Starting July 2019, this new rule will require lenders to accept private policies rather than just government ones.
Five different regulatory agencies: the Federal Reserve Board, the Farm Credit Administration, the Federal Deposit Insurance Corporation, the National Credit Union Administration and the Office of the Comptroller of the Currency jointly issued a new rule this week that should make it easier for property owners to get flood insurance by requiring mortgage lenders to accept some private policies, rather than only government ones.
Basically, the new ruling sets a minimum bar for private insurance policies; if the policies meet those requirements, lenders who require flood insurance will have to accept them.
In the past, homeowners in flood-prone areas have been able to take advantage of the National Flood Insurance Program, which is designed to provide affordable protection against water-related destruction. Lenders who required flood insurance in order to get a mortgage had to accept policies from the National Flood Insurance Program.
But the program has limitations. For example, it only insures homes up to $250,000. For commercial properties, the limit is $500,000.
Because of these limitations, lawmakers in 2012 passed a bill they hoped would spur on the private flood insurance market. The expectation was that new private insurers would get into the game and consumers would have better and more comprehensive options.
Tuesday's rule is a result of that 2012 bill. It works by requiring lenders to accept private flood policies that meet certain criteria, such as coming from a state-licensed issuer and being at least as broad as a policy from the government program.
Private flood insurance is not new and some lenders already accept those policies. However, before this new rule, lenders could choose to accept those policies or not. It was up to their discretion.
The rule eliminates that discretion as long as the private policies meet the minimum criteria. In other words, in certain cases, lenders no longer have the option to reject a policy.
This should be beneficial, especially to the coastal markets we serve in the Myrtle Beach, Ocean Isle, and Charleston areas.