The House passed HR 2091, the Flood Insurance Market Parity and Modernization Act, which would allow Fannie and Freddie to accept flood insurance placed through private insurance carriers. This is being praised by the insurance and real estate communities and by many lenders as a good thing for consumers.
By allowing the Agencies to accept such coverage, the market for flood insurance would be expanded by offering the borrower the option to shop for, and obtain, required flood insurance from carriers other than the NFIP. Choice and options are good.
The Agencies fear that by being forced to accept private placement flood coverage they are exposed to additional risks related to potential loss resulting from undercapitalized carriers, or as a result of consumers carrying high deductibles which would reduce the settlement in the event of a loss.
Ann Canfield, the executive director of the Consumer Mortgage Coalition, agrees. According to her testimony before a Senate Small Business Committee, she believes the GSEs and loan servicing companies “need to be able to require appropriate flood insurance with reasonable deductibles”.
Canfield went on to say that Congress can encourage more private flood insurance while retaining the several protections that the GSEs and their servicers use to ensure that insurance coverage is appropriate, that claims are paid, and that properties are repaired after a flood.” Does anyone remember Sandy?
So who’s right? Is the option of private flood coverage good for consumers or could it jeopardize the ability of Fannie, Freddie (and FHA) to continue to fund loans?
It seems to me that things have gone pretty well with the agencies and FHA setting their requirements for homeowner’s insurance carriers. Why can’t they do the same for private flood carriers?
Could it be that government wants to shift the risk from one agency to another? Then, if Fannie or Freddie finds themselves in trouble, the taxpayers or homeowners can bail them out through increased loan-level price adjustments and higher guaranty fees. Another tax on homeownership?
Is this idea really so good?