Reassuring the housing industry that HUD will not follow the lead of many private insurance companies, Secretary Martinez announced that the Federal Housing Administration (FHA) will not require insurance coverage against acts of terrorism as a condition of multifamily mortgage insurance.

"Our policy will result in reduced costs for existing and future FHA-insured multifamily properties, and will continue to encourage the construction of new projects," Martinez told the annual convention of the Mortgage Bankers Association of America (MBAA). [Read the full text of the Secretary's 10/22/02 remarks.]

Following the terrorist attacks of Sept. 11, 2001, primary insurance companies began excluding or limiting coverage for acts of terrorism in catastrophic loss insurance policies, including policies that cover multifamily properties. Where such coverage is available, costs are exorbitant, terms are restrictive, and coverage limits are low.

This insurance, which was not required prior to September 11, 2002, could cost a typical 100-unit project owner an additional $5,000 annually, presenting financial constraints for existing properties -- and discouraging the construction of new properties. In the months following Sept. 11, the MBAA, among other industry organizations, asked HUD to clarify its position on terrorism insurance.

In response, the Secretary announced that in the event of an act of terrorism that destroys or partially destroys an FHA-insured multifamily property, HUD would pay the partial or full claim to the lender. In FY 2001, FHA committed $1.5 billion toward ensuring multifamily programs for construction and rehabilitation. In 2002, FHA upped its commitment to $2.8 billion.

Learn more about HUD's Multifamily Housing programs.