Letter to HUD on the Acceptance of Private Flood Insurance Final Rule for FHA-Insured Mortgages

Federal Housing Authority Resource Center
United States Department of Housing and Urban Development
Washington DC 20410-8000

Submitted electronically to [email protected]

To Whom it May Concern:

The American Bankers Association appreciates the opportunity to comment on the Mortgagee Letter 2022-18 issued on November 21, 2022, implementing HUD’s Final Rule regarding the Acceptance of Private Flood Insurance for FHA-Insured Mortgages (the "Final Rule"). The Mortgagee Letter updates FHA's mandatory flood insurance purchase requirement to allow for acceptance of Private Flood Insurance (PFI) policies that meet FHA's requirements in lieu of a National Flood Insurance Program (NFIP) policy. We understand that the Mortgagee Letter will be incorporated into a forthcoming update of the HUD Handbook 4000.1, FHA Single Family Housing Policy Handbook (Handbook 4000.1).

In response to the Mortgagee Letter's request for feedback from interested stakeholders, ABA offers the following comment and requests a specific change to the following paragraph in the Mortgagee Letter:

• Replace language regarding privately-written flood policies that do not carry the PFI policy compliance aid

Currently, the language in section iii (B) ("Private Flood Insurance Compliance Aid") reads "The PFI Policy Compliance Aid may be made by the insurance provider, attesting that a PFI policy meets the requirements of Flood Insurance. The Mortgagee may rely on the PFI Policy Compliance Aid to determine whether a PFI policy meets the Flood Insurance requirements. A Mortgagee may not reject a policy solely because it is not accompanied by a PFI Policy Compliance Aid."

The last sentence of this paragraph is unnecessary, because it incorrectly implies that there is an obligation for FHA lenders to accept PFI policies. As HUD makes clear in its commentary to the Final Rule, while the 2012 Biggert Waters Act (BWA) provides that federally regulated lenders must accept certain privately-written flood insurance policies, FHA does not fall under the same governing authority. Thus, ABA recommends the last sentence in section iii (B) be removed and replaced with the following: "In the absence of the FPI Policy Compliance Aid within the policy, a lender may review the policy to determine if it meets FHA requirements or rely on the insurance agent or carrier to separately provide the FPI Policy Compliance Aid language."

Further, while the commentary to the final rule makes it clear that lenders are not required to accept privately-written flood insurance policies on FHA loans, there is no language in the rule itself making that clear. Thus, it is important that the Mortgagee Letter be clear as to this point, otherwise over time this distinction may be lost. This is especially true given that the 2019 Joint Final Rule makes clear that federally regulated lenders must accept privately-written flood policies that meet the BWA 2012 statutory definition of private flood insurance.

Thank you for your attention to these important matters. We would welcome an opportunity to discuss these concerns further.

Sincerely,

Diana Banks Thompson
Vice President and Senior Counsel