Private Flood Insurance To Be Accepted By Lenders
Most new home buyers are either unfamiliar or know little about flood insurance because they live in an area where flood insurance is not required with a mortgage. This is not the case if you are considering purchase a home in Florida even if it’s not on the coast. If you follow the news closely the National Flood Insurance Program often makes headlines due to congress failing to pass a funding bill to cover the insurance policies. Or like the recent government shutdown which put policies in process on hold. When this occurs mortgages can’t move forward without a flood insurance policy. This has been an on-going problem for many years disrupting especially the real estate industry. Most lenders, due to regulations, can only use the NFIP policy.
Well good news…changes to flood insurance is on the way.
On January 25, 2019 federal banking regulators released a final regulation clarifying lender acceptance of private flood insurance. The new rules will go into effect on July 1, 2019.
In short, the new regulation in most cases requires lenders to accept private flood insurance policies that meet a strict statutory definition. The National Flood Insurance Program for lenders has been the gold standard and closed to many private insurers. Its important to note that this federal program has been in deficit for a long time and the government is wanting to see flood insurance expand into the private market.
These changes and regulations are governed by the Biggert-Waters Insurance Reform Act of 2012.
- Adopts same definition of private flood insurance as the statute; this definition has been a source of confusion for small lenders.
- Provides a compliance aid for lenders to determine whether a private policy meets the definition and must be accepted in satisfaction of federal flood insurance requirements.
- Clarifies that lenders also have broad discretion to accept private policies that don’t meet the strict definition if the policy provides sufficient protection of the mortgage loan consist with safety and soundness.
National Association of Realtors has been working with many interested parties to make it easier for lenders to accept private flood insurance which often is at a lower cost for the consumer.
This is a step in the right direction but will require further work with all parties to strengthen flood insurance for all parties concerned.
Source Florida Realtors.