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Financial Services Law Insights and Observations

Freddie and Fannie address new rules for private flood insurance

Federal Issues Freddie Mac Fannie Mae Flood Insurance Mortgages Biggert-Waters Act

Federal Issues

On June 5, Fannie Mae issued a Selling Notice to address new regulations on private flood insurance taking effect July 1. (See previous InfoBytes coverage here.) While the joint final rule issued by the federal banking agencies in February applies the private flood insurance provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters Act) to supervised financial institutions, Fannie Mae stated that it is not subject to the final rule and will continue to apply its current Selling Guide eligibility standards and procedures to all loans in FEMA-designated special flood hazard areas (SFHA), or to loans secured by residences that are in a SFHA at the time of origination. Under the Selling Guide, “private flood insurance policies may be delivered as an alternative to National Flood Insurance Program (NFIP) policies” provided the terms and amount of coverage meet the specified qualifications and the property insurer meets the rating requirements.

On June 6, Freddie Mac released Guide Bulletin 2019-11, which, among other things, also emphasizes that it is not subject to the final rule, and is separately authorized by the Biggert-Waters Act to accept private flood insurance policies and establish requirements for issuers of these policies on premises securing Freddie Mac Mortgages. Specifically, Freddie Mac stated that it will continue to apply its current criteria when accepting private flood insurance policies, and that its requirements will “apply to all Seller/Servicers, including an institution subject to the federal banking agencies’ rule regardless of the rule provision (mandatory or discretionary) used to accept a private flood insurance policy.”

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