March 10, 2003
MARTINEZ HIGHLIGHTS HUD'S COMMITMENT TO PROTECTING DEVELOPERS OF FHA-INSURED MULTIFAMILY PROJECTS FROM ACTS OF TERRORISM
HUD will not require terrorism insurance on multifamily mortgages of less
than $50 million
WASHINGTON - In a move to encourage the continued production of multifamily housing developments, Housing and Urban Development Secretary Mel Martinez announced today that the Federal Housing Administration (FHA) will not require insurance coverage against acts of terrorism on multifamily mortgages of less than $50 million.
Martinez's announcement, made in a speech at the Mortgage Bankers Association of America's National Housing Summit, takes into consideration the enactment of the Terrorism Risk Insurance Act of 2002, and demonstrates the Bush Administration's commitment to promoting the production of affordable housing as it wages the war on terrorism.
"The Bush Administration is committed to providing more affordable housing for families even as the nation faces threats from the enemies of freedom," Martinez said. "With this policy, the FHA will act as a model for the entire housing industry. 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."
Approximately 90 percent of the projects in the FHA's multifamily portfolio have mortgages of less than $50 million. A typical 100-unit apartment generates 112 jobs and contributes $5.3 million to the local economy, just in the year that it is built. In subsequent years, the development produces a further 46 jobs and $2.2 million in economic activity annually.
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 high, terms are restrictive and coverage limits are low.
In response to this situation - and recognizing the role that production of multifamily housing production plays in strengthening the nation's economy - Martinez is announcing that in the event of an act of terrorism that destroys or partially destroys a qualifying FHA-insured multifamily property, HUD would pay the partial or full claim to the lender.
The $50 million threshold for terrorism insurance will be implemented through HUD's rulemaking procedures, beginning with the publication of a proposed rule for comment in the coming months. The requirement will affect only new applications for FHA mortgage insurance, and not existing developments with mortgages insured by the FHA.
HUD is the nation's housing agency committed to increasing homeownership, particularly among minorities, creating affordable housing opportunities for low-income Americans, supporting the homeless, elderly, people with disabilities and people living with AIDS. The Department also promotes economic and community development as well as enforces the nation's fair housing laws. More information about HUD and its programs is available on the Internet.