WASHINGTON – The U.S. Department of Housing and Urban Development (HUD), operating through the Federal Housing Administration (FHA), has rolled out updated policies concerning wind and named storm insurance coverage mandatory for multifamily properties financed through an FHA-insured mortgage. This initiative forms part of HUD’s broader efforts aimed at mitigating the surge in insurance expenses. The mounting costs, predominantly attributed to the heightened frequency and severity of storms influenced by climate change, have necessitated these adjustments. The revisions introduced today aim to furnish lenders and property owners with increased maneuverability in procuring and negotiating property insurance premiums from insurers. This flexibility ensures properties acquire the requisite coverage without imperiling their financial well-being.
HUD Acting Secretary Adrianne Todman stated, “I have traveled around the country, talking to homeowners about how rising housing costs are affecting them and their communities – particularly, the cost of insurance. Today, HUD is taking an additional step to address those very real challenges.” She emphasized the profound impact of extreme weather events, exacerbated by climate change, on housing costs and community resilience. Todman underscored HUD’s commitment to curbing housing costs and enhancing community resilience amidst escalating challenges.
The onslaught of extreme weather events, projected to intensify due to climate change, has wrought havoc across the nation. HUD’s disaster recovery program has injected nearly $100 billion into vulnerable and at-risk communities to facilitate recovery from catastrophic damage. Preceding today’s announcement, HUD had already commenced revising its methodology for calculating Operating Cost Adjustment Factors (OCAF) for multifamily properties to better accommodate rising insurance expenses. Further initiatives are anticipated in the forthcoming months to tackle the ramifications of escalating insurance costs nationwide.
Assistant Secretary for Housing and Federal Housing Commissioner, Julia Gordon, remarked, “Today’s policy change aligns FHA with practices across the industry.” She emphasized that the adjustment would bolster FHA’s partners in their mission to provide affordable rental housing, an imperative across every corner of the nation.
Effective immediately, FHA has elevated the maximum permissible wind or named storm deductible to the greater of $50,000 or five percent of the insurable value per location, capped at $475,000 per occurrence. Previously, the MAP Guide policy restricted this deductible to the greater of $50,000 or one percent of the insurable value for any insured building, with a maximum of $250,000.
Ethan Handelman, Deputy Assistant Secretary for Multifamily Housing, elucidated, “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.” He underscored the criticality of securing property insurance coverage in fostering the development and sustenance of affordable and market-rate multifamily rental housing.
Intense storms characterized by heavy rainfall, high winds, and storm surges pose a substantial threat to property, surpassing the damage potential of typical seasonal storms. Insurers typically categorize these potent storms as “named storms” and impose an augmented named storm deductible as a prerequisite for coverage in the event of catastrophic loss.
