HUD Revises Wind and Named Storm Insurance Requirements
On April 18th, the U.S. Department of Housing and Urban Development (HUD) Office of Multifamily Housing published a Mortgagee Letter and Housing Notice revising its Federal Housing Administration (FHA) multifamily property insurance requirements for wind and named storm coverage by increasing the maximum casualty insurance deductible amount for wind or named storm coverage to the greater of $50,000 or 5 percent of the insurable value per location, up to a maximum amount of $475,000 per occurrence, for new mortgage insurance transactions that have not achieved final endorsement. The new requirements are effective immediately.
Previously, the maximum deductible for casualty insurance could not exceed the greater of $50,000 or 1 percent of the insurable value for any insured building, up to a maximum amount of $250,000. Wind or named storm coverage can be difficult to obtain in the insurance market due to a lack of availability or unreasonably high costs, particularly when using the lower deductible amount required by HUD.
Additionally, wind or named storm deductibles are often much higher than HUD’s previous maximum deductible of $250,000, which required borrowers to purchase deductible “buy down” coverage to meet HUD mandates. Buy down coverage pays the additional deductible over and above the maximum HUD-allowed deductible; if buy down coverage is available, the cost can add tens of thousands of dollars to the cost of the insurance policy and operating cost of HUD-insured projects. This additional cost is particularly detrimental for affordable projects with restricted rents that are unable to be increased to cover unexpected operating costs.
“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 properties are adequately insured,” said Ethan Handelman, Deputy Assistant Secretary for Multifamily Housing, in a HUD statement. “Not only is it required by FHA, but being able to secure property insurance coverage is critical to developing new and maintaining existing affordable and market-rate multifamily rental housing.”
The April 18th announcement is part of HUD’s efforts to address rapidly rising insurance costs for affordable multifamily housing providers and follows HUD’s adjustments to Operating Cost Adjustment Factors to better reflect those rising costs. LeadingAge has worked extensively to educate HUD on the impact of these rising costs to affordable senior housing owners and to secure solutions.
Contact: Annalyse Komoroske Denio, akomoroskedenio@leadingageny.org, 518-867-8866