U. S. Department of Agriculture RD Instruction 426.2

Rural Development

## NATIONAL FLOOD INSURANCE

I [GENERAL]{.underline}:

A [Authority]{.underline}. This Instruction prescribes the policies and
procedures to be followed in implementing the National Flood Insurance
Act of 1968 as amended by the Flood Disaster Protection Act of 1973. The
provisions of these Acts are applicable to Rural Development and Farm
Service Agency, herein referred to as the "Agency", authorities
permitting financing of: (1) buildings of any type now located in or to
be located in special flood or mudslide-prone areas as designated by the
Federal Insurance Administration (FIA) of the Department of Housing and
Urban Development (HUD), and (2) any machinery, equipment, fixtures, and
furnishings contained or to be contained therein. This subpart does not
apply to Farm Service Agency, Farm Loan Programs and to Rural Rental
Housing, Rural Cooperative Housing, or Farm Labor Housing Programs of
the Rural Housing Service. (Revised 01-09-08, PN 417.)

B [Background]{.underline}. The Congress has found that annual losses
throughout the nation caused by floods and mudslides are increasing at
an alarming rate, largely as a result of the accelerated development and
concentration of populations in areas subject to floods and mudslides.
The availability of Federal funds in the form of loans, grants,
guarantees, insurance, and other forms of financial assistance are often
determining factors in the utilization of land and the location and
construction of industrial, commercial, and residential facilities. The
National Flood Insurance Program (the program) was authorized and
created because the private insurance industry has been unable to
provide insurance coverage at reasonable prices for such natural
disasters as floods and mudslides. Subsidized and affordable insurance
has been made available under the Act through an agreement between the
FIA and the National Flood Insurers Association.

II [AREAS OF RESPONSIBILITY]{.underline}:

A [FIA]{.underline}. FIA is responsible for:

1 Identifying and publishing information with respect to all areas in
the country which are subject to floods and mudslides and designating
those areas on Flood Hazard Boundary maps.

2 Notifying affected communities of their designations and encouraging
them to adopt and enforce land use and other control measures and to
adopt ordinances or laws which will regulate and control construction in
areas designated as having special flood or mudslide hazards.

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DISTRIBUTION: WSL Program Operations

Real Property

Property Insurance

## Sheet 1

## (Revision 2)

(4-22-74) SPECIAL PN

RD Instruction 426.2

II A (Cont.)

3 Making flood insurance available at reasonable rates and in sufficient
amounts, within the statutory limits, to adequately protect owners
against loss to their buildings and contents when those buildings are
located in or will be located in designated special flood and
mudslide-prone areas in communities participating in the National Flood
Insurance Program.

B [The Agency]{.underline}. The State Director, after being notified by
the National Office or FIA of designated flood or mudslide hazard areas
and receiving flood hazard boundary maps identifying the hazard areas,
FIA insurance rate charts, or other information concerning the program,
will inform the appropriate County Supervisors and provide them the
maps, rate charts, and other relevant information concerning the program
in areas they serve. Permanent records indicating the date a community
was notified as containing identified flood hazard areas, communities
participating in the program, and communities eligible to participate
but not participating in the program will be maintained in the State
Office. County Supervisors will notify, in writing, those borrowers
whose insurable buildings are located in designated flood or mudslide
hazard areas of the availability of National flood insurance and
encourage them to obtain flood insurance to protect their and the
Government\'s financial interest.

C [Community]{.underline}. Communities are required to participate in
the National Flood Insurance Program within 1 year after notification of
its formal identification as a community containing one or more special
flood and mudslide-prone areas, or by July 1, 1975, whichever is later,
or be denied Federal financial assistance, or Federally-related
financial assistance for acquisition or construction purposes in such
areas. Communities wishing to qualify for the program may submit a
completed application to: Administrator, Federal Insurance
Administration, Department of Housing and Urban Development, 451 Seventh
Street, S.W., Washington, DC 20410.

D [Lender]{.underline}. The lender must determine whether real property
is located in an area identified as having special flood or mudslide
hazards and cannot discharge that responsibility merely by obtaining
self-certification from the applicant that the property is not located
in an area having special flood hazards.

III [DEFINITIONS]{.underline}: For the purpose of the Instruction, the
following

definitions apply:

A [Financial assistance]{.underline} means any form of direct, insured,
or guaranteed loan, including reamortization and assumption on new terms
of any loan; any form of grant; or any other form of direct or indirect
assistance extended by the Agency.

B [Financial assistance for acquisition or construction
purposes]{.underline} means any form of Federal financial assistance
which is intended in whole or in part for the acquisition, construction,
reconstruction, or substantial improvement

RD Instruction 426.2

III B (Cont.)

of any building, and for any machinery, equipment, fixtures, and
furnishings contained or to be contained in such buildings.

C [Community]{.underline} means any state, or political subdivision
thereof, such as county, parish, township, city or other local
government, which has zoning and building code jurisdiction over a
particular area having special flood hazards.

D [Eligible community]{.underline} means a community in which the
Administrator of FIA has authorized the sale of flood insurance under
the program.

E [Designated special flood or mudslide-prone area]{.underline} means
those areas in a community subject to flood or mudslide which have been
identified by flood hazard boundary maps or those areas not identified
by maps but where, due to emergency, the FIA Administrator has
authorized the sale of flood insurance.

F [Flood]{.underline} means a general and temporary condition of partial
or complete inundation of normally dry land areas from: (a) the overflow
of streams, rivers, or other inland water, (b) the collapse or
subsidence of land along the shore of a lake or other body of water as a
result of erosion or undermining caused by waves or currents of water
exceeding anticipated cyclical levels, or (c) abnormally high tidal
water or rising coastal waters resulting from severe storms, hurricanes,
or tidal waves resulting from volcano eruptions or earthquakes.

G [Mudslide or mudflow]{.underline} means a major occurrence involving
the appearance of a large river, or flow, of \"liquid mud\" down a
hillside, usually as a result of earlier brushfires followed by heavy
rains over a widespread area.

H [Flood insurance]{.underline} means insurance coverage for floods
and/or mudslides under the program or otherwise acceptable to FIA.

I [Building]{.underline} means any walled and roofed structure, other
than a gas or liquid storage tank, that is Principally above ground and
affixed to a permanent site. Residential and most types of industrial,
commercial and agricultural buildings, such as lumber sheds, machinery
storage sheds, grain storage bins, and silos, are included in this
definition.

J [Substantial improvement]{.underline} means any repair,
reconstruction, or improvement of a structure, the cost of which equals
or exceeds 50 percent of the actual cash value of the structure either,
(a) before the improvement is started, or (b) if the structure has been
damaged and is being restored, before the damage occurred.

IV [ELIGIBILITY]{.underline}: In addition to an applicant meeting the
requirements for the type of financial assistance requested, the
following requirements

## Sheet 2

## (Revision 1)

(4-22-74) SPECIAL PN

RD Instruction 426.2

IV (Cont.)

for eligibility of applicants for financial assistance for acquisition
and construction purposes in designated special flood and mudslide-prone
areas must be met:

A If flood insurance is available, to be eligible after March 1, 1974,
the applicant must have purchased a flood insurance policy at the time
the loan or grant is closed.

B Applicants will not receive financial assistance in those communities
that have been notified as having special flood and mudslide-prone areas
and where flood insurance is not available within 1 year after such
notification, or by July 1, 1975, whichever is later.

V [CONDITIONS]{.underline}: The Agency financial assistance may be
extended to eligible applicants meeting the eligibility requirements of
paragraph IV of this Instruction provided the following conditions are
also met:

A [Dwellings and Multi-Unit Housing Facilities]{.underline}.

1 If the financial assistance is to buy a dwelling or multi-unit housing
facility:

a The first floor elevation of the habitable space of the dwelling or
housing unit must be above the 100-year flood level, and

b The housing must be served by public utilities and facilities, such as
sewer, gas, electrical, and water systems that are located and
constructed to minimize or eliminate flood damage or have an onsite
water supply system and waste disposal system located so as to avoid
impairment of such systems and contamination from the waste disposal
system to the water supply system from flooding.

2 If the financial assistance is to build or provide substantial
improvement, the requirements of paragraph V A 1 of this Instruction
must be met, all construction must meet requirements of the applicable
development standards, and: (Revised 5-12-87, SPECIAL PN.)

a A building permit must be issued by the appropriate governing
officials having jurisdiction in the area and compliance must be had
with the zoning code or other established legal requirements of the area
for reducing or eliminating flood or mudslide damage.

b The structure must be designed and anchored to prevent flotation,
collapse, or lateral movement of the structure.

RD Instruction 426.2

V A 2 (Con.)

c Construction materials and utility equipment that are resistant to
flood damage must be used, and

d Construction methods and practices that will minimize flood damage
must be followed.

3 If the financial assistance is to make minor repairs, the conditions
of paragraphs V A 1 and 2 of this Instruction must be met or the
building must have existed on the site prior to the date the area was
identified as having special flood or mudslide hazards and, the loan
approval official must determine that the dwelling is suitable as a
residence.

4 When applications for financial assistance are received in areas
identified as having special flood and mudslide hazards, the loan
approval official will consider the expected severity and frequency of
floods and mudslides in determining whether any housing loans should be
made in the area. He should be sure, if loans are made, that the
objectives of the loans can be accomplished and that the Government\'s
financial interest will be adequately protected.

B [Nonresidential Buildings]{.underline}. Construction plans and
specifications for new buildings or improvements to existing buildings
must comply with flood plain area management or control laws,
regulations, or ordinances.

C [Flood Insurance Coverage]{.underline}.

1 Any property on which flood insurance is required must be covered by
such insurance during its anticipated economic and useful life in an
amount at least equal to its development or replacement cost (except
estimated land cost) or to the maximum limit of coverage made available
with respect to the particular type of property under the National Flood
Insurance Program, whichever is less. However, if the financial
assistance provided is in the form of a loan, the amount of flood
insurance required need not exceed the outstanding principal balance of
the loan and need not be required beyond the term of the loan.

2 The contents of a building must be insured separately from a building,
but coverage cannot be written on the contents of a three-walled
machinery shed or similar type open building.

3 Flood insurance shall not be required on any state-owned property that
is covered under an adequate state policy or self-insurance satisfactory
to the Secretary of HUD, who will publish a list of states with such
policies.

## Sheet 3

## (Revision 2)

(04-22-74) SPECIAL PN

RD Instruction 426.2

V C (Con.)

4 It will be emphasized that under the terms of the security instrument
it is the borrower\'s responsibility to provide and maintain proper
flood insurance coverage. If flood insurance is not provided on any
property for which it is required, the flood insurance premium will be
paid to protect the Government\'s security interest. For borrowers
required to escrow for flood insurance, payment of the premium will be
handled in accordance with paragraph VIII of this instruction. Existing
borrowers required to escrow will be notified by letter at least 90 days
prior to initiating escrowing for flood insurance. If the Agency pays
the flood insurance premium for borrowers not required to escrow, the
cost will be charged to the borrower\'s account as a recoverable cost.
Failure to provide flood insurance is a nonmonetary default and will be
a consideration in determining if the loan is to be continued.\
(Added 03-25-91, SPECIAL PN.)

VI [COVERAGE AND PREMIUM RATES]{.underline}: Exhibit A sets forth limits
of coverage and chargeable premium rates under the program. Insurance
policies under the program can be obtained from any licensed property
insurance agent or broker serving the eligible community or from the
National Flood Insurers Association Servicing Company (Servicing
Company) for the state. The Servicing Company for each state is shown in
Exhibit B.

VII [ACCEPTABLE POLICIES AND SERVICING]{.underline}: The general
acceptance of policies and servicing of insurance will be performed in
accordance with RD Instruction 426.1. Any unusual situations that may
arise with respect to obtaining or servicing flood insurance should be
referred to the State Director. The State Director will attempt to
resolve any problems concerning the flood insurance program in the state
with the Servicing Company. Flood hazard boundary maps, insurance rate
tables, the insurability of specific structures, and other information
concerning the program may be obtained from the Servicing Company.
Difficulties in administering the program which the State Director is
unable to resolve should be referred to the National Office for
assistance.

VIII [BORROWERS REQUIRED TO ESCROW]{.underline}. For borrowers required
to use escrow accounts for the payment of real estate taxes and
insurance, the flood insurance premium will be paid when due from funds
contained in the escrow account. If the escrow account contains
insufficient funds to pay the flood insurance premium when due, the
County Supervisor will request the borrower to pay an amount equal to
the difference between the premium due and the escrow balance in a lump
sum within 30 days after notification. If the borrower fails to remit
the amount requested, the amount will be advanced and charged to the
borrower\'s account as a recoverable cost. The amortization period for
an advance due to an escrow shortage will be one year. Amortization of
the charge will be handled in accordance with 7 CFR part 3550. When a
borrower has more than one loan secured by the real estate on which the
flood insurance premium is being paid, the advance will be charged to
the initial or lowest numbered loan. (Revised 01-23-03, SPECIAL PN.)

ATTACHMENTS: Exhibits A and B

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RD Instruction 426.2

Exhibit A

I The following table sets forth the limits of coverage available under\
the program.

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\| \| \| \| \|Type of Structure \| Structure Coverage \| Contents
Coverage /4\|

\|\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\|\_Subsidized\|\_\_Total/3\|\_Subsidized\|\_Total\_\_\_\|

\| \| \| \| \| \|

\|Single Family, residential /1\| \$ 35,000 \|\$ 70,000 \| \$ 10,000 \|
\$ 20,000\|

\| \| \| \| \| \|

\|All other, residential /1 \| 100,000 \| 200,000 \| 10,000 \| 20,000\|

\| \| \| \| \| \|

\|All non-residential /2 \| 100,000 \| 200,000 \| 100,000 \| 200,000\|

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/1 For Alaska, Hawaii, and the Virgin Islands, the following limits of
coverages apply: Structure coverage for one family residential is
\$50,000 subsidized and \$100,000 total coverage, and structure coverage
for other residential, is \$150,000 subsidized and \$300,000 total
coverage.

/2 Includes hotels and motels with normal occupancy of less than 6
months.

/3 Coverage in amounts exceeding the subsidized limits is available only
after an actuarial cost has been established and flood insurance rate
map issued.

/4 Contents of a building must be insured separately from the building.
However, coverage is applicable to contents only while in an enclosed
building. Therefore, coverage cannot be written on the contents of a
three-walled machinery shed or a similar type open building.

II The following table sets forth the applicable premium rates:

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\| Type of structure \| Rates Per \$100 of coverage (Subsidized
only)\_\|

\|\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\|\_\_\_\_\_\_\_\_\_Structures\_\_\_\_\_\|\_\_\_\_\_\_Contents\_\_\_\_\_\_\_\|

\| \| \| \|

\|All residential \| \$0.25 /1 \| \$0.35 \|

\| \| \| \|

\|All non-residential \| 0.40 /1 \| 0.75 \|

\|\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\|\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\|\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\|

(4-22-74) SPECIAL PN 4-22-74

RD Instruction 426.2

Exhibit A

Page 2

/1 Actuarial (non-subsidized) rates are applicable to any structure, the
construction or substantial improvement of which started after December
31, 1974, or the date on which the initial rate map was issued,
whichever is later, in identified areas having special flood or mudslide
hazards.

## oOo 

RD Instruction 426.2

Exhibit B

SERVICING COMPANY

The Servicing Company Office to be contacted for information relative to
the availability of coverage under the National Flood Insurance Program,
flood hazard boundary maps, insurance rate tables, and related material.

E.D.S. Federal Corporation

National Flood Insurance

Post Office Box 34294

Bethesda, MD 20034

Phone Toll Free: 800-638-6620

Commercial Phone: (301) 898-5900

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(4-26-78) PN 619