally benefit borrowers who want FHA-insured mortgages, by providing them consumer choice, including the opportunity to obtain private flood insurance policies that may be more affordable than NFIP policies.”
ABA has long advocated for rules that would facilitate private flood insurance, and welcomed today’s proposal. The association is currently reviewing the proposed rule and will provide comments.