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HUD: Insufficient Flood Insurance Impacts $4.5B in FHA Loans

March 25, 2022

The Department of Housing and Urban Development’s Office of Inspector General uncovered in a new audit many properties nationwide that are underinsured for flood disasters and could be exposing homeowners and the Federal Housing Administration to higher financial risk.

An audit of FHA-insured loans from 2020 found that at least 31,500 of the loans serviced that year in designated special flood hazard areas did not maintain the required flood insurance coverage. That amounts to at least $4.5 billion in loans that did not have adequate coverage from the National Flood Insurance Program.

In the audit, HUD’s OIG found some loans had private flood insurance instead of the required NFIP coverage, insurance that did not meet the minimum required amount, or no coverage at all during the calendar year of 2020.

HUD’s OIG called for lenders to provide evidence of sufficient flood insurance coverage for the loans in question and develop a better way to detect loans that do not maintain the required flood insurance “to avoid potential future costs to the FHA insurance fund from inadequately insured properties.”

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