Higher deductible ceilings offer relief to lenders and property owners
The Department of Housing and Urban Development (HUD) has revised its insurance policies for multifamily properties financed through Federal Housing Administration (FHA) backed mortgages.
Effective immediately, HUD will allow a wind or named storm insurance deductible up to the greater of $50,000 or 5% of the insurable value per location, with a cap of $475,000 per event. This is a significant increase from the previous limits, which capped deductibles at the greater of $50,000 or 1% of the insurable value, with a maximum of $250,000.
According to HUD’s news release, the move is intended to give lenders and property owners more flexibility when negotiating insurance premiums.
“Raising the deductible amount provides important flexibility for lenders and property owners to obtain and maintain appropriate property insurance that covers their properties in the event of catastrophic weather damage while maintaining appropriate safeguards to ensure that properties are adequately insured,” said Ethan Handelman, deputy assistant secretary for multifamily housing at HUD.
The previous policy prohibited this deductible from exceeding the greater of $50,000 or 1% of the insurable value for any insured building, with a maximum of $250,000.
“Not only is it required by FHA, but being able to secure property insurance coverage is critical to developing new and maintaining existing affordable and market-rate multifamily rental housing,” Handelman added.
Bob Broeksmit, president and CEO of the Mortgage Bankers Association (MBA), welcomed the change, noting that it would help reduce financing costs and make it easier for borrowers to secure adequate coverage.
“Multifamily property insurance availability and affordability is becoming a significant hurdle to increasing rental housing supply, and we have advocated strongly for reforms to the FHA-insured multifamily program to meet the urgent need for affordable housing,” he said in a statement.
However, Broeksmit also called for further reforms to extend the policy updates to existing properties as well.
“Increasing the maximum deductible level on new deals is a good start that will help reduce financing costs and make it easier for borrowers to obtain adequate insurance coverage,” said Broeksmit. “However, HUD must extend this policy change to existing properties immediately.”
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