This week, the Big “I” spearheaded the submission of a joint letter to the Federal Housing Administration (FHA) urging the agency to amend its policy regarding acceptance of private flood insurance by lenders for FHA-insured loans.

The eight organizations that signed the letter represent the main stakeholders involved in the home purchase process: the realtor, the mortgage lender, the insurance company, the insurance agent and the consumer.

Federal law requires properties to secure flood insurance on all federally related loans if the property is located in the Special Flood Hazard Area (SFHA). Currently, some lenders of FHA-insured home mortgages refuse to accept private flood insurance on properties located in the SFHA, even though a private policy can offer coverage equivalent to or better than the NFIP at a lower price. This situation is attributable to lenders interpreting FHA regulations and guidelines as requiring flood insurance in the form of an NFIP policy only. As a result, some home buyers—including many first-time home buyers—are unable to complete the purchase of their chosen home.

The letter notes that FHA policy on acceptance of private flood insurance is contrary to the intent of Congress. When Congress reauthorized the NFIP in 2012, it intended to encourage acceptance of private flood insurance, in part by requiring federally regulated lenders, federal agency lenders, and lenders who sell to or service on behalf of Fannie Mae and Freddie Mac to accept private flood insurance policies for homes located in the SFHA if the private policy meets certain criteria.

The Big “I” developed the letter in direct response to complaints from association members. The Big “I” believes that the FHA should be obligated to adhere to the same rules as Fannie Mae and Freddie Mac regarding acceptance of private flood insurance. This will help ensure that all homebuyers with federally backed loans have the same flood insurance options.

Big “I”-supported legislation that would address this issue is pending in Congress. H.R. 1422, the “Flood Insurance Market Parity and Modernization Act” by Reps. Dennis Ross (R-Florida) and Kathy Castor (D-Florida), would require the FHA to consider private flood insurance for properties located in the SFHA.

Jennifer Webb is Big “I” federal government affairs counsel.