The regulator and conservator for Fannie Mae and Freddie Mac has agreed to beef up flood insurance coverage examination measures on the advice of its inspector common.
The actions the Federal Housing Finance Company agreed to return on account of an inspector common audit, which discovered the FHFA’s flood insurance coverage oversight for the influential government-related mortgage traders was efficient however not utilized repeatedly sufficient and lacked some formal procedures.
The federal government watchdog’s report may convey extra fixed scrutiny to the numerous depository and nonbank lenders and servicers that work with the enterprises as a result of non-public mortgage corporations finally are chargeable for flood insurance coverage compliance, an space financial institution regulators have been watching carefully too.
“Examination procedures had been inconsistent for assessing enterprises’ oversight of vendor/servicers’ compliance with flood insurance coverage necessities,” the Workplace of Inspector Normal stated in a report on the FHFA’s Division of Enterprise Regulation launched Thursday.
The report lays out 3 ways to rectify the priority, all of that are geared toward guaranteeing that there is protection for single-family mortgage collateral in particular flood hazard areas. The FHFA agreed to all three in its response to the audit.
Probably the most speedy step the FHFA has agreed to take by Nov. 22 is to offer “refresher coaching” on current steerage involving mortgage sampling in examinations, however there are extra important long-term steps.
The watchdog’s report requires the FHFA to institute “focused examination procedures to evaluate the enterprises’ oversight of seller-servicers’ flood compliance by June 30, 2025” as a way to handle findings that there was a scarcity of particular steerage within the company’s guide for this.
The IG redacted among the different findings from its audit like particular directives it discovered the Federal Housing Finance Company gave to Fannie and Freddie concerning flood insurance coverage compliance.
One distinction within the FHFA’s oversight of the 2 that the report does disclose is that the company particularly “didn’t doc sampling methodology for the number of mortgage recordsdata examined and the analyses to help flood insurance coverage at Freddie Mac” in the course of the interval that enterprise was audited.
To rectify this, the enterprises’ regulator and conservator agreed to “conduct an examination exercise to evaluate whether or not Freddie Mac has applied procedures moderately designed to make sure that its mortgage loans are in particular flood hazard areas coated by flood insurance coverage by Aug. 29, 2025.”
The inspector common audited FHFA between January and September of this yr. The scope of the audit coated data DER supplied about its supervisory actions for Freddie Mac between 2018 and 2021. This included two examination actions at Freddie Mac. For Fannie Mae, the scope of its audit coated DER’s supervisory actions from 2021 although Jan. 31, 2024.
The federal government watchdog estimated that as of Dec. 31, 2023, 3.2% of Fannie’s single-family mortgages have collateral in flood zones, and a pair of.9% of properties securing Freddie’s loans on this class are in SFHAs.
Flood insurance coverage challenges prolong far past the obligations mortgage firms, the enterprises, the FHFA and its inspector common have for guaranteeing protection in federally designated flood zones.
On the time of this writing, authorization for the Nationwide Flood Insurance coverage Program was on account of expire Sept. 30, and bigger congressional price range negotiations had been tense on account of a partisan divide that election yr pressures have intensified.
Some hypothesis suggests the NFIP destiny may differ broadly relying on the result of the election.
Challenge 2025, a conservative think-tank agenda that allies of former President Trump contributed to — however which the Republican candidate himself has disclaimed — recommend that if he had been elected, the NFIP could possibly be disbanded. It additionally signifies Fannie and Freddie could possibly be free of conservatorship.
In distinction, one possibility for addressing broader issues with the worth and availability of insurance coverage within the housing business in a current report put forth beneath the present Democratic administration could be to increase NFIP to additionally cowl home-owner insurance policies. That report additionally explores non-public market choices.
Non-public protection accounted for about one-third of flood insurance coverage, based on a research launched final yr. The unpredictable nature of prices related to pure and different components not too long ago have led non-public insurers to exit some excessive danger areas.
