MBA urges long-term reauthorization, accessible private flood insurance, and FHA program reforms
As the National Flood Insurance Program (NFIP) expiration nears, the Mortgage Bankers Association (MBA) has raised concerns about the availability of affordable private flood insurance and its far-reaching effects on consumers and the real estate industry.
During the Housing and Insurance Subcommittee’s recent hearing titled “Factors Influencing the High Cost of Insurance for Consumers,” MBA addressed the looming NFIP expiration and the importance of private flood insurance.
“Property insurance is the first line of financial defense for homeowners, commercial owners/operators, and lenders in the event a property is damaged,” the trade association said in a three-page statement. “The availability and affordability of property insurance impacts these groups directly, but also has downstream impacts on the broader real estate market, including lending, construction, and the availability of affordable housing – for both renters’ and homeowners’.”
MBA advocated for action in three key areas: the reauthorization of the NFIP, assured access to property insurance, and reforms to the FHA-Insured multifamily program.
Reauthorization of the NFIP
As new NFIP policies cannot be issued during a lapse in authorization, MBA stressed the necessity of a longer-term authorization to provide stability and certainty for homeowners, businesses, and real estate markets.
“Beyond this imminent threat, especially during hurricane season, a longer-term authorization is vital to provide needed certainty to homeowners and small businesses that depend on the program for flood damage protection, to protect our residential and commercial real estate markets, and to provide stability for the companies and agents that sell and administer the NFIP policies to millions of consumers across the country,” MBA stated. “A long-term authorization would also allow more adequate time to consider NFIP reforms that better address commercial and multifamily lending concerns – along with appropriate climate change risks.”
Access to property insurance
MBA members have also expressed deep concerns about the private property insurance market, particularly in states like California, Florida, Texas, and Louisiana. The increasing severity of weather events due to climate change has led many insurers and re-insurers to withdraw from these states, resulting in limited or unaffordable coverage. Wildfires in the Western United States and catastrophic events like Hurricane Ian have exacerbated the problem.
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Insurance premiums have soared, even in less risky states, as national carriers cross-subsidize premium increases. Commercial property premiums have experienced the largest increase in 20 years, with catastrophic insurance premiums being a major contributor. Availability and affordability issues have pushed many condominium projects out of eligibility for loan purchase.
“No homeowner or commercial property owner can cover the cost of a catastrophic loss alone,” the association said. “MBA encourages the Subcommittee to work with states and other stakeholders to address the availability and affordability of property insurance and promote market stability and insurer solvency.”
Reforms to the multifamily program
Additionally, the MBA called for reforms to the FHA-Insured multifamily program to align it with the evolving insurance markets.
Requirements for wind and named storm insurance coverage are justifiable but often difficult to fulfill due to high deductibles. MBA urged the Subcommittee to review FHA insurance requirements to make FHA Multifamily responsive to affordable housing needs.
Developers are also facing challenges related to stormwater detention ponds, as HUD incorrectly categorizes them as wetlands, necessitating unnecessary restrictions, it was suggested.
“Detention ponds require frequent maintenance to function and are clearly not wetlands,” MBA said. “HUD should, therefore, not require a restrictive covenant but instead review its guidance to encourage – or at least not penalize - developers who utilize these measures to mitigate storm risks.”
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