Affordable Housing: Government Insurance?

Affordable housing insurance is available for low- and mixed-income housing. The Federal Housing Administration (FHA) provides mortgage insurance on loans made by FHA-approved lenders. The US Department of Housing and Urban Development (HUD) also offers insurance for affordable housing, including for US Housing and Urban Development (HUD)-financed properties and low-income senior housing. Additionally, the FDIC manages an Affordable Housing Program that monitors compliance with Land Use Restriction Agreements for single and multi-family properties.

Public Housing Insurance

Risk Control and Insurance Options:

The HAI Group offers insurance and risk control services for low- and mixed-income housing. Their services include commercial property coverage, earthquake and flood insurance (excluding high-risk areas), and options for equipment breakdown coverage. They are experienced in subsidized housing and low-income tax credit developments.

HUD's Role:

HUD's regulations, outlined in 24 CFR 965, govern public housing insurance requirements. Public Housing Authorities (PHAs) and Indian Housing Agencies (IHAs) are required to maintain adequate loss prevention programs. One of the insuring options available to PHAs is State Insurance Risk Pools (SIRPs), which offer tailored products and competitive rates for public housing. SIRPs provide an alternative to securing insurance on the open market.

FHA Loans:

The Federal Housing Administration (FHA) also plays a significant role in making homeownership more accessible. FHA loans are insured by the government and issued by approved private lenders, such as banks. These loans are designed to assist low- to moderate-income families in purchasing homes, particularly those who might otherwise struggle to obtain loans. FHA borrowers are required to pay mortgage insurance premiums, which provide added security for lenders.

Additionally, the FHA offers Title I and Title II programs, which include various types of insurance:

• Property Improvement Loan Insurance
• Manufactured Home Loan Insurance
• 203(b) Mortgage Insurance Program
• Streamline Refinance
• 203(k) Rehabilitation Mortgage Insurance

These programs provide further support for individuals and families seeking affordable housing options.

Commercial Property Coverage

Commercial property insurance is a form of insurance that protects a business's physical assets, including commercial real estate, offices, or storage, along with equipment, furniture, and inventory. It is designed to minimise disruption to a business's operations by providing financial protection against a variety of potential harms.

Commercial property insurance covers damage or loss to a business's physical assets resulting from events such as fire, theft, burst pipes, or other hazards covered under the policy. It can also provide compensation for lost income due to interruptions in the business's operations caused by covered incidents.

There are different types of commercial property insurance policies, including basic form, broad form, and special form policies, which vary in the comprehensiveness of their coverage. Basic form policies cover named perils such as fire, lightning, explosions, and vandalism, while broad form policies include additional coverage for accidental water damage, structural collapse, and theft. Special form policies, on the other hand, are open perils policies, covering all potential risks except those explicitly excluded.

When determining the cost of commercial property insurance, several factors are considered, including the location and occupancy of the property, the value of the business's assets, and the weather conditions in the area. Commercial property insurance is generally bundled with other forms of insurance, such as commercial general liability insurance.

In the context of affordable housing, commercial property insurance can be obtained from specialised providers such as the HAI Group, which offers insurance and risk control services for low- and mixed-income housing. Their commercial property coverage includes enhancements designed for apartment owners and property managers, such as computer equipment coverage and sublimits for earthquake, flood, and business income/extra expense coverage.

Federal Housing Administration (FHA) Loans

The Federal Housing Administration (FHA) is a government agency that provides mortgage insurance on loans made by approved lenders. FHA mortgage insurance protects lenders against losses, encouraging them to offer more mortgages to homebuyers. This insurance is available for single-family homes, multifamily properties, residential care facilities, and hospitals across the United States and its territories.

FHA loans, insured by the government, are issued by approved banks or lenders. These loans are designed to help low- to moderate-income families attain homeownership, making them popular with first-time homebuyers. FHA loans require a lower minimum down payment than conventional loans, and applicants can have lower credit scores. The down payment for an FHA loan can be as low as 3.5% of the purchase price, and it can be paid using savings, a financial gift from family, or a grant. FHA loans are also available for mobile homes and factory-built housing, with different loan products depending on whether the borrower owns the land the home is on.

FHA borrowers are required to pay two types of mortgage insurance premiums (MIPs): an upfront premium of 1.75% of the loan amount, and an annual premium of 0.15% to 0.75% paid monthly. These insurance payments protect the lender in case of default, but they also result in higher costs for the borrower over the life of the loan.

FHA loans are not only for lower-income borrowers; they are available to everyone. However, those with good credit and strong financials may find better terms with a conventional mortgage. FHA loans also have strict requirements for the properties they finance, and they are intended only for primary residences.

The FHA was created in 1934 to stimulate the housing industry and make homeownership more accessible. Since then, the homeownership rate in the US has climbed, with FHA loans playing a significant role in helping people become homeowners.

HUD-Approved Housing Counselors

The US Department of Housing and Urban Development (HUD) provides support to a nationwide network of Housing Counseling Agencies to assist homeowners and renters in making responsible choices to address their unique housing needs. HUD-approved housing counselors can offer independent advice about whether a particular set of mortgage loan terms is a good fit based on your objectives and circumstances. This advice is often provided at little or no cost.

• Buying a home
• Renting
• Defaults
• Forbearances
• Foreclosures
• Credit issues

To become a HUD-approved housing counselor, individuals must certify through HUD by passing a written examination and verifying employment at a Housing Counseling Agency. The HUD Housing Counseling Program supports the delivery of a wide variety of housing counseling services to homebuyers, homeowners, low- to moderate-income renters, and the homeless. The primary objectives of the program are to improve financial literacy, expand homeownership opportunities, improve access to affordable housing, and preserve homeownership.

The HUD Housing Counseling Program provides free online training materials covering a broad range of topics, including:

• Responsibilities of homeownership and tenancy
• Avoidance of foreclosure and eviction
• Financial management
• Fair housing

The fifteen training modules are offered in two formats and provide opportunities to learn, practice, and explore six areas of content. After completing the training modules, individuals can take the HUD Housing Counselor Certification Examination to become HUD-certified housing counselors.

Risk Retention Groups

In the context of affordable housing, RRGs can be formed by housing authorities or non-profit organisations that provide affordable housing. For example, the Georgia Housing Authorities Risk Retention Pool (GHARRP) is a member-owned group that provides stable and affordable property and casualty coverage to Georgia Housing Authorities. Similarly, the Housing Authority Risk Retention Group, Inc. is a company that provides insurance for affordable housing entities.

Another example is the HAI Group, a member-owned insurance carrier dedicated to serving the public and affordable housing communities. HAI Group offers property and liability insurance, as well as risk management services and professional development training. They insure over $70 billion in building values across the US and are committed to promoting the sustainability of affordable housing.

The formation of RRGs for affordable housing is also supported by legislation such as Assembly Bill No. 2327 in California, which allows affordable housing entities to join together in a risk retention pool for self-insured claims or losses. This bill specifically includes affordable housing developments that are purchased or rented with or without government assistance by persons or families of low or moderate income.

RRGs can play an important role in preserving and protecting affordable housing by providing tailored insurance solutions and risk management services, ensuring the financial stability of housing providers, and ultimately contributing to the sustainability of affordable housing options.

Frequently asked questions