FHA Announces Acceptance of Private Flood Insurance

Effective as of December 21, 2022, FHA regulations will now permit insurance of mortgages, including home equity conversion mortgages (HECMs), on single-family homes and certain condominium projects in special flood hazard areas if the mortgagor and mortgagee obtain and maintain either flood insurance under the National Flood Insurance Program (NFIP) or private flood insurance.

Such private flood insurance must meet certain requirements, including (but not limited to) providing coverage that is “at least as broad as the coverage provided under a standard flood insurance policy under the [NFIP] for the same type of property, including when considering deductibles, exclusions, and conditions offered by the insurer.” 

The revised regulations note that for both forward mortgages and HECMs, a mortgagee may determine that a private flood insurance policy meets these requirements, without further having to review the policy, if the policy itself or an endorsement to the policy contains the following language:  “This policy meets the definition of private flood insurance contained in 24 CFR 203.16a(e) for FHA-insured mortgages.”

FHA has also published Mortgagee Letter 2022-18 to further clarify these requirements for FHA lenders and servicers.