Approximately 31,500 FHA-Insured Loans Did Not Maintain the Required Flood Insurance Coverage in 2020

The U.S. Department of Housing and Urban Development, Office of Inspector General, has completed its audit of Federal Housing Administration (FHA)-insured loans serviced in calendar year 2020. Our audit objective was to determine whether borrowers of FHA-insured loans maintained proper flood insurance coverage. We found FHA insured at least 31,500 loans serviced during calendar year 2020 for properties in SFHA flood zones that did not maintain the required flood insurance coverage. We found loans that had private flood insurance instead of the required NFIP coverage, NFIP coverage that did not meet the minimum required amount, or no coverage during calendar year 2020. As a result, the FHA insurance fund was potentially exposed to greater risk from at least $4.5 billion in loans that did not maintain adequate NFIP coverage. We recommend that FHA require lenders to provide evidence of sufficient flood insurance coverage or execute indemnification agreements for the 21 loans in our statistical sample that did not have sufficient flood insurance at the time of our audit, develop a control to detect loans that did not maintain the required flood insurance to avoid potential future costs to the FHA insurance fund from inadequately insured properties, and consult with HUD’s Office of General Counsel to review the language in the statutes, regulations, and handbooks and make any necessary adjustments to the forward mortgage and Home Equity Conversation Mortgage handbooks.