National Flood Insurance Program

Mandatory Purchase of

Flood Insurance Guidelines

September 2007
i

CONTENTS

Preface......................................................................................................................................vii 

Highlights of the 2007 Edition.................................................................................................ix 

Section A. Introduction 

1. Background of the National Flood Insurance Program ..................................................1 

 a. History.............................................................................................................................1 

 b. Statutory Authority .........................................................................................................1 

 c. Administration ................................................................................................................1 

2. Establishment of the NFIP — National Flood Insurance Act of 1968 ...........................1 

 a. Insurance Protection........................................................................................................1 

 b. Hazard Mitigation ...........................................................................................................2 

3. Introduction of the Mandatory Flood Insurance Purchase Requirement — 

 Flood Disaster Protection Act of 1973...............................................................................2 

4. Strengthening the Mandatory Purchase Requirement — 

 National Flood Insurance Reform Act of 1994.................................................................3 

a. Entities Encompassed by the Law ..................................................................................3 

b. Lending Agency Regulations..........................................................................................4 

c. Designated Loans............................................................................................................4 

d. Insurance Required at Loan Closing...............................................................................5 

e. Life-of-Loan Insurance Coverage...................................................................................5 

f. Lender Responsibilities...................................................................................................5 

g. Disaster Assistance..........................................................................................................7 

5. Operation of the NFIP ........................................................................................................7 

Section B. Coverage Availability 

1. Participating Communities..................................................................................................9

a. Community Ordinances .....................................................................................................9 

b. Studies and Maps.............................................................................................................10 

c. Determining Location of a Building................................................................................11 

(1) Significance of a Building’s Location.......................................................................11 

(2) Responsibility in Determining a Building’s Location...............................................11 

(3) Effect of Grandfathering on Flood Zone Determination...........................................12 

(4) Flood Zone Determination Fee Charged by Lender..................................................13 

d. Letters of Map Change (LOMCs) and Appeal Options ..................................................14 

(1) Letter of Determination Review (LODR) .................................................................14 

(2) Letter of Map Amendment (LOMA).........................................................................17 

(3) Letter of Map Revision (LOMR) ..............................................................................17 

(4) Community-Initiated Map Revisions ........................................................................18 

(5) Map Availability........................................................................................................18

2. Non-Participating Communities and Restricted Coverage Areas .................................19 

 a. Regulated Lending Permitted ..........................................................................................19 

 b. Federal Financial Assistance and Disaster Assistance Limited.......................................20 
 ii

 c. Notification of the Unavailability of Federal Disaster Assistance ..................................20 

 d. Buildings Ineligible for NFIP Coverage ......................................................................... 20 

(1) Underwriting Restrictions .........................................................................................20 

(2) CBRS Areas and OPAs............................................................................................. 21 

(3) Buildings in Violation of State or Local Laws..........................................................22 

Section C. General Mandatory Purchase Provisions 

1. Entities Encompassed by the Law...................................................................................23 

 a. Federally Regulated Lenders ........................................................................................23 

 b. Government-Sponsored Enterprises .............................................................................25 

 c. Federal Agency Lenders ...............................................................................................26 

2. Specific Provisions of the Law ......................................................................................... 26 

 a. Limits Available............................................................................................................ 26 

(1) Land and Land Values Not Insurable .....................................................................27 

(2) Calculating Coverage.............................................................................................. 27 

(3) Loss Payments ........................................................................................................ 28 

(4) Deductible............................................................................................................... 29

(5) No Coverage if Land Loan Only ............................................................................ 29 

(6) Low-Value Building on High-Value Land .............................................................29 

(7) Buildings in the Course of Construction................................................................. 30 

(8) Manufactured (Mobile) Homes/Travel Trailers......................................................31 

(9) Personal Property....................................................................................................31 

 b. Underinsured Buildings ................................................................................................32 

 c. Home Equity and Second Mortgages ...........................................................................32 

 d. Notification Requirements............................................................................................34 

 (1) Notice of Special Flood Hazard and 

 Availability of Federal Disaster Relief Assistance ................................................34 

 (2) Notification of Change of Servicer.........................................................................35 

 (3) Expiration/Renewal Notice..................................................................................... 36 

 e. Standard Flood Hazard Determination Form................................................................36 

 (1) Determination Process ............................................................................................37 

 (2) Instructions for Using the SFHDF .......................................................................... 38 

 f. Waiting Period and Exceptions..................................................................................... 38 

 (1) Coverage Obtained in Conjunction with a Loan.....................................................38 

 (2) Assignment of Policy.............................................................................................. 39 

 g. Escrow Requirements ...................................................................................................39 

 (1) Real Estate Settlement Procedures Act...................................................................39 

 (2) Applicability ........................................................................................................... 39 

 (3) Escrow Exclusions.................................................................................................. 40 

 h. Force Placement............................................................................................................40 

 (1) Authority................................................................................................................. 40 

 (2) Applicability ........................................................................................................... 41 

 (3) MPPP Method of Placement................................................................................... 42 

 (4) Standard NFIP Policy ............................................................................................. 42 

 (5) Private Flood Insurance .......................................................................................... 42 

 i. Exceptions..................................................................................................................... 42 

 (1) State-Owned Property............................................................................................. 42 

 (2) Small Loan..............................................................................................................43 
iii

Section D. Condominiums, Cooperatives, Timeshares 

1. Condominium Association Responsibilities and Statutory Requirements ..................45 

 a. Residential Condominium Building Association Policy (RCBAP)..............................45 

 (1) Statutory Requirements...........................................................................................46 

 (2) Evidence of Compliance .........................................................................................46 

 (3) Coverage .................................................................................................................47 

 (4) Policy Limits ...........................................................................................................47 

 (5) Valuation.................................................................................................................47 

 (6) Coinsurance Provision ............................................................................................47 

 (7) Assessments ............................................................................................................48

 b. Dwelling Form Policy...................................................................................................48 

 (1) Unit Owner’s Building Coverage............................................................................48 

 (2) Unit Owner’s Personal Property Coverage.............................................................49 

 (3) Loss Assessment Coverage.....................................................................................49 

 c. General Property Form Policy ......................................................................................50 

2. Cooperative Associations..................................................................................................50

3. Timeshares.........................................................................................................................50 

4. Homeowners Associations ................................................................................................50 

5. Secondary Market.............................................................................................................51 

 a. Fannie Mae....................................................................................................................51 

 b. Freddie Mac ..................................................................................................................51 

Section E. Implementation of Key Provisions 

1. Tripwires............................................................................................................................53 

 a. Loan Activity ................................................................................................................53 

 b. Loan Transfer or Purchase ............................................................................................53 

 c. Portfolio Review ...........................................................................................................55 

2. Safety and Soundness........................................................................................................56 

3. Table Funding ...................................................................................................................56 

4. Impact on Servicers...........................................................................................................57 

5. Private Flood Insurance ...................................................................................................57

 a. Licensure.......................................................................................................................58 

 b. Surplus Lines Recognition (Non-Residential Commercial) .........................................58 

 c. Requirement of 45-Day Cancellation/Non-Renewal Notice.........................................58 

 d. Breadth of Policy Coverage ..........................................................................................58 

 e. Strength of Mortgage Interest Clause ...........................................................................58 

 f. Legal Recourse..............................................................................................................58 

6. Regulatory Overview ........................................................................................................58 

 a. Regulatory Examinations..............................................................................................58 

 b. Regulatory Penalties .....................................................................................................59

7. Civil Liability.....................................................................................................................60 

Appendix 1. Legal References.............................................................................................. 1-1 

Appendix 2. FDIC Regulations ............................................................................................ 2-1 

Appendix 3. Standard Flood Hazard Determination Form.............................................. 3-1 
 iv

Appendix 4. Notice Requirements of the Statute ................................................................4-1 

Appendix 5. Flood Insurance Resources..............................................................................5-1 

Appendix 6. 30-Day Waiting Period.....................................................................................6-1 

Appendix 7. MPPP Guidelines and Requirements .............................................................7-1 

Glossary ............................................................................................................................ GLS 1 

Index...................................................................................................................................IND 1 
v

ILLUSTRATIONS 

Mandatory Purchase at Loan Origination ...................................................................................6 

NFIP Operations and Functional Relationships..........................................................................8 

Example of RCBAP Coinsurance Penalty ................................................................................48 

RCBAP Loss Settlement Formula ............................................................................................48 

Example of Adequate Amount of Insurance, Avoiding RCBAP Coinsurance Penalty............48 

Tripwires During Life of Loan..................................................................................................54 

Standard Flood Hazard Determination Form.................................................... 3-1 (Appendix 3) 
 vi

TABLES 

NFIP Maximum Limits of Coverage ........................................................................................26 

Flood Insurance Resources ............................................................................... 5-1 (Appendix 5) 

Mortgage Portfolio Protection Program Rate and 

Increased Cost of Compliance (ICC) Table...................................................... 7-5 (Appendix 7) 
 vii

PREFACE 

The Federal Emergency Management Agency (FEMA) is pleased to provide you with this 

revised 2007 edition of the Mandatory Purchase of Flood Insurance Guidelines. 

The Mandatory Purchase of Flood Insurance Guidelines booklet provides guidance to the 

federally regulated lending industry for implementing the mandatory purchase provisions of 

the National Flood Insurance Reform Act of 1994 and other key legislation that governs the 

National Flood Insurance Program (NFIP). The mandatory purchase law directed the Federal 

agency lender regulators and Government-Sponsored Enterprises (GSEs) to develop and 

adopt regulations requiring lenders subject to their jurisdiction not to make, increase, renew, 

or extend any loan on applicable property unless flood insurance is purchased and maintained 

to protect that property securing loans in high flood risk areas. 

This document was designed to promote greater uniformity and understanding of the 

requirements of the law among Federal agency lender regulators, GSEs, Federal agency 

lenders, and applicable lending institutions. These guidelines are intended to augment, not 

replace, a review of the applicable statutes and regulations, and are not intended to provide 

legal guidance. 

Implementation of the mandatory flood insurance purchase requirements as explained in these 

guidelines is the responsibility of the various Federal agencies that oversee lenders. Each 

Federal lending regulator and GSE has the responsibility to issue its own regulations to 

implement the statutory requirements. 

The authority of FEMA is limited to administering the NFIP, which enables property owners 

in participating communities to purchase federally backed flood insurance. FEMA does not 

have statutory responsibility for enforcing the mandate to purchase flood insurance. 

This 2007 edition of the guidelines clarifies some of the complex issues that have arisen since 

the 1999 edition and incorporates industry best practices and lessons learned for 

implementing statutory requirements. A supplement may be added to capture subsequent 

changes that may result from future legislation. 

Some of the highlights of this edition are described on page ix. 
viii
 ix

HIGHLIGHTS OF THE 2007 EDITION 

Includes discussion of the legislative history of the NFIP and describes the federally regulated 

lending agencies and the types of lending institutions they each supervise. Incorporates 

flowchart illustrating mandatory purchase process at loan origination. (Section A) 

Includes link to information about the NFIP and levees. Clarifies processing information for 

Letters of Map Change. (Section B) 

Explains options for purchasing coverage for buildings in the course of construction. Specifies 

that there is no 30-day waiting period for this coverage. (Section C) 

Includes the Program change that effective October 1, 2007, the Declarations Page of each 

Residential Condominium Building Association Policy (RCBAP) issued or renewed must 

show the building’s Replacement Cost Value (RCV) and the number of units within that 

building. (Section D) 

Recommends 100-percent RCV for RCBAP coverage. Clarifies application of coinsurance 

penalties and loss assessments. Updates deductible information for Government-Sponsored 

Enterprises. (Section D) 

Incorporates flowchart describing tripwires during the life of loan. Expands discussion of 

regulatory penalties. (Section E) 

Updates language referencing NFIP history and legal citations. (Appendix 1) 

Provides version of federally regulated agency lender regulations. (Appendix 2) 

Includes most current Standard Flood Hazard Determination Form. (Appendix 3) 

Provides two separate Sample Notices of Special Flood Hazard and Availability of Federal 

Disaster Relief Assistance – one for participating communities and one for non-participating 

communities. (Appendix 4) 

Provides contact information for federally regulated lending agencies, GSEs, and floodrelated resources. (Appendix 5) 

Expands waiting period discussion to correspond with the NFIP Flood Insurance Manual.

(Appendix 6) 

Updates the Mortgage Portfolio Protection Program information. (Appendix 7) 

Updates the Glossary for consistency with the Flood Insurance Manual. (GLS) 

Expands the Index. (IND) 
x

 1 Section A. Introduction 

SECTION A 

INTRODUCTION 

1. Background of the National Flood 

Insurance Program 

a. History 

Flooding has long been the costliest and 

most devastating disaster in the United 

States. For decades, the national response to 

flood disasters was generally limited to 

constructing flood-control works such as 

dams, levees, seawalls, and the like, and 

providing disaster relief to flood victims. 

This approach did not reduce losses, nor did 

it discourage unwise development. In 

addition, building techniques to reduce flood 

damage were often overlooked. To 

compound the problem, the public generally 

could not buy flood coverage from 

insurance companies, which were largely 

unwilling to underwrite and bear the risk of 

flood because of its catastrophic nature. 

In the face of mounting flood losses and 

escalating costs of disaster relief to the 

general taxpayers, the U.S. Congress created 

the National Flood Insurance Program 

(NFIP). The intent of Congress was to 

reduce future flood damage through 

community floodplain management ordinances, and provide protection for property 

owners against potential losses through a 

Federal insurance mechanism that requires a 

premium to be paid for the protection. 

b. Statutory Authority 

Key legislation that governs the NFIP 

includes: 

• The National Flood Insurance Act of 

1968 (established the NFIP) 

• The Flood Disaster Protection Act of 

1973 (introduced the mandatory 

purchase provisions)

• The National Flood Insurance Reform 

Act of 1994 (strengthened the mandatory 

purchase provisions of the 1973 Act) 

• The Flood Insurance Reform Act of 

2004 (focused on severe repetitive loss 

properties and miscellaneous topics that 

did not affect the requirement to 

purchase flood insurance). 

Citations referring to the statutory authority 

of the program are found in Appendix 1, 

Legal References. 

c. Administration 

The NFIP is administered by the Mitigation 

Division of the Federal Emergency Management Agency (FEMA), a component of the 

U.S. Department of Homeland Security (DHS). 

2. Establishment of the NFIP — 

National Flood Insurance Act of 1968 

Through the National Flood Insurance Act of 

1968 (42 U.S.C. §4001), Congress authorized 

the NFIP, which provided an opportunity for 

property owners to purchase flood insurance 

protection made available by the Federal 

Government for buildings and their contents. 

The NFIP combines the concepts of 

insurance protection and hazard mitigation. 

This program provides an incentive for 

communities to adopt floodplain management 

ordinances to mitigate the effects of flooding 

on new and existing construction. 

a. Insurance Protection 

The 1968 Act made federally backed flood 

insurance available to owners of improved 

real estate or manufactured (mobile) homes 

located in low-to-moderate and high flood 

risk areas if their community participated in 

the NFIP. 
Section A. Introduction 2 

The Act defined improved real estate as real 

estate upon which a building is located. 

Under the NFIP, this means a walled and 

roofed building or a building in the course 

of construction that qualifies for insurance 

coverage. The term “improved real 

property,” as used throughout these 

guidelines, includes manufactured (mobile) 

homes, as defined in the NFIP’s Standard 

Flood Insurance Policy (SFIP). 

b. Hazard Mitigation 

The 1968 Act adopted a community 

approach to flood hazard mitigation. The 

law described two ways for a community to 

establish its eligibility to participate in the 

NFIP: 

• By adopting minimum regulatory 

standards in accordance with FEMA 

floodplain management guidelines, 

which help to save lives and reduce 

flood damage to property. 

• By enforcing its own regulations to 

ensure that new construction and 

substantial improvements to existing 

buildings within identified high flood 

risk areas called Special Flood Hazard 

Areas (SFHAs) are designed to 

minimize future flood damage. 

If a community does not participate in the 

program, property owners in that 

jurisdiction are not able to purchase 

federally backed flood insurance. Also, 

Federal grants, loans, disaster assistance, 

and Federal mortgage insurance are 

unavailable for the acquisition or 

construction of structures located or to be 

located in SFHAs shown on the Flood 

Insurance Rate Maps (FIRMs). 

Similarly, if a community does not 

participate in the program, property owners 

are not subject to Federal requirements of 

mandatory flood insurance. However, a 

lender is still required to inspect any flood 

maps to determine flood hazard risk and 

provide notice of such risk. A lender may 

require a borrower to obtain non-federally 

backed private flood insurance, if available, 

even in the absence of a Federal mandatory 

purchase requirement. 

An eligible community is a political 

subdivision with the authority to enact 

regulations in SFHAs. An SFHA is an area 

within a floodplain that has a 1-percent or 

greater chance of a flood occurring in any 

given year. SFHAs are delineated on flood 

maps issued by FEMA for individual 

communities. These high flood risk zones 

are represented on the flood maps by the 

darkly shaded areas with zone designations 

that include the letter A or V. Eligible 

communities that take the steps outlined 

above become NFIP participating communities. 

The 1968 Act laid a solid foundation for 

community mitigation of flood risks. 

However, most property owners still were 

not buying flood insurance protection, and 

expensive disaster assistance payouts 

continued. 

3. Introduction of the Mandatory Flood 

Insurance Purchase Requirement — 

Flood Disaster Protection Act of 1973 

From 1968 until the adoption of the Flood 

Disaster Protection Act of 1973, the 

purchase of flood insurance was voluntary. 

However, the 1973 Act mandated flood 

insurance coverage for many properties. For 

the first time, federally regulated lending 

institutions could not make, increase, 

extend, or renew any loan secured by 

improved real property located in an SFHA 

in a participating community unless the 

secured building and any personal property 

securing the loan were covered for the life 

of the loan by a flood insurance policy. This 

measure was necessary because, after major 

flooding disasters, it became evident that 

relatively few individuals in eligible 
 3 Section A. Introduction 

communities who sustained flood damage 

had purchased flood insurance. 

This general low level of coverage persisted 

for various reasons, including the following: 

 Some homeowners believed that they •

simply could not afford the cost of flood 

insurance in addition to mortgage 

payments and homeowners insurance. 

 Federally regulated lending institutions •

often were relaxed in complying with 

the mandatory purchase provision 

without the sanction of a penalty. 

• Homeowners who purchased flood 

insurance at the origination of their 

mortgages often allowed their policies to 

lapse. 

4. Strengthening of the Mandatory 

Purchase Requirement — National 

Flood Insurance Reform Act of 1994 

The National Flood Insurance Reform Act 

of 1994 (the 1994 Reform Act) is part of 

Title V of the Riegle Community 

Development and Regulatory Improvement 

Act of 1994 and amended 42 U.S.C. §4001 

et seq. The 1994 Reform Act imposed 

significant new obligations on lenders and 

servicers and tightened the requirement for 

the receipt of disaster assistance. 

After the multibillion-dollar flood damage in 

the Midwest during the summer of 1993, 

Congress revisited the mandatory purchase 

law and enacted the 1994 Reform Act. The 

reasons for the Reform Act included the 

NFIP’s low reserves, resulting from a series 

of storms, as well as a low level of 

participation among eligible property 

owners. At that time, it was estimated that 

slightly more than 2 million of the 10 

million households then identified in SFHAs 

were covered by flood insurance. 

The 1994 Reform Act amended the previous 

law to strengthen compliance and ensure 

that flood insurance is purchased and 

maintained for the term of the loan by 

adding the following requirements: 

• Established the requirement to escrow 

flood insurance premiums when 

escrowing for other purposes; 

• Provided statutory authority and 

requirement for lenders and servicers to 

force place coverage when it is determined that flood insurance is inadequate 

or non-existent; 

• Provided enhanced flood hazard notice 

requirements; 

• Set forth new authority for lenders to 

charge reasonable fees for determining 

whether a property is located in an 

SFHA; and 

• Established other provisions necessary 

to implement the 1994 Reform Act. 

The 1994 legislation contained important 

reforms to improve the financial condition 

of the NFIP. A primary objective was to 

strengthen compliance with the mandatory 

purchase requirements by lenders, servicers, 

and secondary-market purchasers, and thus 

increase participation nationwide by owners 

of eligible properties in high flood risk 

areas. The ultimate goals were to provide 

additional income for the National Flood 

Insurance Fund and decrease the financial 

impact of flooding to the Federal 

Government, taxpayers, and citizens in areas 

most prone to flooding. 

a. Entities Encompassed by the Law 

The 1994 Reform Act amended §4012a of 

42 U.S.C. to address flood insurance 

purchase and strengthen compliance by 

adding the five requirements listed above. 
Section A. Introduction 4 

The essential part of the compliance 

provision is contained in §4012a(b), which 

addresses three kinds of lenders: 

• Federally Regulated Lenders 

• Government-Sponsored Enterprises 

(GSEs) for Housing 

• Federal Agency Lenders. 

The law focuses on compliance with the 

mandatory purchase requirement as the 

responsibility of federally regulated private 

lenders and GSEs that purchase loans in the 

secondary market. These entities must 

ensure that a building or manufactured 

(mobile) home and any applicable personal 

property securing a loan in an SFHA are 

covered by adequate flood insurance for the 

term of the loan. 

b. Lending Agency Regulations 

Although the intent of the law is to require 

borrowers to purchase flood insurance, the 

requirements are directed to federally 

regulated and federally insured lenders and 

to secondary-market entities involved in 

mortgage loan transactions. Agencies that 

supervise federally regulated lenders 

include: 

• Board of Governors of the Federal 

Reserve System (FRS) (State-chartered 

banks that are members of the FRS) 

• Office of the Comptroller of the 

Currency (OCC) (Nationally chartered 

banks) 

• Office of Thrift Supervision (OTS) 

(Nationally chartered thrift institutions) 

• Federal Deposit Insurance Corporation 

(FDIC) (State-chartered banks that are 

not members of the FRS) 

• National Credit Union Administration 

(NCUA) (Nationally chartered credit 

unions) 

• Farm Credit Administration (FCA) 

(Institutions that make up the Farm 

Credit System). 

The flood insurance requirements do not 

apply to lenders or servicers that are not 

federally regulated and that do not sell loans 

to the Federal National Mortgage Association (Fannie Mae) and the Federal Home 

Loan Mortgage Corporation (Freddie Mac) 

or other GSEs. 

The law requires Federal financial 

regulatory agencies to develop regulations 

that direct their federally regulated lenders 

not to make, increase, extend, or renew any 

loan on applicable property unless flood 

insurance is purchased. The affected 

agencies issued substantially similar joint 

final regulations in 1996; a version of the 

regulations is included in Appendix 2, FDIC 

Regulations. 

c. Designated Loans 

The 1994 Reform Act’s mandatory purchase 

requirement applies to all federally related 

loans outstanding on or after the date of the 

legislation’s enactment, September 23, 

1994. Each instance of making, increasing, 

extending, or renewing a “designated 

loan”—a loan secured by a building or 

manufactured (mobile) home located or to 

be located in an SFHA, where flood 

insurance is available under the 1968 Act—

serves as a tripwire of sorts for compliance 

with the mandatory flood insurance 

purchase requirements. In the modern 

mortgage marketplace, this approach makes 

compliance by lenders increasingly more 

likely, as borrowers obtain new loans on 

existing buildings or refinance existing 

loans. 

At each tripwire in the mortgage process, 

the lender or servicer must ensure that flood 

insurance is purchased and maintained. 
 5 Section A. Introduction 

(See Section E of these guidelines, 

beginning on page 53, for more information 

on tripwires during the life of the loan.) The 

flowchart on the following page illustrates 

the mandatory purchase process. 

d. Insurance Required at Loan Closing 

A designated loan must have flood 

insurance as a condition of closing. If a 

borrower will not voluntarily obtain 

coverage, the lender must deny the loan. A 

lender cannot accept a borrower’s assurance 

that he or she will obtain coverage in the 

future or grant the lender indemnity while he 

or she seeks coverage. Closing a designated 

loan without coverage in place constitutes a 

violation of the regulation. 

e. Life-of-Loan Insurance Coverage 

A key clarification of the 1994 Reform Act 

is that flood insurance must be obtained and 

maintained during the term of the loan. 

Regulated lending institutions and GSEs are 

responsible for providing notice of and 

requiring flood insurance coverage for the 

term of the loan on buildings located or to 

be located in any SFHA in participating 

communities. Flood insurance will be 

required even if the SFHA designation is 

first identified after settlement, but during 

the term of the loan. This requirement is 

designed to combat coverage lapses allowed 

to occur by individuals who believe they 

will not be flooded, and therefore 

discontinue payment of flood insurance 

premiums during the term of the loan. 

f. Lender Responsibilities 

The statutory requirements apply when 

improved real property (that is, a building) 

or manufactured (mobile) home is taken as 

security for a loan. A lender’s 

responsibilities include the following 

actions: 

• Determine whether the building or 

manufactured (mobile) home offered as 

security for a loan is, or will be, located 

in an SFHA; 

• Document the determination of flood 

hazard status, whether the building is in 

a low-to-moderate flood risk area or in 

an SFHA, on the Standard Flood Hazard 

Determination Form (SFHDF) shown in 

Appendix 3; 

• Provide notice to the borrower if 

collateral is, or will be, in an SFHA per 

the appropriate sample Notice of Special 

Flood Hazard and Availability of 

Federal Disaster Relief Assistance, the 

two versions of which are shown in 

Appendix 4; 

• Require that adequate flood insurance is 

obtained for buildings in SFHAs; 

• Require the escrow of flood insurance 

premiums if escrow is required for other 

items, such as hazard insurance and 

taxes; 

• During the term of the loan, ensure that 

flood insurance is maintained or 

obtained if the lender becomes aware 

that the building involved subsequently 

becomes part of an SFHA; and 

• Force place flood insurance if the 

borrower allows the policy to lapse or if 

insurance is inadequate. 

While the mandatory purchase requirement 

applies only to buildings located in SFHAs 

of participating communities, NFIP flood 

insurance is available and highly encouraged 

in low-to-moderate flood risk areas of NFIP 

participating communities. This is especially 

significant because, historically, about 25 

percent of the NFIP claims paid have 

actually been outside of SFHAs. 

Lenders and property owners may wish to 

exercise additional caution and consider 

flood insurance in areas subject to flooding 

due to storm water, in areas where 
Section A. Introduction 6 

MANDATORY PURCHASE AT LOAN ORIGINATION 

(Making, increasing, renewing, or extending a loan) 
 7 Section A. Introduction 

the NFIP has used approximate methods to 

map SFHAs, or in remote locations where 

no SFHAs have been designated by FEMA. 

A requirement for flood insurance on 

secured property that is not subject to the 

mandatory purchase requirement is a matter 

of contract between the lender and borrower. 

Some buildings in a participating community may be ineligible for Federal flood 

insurance because of statutory restrictions or 

NFIP underwriting rules. (See pages 20-22 

of these guidelines for a discussion of the 

unavailability of Federal flood insurance in 

such instances.) 

g. Disaster Assistance 

Federal disaster assistance, including 

disaster assistance loans from the U.S. Small 

Business Administration (authorized under 

Section 408 of the Stafford Act, discussed 

on page 20), generates the requirement to 

purchase flood insurance. The flood 

insurance requirement applies to disaster 

assistance for repair or replacement of 

buildings or manufactured (mobile) homes 

and/or personal property in SFHAs. Disaster 

assistance for temporary housing is not 

affected by this provision. 

Removing the availability of Federal 

disaster assistance to previous recipients of 

such assistance who live in SFHAs and have 

not yet purchased their own flood insurance, 

achieves two goals: 

• Encourages individuals to fund their 

own recovery, rather than relying upon 

taxpayer funded State or Federal disaster 

assistance; 

• Encourages the use of flood insurance, 

which is a more efficient vehicle for 

funding flood loss recovery. 

5. Operation of the NFIP 

In 1983, the Federal Government decided to 

partner with the insurance industry to 

increase the sale of flood insurance. These 

private insurance industry carriers 

participating in the NFIP are called Write 

Your Own (WYO) companies because they 

write and service federally backed SFIPs 

under their own names. A list of these WYO 

companies can be found online at 

http://www.fema.gov/nfipInsurance/compan

ies.jsp. 

The chart on the following page provides a 

snapshot of current NFIP operations and the 

functional relationships among major 

participants in the NFIP. 
Section A. Introduction 8 

NFIP OPERATIONS AND FUNCTIONAL RELATIONSHIPS 

As shown below, the NFIP makes federally backed flood insurance available to consumers in 

two ways. One is through NFIP Direct Program agents who deal directly with FEMA. The 

other is through the Write Your Own (WYO) Program, which allows consumers to purchase 

flood insurance from their regular insurance agents and/or companies. 

Under the WYO Program, private property and casualty insurance companies that enter into 

an arrangement with FEMA can write Federal flood insurance and adjust claims under their 

own names. These WYO companies receive an expense allowance and transfer premium 

income in excess of claims to the Federal Government. FEMA funds the losses in excess of 

premiums and sets the rates, coverage, limitations, and eligibility requirements. The flood 

insurance premium charged by a WYO company is the same as that charged by the NFIP 

Direct Program. 

 Contractual Relationship 

 Relationship Based on Arrangement with FEMA 

 Relationship Undertaken at the Direction of FEMA

NFIP BUREAU 

AND STATISTICAL 

AGENT 

• Processes statistical & 

financial data about 

NFIP policies in force 

• Serves as information 

clearinghouse 

WRITE YOUR OWN 

(WYO) 

COMPANIES 

• Sell & service policies 

by FEMA arrangement 

• Adjust & settle flood 

insurance claims 

• Submit transactions 

to NFIP Bureau for 

processing 

• Write ~95% of NFIP 

business 

NFIP 

SERVICING AGENT 

(DIRECT PROGRAM) 

• Sells & services 

policies written directly 

through the NFIP 

• Maintains Special 

Direct Facility for 

severe repetitive loss 

properties 

• Sells Group Flood 

Insurance Policies 

FEMA 

• Administers the NFIP for DHS 

• Provides guidance to lenders and 

other NFIP stakeholders in meeting 

mandatory purchase requirements 

 9 Section B. Coverage Availability 

SECTION B 

COVERAGE AVAILABILITY 

As discussed in the Introduction, the 

National Flood Insurance Program (NFIP) 

takes a community approach to mitigating 

flood hazards and to offering flood 

insurance. This section describes the 

availability of Federal financial assistance, 

including NFIP coverage in specific types of 

communities. 

1. Participating Communities 

a. Community Ordinances 

The Federal Emergency Management 

Agency (FEMA) conducts Flood Insurance 

Studies throughout the United States, in 

cooperation with community officials, to 

determine the location of high flood risk 

areas, called Special Flood Hazard Areas 

(SFHAs), in each community. On the basis 

of these studies, FEMA notifies each 

community of its SFHAs and issues Flood 

Insurance Rate Maps (FIRMs) for 

communities. 

To participate in the NFIP, the community 

enters into an agreement with FEMA. Under 

this agreement, the community adopts and 

enforces ordinances designed to reduce the 

risk of flood damage to buildings in that 

community. These ordinances restrict 

development and limit imprudent building 

within SFHAs, identified on the FIRMs as 

Zones A or V. In exchange, NFIP flood 

insurance becomes available for most 

residential and commercial buildings in the 

community. Flood insurance also is 

available in low-to-moderate flood risk areas 

identified on the FIRMs as Zones B, C, or 

X, although not mandated by law. 

Historically, about one-quarter of all NFIP 

flood claims have been paid in these lowerrisk areas. 

The community’s floodplain management 

ordinances must require building permits for 

all development within the SFHA. New and 

substantially improved residential buildings 

must be constructed with the lowest floor at 

or above the Base Flood Elevation (BFE), if 

the BFE is shown on the FIRM. Nonresidential buildings can be either elevated or 

floodproofed (made watertight) to the BFE. 

Participating communities that fail to 

adequately enforce their floodplain 

management ordinances may be placed on 

probation if they do not take corrective 

actions within a specified time. NFIP 

policyholders in that community will be 

notified that probation is pending and that 

their flood insurance policies may become 

subject to a premium surcharge. If a 

community fails to bring its floodplain 

management program into compliance with 

the NFIP requirements, it may be suspended 

from the NFIP, which would terminate its 

status as a participating community. In that 

event, NFIP policies would not be renewed 

for property owners in that community, no 

new policies would be issued, and Federal 

disaster assistance would be limited. 

Most suspended communities quickly 

enforce the ordinances and become 

participating again. The success of the 

NFIP’s growth can be credited in part to the 

incentive that promotes the receipt of 

Federal benefits contingent upon the 

implementation of land use controls at the 

local level. 

The NFIP also has special provisions for 

those communities whose floodplain 

management activities go beyond the 

minimum required by law. The Community 

Rating System (CRS), codified in the 

National Flood Insurance Reform Act of 

1994, provides incentives in the form of 

reduced insurance premiums to policyholders in communities that voluntarily 

adopt and enforce measures exceeding 

minimum program criteria to reduce the risk 

of flood damage. 
Section B. Coverage Availability 10 

b. Studies and Maps 

As of this edition, more than 20,300 

communities participate in the NFIP. The 

NFIP Community Status Book, available 

online at http://www.fema.gov/fema/csb.shtm, 

lists the status of NFIP participating and 

non-participating communities. It further 

identifies NFIP Regular Program communities, where most renters, homeowners, and 

businesses are eligible to purchase the maximum amount of flood insurance available 

under the NFIP for their type of building, or 

the replacement cost value of their building 

and/or its contents, whichever is less. This 

protection is available for buildings located 

inside and outside of SFHAs, subject to 

NFIP underwriting guidelines. 

The Community Status Book also identifies 

NFIP Emergency Program communities and 

communities that have been suspended. 

Lenders should be aware that a few NFIP 

participating communities remain in the 

Emergency Program, where only limited 

amounts of insurance are available. The 

applicable map for Emergency Program 

communities is the Flood Hazard Boundary 

Map (FHBM). Early in the evolution of the 

NFIP, all participating communities received 

FHBMs, which provided limited flood risk 

information. Once a FIRM, which is a more 

detailed map than the FHBM, was issued, it 

replaced the FHBM. At that time, these 

communities became eligible for conversion 

to the Regular Program. 

The official FIRM for a Regular Program 

community delineates the SFHAs and the 

applicable flood insurance risk zones. 

SFHAs are those areas within the floodplain 

that have a 1-percent chance of being 

flooded in any given year (base flood). Over 

a 30-year period (the life of most residential 

mortgages), there is at least a 26-percent 

chance that a building within an identified 

SFHA will be flooded. 

SFHAs are represented on FIRMs by darkly 

shaded areas designated with the letter A or V. 

FEMA generally performs engineering 

studies to determine the delineation of 

SFHAs. SFHAs are defined as Zones A, 

AO, A1-A30, AE, AR, AR/AO, AR/A1-A30, 

AR/AE, AR/AH, AR/A99, A99, AH, VO, 

V1-V30, VE, and V. These zones are highly 

susceptible to flooding; V-lettered zones are 

also subject to wave action. 

Older FIRMs show numbered A Zones (e.g., 

A1, A2, A30) and numbered V Zones (e.g., 

V1, V2, V30). On newer FIRMs, Zone AE 

represents former Zones A1-A30, and Zone 

VE represents former Zones V1-V30. As 

with other SFHAs, buildings located in the 

temporarily designated flood restoration 

zone (Zone AR) are subject to the 

mandatory purchase requirement. 

Older maps use Zones B and C to represent 

areas of moderate and low flood risk. Newer 

maps have replaced these designations with 

Zone X (shaded) and Zone X (unshaded), 

respectively. 

Areas for which FEMA has made no flood 

hazard evaluation, but for which flooding is 

considered possible, are designated as Zone 

D. Although these areas typically were undeveloped and sparsely populated when 

designated as Zone D, lenders should be 

aware that any new development in such 

areas may have increased the possibility of 

property damage from flooding. 

On the East Coast and Gulf Coast, and along 

the Great Lakes, the FIRM might also show 

Coastal Barrier Resources System (CBRS) 

areas. As explained in the discussion of the 

Coastal Barrier Resources Act and Coastal 

Barrier Improvement Act on pages 21-22 of 

these guidelines, the availability of Federal 

flood insurance is limited in CBRS areas. 

FEMA is responsible for identifying flood 

risks in areas behind levees through flood 

analysis and flood hazard mapping projects. 

FEMA has criteria for recognizing levees as 

providing protection against the 1-percentannual-chance flood. These criteria are 

located in Title 44 of the Code of Federal 
 11 Section B. Coverage Availability 

Regulations, Section 65.10. More information 

about the NFIP and levees is located at 

http://www.fema.gov/txt/plan/prevent/fhm/f

q_pal.txt. 

Finally, certain communities with no SFHAs 

indicated do not have published maps, and 

the entire area is considered to be in Zone X 

(unshaded). Although these areas may not 

be subject to the base flood, local drainage 

problems may cause damage to certain 

buildings. If a lender extends a loan in an 

unmapped participating community and has 

reason to believe there is a possibility of 

flood loss to the secured building, then 

safety and soundness dictate that flood 

insurance coverage should be in place. 

For buildings located outside the SFHAs, the 

statutory requirements do not obligate lenders 

to impose the mandatory flood insurance 

purchase requirement. However, in 

accordance with most mortgage documents, a 

mortgage lender is free to require a borrower 

to carry flood insurance, even if the building 

serving as security for a loan is located 

outside an SFHA. Flood insurance is 

available and encouraged for all eligible 

buildings in participating communities, 

whether inside or outside an SFHA. 

In the late 1990s, FEMA began developing a 

plan to modernize FIRMs, and Congress in 

the early 2000s authorized the first in a 

series of appropriations for FEMA to carry 

out this plan. Flood Map Modernization 

(“Map Mod”) is FEMA’s multi-year effort 

to update and transform flood maps into 

more reliable, easy-to-use, and readily 

available digital products. Map Mod enables 

communities and citizens across the country 

to more efficiently obtain flood hazard data, 

learn their flood risk, and make informed 

decisions about development, floodplain 

management, and mitigation projects that 

limit damages in future flooding events. 

Additional information about Map Mod is 

available at http://www.fema.gov/plan/

prevent/fhm/index.shtm. 

c. Determining Location of a Building 

(1) Significance of a Building’s Location 

As stated earlier, the statutory requirement to 

purchase flood insurance applies only when a 

loan is extended on improved real property 

(i.e., a building or manufactured [mobile] 

home) that is located or will be located in an 

SFHA in a participating community. The 

requirement is accomplished by completing 

the Standard Flood Hazard Determination 

Form (SFHDF), as discussed on pages 36-38. 

The current SFHDF and instructions for 

completing it are shown in Appendix 3. Any 

future revisions to the form will be available 

online at 

http://www.fema.gov/business/nfip/sfhdfor

m.shtm. 

Even though a portion of real property on 

which a building is located may lie within an 

SFHA, the purchase and notice requirements do not apply unless the building itself, 

or some part of the building, is in the SFHA. 

However, even if that part of the building 

within the SFHA is not subject to coverage 

(e.g., a deck), the entire building is considered to be in the SFHA. 

Lenders, on their own initiative, may require 

the purchase of flood insurance even if a 

building is located outside an SFHA. A 

decision to require coverage under such 

circumstances is not compelled by the 

statute, but is founded on the contractual 

relationship between the parties. Lenders 

have the prerogative to require flood 

insurance to protect their investments, 

provided that they have reserved that option 

in their mortgage loan document. 

(2) Responsibility in Determining a 

Building’s Location 

Section 42 of U.S.C. §4012a sets the 

ultimate responsibility to place flood 

insurance on the applicable lender, yet 

allows for limited reliance on third parties to 

the extent that the information they provide 

is guaranteed. The lender, servicer, or a 

third-party vendor may conduct the 

determination of a building’s location. 
Section B. Coverage Availability 12 

Under any alternative, the lender, using such 

evidence as is reasonable, must take the 

responsibility for making determinations and 

redeterminations. A financial institution 

cannot rely on the statements of a borrower 

that the structure in question is either inside 

or outside an SFHA. 

Lenders may reasonably seek assistance 

from third parties that have demonstrated 

their knowledge concerning flood map 

information. For regulatory purposes, 

reasonable reliance upon such services in the 

making of a lender’s determination is 

regarded as acceptable only to the extent 

that “such person guarantees the accuracy of 

the information.” 

Some third-party flood zone determination 

companies also provide a form of life-ofloan service that monitors the flood hazard 

status of the secured structure for the term of 

the loan. Third-party life-of-loan service is 

designed to discover a change in flood 

hazard status, thereby minimizing the 

administrative burden for the lender or 

servicer. The law does not require a lender 

to subscribe to a tracking service that 

provides life-of-loan monitoring. 

The determination of a building’s location 

must be made using the FIRM or FHBM and 

may be supplemented with other reliable 

information. If the flood zone designation 

noted on the SFHDF differs from the zone 

designation noted on the flood insurance 

policy, the lender should resolve it and 

document the reasons. There may be some 

legitimate reason for the discrepancy, such as 

the NFIP “grandfather” rules. In some cases, 

certain buildings may be grandfathered into 

previous zone designations using older 

maps, as described in the next subsection. 

This will manifest as an apparent zone 

discrepancy, although it may actually be correct. Lenders can use third-party resources 

to resolve zone disagreements and ensure 

proper documentation of discrepancies. 

In many instances, community officials, 

insurance company personnel, insurance 

agents, real estate agents, surveyors, or 

appraisers may be helpful and knowledgeable resources. However, to the extent 

that such parties cannot or will not grant 

guarantees, reliance upon the information 

they provide cannot be used for exculpatory 

purposes if the lender is confronted with a 

regulatory violation or a civil claim for 

damages. 

Regardless of how the determination is 

reached, the nondelegable obligation of the 

determination remains the responsibility of 

the lender. 

A lender may rely on a previous 

determination, not more than 7 years old, 

when increasing, extending, renewing, or 

purchasing a loan, but only when the 

previous determination was recorded on an 

SFHDF. This rule does not apply when a 

new loan is made, or if a map revision 

causes a building to be located within an 

SFHA, or if a map change occurs after the 

date of the previous determination. 

The law places the regulatory onus on the 

Federal financial regulatory agencies and 

GSEs to ensure that the lending institutions 

under their jurisdiction meet all requirements. Included in the statutory requirements 

are the lender’s determination of whether the 

security is located in an SFHA, the lender’s 

notice to the borrower of the SFHA, and the 

borrower’s requirement to purchase and 

maintain flood insurance as a condition for 

granting the loan. 

(3) Effect of Grandfathering on Flood 

Zone Determinations 

New flood maps sometimes identify larger 

areas of high flood hazard than do older 

maps. FEMA recognizes that property 

owners might not have built in high flood 

risk areas if the risks had been identified at 

the time. However, funding for new FIRMs 

has historically been inadequate, and 

development contributes to changes in flood 

risk within communities. 
 13 Section B. Coverage Availability 

Therefore, in fairness to policyholders who 

built in compliance with the existing 

floodplain management standards for their 

flood zones and/or have continuously 

maintained Federal flood insurance, FEMA 

developed grandfather rules to avoid 

penalizing these policyholders with higher 

rates. These rules allow policyholders to 

benefit in the premium rating of their 

buildings. 

For example, if a new policy is applied for, 

the rates can be based on the FIRM zone and 

the BFE on the old map in effect on the date 

the building was constructed provided that: 

• The building was built in compliance 

with the map in effect at the time of 

construction; and 

• The building has not been altered in any 

way that has resulted in a lowest floor, 

for rating purposes, situated lower than 

the BFE on that FIRM (e.g., enclosing 

the area below an elevated building); and 

• The building has not been substantially 

improved. 

The property owner or insurance producer 

must provide proper documentation to the 

Write Your Own (WYO) company or NFIP 

Servicing Agent. The documentation must 

include: the date of construction; the date of 

the FIRM; the zone on that FIRM in which 

the property is located; the BFE, if any, for 

that zone; a copy of the map panel showing 

the location of the building; and the rating 

element that is to be grandfathered (e.g., 

zone, BFE, elevation difference). A letter 

from a community official verifying this 

information also is acceptable. 

(4) Flood Determination Fee Charged by 

Lender 

The 1994 Reform Act gave lenders and 

servicers authority to pass on a “reasonable 

fee” to borrowers when a determination is 

made in conjunction with either the: 

• Making, increasing, extending, or 

renewing of a loan initiated by the 

borrower; or 

• Revision or updating of a map; or 

• Required force placement of coverage. 

Passing along a fee to the borrower is not 

allowed on a routine portfolio review unless 

the review results in discovery of a loan for 

which coverage is specifically required. 

When a flood map is revised, or in a 

situation when the Administrator (formerly 

Director) of FEMA determines that an area 

requires a review, a lender is permitted to 

conduct a search on its loan portfolio in the 

affected area and pass through the flood 

determination fee to all borrowers in these 

areas. The pass-through fee is permitted 

whether or not it is ultimately shown that 

coverage is required or already in existence 

on any of the affected buildings. 

The commentary that accompanied the 1994 

Reform Act states that the determination fee 

may include the life-of-loan charge assessed 

to monitor the loan for its term. The Act 

does not specifically define what constitutes 

reasonableness in evaluating the fee. Also 

unspecified is whether incidental expenses, 

cost, or profit margin may be factored into 

the fee. The amount of the fee remains 

subject to review on a case-by-case basis by 

the applicable regulator. 

Where an extension of credit is secured by 

an interest in real property, the Truth in 

Lending Act and its implementing regulation, Regulation Z, specifically provide 

that certain costs and fees, if bona fide and 

reasonable in amount, need to be disclosed, 

but need not be included in the calculation 

of the finance charge. The Truth in Lending 

statute provides that a flood zone 

determination charge is excludable as a 

finance charge only if it is imposed in 

connection with the initial decision to grant 

credit. Therefore, a flood zone search fee 

that does not contain a charge for life-of-loan 
Section B. Coverage Availability 14 

monitoring need not be included as part of 

the finance charge. The fee charged for the 

initial determination must appear on the 

HUD Good Faith Estimate, and the actual 

fee must be disclosed on the HUD-1 

Settlement Statement. 

The Truth in Lending law also requires that 

a fee for services to be performed 

periodically during the loan term (for 

example, the life-of-loan component that is 

charged to monitor continued compliance) 

may not be excluded in the calculation of the 

finance charge regardless of when paid. If a 

consolidated flood determination fee 

includes a life-of-loan component, which 

cannot be apportioned between an initial 

credit decision or future services, the entire 

charge is to be considered a finance charge. 

If a lender is uncertain about what portion of 

a fee is related to the initial decision to grant 

credit, the entire fee may be treated as a 

finance charge. 

Regulation Z does not come into play if a 

lender incurs flood zone determination 

expenses subsequent to the closing of the 

loan, such as expenses arising from a 

remapping or the transfer of a fee to the 

borrower. 

The 1994 Reform Act also contains an 

express provision that preempts other 

Federal or State law with respect to flood 

determination fees charged by lenders. 

d. Letters of Map Change (LOMCs) and 

Appeal Options 

Flood map questions may arise because the 

location of a building with respect to an 

SFHA is central to determining the 

applicability of the mandatory purchase 

provision, as well as the insurance premium 

rate. In theory, the area on a map 

encompassing a building’s location should 

reflect its susceptibility to flood. In practice, 

FIRMs cannot possibly reflect every nuance 

in the physical geography of an area. 

If a lender encounters a discrepancy in the 

flood zone designation, the parties involved 

in making the determination are encouraged 

to resolve the discrepancy before contacting 

FEMA for a final determination. 

This subsection discusses the options for a 

FEMA review to appeal flood zone 

determinations and the kinds of Letters of 

Map Change available: 

• Letters of Determination Review 

• Letters of Map Change (Letter of Map 

Amendment, Letter of Map Revision). 

Detailed information about the different 

types of Letters of Map Change, including a 

link to the fee schedule for Letters of Map 

Revision Based on Fill (discussed below) is 

available at 

http://www.fema.gov/hazard/map/lomc.shtm. 

The subsection concludes with discussions 

of: 

• Community-Initiated Map Revisions 

• Map Availability. 

Borrowers who seek personalized assistance 

may call a FEMA Map Specialist toll free at 

877-336-2627. 

(1) Letter of Determination Review 

(LODR) 

Determining whether a building is located in 

an SFHA requires an examination of the 

location of the building in relationship to the 

SFHA shown on the FIRM. However, 

despite FEMA’s efforts to make the maps as 

useful as possible, the boundary location of 

some SFHAs may be difficult to determine 

precisely. This creates a problem in deciding 

whether a building is subject to the 

mandatory purchase requirement. 

When a borrower disputes a lender’s 

determination that a property is in an SFHA 

and requires flood insurance, the 1994 Act 

allowed for the LODR review process. The 

borrower and lender may jointly submit a 
 15 Section B. Coverage Availability 

review request to the Administrator of 

FEMA during the 45-day period after the 

borrower is notified that flood insurance is 

required. The Administrator of FEMA will 

rule on the determination, provided the 

review request meets the stipulated criteria. 

The determination must have been 

conducted or obtained by a lender using the 

current printed map panel. The review 

process is intended to confirm or disprove 

the accuracy of the original determination. It 

is not intended to result in the initiation of a 

Letter of Map Amendment or Letter of Map 

Revision or resolve questions concerning the 

elevation of a building. 

FEMA will assess a flat fee to cover a 

majority of the costs associated with 

reviewing, recording, processing, and dispatching FEMA determinations. The fee will 

also apply to a finding of insufficient 

information. Requests submitted more than 

45 days after borrower notification will not 

be reviewed, will be returned with the fee, 

and should not be resubmitted. 

Because the fee is not imposed or required 

by the lender, it is not required to be 

included in the finance charge. The lender 

and borrower must decide who will pay the 

fee. Payment for the LODR must be by 

check or money order, payable to the 

National Flood Insurance Program. The 

amount of the fee will be reviewed biannually and, if changed, FEMA will 

publish a notice in the Federal Register. 

LODR requests should be mailed to the 

following address: 

Federal Emergency Management 

Agency 

Determination Review Coordinator 

3601 Eisenhower Avenue, Suite 600 

Alexandria, VA 22304-6439 

The request for a determination review must 

be an original (not photocopied) and signed 

by at least one of the borrowers’ legal 

representatives for the loan. The lender also 

must sign the request. To ensure the 

involvement of all appropriate parties, 

FEMA will not accept the signature of a 

third-party determiner as a representative for 

either the borrower or the lender. If both 

parties’ signatures are not included in the 

request, the request will be returned without 

review. The requester will be notified that 

the data submitted with the request does not 

meet the requirements of the law; therefore, 

the lender’s obligation to require the 

purchase of flood insurance remains in 

effect. 

The law states that FEMA shall respond to 

review requests within 45 days on disputes 

arising out of loan originations. The 45-day 

time period begins on the day that FEMA 

receives the package. Delay may be 

minimized by submitting the request for 

review immediately after the lender notifies 

the borrower that flood insurance is 

required, and by making sure that the data 

package sent to FEMA is complete. 

Packages that have insufficient information 

will be returned with the fee, and the parties 

will be advised of the information needed 

for the review to be accomplished. The 

borrower will have 14 days to resubmit the 

package with the fee or until the end of the 

original 45 days, whichever is longer. There 

is no additional charge. 

A building found to be in an SFHA is

required to have flood insurance coverage. 

However, if the Administrator of FEMA 

fails to respond to the review request before 

the later of 45 days after receipt or the 

closing of the loan, then there is no 

obligation for flood insurance coverage until 

the Administrator provides a determination. 

Apart from the law, it is industry practice for 

a lender to contractually require the 

prospective borrower to obtain flood 

insurance coverage as a condition of 

granting the loan. If FEMA subsequently 

determines that flood insurance coverage is 

not required, there is an NFIP procedure that 

allows cancellation with refund of premium 

for the current policy term. 
Section B. Coverage Availability 16 

Supporting Materials for LODR Requests 

Under the determination review process, the 

requesting parties must present supporting 

materials to the Administrator of FEMA for 

review. These materials include the 

completed SFHDF (see Appendix 3), copies

of the lender’s notification to the borrower 

and the applicable FIRM panel, and all other 

technical documentation used in making the 

flood zone determination. The copy of the 

FIRM used to make the determination will 

be examined to assess whether it is the most 

current panel. The title block, including map 

date, scale bar, and north arrow, and the 

portion of the map including the property 

location (with that property location 

annotated) are the only portions of the FIRM 

that must be provided. If the submitted data 

does not include all relevant information, 

FEMA will return the request. 

As noted previously, the request must 

include all technical documentation used by 

the lender or third-party flood zone determination company to make the determination. 

Items to complete this requirement typically 

include: 

• A copy of the tax assessor’s map 

showing the property; or 

• A property survey map showing the 

location of the building as related to the 

property; or 

• A copy of the plat for the 

subdivision/tract or similar document; or 

• Information showing the relationship of 

the building and FIRM or FHBM. 

Buildings located in rural areas, or areas 

where the FIRM or FHBM shows few 

physical features, may need additional 

reference data to definitively locate the 

property and the building on the property. 

For multiple-unit buildings, data must be 

submitted for all of the building(s) located 

within the same SFHA. Properties with 

multiple buildings must show data for all 

structures. A building porch or deck should 

be indicated in detail. 

FEMA’s Response to LODR Requests 

After reviewing the required supporting 

technical documentation, FEMA will issue a 

written determination, the Letter of Determination Review (LODR), indicating its 

concurrence or disagreement with the 

original determination made by the lender or 

third party and stating whether the FIRM 

indicates that the subject building or 

manufactured (mobile) home is in the 

SFHA. 

If the issue is whether the FIRM was read 

correctly, the administrative determination 

review procedures described below are 

appropriate. If the issue is whether the FIRM 

should be amended or revised, a Letter of 

Map Change is appropriate. Letters of Map 

Change (LOMCs) include Letters of Map 

Amendment (LOMAs) and Letters of Map 

Revision (LOMRs). Letters of Map Revision 

include Letters of Map Revision Based on 

Fill (LOMR-Fs). If the determination review 

process indicates that the building is in the 

SFHA, FEMA will notify the requester of 

the determination review that LOMC 

procedures are available to individuals under 

Parts 70 and 65 of the NFIP regulations. 

In conducting the review to determine the 

accuracy of a map, FEMA will check its 

Community Information System database 

for LOMAs, LOMR-Fs, and LOMRs that 

would affect the determination. If the 

original determination overlooked a LOMA, 

LOMR-F, or LOMR, FEMA’s final 

response will so state and will provide the 

date of the letter. LOMAs, LOMR-Fs, and 

LOMRs are available through the 

community’s map repository or the FEMA 

Map Service Center. 

In addition, the Administrator of FEMA will 

review contested determinations dealing 

with remapping, map revision, or routine 

portfolio review. The law does not require 
 17 Section B. Coverage Availability 

the agency to respond to these inquiries 

within the 45-day time period. 

Any determination that the building is not 

subject to the mandatory purchase 

requirement can be relied on until a new 

map becomes effective for the community. 

The statute states that a determination of the 

Administrator of FEMA shall be final. 

 (2) Letter of Map Amendment (LOMA) 

Occasionally, a parcel or individual structure 

may be incorrectly determined to be located 

within the SFHA because of imprecise map 

delineations. Other times, a flood map will 

show property as clearly being in an SFHA, 

even though the building on the property is 

actually above the BFE. Because FIRMs 

cannot reflect every rise in terrain, there will 

be instances of “natural islands” of high 

ground that are inadvertently included in the 

SFHAs. 

A mechanism is available, however, for 

resolving such a situation. A property owner 

may submit property and elevation materials 

in support of a request for a LOMA to 

remove the property from the SFHA. This 

process involves the property owner and 

FEMA. 

Nevertheless, until the map is physically 

amended or revised, lenders are bound by 

the information shown on FEMA maps 

unless a LOMA has been issued by FEMA 

for the building. Lenders may not close a 

loan on the basis of a guarantee or 

indemnification from a flood vendor or other 

third party as a substitute for a LOMA. 

(3) Letter of Map Revision (LOMR) 

A different, but related, situation is 

presented when a property owner, whose 

land is within an SFHA below the BFE, 

grades and fills the site to raise the level of 

the land above the BFE. In the LOMA 

situation described previously, the natural 

level of the land at the time the map was 

issued was above the BFE, and no artificial 

improvement was needed to accomplish that 

level. In cases where physical changes were 

necessary to raise the structure above the 

BFE, FEMA will not issue a LOMA. However, with the community’s concurrence, 

FEMA will issue a Letter of Map Revision 

Based on Fill (LOMR-F) that, for the 

purposes of the property owner, will 

accomplish the same objective. 

The request for a LOMR-F must be 

approved by the community because 

changes in land level may impact other 

property owners. Submission of a request 

for a LOMR-F by the community confirms 

that the community has reviewed the change 

in land level and found it compatible with 

the community’s planning. A LOMR-F must 

be based on the BFE presented on the 

FIRM. 

A unique situation arises when a building is 

initially constructed at a level below the 

BFE in an SFHA, and its lowest floor is 

subsequently elevated or raised above the 

BFE by supporting walls or pilings. Such a 

structure is then considered an elevated 

building by the NFIP. 

In this situation, there is no basis for the 

issuance of either a LOMA or LOMR-F. 

The building is still in the designated SFHA, 

and its foundation, supporting walls, and 

pilings can come into direct contact with 

floodwaters. When an owner of property 

below the BFE elevates a building so that 

the lowest floor is above the BFE, the flood 

insurance purchase requirement continues to 

apply. Insurance is required because the 

foundation on which the house is elevated is 

still below the BFE, where it remains 

exposed to the action of floodwaters. 

However, because of its reduced exposure to 

damage, the newly elevated building will be 

subject to a lower insurance rate and 

premium. 

A lender may never waive the flood 

insurance requirement if the eligible 

building is determined to be in an SFHA. 

Only FEMA can amend or revise an official 
Section B. Coverage Availability 18 

flood map to remove the location of an 

insurable building from an SFHA, add it to a 

designated SFHA, change the SFHA 

boundary or flood insurance risk zone 

designation, or modify a BFE. Until a 

property owner has received a LOMA or 

LOMR-F removing the building from the 

SFHA, the information shown on the 

effective FIRM must be used. Questions 

concerning the correctness of the map or the 

proper zone designation of a building’s 

location in accordance with a LOMA or 

LOMR-F are matters beyond the authority 

of the lender. If a lender chooses to close a 

loan while a LOMA or LOMR-F is pending, 

the lender must require flood insurance until 

the LOMA or LOMR-F has been obtained. 

LOMRs also may be granted in situations 

where physical changes have been 

constructed to protect areas from flooding. 

A LOMR has the effect of revising the 

BFEs, SFHA, and/or regulatory floodway 

presented on the FIRM. In regulatory 

floodways, which include the channel of a 

river and the adjacent floodplain that must 

be kept unobstructed, the placing of fill or 

other development is not allowed if it will 

result in any increase in the flood level for 

the SFHA. 

Requests for LOMAs, LOMR-Fs, and 

LOMRs should be mailed to: 

 FEMA Map Assistance Center 

 3601 Eisenhower Avenue 

 Alexandria, VA 22304-6425 

After the issuance of a LOMR that impacts 

the subject property or after obtaining a 

separate LOMA or LOMR-F, the property 

owner may submit the letter to the lender, 

requesting a waiver. However, even though 

lenders are not required to compel the 

purchase of flood insurance on buildings 

removed from the SFHA by a LOMA, 

LOMR-F, or LOMR, they have the 

discretionary right to continue to require 

flood insurance in accordance with their 

lending documents. Many floods occur 

outside of designated SFHAs, and about 25 

percent of NFIP flood insurance claims are 

for buildings located in these low-risk areas. 

For this reason, owners who are considering 

seeking a LOMA or LOMR-F should first 

consult their lending institutions to 

determine if flood insurance will still be 

required. Further, lenders are encouraged to 

advise LOMA and LOMR-F recipients and 

those affected by LOMRs that floods more 

severe than the base flood can and do occur. 

Property owners should be encouraged to 

contact their property insurance agent to 

voluntarily buy flood insurance coverage for 

their building and its contents. Some 

property owners may be eligible for the 

NFIP’s low-cost Preferred Risk Policy after 

the issuance of a LOMA, LOMR-F, or 

LOMR. 

(4) Community-Initiated Map Revisions 

A physical map revision is an official 

republication of a map to effect changes to 

flood insurance risk zones, floodplain and 

floodway boundary delineations, flood 

elevations, and other mapping and boundary 

features within a community. These changes 

typically occur as a result of structural 

works or improvements, annexations 

resulting in additional flood hazard areas, or 

corrections of BFEs or flood insurance risk 

zones. A notice of any change in BFEs on 

flood map panels will be published in the 

Federal Register and in local newspapers, as 

these changes are subject to a statutory 

appeal period. 

 

(5) Map Availability 

FEMA has specific responsibilities for 

making flood map information available, 

including the following: 

• FEMA must make FIRMs and related 

information dealing with the various 

changes discussed above available free 

of charge to the Federal entities for 

lending regulation (Federal lenders and 

certain other governmental entities), and 

at a reasonable cost to all other parties. 
 19 Section B. Coverage Availability 

The maps and other NFIP publications 

are available through FEMA’s Map 

Service Center, which can be contacted 

toll free by telephone at 800-358-9616 or 

online at http://msc.fema.gov. (See 

Appendix 5 for additional resources.) 

 FEMA also must provide notice of any •

change to flood insurance map panels, 

including changes effected by a LOMA, 

LOMR-F, or LOMR not later than 30 

days after the map amendment or 

revision becomes effective. FEMA’s 

Map Service Center offers a subscription 

service for this notification. 

• Finally, every 6 months, FEMA must 

publish a compendium of all changes to 

FIRM panels, all new FIRM panels, and 

all LOMAs, LOMR-Fs, and LOMRs 

published during the preceding 6 

months. The compendium will show the 

various changes in which some areas are 

removed from the SFHA while others 

are included. This compendium is made 

part of the public record as published in 

the Federal Register. A lender should 

review its loans located within the 

geographic area(s) impacted by the 

changes noted in the compendium. If a 

lender becomes aware that any buildings 

on which it has loans are brought within 

an SFHA, the mandatory purchase 

requirements must be met. 

2. Non-Participating Communities and 

Restricted Coverage Areas 

a. Regulated Lending Permitted 

A community may decide not to 

participate in the NFIP even after it is 

mapped and receives notification from 

FEMA that it has high flood risk areas. 

Non-participating communities are not 

eligible for Federal flood insurance, and 

federally backed loans in these communities 

may be made only outside of SFHAs. 

However, conventional loans can be made 

anywhere in non-participating communities. 

A conventional loan is a loan by a private 

lender, as distinguished from a loan either 

made, secured, insured, or guaranteed by a 

Federal government agency. Lenders 

regulated by, or whose deposits are insured 

by, Federal regulatory agencies may make 

conventional loans secured by mortgages on 

buildings and manufactured (mobile) homes 

in SFHAs in non-participating communities. 

The lender must notify the purchaser that the 

property is located in an SFHA. See the two 

versions of the sample Notice of Special 

Flood Hazard and Availability of Federal 

Disaster Relief Assistance in Appendix 4. 

Lenders are still required to observe the laws 

related to making determinations and 

providing notice, even though the 

requirement to purchase flood coverage does 

not apply. However, because of the lack of 

NFIP coverage and limited Federal disaster 

assistance, lenders should carefully evaluate 

the financial risk involved in making such 

loans. In non-participating communities, a 

lender may require the borrower to have in 

place private flood insurance, if available. 

In those communities where Federal flood 

insurance is not available, the inability of the 

property owner to purchase NFIP coverage 

does not prevent a lender from making a 

conventional loan with respect to that 

structure. The statute mandates coverage 

only when the sale of flood insurance has 

been made available. A lender may exercise 

discretion and decline to make a loan in an 

SFHA where Federal flood insurance is not 

available. Also, lenders with significant 

lending in non-participating communities 

should establish procedures to ensure that 

loans on buildings in SFHAs where flood 

insurance is not available do not constitute 

an unacceptably large portion of the 

institution’s loan portfolio. 

Although a conventional loan may be 

extended in a non-participating community, 

a lender may not be able to pass such a loan 

on to a regulated lending institution or to the 

secondary market. Some GSEs, such as 
Section B. Coverage Availability 20 

Fannie Mae and Freddie Mac, have stated 

that they will not buy mortgages secured by 

properties in non-participating communities 

if they are located in an SFHA. To ensure 

that such loans are not delivered to them, 

Fannie Mae and Freddie Mac now require 

lenders to monitor, on an ongoing basis, 

changes in a community’s status under the 

NFIP. 

b. Federal Financial Assistance and 

Disaster Assistance Limited 

In the event of a federally declared 

disaster, property owners in a nonparticipating community, which has had its 

high flood risk areas identified for at least 

a year, will not be eligible for Federal 

disaster relief assistance. To prevent the 

Federal Government’s financial exposure to 

potential loss from flood damage to 

uninsured buildings located in SFHAs in 

non-participating communities, Federal 

officers and agencies are specifically 

prohibited from providing financial 

assistance for acquisition or construction of 

buildings in these areas. This means that 

non-participating community residents and 

developers are ineligible to obtain direct 

Federal loans to construct buildings within 

the floodplain. However, they do remain 

eligible for conventional loans from 

federally insured banks. 

FEMA administers Federal Emergency 

Assistance authorized under Section 408 of 

the Robert T. Stafford Disaster Relief and 

Emergency Assistance Act to comply with 

the National Flood Insurance Reform Act of 

1994. Therefore, mandatory flood insurance 

requirements must be followed for recipients 

whose damaged property is located in 

SFHAs in order for the recipients to be 

eligible for future assistance. 

The law precludes Federal disaster 

assistance related to repair of buildings, 

including U.S. Small Business Administration 

disaster assistance loans, if previously 

received flood disaster assistance was 

conditioned on carrying flood insurance and 

no policy is in effect. 

c. Notification of the Unavailability of 

Federal Disaster Assistance 

When lending on secured improved real 

property in an SFHA in a non-participating 

community, lending institutions must notify 

the borrower of the unavailability of disaster 

relief assistance in the event of a disaster 

caused by flood. 

The notice requirements do not apply to 

unsecured loans, or to loans secured by 

buildings that are not located in an SFHA. 

Under the requirements, affected lenders 

must provide borrowers with written notice 

about whether Federal disaster relief will be 

available on the building. 

For the convenience of lenders, Appendix 4 

provides two versions of a sample notice—

the first for use in NFIP participating 

communities; the second for use in nonparticipating communities—that incorporates the language prescribed by law, for use 

when applicable, into the notice a lender 

must provide to the borrower. 

d. Buildings Ineligible for NFIP 

Coverage 

(1) Underwriting Restrictions 

Most buildings are eligible for coverage 

under the NFIP, but there are exceptions. 

For example, a building (or boathouse) built 

completely over water cannot be insured if 

the building (or boathouse) was newly 

constructed or substantially improved on or 

after October 1, 1982. The NFIP policies 

also contain restrictions on insurance 

coverage, such as the portions of finished 

basements and Post-FIRM elevated 

buildings where only enumerated and 

limited coverage is available. A complete, 

current list of coverages and exclusions may 

be found in the Standard Flood Insurance 

Policy (available online at 

http://www.fema.gov/business/nfip/sfip.shtm) 

issued under the NFIP. Lenders may share 

information such as photos and appraisals of 

the building with the property insurance 

agent or company underwriter, who can help 

determine whether the building was 
 21 Section B. Coverage Availability 

constructed in compliance with building 

codes and is eligible for coverage. 

For certain categories of properties located 

in participating communities, flood 

insurance coverage may be restricted. This 

includes manufactured (mobile) homes that 

do not meet NFIP insurability requirements. 

In special situations, such as those described 

below, Congress or FEMA has chosen to 

deny eligibility for flood insurance, and 

treats the buildings similarly to those in 

non-participating communities. Therefore, 

the mandatory purchase requirement does 

not apply. Lenders should consider requiring 

private flood insurance for these types of 

risks. 

(2) CBRS Areas and OPAs 

Boundaries of Coastal Barrier Resources 

System (CBRS) areas and Otherwise 

Protected Areas (OPAs) are established and 

mapped by the U.S. Department of Interior’s 

Fish and Wildlife Service. Lenders should 

exercise special care with properties in or 

near these areas, which are identified on 

FIRMs by patterns of backward slanting 

diagonal lines, both solid and broken. 

Lenders can determine whether a property is 

located in a CBRS area or OPA by logging 

onto the CBRS page of the FEMA website 

(http://www.fema.gov/business/nfip/cbrs/cbr

s.shtm). Assistance may also be available 

from insurance agents and companies and 

from community officials. 

While FEMA mitigation measures, such as 

the elevation of buildings in high-risk areas, 

serve to protect buildings, damage to fragile 

coastlines that comes with development is 

unavoidable. Buildings can be repaired. 

However, if damaged by development, 

aquatic habitats (including adjacent wetlands, marshes, estuaries, and inlets that are 

the habitat for wild life and ecosystems that 

support local fisheries and provide 

recreational areas) can be lost forever. 

Coastal barriers are unique landforms that 

also serve as the mainland’s first line of 

defense against the impacts of coastal storms 

and erosion. 

Therefore, by law, federally regulated 

mortgage lending and Federal disaster assistance may not be available in these areas. 

Federally backed flood insurance is not 

generally available for new construction or 

substantial improvements in CBRS areas or 

OPAs. However, there are a few exceptions. 

Eligibility for Federal flood insurance 

depends on whether the CBRS areas or 

OPAs in the community in which the 

building is located were designated by the 

Coastal Barrier Resources Act (CBRA) of 

1982 or the Coastal Barrier Improvement 

Act (CBIA) of 1990. 

Under the 1982 Act, a building in a CBRS 

area is eligible for coverage if all of the 

following requirements are met: 

• A legally valid building permit for the 

construction of the building was issued 

prior to October 1, 1983; and 

• The building was built (walled and 

roofed) prior to October 1, 1983; and 

• The building was not substantially 

improved or substantially damaged on or 

after October 1, 1983. 

Eligibility under the 1990 Act for buildings 

in a CBRS area or OPA requires that: 

For CBRS areas: 

• A legally valid building permit for the 

construction of the building was issued 

prior to November 16, 1990; and 

• The actual start of construction of the 

building was prior to November 16, 

1990: and 

• The building was not substantially 

improved or substantially damaged on or 

after November 16, 1990. 

For OPAs: 

• A legally valid building permit for the 

construction of the building was issued 

prior to November 16, 1991; and
Section B. Coverage Availability 22 

• The building was built (walled and 

roofed) no later than November 16, 

1991; and

• The building was not substantially 

improved or substantially damaged after 

November 16, 1991. 

• Or, the building is used in a manner 

consistent with the purpose for which the 

area is protected, regardless of the date 

of construction. 

The CBRA of 1982 and CBIA of 1990 do 

not prevent private development, private 

financing, or private flood insurance, if 

available, in CBRS areas and OPAs. Any 

such development is subject to all applicable 

state and local laws, regulations, and 

building codes. 

Detailed background information about 

CBRS areas and OPAs is available online at 

the web address given on page 21. 

Buildings already located in the designated 

areas and walled or roofed prior to the 

designation remain eligible for coverage. If 

a building constructed in a designated area 

prior to its being designated sustains 

substantial damage as a result of a fire, 

flood, hurricane, or other causes, the 

restored building is not eligible for flood 

insurance coverage. 

Lenders are required to notify borrowers that 

the building is in an SFHA, and that federally 

backed flood insurance is not available for the 

building. However, this situation does not 

prevent the making of a conventional loan. As 

with loans in non-participating communities, 

lenders would be well advised to assess the 

flood risk in deciding whether to grant the 

conventional loan. 

(3) Buildings in Violation of State or 

Local Laws 

In accordance with Section 1316 (42 U.S.C. 

4023) of the National Flood Insurance Act 

of 1968, a conventional loan may be made 

when the building is located in an SFHA of 

a participating community but is not eligible 

for Federal flood insurance protection 

because it has been declared to be in 

violation of local floodplain management 

building codes. Nevertheless, compliance 

with the provision for notifying the borrower 

that the building is in an SFHA is especially 

important. Because of violations relating to 

protection against flooding, buildings that 

come under the provisions of Section 1316 

usually will be highly susceptible to flood 

damages, and are a far greater risk to the 

lender than buildings compliant with 

floodplain management ordinances. 

With respect to both CBRS/OPA properties 

and Section 1316 properties, the lack of 

available NFIP coverage in a participating 

community does not prohibit a lender from 

making a conventional loan. The statute 

mandates coverage only when the sale of 

flood insurance has been made available. 

The lender may require private flood 

insurance coverage for buildings declared in 

violation of state or local laws under Section 

1316. 

 23 Section C. General Provisions

SECTION C 

GENERAL MANDATORY PURCHASE PROVISIONS 

This section describes the statutory 

requirements, the exceptions, and the 

practice of the lending industry in meeting 

its compliance requirement. It explains flood 

insurance availability and coverage options 

under the National Flood Insurance Program 

(NFIP). Appendix 1, Legal References, 

provides additional legal citations. 

1. Entities Encompassed by the Law 

The Flood Disaster Protection Act of 1973 

required the purchase of flood coverage for 

the term of the loan. The National Flood 

Insurance Reform Act of 1994 requires flood 

insurance at any time during the term of the 

loan when the lending institution determines 

that the building or manufactured (mobile) 

home is or will be located in a Special Flood 

Hazard Area (SFHA). 

Section 4012a(b) of the 1994 Reform Act 

subdivides its treatment of the entities 

regulated, yet imposes similar requirements 

on the three types of affected lenders. 

Essentially, the statute mandates flood 

insurance coverage even if the SFHA 

designation is first identified after 

settlement, but during the term of the loan, 

because of remapping or other reasons. 

The statutory requirements apply to both 

consumer and commercial loans, whether 

they are new loans, refinances, consolidations, or renewals of existing extensions of 

credit. The mandatory purchase requirement 

attaches to any type of secured loan—fixed 

rate, variable rate, or balloon loan. It also 

applies regardless of the type of security 

interest taken (e.g., a mortgage indenture, 

judgment note, cognovit note, or any other 

type of security or trust agreement). The 

mandatory purchase provisions apply even 

on those loans where real estate is secured 

out of “an abundance of caution.” 

The duties of a regulated lender with respect 

to Federal flood insurance requirements for a 

particular loan cease upon the sale of the loan. 

An exception would be if the seller of a loan 

agrees to retain responsibility for complying 

with the statutory requirements under a loanservicing agreement with the transferee. For 

example, if a regulated lender sells the loan to 

an unregulated lender while retaining 

servicing rights, the regulated lender will 

retain mandatory flood insurance purchase 

obligations under the service contract. 

Most of the provisions of the 1994 Reform 

Act became effective on September 23, 1994, 

and apply prospectively to all new loans and 

regulated activity, but not to existing loans for 

which no changes have occurred since that 

time. Review of existing loans is encouraged, 

but not required. 

The following entities are not currently 

covered by the 1994 Reform Act: 

• Unregulated private financial institutions 

that engage primarily in the purchase of 

mortgage loans 

• Unregulated mortgage bankers or 

brokers who serve only as loan 

originators 

• Private mortgage lenders 

• State regulated lending institutions not 

subject to Federal oversight. 

a. Federally Regulated Lenders 

The most significant mandatory purchase 

provision is found in Title 42 U.S.C. 

4012a(b)(1). That subsection directs Federal 

regulators to adopt regulations requiring the 

lenders under their jurisdiction to compel 

borrowers to purchase flood insurance 

protecting any “improved real estate or a 
Section C. General Provisions 24 

mobile home” located or to be located in an 

SFHA, if the building, manufactured 

(mobile) home, or any applicable personal 

property is to be security for the loan. This 

provision is the crux of the law around 

which the other requirements of the 1994 

Reform Act have been structured. 

The flood insurance provisions of the 1994 

Reform Act required the following Federal 

agencies to revise their flood insurance 

regulations to reflect the changes in the law: 

• Board of Governors of the Federal 

Reserve System (FRS) 

• Office of the Comptroller of the 

Currency (OCC) 

• Office of Thrift Supervision (OTS) 

• Federal Deposit Insurance Corporation 

(FDIC) 

• National Credit Union Administration 

(NCUA) 

• Farm Credit Administration (FCA). 

These six Federal entities for lending 

regulation have issued a joint regulation to 

fulfill the statutory requirements. All six 

agencies coordinated and consulted with the 

Federal Financial Institutions Examination 

Council (FFIEC) in developing their joint 

regulation. The final regulation was 

published in the Federal Register on 

August 29, 1996, and appears in each 

agency’s regulations. Citations to the 

various CFR sections can be found in 

Appendix 1. 

The institutions supervised by the six 

agencies are referred to collectively as 

regulated lending institutions or lenders, 42 

U.S.C. §4003(a). These lenders include any 

bank, savings and loan association, credit 

union, Farm Credit System Institution, or 

similar institution that is supervised, 

regulated, or insured by a Federal entity for 

lending regulation. 

The regulatory agencies interpret the 1994 

Reform Act’s definition of “regulated 

lending institution” to include subsidiaries 

of institutions that are service corporations. 

This definition includes the phrase, “similar 

institutions subject to the supervision of a 

Federal entity for lending regulations,” as 

defined in §4003(a)(10). Federal lending 

regulators deem subsidiaries of the 

institutions they regulate as subject to the 

rules applicable to the operations of the 

parent. Therefore, although a subsidiary 

entity that engages in mortgage brokering or 

servicing may not be directly regulated, it is 

considered subject to the statutory requirements. This also may apply to lending 

syndicates and their managing entities. 

As noted in the Supplementary Information 

section of the final regulations, the agencies 

believe that the purpose of the Federal flood 

insurance statutes is best served by treating 

loans made by a subsidiary service 

corporation in the same way as loans made 

by others in the corporate structure. For 

example, the FDIC’s portion of the joint 

final rule makes subsidiaries of insured 

nonmember banks subject to flood insurance 

requirements by defining the term “bank” to 

include a subsidiary of any such institution. 

This provision was intended to increase 

compliance with the mandatory purchase 

requirements among regulated lenders. This 

practice also ensures uniform and consistent 

treatment for “regulated” financial institutions. 

The 1994 Reform Act required the 

applicable Federal regulator to develop 

regulations that direct institutions under 

their jurisdiction not to make, increase, 

extend, or renew any loan on a building or 

manufactured (mobile) home located or to 

be located in an SFHA unless flood 

insurance is purchased and maintained for 

the term of the loan. Therefore, refinancing 

an existing loan is to be considered as the 
 25 Section C. General Provisions

making of a new loan for purposes of the 

mandatory flood insurance purchase 

requirements. 

b. Government-Sponsored Enterprises 

Government-Sponsored Enterprises (GSEs) 

for Housing include the Federal National 

Mortgage Association (Fannie Mae) and the 

Federal Home Loan Mortgage Corporation 

(Freddie Mac). These entities are privately 

owned, federally chartered corporations 

whose sole business is to support residential 

housing by providing a secondary market for 

mortgages. GSEs are required to implement 

procedures reasonably designed to ensure 

that designated loans have flood insurance at 

the time of origination and at any time 

during the term of the loan. 

The variation in the compliance wording 

from that found in the regulated lender 

provision can be attributed to the fact that 

GSEs have a contractual, not a regulatory, 

relationship with their sellers. The GSE 

requirements are imposed upon the primary 

lender as a condition of purchasing the loan. 

Thus, borrowers not directly covered by the 

mandatory purchase law ultimately will be 

required to satisfy the statutory flood 

insurance requirements if their lenders sell 

their loans to Fannie Mae or Freddie Mac. 

The mandatory purchase requirements flow 

from the original transaction. 

Also, under the guidelines of Fannie Mae 

and Freddie Mac, servicers of loans sold to 

those agencies are required to assume 

responsibility for compliance with the 

mandatory flood insurance requirements. 

However, no existing flood insurance 

requirements cover lenders or servicers that 

are not federally regulated and that do not 

sell loans to Fannie Mae, Freddie Mac, or 

other GSEs. 

As secondary market agencies, GSEs have 

no direct contact or dealings with borrowers, 

but do have the ultimate exposure on the 

loan. Consequently, the GSE guidelines are

designed to ensure that any “covered loan” 

they buy has flood insurance for the life of 

the loan. Freddie Mac and Fannie Mae now 

require lenders and servicers to keep flood 

insurance up to date, monitor publication of 

all future map and community changes, and 

impose or relieve the mandatory purchase 

requirement during the term of the loan. 

The GSEs have the ability to establish their 

own requirements to protect their interest in 

the loans they purchase. These standards can 

be more stringent than those found under the 

Federal regulations. For example, although 

the Federal regulators do not require 

monitoring for map changes, the GSEs do, 

thereby providing the impetus for 

monitoring. 

As of this printing, Fannie Mae accepts 

flood insurance deductibles up to the current 

NFIP maximum deductible limit for a 

single-family structure, which is $5,000. The 

maximum NFIP deductible for residential 

condominium buildings is $25,000. The 

most current Selling and Servicing Guides 

and Announcements (if applicable) should 

be consulted to reference Fannie Mae’s 

existing flood insurance requirements. These 

documents may be accessed online at 

http://www.efanniemae.com. Lenders who 

have additional questions regarding flood 

insurance requirements may contact their 

Customer Account Manager, Servicing 

Consultant, or Portfolio Manager. 

Freddie Mac states that any private flood 

insurance policy must contain terms and 

conditions at least equivalent to the terms 

and conditions of coverage provided under 

the NFIP. 

For one- to four-unit properties (including 

properties within a Planned Unit Development or ground lease community) in an 

SFHA, Freddie Mac requires that the flood 

insurance coverage on insurable premises 

equals at least the lowest of the following: 

• The unpaid principal balance of the 

mortgage (if the mortgage is a second
Section C. General Provisions 26 

mortgage, the insurance must be 

calculated on the aggregate unpaid 

principal balance of the second mortgage 

and all superior liens); or 

• The maximum amount of coverage sold 

under the NFIP; or 

• The replacement cost of the insurable 

improvements. 

See Chapter 58 of the Freddie Mac Single 

Family Seller/Servicer Guide at 

http://www.allregs.com/fhlmc. 

c. Federal Agency Lenders 

The statute in §4012a(b)(2) broadened the 

flood insurance requirement to specifically 

include loans on applicable real property and 

mobile homes secured by Federal agencies. 

Federal agency lenders may not subsidize, 

insure, or guarantee any loan if the building 

securing the loan is in an SFHA of a 

community not participating in the NFIP. 

For the most part, Federal agency lenders 

follow the same standards set by the Federal 

regulators, although some exceptions can be 

found. The Federal agency lenders are: 

• Federal Housing Administration (FHA) 

• Small Business Administration (SBA) 

• Department of Veterans Affairs (VA) 

• U.S. Department of Agriculture (USDA), 

Rural Development 

− Rural Housing & Community Service 

− Rural Business & Cooperative Service 

− Rural Utilities Service. 

2. Specific Provisions of the Law 

a. Limits Available 

As of this edition, the maximum limits of 

flood insurance coverage available under the 

NFIP are as follows: 

NFIP Maximum Limits of Coverage

Coverage Type 

Emergency 

Program 

Regular 

Program 

Building 

Single-family dwelling $ 35,000 $250,000 

2- to 4-family dwelling $ 35,000 $250,000 

Other residential $100,000 $250,000 

Non-residential $100,000 $500,000 

Contents 

Residential $ 10,000 $100,000 

Non-residential $100,000 $500,000 

Special limits apply in Alaska, Hawaii, 

Guam, and the Virgin Islands. For details, 

and future changes to NFIP coverage limits, 

refer to page RATE 1 in the NFIP Flood 

Insurance Manual at 

www.fema.gov/business/nfip/manual.shtm. 

As shown in the table above, the current 

maximum limit of coverage for residential 

properties is $250,000 for building and 

$100,000 for contents; and for nonresidential properties, $500,000 for building 

and $500,000 for contents. Whenever the 

Federal Emergency Management Agency 

(FEMA), which administers the NFIP, 

changes the amounts of coverage available 

or amends the policy form, the change is 

published in the Federal Register and the 

Flood Insurance Manual. 

Acceptable proof of coverage may be a copy 

of the Flood Insurance Application and 

premium payment, or a copy of the 

Declarations Page. The NFIP does not 

recognize binders or certificates of 

insurance. 
 27 Section C. General Provisions

(1) Land and Land Values Not Insurable 

The statutory requirements apply to 

improved real property—that is, land with a 

building on it, including a manufactured 

(mobile) home. Raw land is not insurable 

under the NFIP. The building must be 

insurable under NFIP requirements in order 

to qualify for coverage. 

Inasmuch as the NFIP does not provide 

insurance coverage for land, only for 

buildings, the location of a building in 

relation to the SFHA determines the 

applicability of the mandatory purchase 

provisions. Some portion of the building 

itself, and not just a portion or portions of 

the land, must be located in an SFHA for the 

mandatory purchase provisions to apply. 

Buildings located inside and outside of the 

SFHA on the Flood Insurance Rate Map 

(FIRM) are insurable in NFIP participating 

communities. 

(2) Calculating Coverage 

To meet compliance requirements, the 

amount of flood insurance must at least be, 

but is not limited to, the lowest of: 

• The outstanding principal balance of the 

loan(s); or 

• The maximum amount of coverage 

available under the NFIP for the 

particular type of building; or 

• The full insurable value of the building 

and/or its contents, which is the same as 

100-percent replacement cost value 

(RCV). (Unlike the practice in other 

lines of property insurance, building 

RCVs under the NFIP do not include 

market values or the value of the land.) 

To protect collateral interests, a lender 

should consider whether its collateral is 

adequately insured against flood damage. A 

sound flood insurance risk management 

approach follows the insurance industry 

practice of insuring buildings to full RCV. 

Such a risk management strategy meets or 

exceeds the minimal compliance requirements and is the easiest approach for lenders 

to implement. Security interests in SFHAs 

should be protected with flood insurance to 

the full insurable value, to the extent 

possible under the NFIP. Further, FEMA 

recommends that lenders seek guidance 

from regulatory authorities. 

The maximum amount of flood insurance 

coverage available under the NFIP is the 

lesser of the insurable value of the building 

or the maximum amount of coverage 

available for that type of property under the 

NFIP. This is especially significant in cases 

where the loan exceeds the value of the 

insurable building(s). Where the outstanding 

principal balance of the loan exceeds the 

insurable value of the building, the 

insurance amount should be the insurable 

value of the building rather than the 

outstanding principal balance of the loan. If 

the lender does not take into account 

separate valuations of uninsurable land and 

property improvements, the insured may be 

paying for coverage that exceeds the amount 

the NFIP will pay in the event of a loss. 

Lenders should avoid creating such a 

situation. 

Lenders should follow the same general 

business practice in calculating the flood 

insurance coverage amount on a building as 

they do in placing other hazard coverage, 

e.g., homeowners insurance. The terms and 

conditions of the hazard clause contained in 

the loan document fully describe the rights 

and conditions of the parties. 

Although the statute requires the lender’s 

interest to be protected by flood insurance, a 

lender may need to consider other factors, 

such as Fannie Mae’s and Freddie Mac’s 

requirements, in determining the amount of 

insurance required. Depending on the 

practice of the mortgagee, the policy may 

not be sufficient to protect the full equity 

amount held in the property by the 

mortgagor in the event of a loss. If the 

lender opts to protect only its security in the 
Section C. General Provisions 28 

loan, the amount of the policy may be 

insufficient to cover the cost of repairing the 

building. 

By insuring buildings to the full RCV, the 

lender and borrower are both better 

protected. 

For multiple buildings, the lender must 

ensure that a separate flood insurance policy 

is provided for each building requiring 

coverage. The NFIP allows one policy per 

building. 

(3) Loss Payments 

Lenders should seek the assistance of 

property insurance agents or companies 

when determining the appropriate flood 

insurance coverage amounts, as they do for 

other lines of insurance. The borrower’s 

financial interest should also be taken into 

account. Further, agents can help identify 

and consider the extent of recovery allowed 

under the three forms of the NFIP’s 

Standard Flood Insurance Policy (SFIP), 

which are described below: 

• General Property Form 

– Designed for use on non-residential 

risks 

– Limits recovery to actual cash value 

(i.e., the cost to repair or replace an 

insured item of property at the time 

of loss, less the value of its physical 

depreciation). 

• Dwelling Form 

− Designed for use on residential risks 

− Pays losses to most building 

elements on the replacement cost 

basis, only if: 

- The building was the primary 

residence for at least 80 percent 

of the preceding 365 days or the 

period of ownership; and 

- At the time of loss, the building 

insurance amount represented at 

least 80 percent of the replacement cost immediately before the 

loss, or the maximum available 

under the NFIP. (“Replacement 

cost” means that the settlement is 

not subject to a deduction for 

depreciation.) 

− Otherwise, the Dwelling Form pays 

on the actual cash value basis, which 

involves a deduction for depreciation. This is also the case for 

contents coverage. 

− Special loss settlements apply to 

manufactured (mobile) homes. 

• Residential Condominium Building 

Association Policy (RCBAP) 

− Designed for residential condominium associations 

− Has its own loss settlement provisions. 

NFIP policies include Increased Cost of 

Compliance (ICC) coverage for the 

increased cost to rebuild, or otherwise alter, 

a flood-damaged property to bring it into 

conformance with state or local floodplain 

management laws. 

ICC coverage is mandatory for all SFIPs 

except for (1) those sold in Emergency 

Program communities, (2) contents-only 

policies, (3) Dwelling Forms on individual 

condominium units, and (4) Group Flood 

Insurance. For these four cases, ICC 

coverage is not available. In a condominium 

building, ICC coverage is available only 

through the Condominium Association’s 

flood policy. 

The current ICC coverage limit is $30,000 

per building or, for non-condominium 

townhouse construction, per unit, per policy. 

This coverage amount is in addition to the 

Building Amount of insurance purchased. 

However, for any one flood event, the 

amount of combined loss payment received 

from Building coverage and ICC coverage 
 29 Section C. General Provisions

cannot exceed the maximum program limits 

of $250,000 for residential structures and 

$500,000 for non-residential structures. 

ICC coverage should not be considered in 

determining the amount of flood insurance 

required. 

(4) Deductible 

The standard deductible is $500 for new 

construction, for all buildings constructed 

after the community adopted its initial Flood 

Insurance Rate Map (Post-FIRM), and for 

buildings rated in Zones A99, B, C, D, or X. 

The standard deductible for older buildings 

(Pre-FIRM) is $1,000. Deductibles are 

applied separately to buildings and again to 

contents. 

The maximum optional deductible, if 

acceptable to the lender, for a single-family 

building is $5,000. Deductibles of $10,000 

to $50,000 are available for non-residential 

buildings. Optional deductibles are not 

available for Preferred Risk Policies. 

Standard practice in the financial industry is 

for the lender to dictate the amount of the 

deductible according to the authority found 

in the loan document hazard clause. A 

modification in the deductible can be 

accomplished at renewal or by endorsement 

mid-term with the lender’s written request. 

Lenders may exercise their business 

judgment prerogative by requiring only the 

standard deductible to be carried as a 

safeguard in protecting their interest in the 

improved real estate. The GSE secondarymarket members designate what they 

consider as the proper deductible. Freddie 

Mac’s guide states the deductible may not 

exceed the maximum deductible currently 

allowed under the NFIP for the type of 

improvements insured. Fannie Mae’s guide 

states that they will accept deductibles up to 

the maximum deductible available under the 

NFIP for all policy types. 

(5) No Coverage if Land Loan Only 

The NFIP does not insure land, and the law 

does not address mortgages secured by land 

alone. Acquisition and development loans 

are not subject to the regulation because 

they do not meet the definition of a 

designated loan as defined by the 1994 

Reform Act. 

Therefore, if the purpose of a loan transaction is to facilitate the purchase of land for 

subsequent development, and any building 

(structure) on the real property is of nominal 

value, the wording of the mortgage must 

specifically exclude the building as part of 

the security for the loan in order to avoid the 

mandatory purchase requirement. 

(6) Low-Value Building on High-Value 

Land 

Lenders are sometimes confronted with a 

situation where a building is located on land 

whose value alone would be sufficient to 

secure the loan without regard to the value 

of the building. However, the lender cannot 

waive the flood insurance requirement, even 

though the value of the land would provide 

more than adequate security for the amount 

of the loan. If the land has a building on it, 

and the lender has a security interest in that 

building, the lender must require the 

purchase of flood insurance to protect its 

security interest. 

The insurable value of the building and its 

improvement(s) will govern the amount that 

can be required. The amount of required 

flood insurance coverage is the least of the 

principal balance of the loan(s), the 

insurable value of the building, or the 

maximum coverage available under the 

NFIP. The NFIP policy does not provide 

coverage for losses in excess of the value of 

the insurable building. By requiring 

adequate coverage, the lender also is 

protecting the Federal Government’s 

interests by preserving the assets of agencies 

that insure the lender’s deposits. 
Section C. General Provisions 30 

The question of limits on relatively lowvalue buildings can be an issue, especially in 

agricultural areas where the buildings are 

included as part of the loan collateral. The 

law does not differentiate agriculture from 

other areas of lending, and no exception by 

regulated lenders can be made without 

legislative action. 

The value of the land should not be 

considered when calculating the required 

limits. 

(7) Buildings in the Course of Construction 

If a building to be constructed in an SFHA 

will become eligible for coverage when 

completed, flood insurance may be purchased to provide coverage during the 

construction period. Therefore, when a 

development or interim loan is made for 

construction of insurable improvements on 

land, flood insurance coverage can be 

purchased, even though construction has not 

begun. 

While the NFIP statutes require flood 

insurance at loan closing, they do not 

specifically address the subject of buildings 

in the course of construction. For that 

reason, each regulatory agency or lender 

must determine at what point in the 

construction process coverage is required. 

One option for implementing the mandatory 

flood insurance coverage is to require the 

purchase of the policy at the time that the 

development loan is made, in an amount 

adequate to meet the mandatory purchase 

requirement. 

Another option would be for the lender to 

require flood insurance at the time of a 

specified drawdown of the loan for actual 

construction of the building (see Appendix 

6, B.9). This would require the lender to 

monitor the loan more closely to determine 

when actual construction begins. A policy 

obtained under either option would not be 

subject to the standard 30-day waiting 

period. The policy would be effective at the 

time of the flood insurance application and 

presentment of premium. 

Material to be used on a building in the 

course of construction, but yet to be walled 

and roofed, is eligible for flood insurance, 

subject to certain underwriting restrictions. 

Materials or supplies intended for use in such 

construction, alteration, or repair are insurable if they are contained within an enclosed 

building on the premises or adjacent to the 

premises. The NFIP, to the extent possible, 

conforms its practices with those of fire 

insurers by providing insurance coverage 

that begins during the period of time when 

construction is taking place. 

Buildings in the course of construction that 

have yet to be walled and roofed are eligible 

for coverage except when construction has 

been halted for more than 90 days and/or if 

the lowest floor used for rating purposes is 

below the Base Flood Elevation (BFE). 

Additionally, for a condominium building in 

the course of construction to be eligible under 

the RCBAP form, the building must be 

owned by a condominium association, which 

the NFIP defines as the entity made up of the 

unit owners responsible for the maintenance 

and operation of: 

• Common elements owned in undivided 

shares by unit owners; and 

• Other real property in which the unit 

owners have use rights; 

where membership in the entity is a required 

condition of unit ownership. 

For new construction in Regular Program 

communities, the NFIP Elevation Certificate 

and the premium will be based on an 

elevation figure derived from construction 

drawings. However, the policy will not be 

renewed until a new Elevation Certificate, 

based on actual construction, has been 

submitted. Coverage under the policy 

becomes available immediately when the 

construction starts and is not delayed until 
 31 Section C. General Provisions

the building has reached a walled and roofed 

condition. 

However, if the lowest floor, including a 

basement floor, of a building under 

construction in any A Zone or V Zone will 

be below the BFE, the building must be 

walled and roofed before coverage is 

available. 

The Elevation Certificate must be completed 

by a surveyor, engineer, or architect. 

Lenders who wish to gain familiarity with 

the Elevation Certificate and its uses may 

benefit from the NFIP video “Insuring a 

Dream.” The video can be accessed at 

http://training.nfipstat.com/portal2/default.asp. 

(8) Manufactured (Mobile) Homes/Travel 

Trailers 

To be eligible for coverage under the NFIP, 

a manufactured (mobile) home/travel trailer 

must be on a permanent foundation and 

meet specific anchoring requirements for its 

location. 

A manufactured (mobile) home is a structure 

built on a permanent chassis, transported to 

its site in one or more sections, and affixed 

to a permanent foundation. Manufactured 

(mobile) homes, referred to as “mobile 

homes” for brevity in the remainder of this 

subsection, do not include recreational 

vehicles. 

Under the NFIP, a travel trailer can be 

considered a building only if it is without 

wheels, built on a chassis and affixed to a 

permanent foundation, and regulated under 

the community’s floodplain management 

and building ordinances or laws. 

The statutory requirements apply to a loan 

securing mobile homes that are, or will be, 

located in an SFHA. NFIP coverage is 

available only with respect to a building or 

mobile home and not the land on which the 

building or mobile home sits. A chattel 

mortgage on a mobile home will trigger the 

mandatory purchase requirements. 

In instances where the location of the mobile 

home has not been established by the time of 

closing, the bank should notify the borrower 

that flood insurance must be obtained if the 

mobile home will eventually be located in 

an SFHA (in a participating community) and 

must be permanently affixed to a foundation 

to be eligible for coverage under the NFIP. 

In order to make this determination, the 

bank should require borrowers to provide 

notice to the bank when the mobile home is 

permanently anchored. A flood determination must then be made by the bank, and if 

the mobile home is located in an SFHA, the 

bank must notify the borrower that flood 

insurance must be purchased within 45 days 

of notice. 

Although the Real Estate Settlement 

Procedures Act (RESPA) does not require 

escrowing on a loan where land is not part 

of the security, the scope of the 1994 

Reform Act includes escrowing on a 

designated loan secured by a mobile home. 

Section 10 of RESPA, which pertains to the 

escrow rules, applies only to mobile homes 

that are also secured by the real estate upon 

which they are situated; however, the 1994 

Reform Act is broader in scope. A mobile 

home lender is required to escrow even if 

the loan is on the mobile home only. 

A substantial number of mobile homes have 

the peril of flood included under a private 

contract of insurance. A lender should 

review the private flood insurance coverage 

in light of the mandatory purchase 

requirement and FEMA criteria (see pages 

57-58 of these guidelines). 

(9) Personal Property 

Flood insurance coverage for contents is not 

required by law unless personal property, in 

addition to a building, secures the loan. 

Because residential mortgages rarely include 

personal possessions as part of the loan 
Section C. General Provisions 32 

security, lenders are not required to compel 

borrowers to purchase contents coverage, as 

this is not a designated loan. When a 

commercial loan on a building includes 

inventory and other trade or business 

movable property as security for a loan, that 

property must be covered by a separate 

policy under the General Property form. 

On the other hand, flood insurance is not 

required for a loan financing inventory 

where the secured collateral is stored in a 

building located in an SFHA and the 

building is not security for the loan. Lenders 

are encouraged to advise borrowers to 

discuss their contents coverage needs with 

their agents. Obtaining contents coverage for 

personal property or inventory located in 

high flood risk areas is prudent, even when 

not mandated by law. 

b. Underinsured Buildings 

The 1994 Reform Act repealed Title 42 

U.S.C. §4013(b)(6), which contained a 

statutory limit for coverage required to be 

purchased. The Act requires coverage that is 

“in an amount at least equal to the 

outstanding principal balance of the loan or 

the maximum limit of coverage made 

available.” Therefore, to meet minimum 

compliance requirements, lenders must see 

to it that flood insurance coverage on a 

building is at least the lowest of the 

following: 

• The maximum amount of NFIP flood 

insurance coverage available; or 

• The outstanding principal balance of the 

loan(s); or 

• The insurable value (RCV) of the 

building. 

Lenders should consider whether minimum 

required coverage amounts will be adequate 

to protect their interests and those of their 

borrowers. Borrowers should be urged to 

seek assistance from their agents regarding 

their flood insurance needs. To the extent 

allowed by the maximum limits available 

under the NFIP, flood insurance coverage 

amounts should include the cost of the 

foundation and correspond to the coverage 

amounts provided by homeowners insurance, which typically are purchased at the 

level of insurance to value. 

To address the underinsurance deficiency, 

§4012a(e) of the 1994 Reform Act specifies 

a lender’s notification and placement 

requirements for a building that is covered 

by less flood insurance than required by the 

Act. When a lender (or a servicer acting on 

the lender’s behalf) discovers that a building 

used as security is covered by an inadequate 

amount of flood insurance, it must first 

provide notice and opportunity for the 

borrower to obtain the required amount of 

flood insurance. If the borrower fails to 

purchase insurance, the lender then must 

purchase flood insurance in the appropriate 

amount on the borrower’s behalf. The 

statute designates the same steps to be 

followed in the event additional insurance is 

required as when no insurance exists. 

c. Home Equity and Second Mortgages 

Flood insurance is required on designated 

home equity or second mortgage loans made 

by regulated lenders if the loans are secured 

by a building or a manufactured (mobile) 

home/travel trailer, regardless of the lien 

priority. Lenders also need to be cognizant 

that GSEs have specific provisions in their 

sales guides that mandate flood insurance on 

designated home equity and secondary 

mortgages. The location of the secured 

property, not the use of funds received on a 

home equity or second mortgage, governs 

whether flood coverage is required. 

Even though home equity and second 

mortgage loans are subordinate to a primary 

loan, the terms of the mandatory purchase 

law apply with equal force. No matter what 

priority its loan may be, a lender remains 

subject to the various provisions of the 1994 

Reform Act, including the notification, 

Standard Flood Hazard Determination Form 
 33 Section C. General Provisions

(SFHDF), and force placement requirements. The standard 30-day waiting period 

(see pages 38-39 and Appendix 6) does not 

apply on home equity loans and second 

mortgages. Coverage is effective at the time 

of application and presentment of premium. 

Subject to the limit on insurance available 

and the requirement cap, a home equity 

lender must protect its interests by having 

coverage in place at the time the loan is 

extended. The lender must make a determination about the flood insurance requirement 

when the application for the loan is made. If 

the first mortgagee otherwise complied with 

the mandatory purchase requirements and no 

remapping has occurred, then no new 

determination is needed for the second 

mortgage or home equity loan. 

For loans with approved lines of credit to be 

used in the future, it may be difficult to 

calculate the amount of insurance for the 

loan because the borrower will be drawing 

down differing amounts on the line of credit 

at different times. In those instances where 

there is no policy on the collateral, the 

borrower must, at a minimum, obtain a 

policy as a requirement for drawing on the 

line. Drawing against an approved line of 

credit does not require further determinations to be made. For administrative 

convenience in ensuring compliance with 

the requirements, a lender may take the 

following alternative approaches: 

• Review its records periodically (at least 

annually) so that as draws are made 

against the line or repayments made to 

the account, the appropriate amount of 

insurance coverage can be maintained; 

or 

• Upon origination, require the purchase 

of flood insurance for the total amount 

of all loans or the maximum amount of 

flood insurance coverage available, 

whichever is less. 

If a secondary lienholder determines that a 

first mortgagee has neglected to obtain flood 

insurance coverage, the secondary lienholder must be assured that coverage is 

purchased on the entire outstanding loan 

amount in order to comply with the statutory 

requirements as well as to protect its priority 

as to insurance proceeds. Similarly, if the 

first mortgage has insufficient coverage, the 

borrower must cure this deficiency by 

purchasing additional coverage sufficient to 

protect all outstanding loans. If not, the loan 

should not be made. Apart from the 

provisions of the 1973 Act, the lender can 

rely on the hazard clause of the home equity 

or second mortgage loan document in 

requiring coverage in any underinsured 

situation. 

Because only one NFIP policy can be issued 

on a building, no matter how many loans 

exist, a secondary lienholder must verify 

that any required escrow of premium is 

being undertaken by the primary lienholder 

(see the escrow discussion on pages 39-40). 

Accordingly, the lienholder must coordinate 

coverage through its borrower and the 

insurance agent of record. A home equity 

and secondary lienholder’s interest is 

accomplished by endorsement to the policy. 

Evidence of coverage can be confirmed by 

receipt of a copy of the flood insurance 

application and premium payment from the 

agent or a revised declarations page from the 

insurer. A secondary lienholder should 

ensure that its interest is protected by having 

its name appear on the policy or by other 

appropriate means. If the existence of a 

home equity loan or a second mortgagee is 

not made known to the insurer, appropriate 

renewal notices may not be sent. 

The 1994 Reform Act provides an 

exemption from the mandatory purchase 

requirements for any loan made with an 

original outstanding principal balance of 

$5,000 or less, and with a repayment term of 

1 year or less. The dual criteria must be met 

in order for this exemption to apply. There is 

no exemption for home equity or second 

mortgage loans unless they meet these 

exceptions. 
Section C. General Provisions 34 

d. Notification Requirements 

Under the 1994 Reform Act, all regulated 

lenders and Federal agency lenders must 

provide the following notices: 

• Notification to Borrower, otherwise 

known as “Notice of Special Flood 

Hazard and Availability of Federal 

Disaster Relief Assistance” 

• Notification of Change of Servicer. 

In addition, the lender should receive an 

Expiration Notice from the insurer. These 

three notices are discussed below (also see 

Appendix 4, Notice Requirements). 

A lender also must complete the SFHDF 

(see Appendix 3, Standard Flood Hazard 

Determination Form) prior to concluding 

loan processing. 

(1) Notice of Special Flood Hazard and 

Availability of Federal Disaster Relief 

Assistance 

Lenders must provide written notification to 

those prospective borrowers whose loans 

secure a building located in an SFHA. The 

purpose of the notice is to advise the 

borrower about the Federal flood insurance 

coverage requirements and whether Federal 

disaster relief assistance is available in that 

location. In the case of multiple applicants 

on a single loan, the lender and borrowers 

typically designate the borrower to whom 

the notice will be provided. Lenders may 

provide multiple notices at their discretion. 

Two sample notices are included in Appendix 4 of these guidelines. These samples 

inform the borrower of the flood insurance 

requirements in an NFIP participating 

community and the implications when a 

community does not participate. A lender 

may comply with the notice requirement by 

using a sample form, or using the required 

language. Even if the format of the sample 

form is personalized and changed, it must 

still provide the borrower with the minimum 

information required by law. 

The notice must be provided a reasonable 

time before completion of the loan 

transaction to ensure that a flood zone 

determination is made as a condition of a 

loan being closed. The regulations do not 

establish a fixed time period in which a 

lender must provide the notice. What 

constitutes a reasonable time will 

necessarily vary according to the circumstances of the particular transaction. Timely 

completion and delivery of the notice serves 

both to inform the borrower and to protect 

the lender. 

In lieu of giving direct notice, a financial 

institution may obtain adequate assurances 

in writing, from the seller or lessor of the 

building, that the borrower has been advised 

of all required information by the lender 

prior to settlement. However, even if the 

notice is handled by a third party, the lender 

remains responsible for determining the 

building’s location in the flood zone and 

whether it is subject to the mandatory purchase requirements, and providing further 

notification to the borrower. 

The regulations also require a lender to 

extend this notification to any servicer of the 

loan. A lender must notify the servicer as 

promptly as possible after notifying the 

borrower, and in any event not later than the 

time that loan data such as hazard insurance 

and tax information is transmitted to the 

servicer. The notice may be provided in the 

same form as the notice to the borrower. 

This provision applies even if the servicer is 

affiliated with the lender. 

The text of the Notice of Special Flood 

Hazard and Availability of Federal Disaster 

Relief Assistance must include the 

following: 

• A general warning with respect to the 

chance of flooding 

• A description of the mandatory purchase 

requirements 
 35 Section C. General Provisions

• An explanation of the eligibility 

requirements to receive disaster relief 

• A discussion of the availability of flood 

coverage through: 

– An insurance agent from the NFIP 

Direct Program (NFIP Servicing 

Agent) 

– A WYO Program insurer 

– A private flood insurer. 

The forms also reference the review or 

appeal process through which a disputed 

flood hazard determination may be jointly 

submitted to FEMA for a final determination 

on whether a building or manufactured 

(mobile) home is located in an identified 

SFHA. The appeal process is explained 

more fully on pages 14-19, under Letters of 

Map Change (LOMCs) and Appeal Options. 

The notice form for loans in nonparticipating communities is designed to 

advise borrowers whose property is located 

in an SFHA in those communities where 

NFIP flood insurance is unavailable. As 

stated earlier, a lender may choose to make a 

conventional loan in an SFHA in a 

nonparticipating community. However, loans 

guaranteed or insured by the government 

(e.g., SBA, VA, and FHA loans) are not 

permitted to be made in those communities. 

Lenders must retain a record or evidence of 

the borrower’s receipt of the notice 

throughout the period the lender owns the 

loan. This record can be the borrower’s 

statement or initials that the notice was 

received directly, or the U.S. Postal Service 

return receipt in either hard copy or 

electronic format. The lender need not retain 

a hard copy version of the notice to the 

borrower and loan servicer. 

The applicability of this notice requirement 

to manufactured (mobile) homes is discussed on page 31. 

(2) Notification of Change of Servicer 

If a loan on a secured property in an SFHA 

is sold or transferred, a regulated lender 

must notify FEMA’s designee of the identity 

of the new loan servicer. FEMA’s designee 

is the flood insurance company listed on the 

policy. 

When a policy is written, the agent fulfills 

the notice requirement by indicating on the 

policy application the name of the 

mortgagee who is to receive notices. The 

obligation on the part of the seller of the 

loan to inform FEMA’s designee is also 

triggered each time the loan is assigned or 

transferred to another lender or servicer. The 

notice is to be sent to either the WYO 

insurer (directly or through the agent of 

record) or to the NFIP Servicing Agent if 

that entity is the insurer. 

This notice requirement may be accomplished by utilizing whatever electronic or 

hard copy format the parties generally use. 

The regulators acknowledge the use of the 

RESPA Notice of Transfer of Servicing 

form, designed to advise a borrower of the 

replacing servicer’s identity, as sufficient to 

meet this requirement if it contains all 

relevant information. 

The information needed by the FEMA 

designee includes: 

• Borrower’s name 

• Flood insurance policy number 

• Property address (including city and 

state) 

• Name of lender or servicer making 

notification 

• Name and address of new servicer 

• Name and telephone number of contact 

person at new servicer. 
Section C. General Provisions 36 

The notification of the identity of the 

servicer is accomplished through a “general 

change endorsement,” which is completed 

and submitted to the WYO insurer or NFIP 

Servicing Agent by the insurance agent of 

record. 

The law requires this notification to be sent 

by the incumbent lender or servicer to the 

insurance company or agent not later than 

60 days after the effective date of such 

change. This duty to notify is, in turn, 

passed along to the new (transferee) 

regulated lender or servicer upon subsequent 

change of servicer. 

This notice procedure accomplishes several 

objectives: 

• It makes the insurer aware of the identity 

of the party designated to receive 

mailings such as expiration and policy 

renewal premium notices, which the 

insurer must mail 45 days prior to the 

expiration date. 

• It eliminates any failure on the part of 

subsequent lenders or servicers to notify 

the insurance agent or insurer of a 

change in a mortgagee (or servicer) in 

order to enable renewal and/or 

expiration notices to be sent to the 

proper lender or servicer of the loan. 

• This requirement is designed to combat 

the high nonrenewal rate that occurs 

after the first year of the loan. For 

example, when the insurance payments 

are not escrowed, without the updated 

information the mortgagee or servicer 

could not verify whether the borrower 

continued to renew the policy or allowed 

it to lapse. 

The regulations make no provisions as to 

recordkeeping of the change of servicer 

form; however, the lender and servicer have 

the burden to demonstrate the notice was 

given. 

If one institution acquires or merges with 

another, the successor institution must 

provide notice for the loans being serviced 

by the former institution if the former 

institution did not provide notice prior to the 

effective date of the acquisition or merger. 

Although the statute requires the Administrator of FEMA or the Administrator’s 

designee to be notified when servicing is 

transferred, neither the statute nor the regulations require notice when a loan is paid off. 

(3) Expiration/Renewal Notice 

The 1994 Reform Act and the SFIP both 

require the Administrator of FEMA 

(regarding NFIP Direct business) and the 

Administrator’s designee (i.e., a WYO 

carrier on WYO policies) to send a notice of 

the date of expiration of the policy contract. 

This expiration/renewal notice must be sent 

by first-class mail, not less than 45 days 

prior to expiration, to the last known address 

of the insured, any known mortgagees, 

servicer, and the owner of the property. 

FEMA interprets the term “owner of the 

property” as used in the statute to mean the 

party insuring the risk. An expiration/ 

renewal notice is also mailed to the 

insurance producer. The law does not 

require proof of receipt of the notice. The 

statutory notice provisions are in addition to 

any applicable terms and conditions 

provided in the SFIP, as well as any 

obligation found in the mortgage or lending 

document between the borrower and lender. 

Under the provisions of the SFIP, the WYO 

insurer and the NFIP Servicing Agent also 

must notify the lender, or servicer acting on 

behalf of the lender, along with the 

borrower, when the insurance contract is due 

for renewal. 

e. Standard Flood Hazard 

Determination Form 

Independent of the notice requirements, a 

separate provision was added in Section 528 

of the 1994 Reform Act, 42 U.S.C. §4104b, 

requiring the lender to document a loan by 
 37 Section C. General Provisions

entering information on the SFHDF. The 

SFHDF has been designed to facilitate 

notification of special flood hazards. 

However, the law requires the form to be used 

for all loans, not only those for which the 

building or manufactured (mobile) home is in 

an SFHA. 

The authorizing regulation is found at 44 CFR 

§65.16. The regulation requires that the flood 

zone determination—Zones A or V (SFHAs), 

or Zones B, C, or X (low-to-moderate flood 

risk areas)—and community status be entered 

on the most recent version of the SFHDF. The 

current form, and instructions for completing 

it, are provided in Appendix 3. These 

materials are also available at 

http://www.fema.gov/business/nfip/sfhdform.s

htm, where any future updates to them will be 

posted. 

A building’s location and its community’s 

participation in the NFIP may mandate the 

purchase of flood insurance. If the building 

or manufactured (mobile) home offered as 

security for a loan is located in Zones A or 

V (SFHAs), mandatory flood insurance 

purchase requirements are triggered. If the 

community participates in the NFIP, 

federally backed flood insurance is available 

and federally backed mortgages may be 

issued. Private flood insurance may also be 

available on a limited basis. 

Lenders should consult their Federal 

regulatory authorities for procedures 

applicable to these and other outcomes, such 

as buildings in Zones B, C, or X (low-tomoderate flood risk) or communities not 

participating in the NFIP. Mortgage 

documents may reserve the rights of lenders 

to require flood insurance protection that 

exceeds the minimum requirements under 

the law. 

Lenders will use the SFHDF to document 

the process of determining whether or not 

flood insurance should be required in 

connection with a given mortgage loan 

transaction, while Federal banking entities 

will use it to monitor compliance by lenders. 

The form will document that a determination 

was made for a building or mobile home, 

whether it is in or out of the SFHA, whether 

flood insurance is required, and whether 

Federal flood insurance is available. 

GSEs, such as Fannie Mae and Freddie 

Mac, also require the use of the SFHDF. 

See links to announcements and guidelines 

at http://www.efanniemae.com and 

http://www.allregs.com/fhlmc/. 

(1) Determination Process 

The lender must take the responsibility for 

making flood zone determinations, either by 

making the determination internally or 

acquiring determination services from a 

third party (see pages 11-12). FEMA does 

not perform individual property flood hazard 

determinations. The 1994 Reform Act states 

that the lender may provide for the 

acquisition or determination of flood hazard 

information to be made by a person other 

than the lender only to the extent that such 

person guarantees the accuracy of the 

information. Neither FEMA nor the lending 

regulators have designated standards for 

what constitutes an adequate guarantee of 

the information provided to justify reliance 

upon the data. 

A previous determination may not be reused 

when making a new loan. If the loan is not 

new, i.e., if the transaction pertains to 

increasing, extending, renewing, or purchasing an existing loan, the determination 

can be reused if: 

• It is less than 7 years old; and 

• No new or revised FIRM or FHBM has 

been issued in the interim; and 

• It was initially recorded on the SFHDF. 

 

If a borrower obtains a home equity or 

second mortgage from its first mortgagee 

that is secured by a secondary lien position, 

and provides evidence that adequate flood 

insurance coverage is in place for all loans, 

the lender can rely upon the original SFHDF 
Section C. General Provisions 38 

if no remapping has occurred. The regulators will impose no penalty if the prior 

determination meets the above requirements. 

Once a new map has been issued, a lender 

must use that map as a guide, and a new 

determination is required for a triggering 

event. Any disputes that arise between the 

lender and borrower concerning the location 

of a building in relation to an SFHA are 

eligible to be resolved in accordance with 

the review process described on pages 

14-19. 

(2) Instructions for Using the SFHDF 

The reverse side of the SFHDF has detailed 

section-by-section instructions for completing 

the form. A separate SFHDF is required for 

buildings on adjacent properties. However, 

if a single property contains multiple 

buildings, a listing of buildings on the parcel 

can be attached to the SFHDF. Only one 

building may be insured under one NFIP 

policy. Each building securing a loan must 

be covered by a separate policy. 

The SFHDF may be used in a printed, 

computerized, or electronic manner and 

must be retained for the life of the loan in 

either hard copy or electronic format. Any 

alternative electronic format used by lenders 

must contain all mandatory fields indicated 

on the SFHDF. 

The form need not be kept in the loan file, 

but a lender is expected to be able to retrieve 

the record within a reasonable time period 

upon being requested by its Federal 

supervisory agency. Lenders are neither 

required to provide nor prohibited from 

providing the WYO insurer, insurance 

agent, or the borrower with a copy of the 

form. 

Lenders and servicers cannot accept some 

form of self-certification or assurance from 

the mortgagor-borrower that the building is 

not in an SFHA. If the lender wishes to 

change its original determination of the 

building’s location based on information 

submitted by the mortgagor, the lender/ 

servicer must conclude that its original 

determination was in error and make any 

change on the basis of its review of that new 

information. The ultimate responsibility for 

making such determinations about a 

building’s flood zone location rests with the 

mortgagee, not the mortgagor. As previously 

noted, contested determinations are subject 

to the FEMA review process. 

f. Waiting Period and Exceptions 

The 1994 Reform Act requires a 30-day 

waiting period to effect coverage under a 

new contract for flood insurance and any 

modification to coverage under an existing 

flood insurance contract. The express intent 

of Congress in mandating a 30-day waiting 

period was to prevent the purchase of flood 

insurance at times of imminent flood loss. 

Exceptions to this standard 30-day wait are 

as follows: 

(1) Coverage Obtained in Conjunction 

 with a Loan 

Exceptions to the standard 30-day waiting 

period apply when coverage is placed in 

conjunction with loan activity or the 

remapping of a community. The 1994 

Reform Act’s “initial purchase” provision 

states that the 30-day waiting period does 

not apply to the following instances: 

• “The initial purchase of flood insurance 

. . . when the purchase is in connection 

with the making, increasing, extension, 

or renewal of a loan”; or 

• “The initial purchase of flood insurance 

. . . pursuant to a [map] revision or 

updating of floodplain areas of flood 

zones” within a 1-year period. 

The effective date of coverage is 12:01 a.m. 

(local time) on the first calendar day after 

the application date and the presentment of 

premium. 

It is significant to note that the first 

exception described above to the 30-day 
 39 Section C. General Provisions

waiting period (when the initial purchase of 

flood insurance is in connection with the 

making, increasing, extension, or renewal of 

a loan) is much broader than it appears. 

FEMA has interpreted the exception to the 

30-day waiting period to apply in situations 

pertaining to refinancing, placement of 

second mortgages, and modification of 

existing mortgages. This exception also 

applies to force placement, increased limits 

at renewal, and map revisions. For a detailed 

description of the waiting period rules, refer 

to Appendix 6, 30-Day Waiting Period. 

(2) Assignment of Policy 

There is a 30-day waiting period before 

coverage can go into effect when an NFIP 

policy is assigned from a seller to a buyer 

where the buyer does not obtain a mortgage. 

If the buyer obtains a mortgage, the waiting 

period does not apply. 

g. Escrow Requirements 

The escrow requirement of the 1994 Reform 

Act is limited to instances where a lender 

establishes an escrow account for a loan for 

another purpose. If financial institutions and 

their servicers require the escrow of taxes, 

insurance premiums, or any other fees or 

charges for covered loans, they must also 

escrow for premiums and fees for flood 

insurance.

(1) Real Estate Settlement Procedures Act 

The mandatory purchase law expressly 

states that escrow accounts established 

under the 1973 Flood Disaster Protection 

Act are subject to the escrow account 

provisions of Section 10 of the Real Estate 

Settlement Procedures Act (RESPA) of 

1974, which imposes accounting and notice 

obligations on a lender for consumer loans. 

Lenders must escrow premiums and fees for 

any required flood insurance if the lender 

requires escrow for other purposes such as 

hazard insurance or taxes. 

RESPA, which generally limits the amount 

that may be maintained in escrow accounts, 

and requires notices containing escrow 

account statements for those accounts, 

applies primarily to escrow of consumer 

loans. Generally, this means that only loans 

on one- to four-family dwellings will be 

subject to the RESPA escrow rules. Loans 

on multi-family dwellings of five or more 

units are not covered by these RESPA 

requirements. 

Although the escrow provision applies only 

to residential loans, lenders are encouraged 

to escrow on all loans, including those on 

non-residential improved real estate. 

(2) Applicability 

Unlike the RESPA escrow requirements, the 

escrow of flood insurance includes not only 

single-family buildings, but also multifamily properties containing five or more 

residential units. Consequently, escrow on 

certain residential real estate is required, 

even though the property may be secured 

under a commercial or business loan. The 

1994 Reform Act’s escrow provision applies 

to both home mortgage loans and commercial loans (including, for example, 

mortgages on apartment buildings or 

construction loans secured by residential 

buildings), but only if the lender requires the 

escrow of other charges for those loans. 

The mandatory purchase provisions make no 

distinction between single or multi-family 

dwellings or owner or renter occupancy. The 

lender is to consider the primary use of the 

building in making its determination. For 

example, if a building is a mixed-use 

property, i.e., part residential and part 

commercial, the primary use of the building 

controls. 

Escrowing on all manufactured (mobile) 

home designated loans is required under the 

1994 Reform Act, even though RESPA 

requires escrowing only if the loan 

encompasses the land upon which the home 

is situated. 
Section C. General Provisions 40 

The 1994 Reform Act’s escrow provisions 

apply to financial institutions and their 

servicers, but do not apply to mortgage 

company originators over whom a Federal 

regulator has no jurisdiction. 

Regulators will examine the loan practices 

of the lender to determine if the escrow is 

required. If a lender’s loan practices indicate 

that escrow is normally required and the 

loan documents permit escrow accounts to 

be established, the regulators presume that 

an escrow account for flood insurance 

premiums also should be established in the 

event flood insurance is mandated. Various 

escrow-type accounts established for loans 

involving multi-family properties that are 

substantially different in purpose from 

single-family residences (e.g., interest 

reserve accounts and compensating balance 

accounts) do not constitute escrow accounts 

under the mandatory purchase requirements. 

The law stipulates that, if an escrow account 

is required, it must be set up “in a manner 

sufficient to make payment as due for the 

duration of the loan.” 

The flood escrow requirement facilitates the 

lender making payments as due for the life 

of the loan. In the past, a significant number 

of lenders did not require escrowing of flood 

insurance coverage; in those situations, 

NFIP coverage was susceptible to lapse. 

The escrow practices are designed to 

balance the need to increase participation 

with the desire to prevent significant 

burdens on lenders and borrowers. 

Requiring lenders to escrow for flood 

insurance premiums may significantly 

improve participation in the NFIP and 

reduce the probability of lapsed coverage. 

(3) Escrow Exclusions 

The escrow provision for flood insurance is 

not triggered in the following situations: 

• Voluntary escrowing for credit life 

insurance 

• Establishing accounts in connection 

with commercial loans for such items as 

interest or maintenance reserves or 

compensating balances. (Generally, accounts established in connection with 

the underlying agreement between the 

buyer and seller, or that relate to the 

commercial venture itself, rather than to 

the protection of the property, would 

not trigger the escrow requirements for 

flood insurance premiums.) 

• Voluntary escrowing for other expenses 

(Escrowing is not required, but 

established at the borrower’s request.) 

• Lender termination of an escrow 

account for a loan. 

h. Force Placement 

(1) Authority 

Similar to the requirements concerning the 

issuance of the various notices and escrow, 

the 1994 Reform Act places responsibility to 

force place on lenders as well as servicers. 

The Act requires the force placement of 

flood insurance if a servicer or lender 

determines that the building securing the 

loan is not adequately insured. The 1994 

Reform Act also grants statutory authority to 

a lender or servicer to purchase flood 

insurance for the building and charge a 

premium to the borrower if the building is in 

an SFHA. 

By enacting this portion of the law, 

Congress intended lenders to have clear 

authority to force place; under certain 

circumstances, they are obligated to force 

place. The force placement of coverage is 

designed for use at any time during the term 

of a loan in uninsured and underinsured 

situations; it is not intended for use at loan 

origination. If a borrower refuses to obtain 

flood insurance coverage as a condition of 

obtaining a loan, the loan is deficient and is 

not to be made. 
 41 Section C. General Provisions

If at any time during the term of a covered 

loan, the lender or servicer determines that 

the building securing the loan is not covered 

by flood insurance, or is covered by such 

insurance in an amount less than that 

required by law, the lender or servicer must 

first notify the borrower of the need to carry 

adequate flood insurance coverage. The law 

does not specify the precise wording of this 

notice, so lenders and servicers should give 

a close reading to the statute and regulations 

for guidance. The notice must state that the 

borrower should, at the borrower’s expense, 

obtain flood insurance that is not less than 

the amount required by law. 

If the borrower fails to purchase such flood 

insurance within 45 days after such 

notification, the lender or servicer shall 

purchase the insurance on behalf of the 

borrower and may charge the borrower for 

the cost of premiums and fees incurred by 

the lender or servicer. In an underinsured 

situation, when the borrower and/or agent of 

record refuse to cooperate with the new 

lender, the loan should not be made. If the 

loan has already been extended, the lender 

should exercise recourse as provided under 

the terms of the loan document. 

The standard 30-day waiting period 

established by the 1994 Reform Act does 

not apply to force-placed policies; instead, 

the 45-day period from time of notification 

that a lender must grant to a borrower to 

voluntarily obtain coverage is the only time 

delay that controls. 

The 1994 Reform Act contains preemption 

language stating that the NFIP force 

placement provisions prevail over state and 

local law. The language is significant 

because many of the state laws that cover 

force placement are vague and open to 

interpretation. In addition, the language 

responds to those state laws that prohibit or 

limit force placement, or require the 

borrower’s contractual agreement in order to 

force place coverage. 

(2) Applicability 

The terms of the force placement law are 

broader in scope than the escrow 

requirement. Force placement applies to any 

borrower of a designated loan, commercial 

or residential, whether or not escrow of 

expenses is required. On any type of forceplaced policy, a lender should keep evidence 

of the determination that the loan is in an 

SFHA, including information concerning the 

FIRM panel and method by which the 

determination was made. 

Home equity and second mortgage loans 

also are included under the requirement. A 

secondary lienholder that force places 

coverage only to the extent of its loan will 

not protect its interest if a first mortgagee 

claims priority to any insurance proceeds. 

Force placement by a second mortgagee will 

require coordination with the first 

mortgagee, as well as with the insurance 

producer and insurer on the first mortgage, if 

one exists. 

The 1994 Reform Act requires a lender to 

carry out the force placement as a matter of 

law, independent of the contractual provisions of the loan. Force placement is not 

limited to those situations provided for 

under the mandatory purchase law. 

The standard Fannie Mae and Freddie Mac 

documents provide that the lender may 

obtain the force-placed insurance at the 

borrower’s expense. 

The amount of insurance coverage must be 

at least the lowest of the outstanding 

principal balance of the loan(s), the 

insurable value of the structure, or the 

maximum limit available under the NFIP. If 

the lender opts to protect only its security in 

the loan (loan balance), the insurance 

proceeds may be inadequate. 

Force placement of flood insurance is 

intended only as a last resort, and on 

mortgages whose mortgagors have failed to 

respond to the notifications required by law. 
Section C. General Provisions 42 

The 1994 Reform Act provides that a lender 

must inform its borrowers that they have a 

free choice of an insurer from whom to 

purchase coverage. That free-choice purchase option also applies to a lender when 

dealing with force-placed coverage. If, 

within 45 days from the initial notice, a 

borrower fails to comply by voluntarily 

obtaining coverage, a lender or servicer 

must obtain either: 

• A Mortgage Portfolio Protection 

Program (MPPP) policy through a WYO 

insurer; or 

• An SFIP through either a WYO insurer 

or the NFIP Servicing Agent; or 

• Non-NFIP flood coverage from a private 

industry insurer if such coverage is 

available. 

(3) MPPP Method of Placement 

Most loans for which flood insurance is 

force placed must be processed with a 

limited amount of underwriting information. Therefore, placement is appropriate 

through the MPPP, where only limited 

underwriting information is required. 

The MPPP is an optional program 

designed for lenders to force place flood 

insurance coverage under the NFIP with 

WYO insurers that have agreed to comply 

with the requirements of the MPPP. A list 

of companies that write MPPP coverage is 

available at http://www.fema.gov/nfip/wyo.shtm. 

The NFIP Direct Program does not offer 

the MPPP. The procedure for using the 

MPPP is part of the regulations. Questions 

and answers about the MPPP are included in 

Appendix 7. 

The MPPP is an annual policy and, although 

it cannot be renewed, it can be rewritten 

each year if the required procedures are 

followed. Rating under the MPPP policy is 

based on the flood map in effect at the time 

the policy is written. Because adequate 

underwriting data seldom is available, the 

rates allowed to be charged for force-placed 

policies are considerably higher than rates 

for voluntary policies. The MPPP policy is a 

dual-interest contract covering both the 

borrower and the lender. 

(4) Standard NFIP Policy 

A lender may be able to force place flood 

insurance protection via the Standard Flood 

Insurance Policy (SFIP). This requires 

adequate underwriting information, possibly 

from the lapsed flood policy, or with help 

from the former insurance agent. The SFIP 

is generally less costly than the MPPP. 

The borrower has 45 days, after initial 

notification of the need to obtain flood 

insurance, to purchase a policy. After that 

time, if the lender has sufficient information 

to produce a policy, it may place a policy 

with an agent of its choice. This method of 

insuring the risk does not require the use of 

any specific notice to the borrower. 

(5) Private Flood Insurance 

A lender has the option of force placing 

flood insurance through a private (nonNFIP) insurer. If private insurance is 

available, the lender also must consider 

whether the policy, as well as the insurer, is 

acceptable to its regulator by meeting the 

criteria established by FEMA. The FEMA 

criteria for acceptance of private flood 

insurance are fully described on pages 

57-58. 

i. Exceptions 

(1) State-Owned Property 

If the security property is state-owned and 

covered by adequate policies of selfinsurance, flood insurance is not required. A 

list of states with adequate self-insurance 

programs can be found at 44 CFR, Chapter 

1, Part 75. This exemption, by its terms, 

applies only to state-owned property, and 

not county- or city-owned property.
 43 Section C. General Provisions

(2) Small Loan 

The 1994 Reform Act provides an 

exemption from the mandatory purchase 

requirements for any loan made with an 

original outstanding principal balance of 

$5,000 or less, and with a repayment term 

of 1 year or less. The dual criteria must be 

met in order for this exemption to apply. 

There is no exemption for home equity or 

second mortgage loans unless they meet these 

exceptions. 


 45 Section D. Condos, Coops, Timeshares 

SECTION D 

CONDOMINIUMS, COOPERATIVES, TIMESHARES 

The mandatory purchase of flood insurance 

requirements apply with equal force to 

condominium, cooperative, and timeshare 

units. Placing and monitoring coverage on 

units within multi-unit buildings presents 

special circumstances to lenders and merits 

particular care. The statutory requirements 

can be explained through a review of how 

the various National Flood Insurance 

Program (NFIP) policies correspond to the 

forms of ownership as follows: 

• The Residential Condominium Building 

Association Policy was designed for 

eligible residential condominium associations, and timeshares that are of the fee 

or real estate ownership type, in Regular 

Program Communities. 

• The General Property Form policy 

applies to residential cooperatives and 

timeshares that are non-fee interest and 

residential condominium buildings not 

eligible for the Residential Condominium Building Association Policy. 

The General Property Form policy also 

applies to non-residential condominiums 

and unit owners. 

• The Dwelling Form policy may be 

issued on an individual residential unit. 

For eligibility requirements and limits 

available on the various coverages under 

these policies, refer to the Condominiums 

section of the NFIP Flood Insurance 

Manual, or consult property insurance 

professionals for assistance. 

1. Condominium Association 

Responsibilities and Statutory 

Requirements 

Condominium association board members 

have a fiduciary responsibility to unit 

owners to protect the common property by 

assuring that appropriate insurance coverage 

is in place. This responsibility often includes 

providing adequate flood insurance to 

protect buildings located in Special Flood 

Hazard Areas (SFHAs). Options for placing 

flood insurance on condominium buildings 

are described below. 

a. Residential Condominium Building 

Association Policy (RCBAP) 

The RCBAP is the policy specifically 

designed for condominium associations to 

insure residential condominium buildings. 

Under the RCBAP, the association is able to 

manage flood insurance needs and by-law 

requirements without relying on the actions 

of the unit owners. 

Although the statutory requirements apply 

with equal force to condominium unit 

owners and their lenders, the practice of the 

lending industry, as followed under the 

RCBAP, is to defer to the association to 

ensure compliance. While the association 

does not bear mortgage responsibility on the 

individual units, its interest springs from the 

obligation to maintain and repair the 

premises for the community benefit and unit 

owners as tenants in common. A key feature 

of the condominium insurance format is the 

separate ownership and mortgaging of 

individual units, yet the insuring of the 

building as a whole with a policy issued to 

the association only. It should be noted that 

lenders are still responsible to meet their 

compliance requirements under the law. 

A unit owner’s mortgage lender has no 

direct interest in an RCBAP and is not to be 

listed as an additional named insured on the 

policy declaration page. 

The 30-day waiting period applies to the 

RCBAP, unless the condominium 

association is purchasing flood insurance 

required by the association’s mortgage 

company. 
Section D. Condos, Coops, Timeshares 46 

Because the RCBAP provides flood 

insurance protection for both the building 

elements within the unit and the common 

building elements, the security interests of 

individual unit owner mortgagees should be 

protected, so long as coverage amounts 

reflect insurance to value, as with other 

forms of property insurance. Although unit 

owners have a shared interest in the 

common areas of the condominium building, 

as well as in their own unit, unit owners are 

unable to individually protect such common 

areas. Therefore, the RCBAP, insured to its 

full replacement cost value (RCV) to the 

extent possible under the NFIP, is the 

correct way to insure a residential 

condominium building against flood loss. A 

properly placed RCBAP protects the 

financial interests of the association, unit 

owners, and lenders and also satisfies the 

statutory requirements. 

The premium for the RCBAP is assessed as 

part of the unit owner’s association dues. 

Proportionately, the RCBAP costs each unit 

owner less than if each unit owner were to 

purchase his or her own flood insurance 

policy that would cover the unit. An eligible 

condominium association should purchase 

flood insurance coverage under the RCBAP, 

even though individual owners may not have 

mortgages on their units. 

(1) Statutory Requirements 

The flood insurance amount required by 

statute for an applicable loan on a 

condominium unit must be at minimum the 

lowest of, but may exceed, the following: 

• The outstanding balance of the loan(s); or

• The insurable value (replacement cost 

value) of the unit; or

• The maximum amount of insurance 

available under the NFIP for the type of 

property. 

Once the minimum amount required to 

fulfill the statutory requirement is identified 

from the above example, it is compared to 

the portion of the RCBAP limit attributable 

to the unit. If the unit’s portion of the 

RCBAP equals or exceeds the minimum 

amount required by law, the loan is 

compliant, but not necessarily adequately 

insured against flood loss. If the unit’s 

portion of the RCBAP is less than the 

minimum amount required by statute, the 

association should be asked to increase its 

limits. If the association refuses, the unit 

owner may purchase flood insurance under 

the Dwelling Form for the difference, if 

acceptable to the lender. Meeting the 

compliance requirement via this combination of coverages (RCBAP and Dwelling 

Form) does not fill gaps in coverage nor 

ensure that the security is adequately 

protected against flood loss. 

If there is no RCBAP, the unit owner can 

meet the minimum statutory requirement by 

purchasing a Dwelling Form policy at least 

equaling the minimum required amount, if 

acceptable to the lender. 

(2) Evidence of Compliance 

As a condition of making, increasing, 

extending, or renewing a loan on the 

residential condominium unit and as 

frequently as required, a mortgagee must 

obtain: 

• A copy of the RCBAP documenting the 

amount of insurance—ideally, insured to 

RCV, or at least the unit’s portion 

equaling the statutory requirement. 

(Effective October 1, 2007, the 

Declarations Page of each RCBAP 

issued or renewed must show the 

building’s replacement cost value and 

the number of units within that 

building.); or 

• A copy of the RCBAP and Dwelling 

Form (or application and paid receipt) 

jointly equaling at least the minimum 
 47 Section D. Condos, Coops, Timeshares 

statutorily required amount of insurance; 

or 

• A copy of the Dwelling Form equaling 

the minimum amount required to meet 

statutory requirements. 

While any of these insurance methods might 

meet the statutory requirements, an RCBAP 

not insured to full value and/or a Dwelling 

Form policy could expose the lender and 

borrower to unknown risk. 

FEMA suggests the following simple way to 

address both compliance requirements and 

flood insurance needs for safety and 

soundness of collateral interests. Lenders 

may apply a risk management strategy, as a 

condition to granting loans secured by 

condominium units in high-flood-risk areas, 

by requiring that condominium buildings be 

insured under the RCBAP to their full RCV 

or the maximum amount available, 

whichever is less. The compliance 

requirement is then equaled or exceeded 

with no additional calculation necessary. 

(3) Coverage 

The entire residential condominium building 

is covered under the RCBAP, including both 

common building elements and individually 

owned building elements within the units, 

improvements within the units, and personal 

property owned in common if contents 

coverage is carried. The RCBAP does not 

protect the individual owner from loss to 

personal property owned exclusively by the 

unit owner. 

The NFIP prohibits duplication of NFIP 

policies on the same risk. As described 

below, both an association and a unit owner 

may obtain NFIP coverage, but the unit 

owner’s coverage is proscribed in that it is in 

excess of the association policy. The 

combined coverage of the RCBAP and the 

unit owner Dwelling Form policy cannot 

exceed the statutory limits or insurable 

value, whichever is less. The RCBAP is 

primary in relation to the unit owner’s 

policy. 

(4) Policy Limits 

As of this edition, the maximum amount of 

building coverage that can be purchased on 

a high-rise or low-rise condominium under 

the RCBAP is the replacement cost value of 

the building or the total number of units in 

the condominium building multiplied by 

$250,000, whichever is less. The maximum 

coverage limit under the NFIP for contents 

is $100,000 or the replacement cost value of 

the contents, whichever is less. Contents 

coverage losses under the NFIP are settled 

on the basis of actual cash value. 

(5) Valuation 

FEMA encourages lenders to seek the 

assistance of insurance agents and 

companies to determine the replacement 

cost value of residential condominium 

buildings, including the foundations. 

Any building at risk of flooding should be 

protected to the same degree as it is for fire 

and wind perils, to the extent possible under 

the NFIP policy limits, which are 

established by Congress. 

(6) Coinsurance Provision 

Under the RCBAP, associations have an 

incentive to purchase and maintain coverage 

in an amount equal to the cost of replacing 

the building and its foundation, to the extent 

possible under the NFIP limits. FEMA 

encourages condominium associations to 

insure their building to 100 percent of the 

full replacement cost value, because 

construction costs continue to increase while 

the RCBAP limits do not automatically 

increase over time. At the time of loss, the 

amount of insurance should represent at 

least 80 percent or more of the replacement 

cost or the maximum amount of coverage 

available under the NFIP, in order to avoid 

the coinsurance penalty. The 80 percent 

referenced here is an insurance tool that may 

apply at the time of loss; it is not a 

compliance tool. 
Section D. Condos, Coops, Timeshares 48 

If the 80 percent threshold is met, the NFIP 

will pay compensable partial losses up to the 

limits of the policy minus any deductible. 

When an association carries limits to full 

replacement cost value, the unit owner does 

not need to obtain supplemental building 

coverage to offset a potential assessment in 

a total loss situation. The RCBAP’s policy 

limits exclusively, and no additional 

separate policy limits (such as the unit 

owner’s coverage), can apply to avoid the 

coinsurance penalty. For example, a 

Dwelling Form policy limit does not 

increase the RCBAP limit and would not 

avoid the coinsurance penalty. 

Coverage under the RCBAP is on an RCV 

basis so that no deduction for depreciation is 

taken for building elements at loss 

settlement. However, condominium associations are encouraged to insure their 

buildings to full replacement cost value, or 

to the maximum available limit of $250,000 

per unit multiplied by the number of units, 

whichever is less. 

Example of 

RCBAP Coinsurance Penalty 

Building RCV at time of loss $12,500,000 

80% of RCV at time of loss 10,000,000 

Actual amount of insurance carried 6,000,000 

Amount of loss 6,000,000 

Loss settlement (before deductible) 3,600,000 

The amount of insurance carried 

($6,000,000) represents only 60 percent of 

the 80-percent required amount ($10,000,000) 

that avoids the coinsurance penalty. A 

shortage of $2,400,000 therefore results, 

which represents the coinsurance penalty. 

RCBAP 

Loss Settlement Formula 

$6,000,000 (ins. amt.) X $6,000,000 (loss) 

$10,000,000 (80% of RCV at time of loss) 

Example of Adequate Amount of Insurance, 

Avoiding RCBAP Coinsurance Penalty 

Building RCV at policy purchase $11,000,000 

80% of RCV at policy purchase 8,800,000 

Amt. insurance purchased (RCV) 11,000,000 

Building RCV at time of loss 12,500,000 

80% of RCV at time of loss 10,000,000 

Amount of loss 6,000,000 

Loss settlement (before deductible) 6,000,000 

In the preceding example, insurance was 

purchased to the full RCV of the building at 

$11,000,000. At the time of loss, the RCV of 

the building had risen to $12,500,000. 

Because the actual amount of insurance is 

within 20 percent of the replacement value 

of the building, there is no coinsurance 

penalty. Purchasing insurance to full RCV, 

rather than to 80 percent of the replacement 

cost, should go a long way toward protecting 

the insurable interests of the lender, the 

association, and the unit owner. 

(7) Assessments 

Assessments can be costs that are passed on 

to unit owners by a condominium 

association to cover losses to the common 

areas of the building containing the units 

when the losses are not covered by hazard or 

flood insurance. For more information about 

assessment coverage, see the examples of 

flood loss assessment against unit owners 

and settlement outcomes; examples begin on 

the next page. 

b. Dwelling Form Policy 

(1) Unit Owner’s Building Coverage 

A unit owner can acquire supplemental 

building coverage to the RCBAP by 

purchasing building coverage for the unit 

under a Dwelling Form that is written in 

excess of the association policy. The 

policies are coordinated such that the 

Dwelling Form policy purchased by the unit 

owner responds to shortfalls on building 

coverages pertaining either to improvements 

 = $3,600,000
 49 Section D. Condos, Coops, Timeshares 

owned by the insured or to assessments. It 

should be noted that the Dwelling Form 

does not extend the RCBAP limits, nor does 

it enable the association to fill gaps in 

coverage. 

Combined loss payments under the RCBAP 

and Dwelling Form, including assessment 

coverage, cannot exceed the insurable value 

or maximum NFIP limits for building 

coverage. Assessment coverage applies, up 

to the building coverage limits of the 

Dwelling Form policy purchased, when 

there is no association policy (RCBAP). 

Assessment coverage under the Dwelling 

Form applies when there is an RCBAP, but 

only to that part of the loss that exceeds 80 

percent of the building replacement cost 

value. 

(2) Unit Owner’s Personal Property 

Coverage 

Personal property owned by individual unit 

owners must be insured under an individual 

unit owner’s Dwelling Form policy. 

With the exception of the non-condominium 

timeshare unit owner, unit owners may 

apply up to 10 percent of their personal 

property coverage limit to flood damage to 

improvements made at the unit owner’s 

expense. However, this 10 percent of the 

contents coverage limit does not apply if the 

association’s General Property Form policy 

maximum limit of $250,000 has been 

reached and/or if the improvements in the 

unit are covered by an RCBAP or a private 

flood insurance policy. Additionally, use of 

the personal property coverage limit is at the 

discretion of the unit owner and reduces the 

contents limit. 

(3) Loss Assessment Coverage 

The following examples demonstrate how 

the unit owner’s Dwelling Form policy will 

respond in certain loss situations. 

Example A—No RCBAP: 

• If the unit owner purchases building 

coverage under the Dwelling Form and 

there is no RCBAP, the Dwelling Form 

policy responds to assessments against 

unit owners for damages to common 

areas up to the Dwelling Form policy 

limit. 

• However, if there is damage to the 

building elements of the unit as well, the 

building coverage limit under the 

Dwelling Form policy may not be 

exceeded by the combined settlement of 

unit building damages, which would 

apply first, and the loss assessment. 

Example B—RCBAP insured to at least 

80 percent of building replacement cost: 

• If the unit owner purchases building 

coverage under the Dwelling Form and 

if there is an RCBAP covering at least 

80 percent of the building RCV, the loss 

assessment coverage under the Dwelling 

Form policy will pay that part of a loss 

that exceeds 80 percent of the 

association’s building replacement cost. 

• The loss assessment coverage under the 

Dwelling Form policy will not cover the 

association’s policy deductible purchased by the condominium association. 

• If building elements within units have 

also been damaged, the Dwelling Form 

policy pays to repair building elements 

after the RCBAP limits that apply to the 

unit have been exhausted. Again, 

coverage combinations cannot exceed 

the total limit of $250,000 per unit. 

Example C—RCBAP insured to less than 

80 percent of building replacement cost: 

• If the unit owner purchases building 

coverage under the Dwelling Form and 

there is an RCBAP that was insured to 

less than 80 percent of the building RCV 

at the time of loss, the loss assessment 
Section D. Condos, Coops, Timeshares 50 

coverage cannot be used to reimburse 

the association for its coinsurance 

penalty. 

• Loss assessment is available only to 

cover the building damages in excess of 

the 80-percent required amount at the 

time of loss. Thus, the covered damages 

to the condominium association building 

must be greater than 80 percent of the 

building RCV at the time of loss before 

the loss assessment becomes available. 

Covered repairs to the unit, if applicable, 

would have priority over loss 

assessments under the Dwelling Form. 

c. General Property Form Policy 

To purchase coverage under the NFIP on a 

nonresidential condominium building, a 

condominium association must use the 

General Property Form. Both building and 

contents coverages are available separately, 

with building and contents limits up to 

$500,000 each per nonresidential building. 

The nonresidential unit owner also may 

purchase contents coverage using this 

policy. A Dwelling Form policy is not 

available to the nonresidential unit owner. 

In addition, a condominium association must 

use the General Property Form to purchase 

coverage on a residential condominium 

building not eligible for the RCBAP or 

when the building is located in an 

Emergency Program community. 

2. Cooperative Associations 

Because cooperatives are not in the 

condominium form of ownership, they 

cannot be insured under the RCBAP. 

Residential or nonresidential cooperative 

buildings must be insured by the association 

or corporation under the General Property 

Form. A unit owner in a cooperative 

building does not receive a real estate 

interest in a unit, but rather a share of stock 

in a corporation with the right to occupy a 

particular unit. The entity that owns the 

cooperative building, not the various unit 

members, is the named insured. 

Cooperative buildings where at least 75 

percent of the area of the building is used for 

residential purposes are considered 

residential occupancies under the NFIP. 

Such residential building owners can insure 

the building under the General Property 

Form for a maximum building coverage 

limit of $250,000 in a Regular Program 

community. 

3. Timeshares 

Timeshare buildings basically fall into two 

categories: those where a real estate 

ownership interest has been conveyed, and 

those where just the right to the use of a unit 

has been conveyed. 

Timeshare buildings in the condominium 

form of ownership (fee or real estate) are 

eligible for coverage under the RCBAP. 

These buildings are subject to the same 

eligibility, rating, and coverage requirements 

as other condominiums, including the 

requirement that 75 percent of the area of 

the building be used for residential purposes. 

Timeshare buildings not in the 

condominium form of ownership (right-touse) where at least 75 percent of the area of 

the building is used for residential purposes 

are considered residential occupancies under 

the NFIP. They can be insured by the owner 

of the building under the General Property 

Form for a maximum building coverage 

amount of $250,000 in a Regular Program 

community. 

4. Homeowners Associations 

Individually titled town homes and singlefamily buildings, whose owners belong to a 

non-condominium homeowners association, 

can be insured by the individual owners 

under the Dwelling Form and not by the 

homeowners association. The homeowners 

association may purchase coverage for a 
 51 Section D. Condos, Coops, Timeshares 

building it may own, such as a clubhouse, 

under the General Property Form. 

5. Secondary Market 

In their selling guides for purchase of 

mortgages on condominium units, Fannie 

Mae and Freddie Mac specifically address 

the requirement of property coverage. These 

Government-Sponsored Enterprises recognize 

flood coverage carried by the association as 

complying with the mandatory purchase 

requirements. 

a. Fannie Mae 

Fannie Mae, which purchases loans on the 

secondary market that are secured by 

condominiums located in high-flood-risk 

areas, may have specific requirements. As of 

this printing, Fannie Mae will accept 

building coverage provided under a 

Dwelling Form policy to supplement 

inadequate coverage carried by an 

association. If a condominium association 

declines to carry any flood insurance 

coverage, then each unit owner may 

purchase an individual policy to comply 

with Fannie Mae’s requirements. 

As of this printing, Fannie Mae accepts 

flood insurance deductibles up to the 

maximum deductible available under the 

NFIP, which for residential condominium 

buildings is $25,000. The Selling and 

Servicing Guides and Announcements may 

be accessed through the website at 

http://www.efanniemae.com. Lenders who 

have additional questions regarding flood 

insurance requirements may contact their 

Fannie Mae Customer Account Manager, 

Servicing Consultant, or Portfolio Manager. 

b. Freddie Mac 

As of this printing, Freddie Mac 

requirements specify the following. 

For condominium units (other than detached 

unit projects) in which all or part of the 

building is in an SFHA, the association must 

maintain building coverage on the building 

for at least the lower of: 

• The building’s replacement cost; or 

• $250,000 multiplied by the number of 

residential units in the building. 

The association must maintain contents 

coverage on the building for the lower of: 

• The actual cash value of the contents in 

the building that are owned in common 

by the association members; or 

• The maximum amount of contents 

coverage sold by the NFIP for a 

condominium building. 

If the association does not maintain the 

required coverage, then the unit owner must 

maintain building coverage on the unit in an 

amount at least equal to the amount required 

on a one- to four-unit property. 

Freddie Mac states that the deductible of the 

condominium association’s coverage may 

not exceed the maximum deductible amount 

currently allowed under the NFIP for 

condominium association building coverage. 

The deductible for association building 

contents may not exceed the maximum 

deductible amount currently allowed under 

the NFIP for association building contents. 

See Chapter 58 of the Freddie Mac Single 

Family Seller/Servicer Guide at 

http://www.allregs.com/fhlmc. 

 Section E. Implementation 53

SECTION E 

IMPLEMENTATION OF KEY PROVISIONS 

The preceding sections of these guidelines 

discuss specific provisions of the National 

Flood Insurance Reform Act of 1994 and 

regulations as they apply to an individual 

borrower or policyholder. This section 

describes how certain key provisions of the 

1994 Reform Act are to be implemented 

within the lending industry. 

1. Tripwires

a. Loan Activity 

The making, increasing, extending, or 

renewing of a loan is a “tripwire” for 

compliance with the mandatory flood 

insurance purchase requirements. This 

tripwire occurs most frequently upon loan 

origination, e.g., when a lender knows or has 

reason to know whether the mandatory 

purchase requirements apply. Another 

tripwire occurs in any situation that alerts a 

lender or servicer to a change in 

circumstances, e.g., a known map change, or 

the receipt of a notice to pay the premium to 

avoid policy expiration. 

If a borrower executes a note on improved 

real estate as collateral for a personal loan, 

and the lender does not perfect a security 

interest or mortgage in the building itself, 

the loan is not a designated loan and, 

therefore, is not subject to the mandatory 

purchase requirement. 

b. Loan Transfer or Purchase 

The transfer or purchase of a loan among 

regulated lenders or servicers does not 

constitute the making of a loan, so it does 

not trigger the mandatory purchase 

requirement. 

It is the lending regulators’ position that 

deeming a loan purchase as a regulatory 

tripwire could result in the imposition of 

duplicative and potentially inconsistent 

requirements on the seller and purchaser of 

loans sold in the secondary market. As a 

condition of purchase, a loan purchaser may 

require the seller to determine whether the 

building securing the loan is in a high flood 

risk area, also known as a Special Flood 

Hazard Area (SFHA). The practice of 

requiring a seller to make a representation as 

to compliance with the mandatory purchase 

requirements also provides additional 

protection to a loan purchaser. This 

representation is particularly important when 

the loans are in communities that have 

SFHAs. 

However, the Government-Sponsored Enterprises (GSEs) do require flood insurance 

coverage on any loan located in an SFHA 

and transferred to or purchased by them. 

Both Fannie Mae and Freddie Mac require 

their respective sellers and servicers to be in 

full compliance with the flood insurance 

statutes. Fannie Mae’s flood insurance 

requirements can be viewed in the SingleFamily Selling and Servicing Guides and 

Lender Announcements available through 

their website at http://www.efanniemae.com. 

Freddie Mac has similar requirements for 

lenders in Chapter 58 of the Single-Family 

Seller/Servicer Guide at 

http://www.allregs.com/fhlmc. 

Freddie Mac considers its purchase of a loan 

as a tripwire, while Fannie Mae’s guide 

requires compliance with the mandatory 

purchase requirements at the time of loan 

origination. Consequently, an originator or 

intermediate holder of a loan will be 

constrained in passing on a loan that does 

not meet the criteria of the GSE sales 

guides. An entity not directly covered by the 

statutory requirements, such as a mortgage 

banker, will be indirectly required to satisfy 

the statutory flood insurance requirements if 

it or any subsequent party attempts to sell 

mortgage loans to Fannie Mae or Freddie 

Mac. An unregulated mortgage bank that 
Section E. Implementation 54

TRIPWIRES DURING LIFE OF LOAN 
 Section E. Implementation 55

extends a designated loan without flood 

insurance will be unable to pass that loan on 

to the GSE market. 

In addition, although a conventional loan 

may be extended in a community that does 

not participate in the National Flood 

Insurance Program (NFIP), a lender may 

find that it cannot pass the loan on to Fannie 

Mae or Freddie Mac. The GSEs have 

restated they will not buy mortgages secured 

by properties in nonparticipating communities if they are located in an SFHA. 

However, they will accept loans in nonparticipating communities that have not 

been mapped. The quality control measures 

instituted by the GSEs set the standard for 

the industry, even for transactions to private 

investors who are outside the GSE market. 

When any loan is sold and servicing is 

transferred to the new servicer, notice of the 

identity of the new servicer must be 

provided to the Federal Emergency Management Agency’s (FEMA) designee, which is 

the insurance company listed on the policy. 

c. Portfolio Review 

A look-back or retroactive loan portfolio 

review, as well as a review made on a 

prospective basis, which may disclose 

uninsured risks, is encouraged but not 

required by the law. The statutory requirements 

contain no express or implied language that 

obligates a regulated lender to review its 

portfolio of existing loans. Under GSE 

criteria, a lender or servicer is required to 

monitor loans sold to the GSE. 

The 1994 Reform Act requires lenders and 

servicers to develop policies and procedures 

to ensure that flood insurance coverage is 

obtained before a loan can be granted, when 

a determination has been made that a 

building securing a loan is located in an 

SFHA. The lender or servicer also must 

ensure that a policy does not lapse after it 

has been placed at loan origination. If the 

policy lapses and the borrower refuses to 

purchase flood insurance within 45 days of 

the required notice, the lender must force 

place coverage. 

A mortgagee or servicer must require the 

purchase of flood insurance at any time 

during the term of the loan when the lender 

determines that the building or manufactured (mobile) home is located in an SFHA. 

This position is intended to ensure that 

buildings located in SFHAs are covered by 

flood insurance, regardless of whether the 

area is designated as an SFHA by the 

Administrator of FEMA before or after the 

loan is originated. For example, when a 

community or area is remapped by FEMA, 

buildings that were not located in an SFHA 

at the time the mortgage was made may later 

be identified to be in an SFHA. 

A lender is notified of remapping through 

publication in the Federal Register of map 

change information pertaining to an 

individual community, or through a compendium that lists all changes during a 

specific time period. FEMA offers a 

subscription service (for a fee) that provides 

information on map changes. FEMA also 

makes map change information available 

online at http://msc.fema.gov. Some flood 

zone determination companies provide the 

service of monitoring map changes that 

influence the status of loans. 

Apart from the requirements mandated on 

origination of a loan, a regulated lender need 

only review and take action on any part of 

its existing portfolio, i.e., “look forward,” 

for safety and soundness purposes, or if it 

knows or has reason to know of the need for 

NFIP coverage. However, scheduled periodic reviews that track the need for flood 

insurance on loan portfolios are encouraged. 

The 1994 Reform Act does require lenders 

to check the status of security property for 

loans when triggered by the statutory 

tripwires. However, the Reform Act did not 

add remappings to the list of statutory 

tripwires. Neither the Reform Act nor the 

agencies’ regulations require lenders to 

monitor for map changes. 
Section E. Implementation 56

The GSE sales guides go beyond the 

statutory requirements by directing lenders 

to continually monitor map changes and 

changes in community status under the 

NFIP. 

2. Safety and Soundness 

Federal lending regulators view adequate 

flood insurance coverage as an important 

factor in measuring the safety and soundness 

of a lending institution that extends loans in 

SFHAs. The existence of flood insurance is 

a component of prudent underwriting and 

protects the lender’s ongoing interest in its 

collateral. Each lender must tailor its flood 

insurance risk management procedures to 

suit its particular circumstances. The Federal 

regulators encourage lenders to evaluate and 

modify their flood insurance programs as 

needed to comport with both the mandatory 

purchase requirements and the principles of 

safe and sound banking that may be unique 

to a particular lender. 

A lender’s flood insurance needs vary 

widely depending on lending concentrations 

within the geographic areas it serves. For 

example, a high prevalence of loans in an 

SFHA requires particular vigilance. Institutions that are significantly exposed to the 

risks for which flood insurance is designed 

to compensate should determine the 

adequacy of flood insurance coverage by 

conducting periodic reviews, or reviews 

triggered by remapping of areas represented 

in their loan portfolio. Accordingly, a map 

change in a community that contains a 

significant number of loans in an SFHA 

merits a heightened analysis. The same 

principle applies to a regulated lender’s 

purchase or transfer of existing loans in a 

community containing a special flood 

hazard. 

In non-participating communities, lenders 

should have procedures in place to ensure 

that loans on properties in SFHAs where 

flood insurance is not available do not 

constitute a large portion of the institution’s 

loan portfolio. 

3. Table Funding 

The regulations generally follow the Real 

Estate Settlement Procedures Act definition 

in which table funding is defined as a 

settlement at which a loan is funded by a 

contemporaneous advance of loan funds and 

an assignment of the loan to the person 

advancing the funds. The typical tablefunded transaction should be considered a 

loan made, rather than purchased, by the 

entity that actually supplies the funds, and 

thus is subject to the mandatory purchase 

requirements. 

Table funding is a mechanism used in the 

“wholesale” mortgage lending industry for 

utilizing mortgage brokers in the production 

of mortgage loans. The brokers who 

originate the loans are independent 

contractors not subject to Federal regulatory 

supervision. 

In the typical table funding situation, the 

party providing the funding reviews and 

approves the credit standing of the borrower 

and issues a commitment to the broker or 

dealer to purchase the loan at the time the 

loan is originated. Frequently, all loan 

documentation and other statutorily mandated 

notices are supplied by the party providing 

the funding, rather than the broker or dealer. 

The funding party provides the original 

funding “at the table” when the broker or 

dealer and the borrower close the loan. Concurrent with the loan closing, the funding 

party acquires the loan from the broker or 

dealer. Wholesale lenders provide the funds 

for loan closings and acquire the resulting 

loans, which they sell into the secondary 

market. Mortgage brokers receive compensation for surrendering the servicing income 

stream. 

Under the regulations, lenders who provide 

table funding to close loans originated by 

mortgage brokers or manufactured (mobile) 

home dealers, such as described above, are 

deemed to be making, not purchasing, loans 

for purposes of the mandatory flood 

insurance requirements. Consequently, mortgage brokers are not obligated to comply 
 Section E. Implementation 57

with the 1994 Reform Act in these types of 

transactions. However, if any mortgage 

brokers are involved in the processing and 

underwriting of the application, the lender 

should contractually delegate to them the 

responsibility to comply with the various 

notice, form, and purchase requirements of 

the Flood Disaster Protection Act of 1973, 

thereby eliminating any duplication of flood 

determinations and borrower notices. 

4. Impact on Servicers 

The 1994 Reform Act addresses the role of 

servicers by sanctioning NFIP-related 

activities conducted on behalf of regulated 

lenders. 

A servicer, as broadly defined in the 1994 

Reform Act (42 U.S.C. §4003(a)(11) and 

§4121(a)(11)) may be a regulated lender or a 

private entity assisting a lender as an 

independent contractor. The provisions of 

the 1994 Reform Act apply to all banking 

institutions’ subsidiaries and service 

corporations. If a servicer is a subsidiary of 

a regulated lender, it is included under the 

purview of the 1994 Reform Act. As 

discussed in Section C of these guidelines, 

the activities that apply to servicers include 

escrow, force placement, and zone 

determination, as well as the submission and 

receipt of notices. A servicer is directly 

involved in NFIP activities as a recipient of 

notices such as a copy of the borrower’s 

Notice of Special Flood Hazard and 

Availability of Federal Disaster Relief 

Assistance from the lender and the 

expiration/renewal notice from the insurer. 

The regulations that address a servicer’s 

activities treat loan servicers as acting on 

behalf of regulated lending institutions. 

Under the regulations, loan servicers are to 

be held answerable for their actions to the 

lender by means of contract. A lender thus 

may fulfill its duties under the 1994 Reform 

Act by imposing its responsibilities on the 

servicer under a loan service agreement. 

Accordingly, lenders should include in their 

loan servicing agreements language ensuring 

that the servicer will fulfill Federal 

insurance requirements for escrow, force 

placement, flood hazard determinations, and 

the various notices, with conditions for 

recourse. The Federal regulations state that 

where deficiencies are found in existing loan 

servicing contracts, lenders should revise 

these agreements to provide for the loan 

servicer to fulfill Federal flood insurance 

requirements. It would also be prudent to 

monitor the activity of servicing agents. 

The mandatory purchase provisions do not 

apply directly to loan originators that are not 

banking institutions or to servicers that are 

not acting on behalf of a banking institution. 

However, these non-bank originators and 

servicers must see to it that loans they sell or 

service for a GSE meet the requirements of 

the 1994 Reform Act. Non-bank (e.g., 

mortgage broker), nonconforming loan 

lenders who do not originate for GSEs do 

not come under the authority of the 1994 

Reform Act. 

5. Private Flood Insurance 

As part of the notification procedure in 

making a loan, lenders must inform 

prospective borrowers of the availability of 

coverage from private insurers as well as 

from the NFIP. Federal regulatory entities 

may require gap/blanket insurance, which is 

not available from the NFIP, through a 

private insurer. However, FEMA recognizes 

the limited availability of flood insurance 

from the private insurance market. 

A lender must consider the suitability of 

private flood insurance policies only when 

the mandatory purchase requirement applies. 

If NFIP coverage is not available in a 

particular community, or if the risk is 

otherwise not eligible for NFIP coverage, 

e.g., in a non-participating community or a 

Coastal Barrier Resources Act area, private 

flood insurance may be an alternative. A 

lender has more discretion in selecting 

private flood coverage when NFIP coverage 

is not available. 
Section E. Implementation 58

When private flood coverage is being 

considered in lieu of an NFIP policy, a 

lender should understand and comply with 

FEMA’s criteria (described below) for 

selection of the private insurer and the form 

of coverage. 

A private flood insurance policy that meets 

all six of the FEMA criteria described in a.

through f. below conforms to the mandatory 

flood insurance purchase requirements of 

the 1994 Reform Act. To the extent that the 

private policy differs from the NFIP 

Standard Flood Insurance Policy (SFIP), 

available on the FEMA website at 

http://www.fema.gov/business/nfip/sfip.shtm, 

the differences should be carefully examined 

before the policy is accepted as sufficient 

protection under the law. 

a. Licensure 

The insurer must be licensed, admitted, or 

otherwise approved to do business in the 

jurisdiction where the building is located, by 

the insurance regulator of that jurisdiction, 

except as indicated in b. below. 

b. Surplus Lines Recognition 

 (Non-Residential Commercial) 

In the case of non-residential commercial 

property insurance issued under a policy of 

difference in conditions, multiple peril, all 

risk, or other blanket coverage, the insurer 

should be recognized, or not disapproved, as 

a surplus lines insurer by the insurance 

regulator of the jurisdiction where the 

building is located. 

c. Requirement of 45-Day Cancellation/ 

 Non-Renewal Notice 

The private flood insurance policy should 

include a requirement for the insurer to give 

45 days’ written notice of cancellation or 

non-renewal to the insured with respect to 

the flood insurance coverage. The policy 

should also state that, to be effective, such 

notice must be mailed to both the insured 

and the lender or Federal agency lender, and 

must include information about the availability of flood insurance coverage under the 

NFIP. The policy should be as restrictive in 

its cancellation provisions as the SFIP. 

d. Breadth of Policy Coverage 

The policy must guarantee that the flood 

insurance coverage, considering deductibles, 

exclusions, and conditions offered by the 

insurer, is at least as broad as the coverage 

under the SFIP. 

e. Strength of Mortgage Interest Clause 

Lenders must ensure that a mortgage interest 

clause similar to that contained in the 

General Conditions section of the SFIP is 

contained in the policy. 

f. Legal Recourse 

The policy must contain a provision that the 

insured must file suit within 1 year after the 

date of written denial of all or part of the 

claim. 

6. Regulatory Overview 

The 1994 Reform Act expressly 

incorporates regulatory sanctions into the 

law and indirectly influences the potential 

for civil liability. This subsection addresses 

the regulatory examinations and penalties; 

the issue of liability under civil law is 

discussed on page 60. 

a. Regulatory Examinations 

As part of the 1994 Reform Act, Congress 

established a task force charged with 

studying the extent to which the Federal 

regulatory agencies and the secondary 

market enforce the statutory requirements. 

Accordingly, lenders and servicers can 

continue to expect onsite examination by the 

regulatory entity primarily responsible for 

the supervision of the institution as part of 

their compliance examinations. Similarly, 

the GSEs will be reviewed by their oversight 

agency and must conduct a review of their 

sellers. The examination procedures may 

include reviewing a sampling of loan files. 
 Section E. Implementation 59

The examiners may perform the following 

activities: 

• Review an institution’s practices dealing 

with flood insurance, including a 

suitable flood zone determination 

procedure that includes monitoring 

renewal of coverage and maintaining 

records of compliance. 

• Ask for proof of the submission of the 

Notice to Borrower form. 

• Observe whether the timing requirements of the various notices have been 

met. 

• Verify that the proper amount of 

coverage was placed in effect at the time 

of origination and remains in force 

throughout the renewal periods, with the 

lender shown as the mortgagee or loss 

payee on the policy. 

• Check that the lender follows 

appropriate procedures when an area is 

reclassified because of a flood map 

revision. 

• Confirm that a lender or servicer 

exercises force placement if there is 

failure to escrow or to continue a policy 

in effect. 

The regulatory examinations will be tailored 

to the activities of the institution under 

review. For example, if an institution 

purchases servicing rights, the examination 

probably will include a review of the 

contractual obligations placed on the 

institution by the owner of the loans. 

Similarly, if the institution utilizes a third 

party to service loans, the contract with the 

third party may be reviewed to ascertain that 

the flood insurance requirements are 

identified and the compliance responsibilities are adequately addressed. If the 

institution transfers servicing of loans to 

another servicer, the institution must show 

that it provided notice of the new servicer’s 

identity to the FEMA designee within the 

prescribed timeframe. 

If the institution uses a third party to 

perform flood zone determinations, it can 

expect a review of its contractual provisions 

to verify that compliance requirements are 

identified and covered, including the extent 

of the third party’s guarantee of work. 

b. Regulatory Penalties 

Under the 1994 Reform Act, Congress for 

the first time directed the agencies to impose 

civil money penalties for noncompliance 

with the mandatory purchase requirements. 

The law requires penalties related to covered 

loans on which a lender fails to: 

• Place insurance, 

• Escrow flood insurance premium on 

applicable loans, 

• Provide notice requirements pertaining 

to designated loans, or 

• Force place the insurance 

in such a way that constitutes a “pattern or 

practice of committing violations” giving 

rise to an assessable event (42 U.S.C. 

§4012a(f) and (g)). Similar provisions exist 

with respect to GSEs. 

The per-violation and aggregate amounts of 

civil penalties are adjusted by statute for 

inflation on a periodic basis. In accordance 

with the Federal Civil Penalties Inflation 

Adjustment Act of 1990 (28 U.S.C. §2461 

note), Federal agencies must evaluate and 

adjust the penalty amount at least once every 

4 years. Lenders can check with their 

regulators for the most current penalty 

amount. 

Penalties assessed are deposited in the 

National Flood Mitigation Fund created by 

the 1994 Reform Act. As of November 30, 

2006, a total of 119 banks had been assessed 
Section E. Implementation 60

nearly $1.3 million in penalties, for various 

violations of the 1994 Reform Act. 

Other remedial sanctions consist of 

unsatisfactory bank ratings, memoranda of 

understanding, and, ultimately, cease and 

desist orders being issued against lending 

institutions found to have a pattern or 

practice of committing violations. 

7. Civil Liability 

In legal actions where aggrieved borrowers 

have instituted actions against lenders for 

failure to obtain flood insurance coverage, 

the courts have stated that the mandatory 

purchase and notice statutes are designed for 

regulatory purposes to strengthen the NFIP. 

The court rulings have concluded that the 

statute and lender regulations are not 

intended to make “incidental beneficiaries” 

of aggrieved borrowers who find themselves 

without NFIP coverage on flood-damaged 

structures located in an SFHA. In the past, 

the courts have ruled that the mandatory 

purchase statute does not grant borrowers 

any “implied private cause of action” that 

might enable them to automatically recover 

funds on the basis of a lender’s failure to 

comply with the Flood Disaster Protection 

Act of 1973. Courts have agreed with the 

lenders that the intent of the law is to 

promote sound land use management and 

lessen the payments made from the Federal 

Treasury for disaster assistance, as well as to 

protect the lenders themselves. 
 1-1 Appendix 1. Legal References

LEGAL REFERENCES

This appendix references and describes the legal citations of the mandatory purchase sections 

of the National Flood Insurance Act of 1968, as amended. The statutory history and authority 

of various aspects of the Act that pertain to the mandatory purchase provisions are covered. 

Administration of the National Flood Insurance Program 

The National Flood Insurance Program (NFIP) is administered by the Federal Emergency 

Management Agency (FEMA), a component of the U.S. Department of Homeland Security 

(DHS). 

At its inception, however, the NFIP was administered by the Federal Insurance 

Administration (FIA), which was established under the Housing and Urban Development Act 

of 1968, as part of the U.S. Department of Housing and Urban Development (HUD). The FIA 

was headed by the Federal Insurance Administrator, an office authorized by the Urban 

Property Protection and Reinsurance Act of 1968 (Title XI of the Housing and Urban 

Development Act of 1968). President Carter’s Reorganization Plan No. 3 of 1978 (43 FR 

41493) created FEMA and transferred the functions authorized and described in the National 

Flood Insurance Act of 1968 and the position of Federal Insurance Administrator to FEMA. 

The organization of FEMA was further defined in Executive Order 12127, dated March 31, 

1979 (44 FR 19367), and Executive Order 12148, dated June 20, 1979. On April 1, 1979, in a 

notice published in 44 FR 20962, and later codified at 44 CFR §2.64, the Director of FEMA 

delegated responsibility for the administration of the NFIP to the Federal Insurance 

Administrator of the FIA, which had become a Directorate within FEMA. 

When the DHS was established on March 1, 2003, FEMA was among the 22 Federal agencies 

transferred to the new Cabinet-level department. Since the advent of the DHS, FEMA 

Mitigation has been responsible for administration of the NFIP. The Director of FEMA is 

now the Administrator of FEMA. The Assistant Administrator of FEMA Mitigation also 

serves as Federal Insurance Administrator. 

The authorization of the NFIP is codified in the United States Code at 42 U.S.C. 4011. 

Operation of the National Flood Insurance Program 

The National Flood Insurance Act of 1968, which created the NFIP, is codified at 42 U.S.C. 

4001 et seq. The Act became effective on January 28, 1969, authorized by the National Flood 

Insurance Act of 1968 (Title XIII of the Housing and Urban Development Act of 1968, as 

amended, Public Law 90-448, 82 Stat 476). The NFIP was established as a federally 

subsidized insurance program to provide flood insurance at or below actuarial rates. The 

legislative history states that Congress created the NFIP because flood insurance was 

generally unavailable from private insurance companies, who were unable to write flood 

insurance on an economically feasible basis (H. Rep. No. 90-1585, 90th Cong., 2d Sess., 

reprinted in, 1968 U.S. Code Cong. & Ad. News 2873, 2965-73; S. Rep. No. 90-1123, 90th 

Cong., 2d Sess. (1968)). 

Initially, the NFIP’s Standard Flood Insurance Policy (SFIP) was available only from 

independent insurance agents writing directly for FEMA. In October 1983, FEMA instituted 
Appendix 1. Legal References 1-2

the Write Your Own (WYO) Program, whereby qualified property and casualty insurance 

companies are authorized to write and service the federally backed SFIP under their own 

names (62 CFR Sub-Part C, §62.23). With the WYO Program, FEMA functions similarly to a 

reinsurer in accepting the risk of the primary WYO insurer on the line of NFIP business 

written by the companies. FEMA continues to bear the risk for the “direct” insurance program 

while serving as a guarantor of WYO insurers on WYO business. 

Unlike the private insurance industry, the NFIP is by statute primarily a “take all comers” 

insurance entity. (See pages 20-22 of these guidelines for exceptions) No individual risk 

analysis, i.e., underwriting, is conducted to determine the likelihood of a future loss to a 

specific property. The main criterion for insurability is whether or not the community in 

which the property is located participates in the NFIP (42 U.S.C. §4012). If so, the risk is then 

rated in accordance with its flood zone, date of construction, building type, and amount of 

coverage requested. Premiums paid are deposited by the Administrator of FEMA to the 

National Flood Insurance Fund (42 U.S.C. 4017(b)(2)), which may be augmented when 

necessary by funds borrowed from the United States Treasury and by appropriations (42 

U.S.C. 4016, 4017(b)(1),(3)). 

The insurance regulations set out the terms and conditions of flood insurance coverage and 

rates. All flood insurance made available under the NFIP is subject to the express terms and 

conditions of the insurance policy, the statute, and the governing regulations (44 C.F.R. 

61.4(a)). 

As set forth at 44 C.F.R. 61, Appendix A(1), the SFIP is a single-peril policy that covers only 

direct physical loss by or from flood and limits coverage under both the insuring clause and 

the exclusions. The regulations prohibit alteration, variation, or waiver of the policy 

provisions (44 C.F.R. 61.13(d)), except by the Federal Insurance Administrator, who is 

charged with interpreting the meaning of the policy (44 C.F.R. 61.14(b)). 

Other statutory references to the Act and its relevant amendments include the National Flood 

Insurance Act of 1968 (title 13 of the Housing and Urban Development Act of 1968), Pub. L. 

No. 90-448, 82 Stat. 476(1968) (codified at 42 U.S.C. 4001-4128); the Housing and Urban 

Development Act of 1969, Pub. L. No. 91-152, 83 Stat. 397 (1969) (codified at 12 U.S.C. 

section 1703); and the Flood Disaster Protection Act of 1973, Pub. L. No. 93-234, 87 Stat. 

975 (1973). The 1994 amendments were accomplished as part of the Riegle Community 

Development and Regulatory Improvement Act of 1994, Pub.L. 103-325, Title V, 108 Stat. 

2257-2260 et.seq., generally referred to as the Reform Act. The Flood Insurance Reform Act 

of 2004, Pub. L. No. 108-264 (codified at 42 U.S.C. 4030), focused on severe repetitive loss 

properties and miscellaneous topics that did not affect the requirement to purchase flood 

insurance. 

Mandatory Purchase Requirement 

The mandatory purchase requirement was established by the Flood Disaster Protection Act of 

1973. This law required purchase of flood insurance as a condition for obtaining a mortgage 

loan from federally regulated lending institutions for properties in identified floodprone areas, 

and as a condition for obtaining Federal assistance. The restriction on Federal assistance 

included the receipt of federally related financing by private lending institutions as well as 

VA and FHA loans. Since flood insurance was available only in communities participating in 
 1-3 Appendix 1. Legal References

the NFIP, the result of this legislation was a great increase in the number of communities 

participating in the program and in the number of policies in force. 

The 1973 mandatory purchase requirement, however, was met with some criticism. 

Continuing pressure from contractors and real estate developers resisting the limits on lending 

and Federal assistance to non-participating communities resulted in a 1977 amendment that 

modified §4106 (b) by deleting the original wording, which prohibited private regulated 

lending in non-participating communities, and in its place substituted a notice requirement. 

This 1977 change came to be known as the “Eagleton Amendment” (Pub.L 95-128, Title VII, 

sec. 703(a), Oct 12, 1977). The amendment deleted from the 1973 Act its §4106 (b) 

requirement that Federal regulators issue regulations prohibiting lenders from making 

conventional loans with respect to property in non-participating communities. The notice 

requirement is contained in the Notice of Special Flood Hazard and Availability of Federal 

Disaster Relief Assistance. Consequently, lenders regulated by, or whose deposits are insured 

by, Federal instrumentalities may now make conventional loans secured by mortgages on 

improved real property and manufactured (mobile) homes in areas of special flood hazard in 

communities that do not participate in the NFIP. They may do so notwithstanding the fact that 

such property is not eligible for the purchase of National Flood Insurance. Thus, the 

mandatory flood insurance purchase requirement does not apply with respect to such loans. 

However, lenders should carefully evaluate the underwriting risk involved in making such 

loans. In non-participating communities, a lender may require private flood insurance, if 

available. The notice requirements do not apply to unsecured loans, or to loans secured by 

improved real property that is not located in an SFHA. 

The 1977 change benefits developers, who are allowed to obtain federally guaranteed money 

for floodplain development, but works to the detriment of the ultimate, and perhaps 

unsuspecting, future owner of the building at the time a flood may occur. The possibility of 

flood damage is in addition to what could be an excessively high premium in the future, if the 

building is constructed below the Base Flood Elevation and the community subsequently 

joins the NFIP as a participating community. 

The mandatory purchase law directed the Federal lending regulators and GovernmentSponsored Enterprises (GSEs) to adopt regulations requiring lenders subject to their 

jurisdiction to compel borrowers to purchase flood insurance protecting any “improved real 

estate or mobile home” located in an area of special flood hazard in a community that is 

eligible for the purchase of National Flood Insurance, if the building, mobile home, and any 

personal property securing such loan is to be the security for the loan. 

Each Federal regulatory agency and GSE was given the right to issue its own regulations to 

implement the 1973 Act, and the authority of FEMA was limited to its statutory responsibility 

of administering the NFIP. FEMA was not given direct responsibility for implementing 

enforcement of the mandatory flood insurance purchase requirements. 

1994 Amendments to the Mandatory Purchase Requirement 

The Riegle Community Development and Regulatory Improvement Act, Pub. L. 103-325, 108 

Stat. 2160 (the Reform Act), was signed into law on September 23, 1994. As described in this 

handbook, the new law substantially amended the mandatory purchase requirement. 

The flood insurance provisions of the 1994 Act required the Office of the Comptroller of the 

Currency, the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office 
Appendix 1. Legal References 1-4

of Thrift Supervision, and the National Credit Union Administration to revise their flood 

insurance regulations. The Farm Credit Administration was required to promulgate flood 

insurance regulations for the first time. The six agencies issued their regulations jointly in 

order to fulfill the statutory requirements and have coordinated and consulted with the Federal 

Financial Institutions Examination Council, as required by certain of the Reform Act flood 

insurance provisions. The CFR citations for the regulations of the lender agencies are listed 

below. Contact information for the agencies is provided in Appendix 5. 

Office of the Comptroller of the Currency: 12 CFR Part 22 

Federal Reserve System: 12 CFR Part 208 

Federal Deposit Insurance Corporation: 12 CFR Part 339 

Office of Thrift Supervision: 12 CFR Parts 563 and 572 

Farm Credit Administration: 12 CFR Part 614 

National Credit Union Administration: 12 CFR Part 760 
 2-1 Appendix 2. FDIC Regulations

FDIC REGULATIONS

Federal Deposit Insurance Corporation 

12 CFR Chapter III 

Authority and Issuance 

For the reasons set forth in the joint preamble, the Board of Directors of the FDIC revises part 

339 of chapter III of title 12 of the Code of Federal Regulations to read as follows: 

PART 339--LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS

339.1 Authority, purpose, and scope. 

339.2 Definitions. 

339.3 Requirement to purchase flood insurance where available. 

339.4 Exemptions. 

339.5 Escrow requirement. 

339.6 Required use of standard flood hazard determination form. 

339.7 Forced placement of flood insurance. 

339.8 Determination fees. 

339.9 Notice of special flood hazards and availability of Federal disaster relief assistance. 

339.10 Notice of servicer’s identity. 

Appendix A to Part 339--Sample Form of Notice of Special Flood Hazards and Availability 

of 

Federal Disaster Relief Assistance 

Authority: 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128. 

Sec. 339.1 Authority, purpose, and scope.

(a) Authority. This part is issued pursuant to 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128. 

(b) Purpose. The purpose of this part is to implement the requirements of the National Flood 

Insurance Act of 1968 and the Flood Disaster Protection Act of 1973, as amended (42 

U.S.C. 4001-4129). 

(c) Scope. This part, except for Secs. 339.6 and 339.8, applies to loans secured by buildings 

or mobile homes located or to be located in areas determined by the Director of the 

Federal Emergency Management Agency to have special flood hazards. Sections 339.6 

and 339.8 apply to loans secured by buildings or mobile homes, regardless of location. 

Sec. 339.2 Definitions.

(a) Act means the National Flood Insurance Act of 1968, as amended (42 U.S.C. 4001-4129). 

(b) Bank means an insured state nonmember bank and an insured state branch of a foreign 

bank or any subsidiary of an insured state nonmember bank. 

(c) Building means a walled and roofed structure, other than a gas or liquid storage tank, that 

is principally above ground and affixed to a permanent site, and a walled and roofed 

structure while in the course of construction, alteration, or repair. 
Appendix 2. FDIC Regulations 2-2

(d) Community means a State or a political subdivision of a State that has zoning and 

building code jurisdiction over a particular area having special flood hazards. 

(e) Designated loan means a loan secured by a building or mobile home that is located or to 

be located in a special flood hazard area in which flood insurance is available under the 

Act. 

(f) Director of FEMA means the Director of the Federal Emergency Management Agency. 

(g) Mobile home means a structure, transportable in one or more sections, that is built on a 

permanent chassis and designed for use with or without a permanent foundation when 

attached to the required utilities. The term mobile home does not include a recreational 

vehicle. For purposes of this part, the term mobile home means a mobile home on a 

permanent foundation. The term mobile home includes a manufactured home as that term 

is used in the NFIP. 

(h) NFIP means the National Flood Insurance Program authorized under the Act. 

(i) Residential improved real estate means real estate upon which a home or other residential 

building is located or to be located. 

(j) Servicer means the person responsible for: 

(1) Receiving any scheduled, periodic payments from a borrower under the terms of a 

loan, including amounts for taxes, insurance premiums and other charges with respect 

to the property securing the loan; and 

(2) Making payments of principal and interest and any other payments from the amounts 

received from the borrower as may be required under the terms of the loan. 

(k) Special flood hazard area means the land in the flood plain within a community having at 

least a one percent chance of flooding in any given year, as designated by the Director of 

FEMA. 

(l) Table funding means a settlement at which a loan is funded by a contemporaneous 

advance of loan funds and an assignment of the loan to the person advancing the funds. 

Sec. 339.3 Requirement to purchase flood insurance where available.

(a) In general. A bank shall not make, increase, extend, or renew any designated loan unless 

the building or mobile home and any personal property securing the loan is covered by 

flood insurance for the term of the loan. The amount of insurance must be at least equal to 

the lesser of the outstanding principal balance of the designated loan or the maximum 

limit of coverage available for the particular type of property under the Act. Flood 

insurance coverage under the Act is limited to the overall value of the property securing 

the designated loan minus the value of the land on which the property is located. 

(b) Table funded loans. A bank that acquires a loan from a mortgage broker or other entity 

through table funding shall be considered to be making a loan for the purposes of this part. 

Sec. 339.4 Exemptions.
 2-3 Appendix 2. FDIC Regulations

The flood insurance requirement prescribed by Sec. 339.3 does not apply with respect to: 

(a) Any State-owned property covered under a policy of self-insurance satisfactory to the 

Director of FEMA, who publishes and periodically revises the list of States falling within 

this exemption; or 

(b) Property securing any loan with an original principal balance of $5,000 or less and a 

repayment term of one year or less. 

Sec. 339.5 Escrow requirement.

If a bank requires the escrow of taxes, insurance premiums, fees, or any other charges for a 

loan secured by residential improved real estate or a mobile home that is made, increased, 

extended, or renewed on or after October 1, 1996, the bank shall also require the escrow of all 

premiums and fees for any flood insurance required under Sec. 339.3. The bank, or a servicer 

acting on behalf of the bank, shall deposit the flood insurance premiums on behalf of the 

borrower in an escrow account. This escrow account will be subject to escrow requirements 

adopted pursuant to section 10 of the Real Estate Settlement Procedures Act of 1974 (12 

U.S.C. 2609) (RESPA), which generally limits the amount that may be maintained in escrow 

accounts for certain types of loans and requires escrow account statements for those accounts, 

only if the loan is otherwise subject to RESPA. Following receipt of a notice from the 

Director of FEMA or other provider of flood insurance that premiums are due, the bank, or a 

servicer acting on behalf of the bank, shall pay the amount owed to the insurance provider 

from the escrow account by the date when such premiums are due. 

Sec. 339.6 Required use of standard flood hazard determination form.

 (a) Use of form. A bank shall use the standard flood hazard determination form developed by 

the Director of FEMA (as set forth in Appendix A of 44 CFR part 65) when determining 

whether the building or mobile home offered as collateral security for a loan is or will be 

located in a special flood hazard area in which flood insurance is available under the Act. 

The standard flood hazard determination form may be used in a printed, computerized, or 

electronic manner. 

 (b) Retention of form. A bank shall retain a copy of the completed standard flood hazard 

determination form, in either hard copy or electronic form, for the period of time the bank 

owns the loan. 

Sec. 339.7 Forced placement of flood insurance.

If a bank, or a servicer acting on behalf of the bank, determines, at any time during the term of 

a designated loan, that the building or mobile home and any personal property securing the 

designated loan is not covered by flood insurance or is covered by flood insurance in an 

amount less than the amount required under Sec. 339.3, then the bank or its servicer shall 

notify the borrower that the borrower should obtain flood insurance, at the borrower’s 

expense, in an amount at least equal to the amount required under Sec. 339.3, for the 

remaining term of the loan. If the borrower fails to obtain flood insurance within 45 days after 

notification, then the bank or its servicer shall purchase insurance on the borrower’s behalf. 

The bank or its servicer may charge the borrower for the cost of premiums and fees incurred 

in purchasing the insurance. 
Appendix 2. FDIC Regulations 2-4

Sec. 339.8 Determination fees.

(a) General. Notwithstanding any Federal or State law other than the Flood Disaster 

Protection Act of 1973, as amended (42 U.S.C. 4001-4129), any bank, or a servicer acting 

on behalf of the bank, may charge a reasonable fee for determining whether the building 

or mobile home securing the loan is located or will be located in a special flood hazard 

area. A determination fee may also include, but is not limited to, a fee for life-of-loan 

monitoring. 

(b) Borrower fee. The determination fee authorized by paragraph (a) of this section may be 

charged to the borrower if the determination: 

(1) Is made in connection with a making, increasing, extending, or renewing of the loan 

that is initiated by the borrower; 

(2) Reflects the Director of FEMA’s revision or updating of floodplain areas or flood-risk 

zones; 

(3) Reflects the Director of FEMA’s publication of a notice or compendium that: 

(i) Affects the area in which the building or mobile home securing the loan is located; 

or 

(ii)By determination of the Director of FEMA, may reasonably require a 

determination whether the building or mobile home securing the loan is located in a 

special flood hazard area; or 

(4) Results in the purchase of flood insurance coverage by the lender or its servicer on 

behalf of the borrower under Sec. 339.7. 

(c) Purchaser or transferee fee. The determination fee authorized by paragraph (a) of this 

section may be charged to the purchaser or transferee of a loan in the case of the sale or 

transfer of the loan. 

Sec. 339.9 Notice of special flood hazards and availability of Federal disaster relief 

assistance.

(a) Notice requirement. When a bank makes, increases, extends, or renews a loan secured by 

a building or a mobile home located or to be located in a special flood hazard area, the 

bank shall mail or deliver a written notice to the borrower and to the servicer in all cases 

whether or not flood insurance is available under the Act for the collateral securing the 

loan. 

(b) Contents of notice. The written notice must include the following information: 

(1) A warning, in a form approved by the Director of FEMA, that the building or the 

mobile home is or will be located in a special flood hazard area; 

(2) A description of the flood insurance purchase requirements set forth in section 102(b) 

of the Flood Disaster Protection Act of 1973, as amended (42 U.S.C. 4012a(b)); 
 2-5 Appendix 2. FDIC Regulations

(3) A statement, where applicable, that flood insurance coverage is available under the 

NFIP and may also be available from private insurers; and 

(4) A statement whether Federal disaster relief assistance may be available in the event of 

damage to the building or mobile home caused by flooding in a Federally-declared 

disaster. 

(c) Timing of notice. The bank shall provide the notice required by paragraph (a) of this 

section to the borrower within a reasonable time before the completion of the transaction, 

and to the servicer as promptly as practicable after the bank provides notice to the 

borrower and in any event no later than the time the bank provides other similar notices to 

the servicer concerning hazard insurance and taxes. Notice to the servicer may be made 

electronically or may take the form of a copy of the notice to the borrower. 

(d) Record of receipt. The bank shall retain a record of the receipt of the notices by the 

borrower and the servicer for the period of time the bank owns the loan. 

(e) Alternate method of notice. Instead of providing the notice to the borrower required by 

paragraph (a) of this section, a bank may obtain satisfactory written assurance from a 

seller or lessor that, within a reasonable time before the completion of the sale or lease 

transaction, the seller or lessor has provided such notice to the purchaser or lessee. The 

bank shall retain a record of the written assurance from the seller or lessor for the period 

of time the bank owns the loan. 

(f) Use of prescribed form of notice. A bank will be considered to be in compliance with the 

requirement for notice to the borrower of this section by providing written notice to the 

borrower containing the language presented in appendix A to this part within a reasonable 

time before the completion of the transaction. The notice presented in appendix A to this 

part satisfies the borrower notice requirements of the Act. 

Sec. 339.10 Notice of servicer’s identity.

(a) Notice requirement. When a bank makes, increases, extends, renews, sells, or transfers a 

loan secured by a building or mobile home located or to be located in a special flood 

hazard area, the bank shall notify the Director of FEMA (or the Director of FEMA’s 

designee) in writing of the identity of the servicer of the loan. The Director of FEMA has 

designated the insurance provider to receive the bank’s notice of the servicer’s identity. 

This notice may be provided electronically if electronic transmission is satisfactory to the 

Director of FEMA’s designee. 

(b) Transfer of servicing rights. The bank shall notify the Director of FEMA (or the Director 

of FEMA’s designee) of any change in the servicer of a loan described in paragraph (a) of 

this section within 60 days after the effective date of the change. This notice may be 

provided electronically if electronic transmission is satisfactory to the Director of 

FEMA’s designee. Upon any change in the servicing of a loan described in paragraph (a) 

of this section, the duty to provide notice under this paragraph (b) shall transfer to the 

transferee servicer. 
 3-1 Appendix 3. SFHDF

STANDARD FLOOD HAZARD DETERMINATION FORM 

FEMA Form 81-93, DEC 05 This form may be locally reproduced. 
Appendix 3. SFHDF 3-2
 3-3 Appendix 3. SFHDF
 4-1 Appendix 4. Notice Requirements

 NOTICE REQUIREMENTS OF THE STATUTE

Section 4104a Notice requirements (This section of the U.S. Code includes public law 

section 527 of the 1994 Reform Act) 

(a) Notification of Special Flood Hazards

 (1) Regulated lending institutions

Each Federal entity for lending regulation (after consultation and coordination with the 

Financial Institutions Examination Council) shall by regulation require regulated lending 

institutions, as a condition of making, increasing, extending, or renewing any loan secured by 

improved real estate or a mobile home that the regulated lending institution determines is 

located or is to be located in an area that has been identified by the Director under this title or 

the Flood Disaster Protection Act of 1973 as an area having special flood hazards, to notify 

the purchaser or lessee (or obtain satisfactory assurances that the seller or lessor has notified 

the purchaser or lessee) and the servicer of the loan of such special flood hazards, in writing, a 

reasonable period in advance of the signing of the purchase agreement, lease, or other 

documents involved in the transaction. The regulations shall also require that the regulated 

lending institution retain a record of the receipt of the notices by the purchaser or lessee and 

the servicer. 

(2) omitted

(3) Contents of notice 

Written notification required under this subsection shall include- 

(A) a warning, in a form to be established by the Director, stating that the building on 

the improved real estate securing the loan is located, or the mobile home securing 

the loan is or is to be located, in an area having special flood hazards; 

(B) a description of the flood insurance purchase requirements under section 102(b) 

of the Flood Disaster Protection Act of 1973 [42 U.S.C.A. § 4012a (b)]; 

(C) a statement that flood insurance coverage may be purchased under the national 

flood insurance program and is also available from private insurers; and 

(D) any other information that the Director considers necessary to carry out the 

purposes of the national flood insurance program. 

(b) Notification of Change of Servicer

(1) Lending institutions

Each Federal entity for lending regulation (after consultation and coordination with the 

Financial Institutions Examination Council) shall by regulation require regulated lending 

institutions, in connection with the making, increasing, extending, renewing, selling, or 

transferring any loan described in subsection (a)(1), to notify the Director (or the designee of 
Appendix 4. Notice Requirements 4-2 

the Director) in writing during the term of the loan of the servicer of the loan. Such 

institutions shall also notify the Director (or such designee) of any change in the servicer of 

the loan, not later than 60 days after the effective date of such change. The regulations under 

this subsection shall provide that upon any change in the servicing of a loan, the duty to 

provide notification under this subsection shall transfer to the transferee servicer of the loan. 

(2) omitted

(c) Notification of Expiration of Insurance

The Director (or the designee of the Director) shall, not less than 45 days before the 

expiration of any contract for flood insurance under this title, issue notice of such expiration 

by first class mail to the owner of the property covered by the contract, the servicer of any 

loan secured by the property covered by the contract, and (if known to the Director) the owner 

of the loan. 

Section 4104b Standard hazard determination forms (This section of the U.S. Code 

includes public law section 528 of the 1994 Reform Act) 

(a) Development

The Director, in consultation with representatives of the mortgage and lending industry, the 

Federal entities for lending regulation, the Federal agency lenders, and any other appropriate 

individuals, shall develop a standard form for determining, in the case of a loan secured by 

improved real estate or a mobile home, whether the building or mobile home is located in an 

area identified by the Director as an area having special flood hazards and in which flood 

insurance under this title is available. The form shall be established by regulations issued not 

later than 270 days after the date of enactment of the Riegle Community Development and 

Regulatory Improvement Act of 1994. 

(b) Design and Contents

 (1) Purpose

The form under subsection (a) shall be designed to facilitate compliance with the flood 

insurance purchase requirements of this title. 

(2) Contents

The form shall require identification of the type of flood-risk zone in which the building or 

mobile home is located, the complete map and panel numbers for the improved real estate or 

property on which the mobile home is located, the community identification number and 

community participation status (for purposes of the national flood insurance program) of the 

community in which the improved real estate or such property is located, and the date of the 

map used for the determination, with respect to flood hazard information on file with the 

Director. If the building or mobile home is not located in an area having special flood hazards 

the form shall require a statement to such effect and shall indicate the complete map and panel 

numbers of the improved real estate or property on which the mobile home is located. If the 

complete map and panel numbers are not available because the building or mobile home is 

not located in a community that is participating in the national flood insurance program or 
 4-3 Appendix 4. Notice Requirements

because no map exists for the relevant area, the form shall require a statement to such effect. 

The form shall provide for inclusion or attachment of any relevant documents indicating 

revisions or amendments to maps. 

(c) Required Use

The Federal entities for lending regulation shall by regulation require the use of the form 

under this section by regulated lending institutions. Each Federal agency lender shall by 

regulation provide for the use of the form with respect to any loan made by such Federal 

agency lender. The Federal National Mortgage Association and the Federal Home Loan 

Mortgage Corporation and the Government National Mortgage Association shall require the 

use of the form with respect to any loan purchased by such entities. A lender or other person 

may comply with the requirement under this subsection by using the form in a printed, 

computerized, or electronic manner. 

(d) Guarantees Regarding Information

In providing information regarding special flood hazards on the form developed under this 

section, any lender (or other person required to use the form) who makes, increases, extends, 

or renews a loan secured by improved real estate or a mobile home may provide for the 

acquisition or determination of such information to be made by a person other than such 

lender (or other person), only to the extent such person guarantees the accuracy of the 

information. 

(e) Reliance on Previous Determination

Any person increasing, extending, renewing, or purchasing a loan secured by improved real 

estate or a mobile home may rely on a previous determination of whether the building or 

mobile home is located in an area having special flood hazards (and shall not be liable for any 

error in such previous determination), if the previous determination was made not more than 7 

years before the date of the transaction and the basis for the previous determination has been 

set forth on a form under this section, unless- 

(1) map revisions or updates pursuant to section 4101(f), 1360(f) after such previous 

determination have resulted in the building or mobile home being located in an area 

having special flood hazards; or 

(2) the person contacts the Director to determine when the most recent map revisions or 

updates affecting such property occurred and such revisions and updates have 

occurred after such previous determination. 

(f) Effective Date

The regulations under this section requiring use of the form established pursuant to this 

section shall be issued together with the regulations required under subsection (a) and shall 

take effect upon the expiration of the 180-day period beginning on such issuance. 
Appendix 4. Notice Requirements 4-4 

Appendix A to Part 339 

Sample Forms of Notice of Special Flood Hazard and 

Availability of Federal Disaster Relief Assistance 

Two sample versions of this notice form are provided on the following pages—one for use in 

participating communities, and the other for use in non-participating communities. 

Note: Lenders are encouraged to consider whether their collateral interests, in high flood risk 

areas, are adequately protected based on minimal statutory requirements. Lenders can require 

flood insurance limits up to the full RCV of the building, up to NFIP limits, as with other 

lines of insurance. 

Condominium unit owners have unique flood insurance coverage needs that require additional 

consideration. The NFIP designed the Residential Condominium Building Association Policy 

(RCBAP) to address the flood insurance needs of condominium unit owners and associations. 

Please refer to the Condominiums section of these guidelines for information concerning the 

flood insurance coverage options and requirements applicable to lending institutions.
 4-5 Appendix 4. Notice Requirements

Sample Form for Participating Communities: Notice of Special Flood Hazard and 

Availability of Federal Disaster Relief Assistance 

We are giving you this notice to inform you that: 

• The building or mobile home securing the loan for which you have applied is or will 

be located in an area prone to high flood risks that we call a Special Flood Hazard 

Area (SFHA). 

The area has been identified by the Federal Emergency Management Agency 

(FEMA) as an SFHA using the Flood Insurance Rate Map (FIRM) or the Flood 

Hazard Boundary Map (FHBM) for the community number________________. 

FIRMs are prepared by FEMA in cooperation with the applicable community to 

identify high flood risk and low-to-moderate flood risk areas. The SFHA in which 

your building or mobile home is or will be located has at least a one percent chance 

of a flood equal to or exceeding the base flood elevation (a 100-year flood) in any 

given year. During the life of a 30-year mortgage loan, the risk of flooding in an 

SFHA is 26 percent. 

• Federal law allows a lender and borrower jointly to request the Administrator of 

FEMA to review the determination of whether the property securing the loan is 

located in an SFHA. If you would like to make such a request, please contact us for 

further information. Borrowers may also call a FEMA mapping specialist at (877) 

336-2627 to discuss their concerns. 

• Federal financial assistance, including FEMA disaster assistance, flood mitigation 

grants and federally backed mortgage lending is available in the NFIP participating 

communities. Mandatory flood insurance requirements are applicable to all Federal 

financial assistance. The mandatory flood insurance purchase requirements under 

section 102(b) of the Flood Disaster Protection Act of 1973 are applicable to 

Federally regulated lenders making loans in SFHAs. We will not make you the loan 

that you have applied for if you do not purchase flood insurance. If you fail to renew 

flood insurance on the property, federal law authorizes and requires us to purchase 

the flood insurance for you at your expense. The flood insurance must be maintained 

for the life of your loan. 

- Flood insurance coverage under the NFIP may be purchased through an 

insurance agent who will obtain the policy either directly through the NFIP or 

through a Write Your Own (WYO) company that has agreed to write and 

service NFIP policies on behalf of FEMA. Flood insurance also may be 

available from private insurers that are not Federally backed. 

- At minimum, flood insurance purchased must cover the lowest of: (1) the 

outstanding principal balance of the loan(s); or (2) the maximum amount of 

coverage allowed for the type of building under the NFIP; or (3) the full 

replacement cost value (RCV) of the building and/or contents securing the 

loan. The market value or land value on which the building is located has no 

bearing on the RCV of the building. 
Appendix 4. Notice Requirements 4-6 

• Federal disaster relief assistance, the majority of which is in the form of a lowinterest disaster assistance loan from the Small Business Administration (SBA), may 

be available for losses not covered by your flood insurance policy. Flood insurance 

requirements apply to recipients of Federal disaster assistance grants and SBA 

disaster assistance loans. If you are planning to build a structure or make repairs, 

contact the local community’s chief executive official to determine building 

standards for structures within an SFHA. 

 Notice received by _____________________________ Date ___________________
 4-7 Appendix 4. Notice Requirements

Sample Form for Non-Participating Community: Notice of Special Flood Hazard and 

Availability of Federal Disaster Relief Assistance 

We are giving you this notice to inform you that: 

• The building or mobile home securing the loan for which you have applied is or will 

be located in an area prone to high flood risks, also known as a Special Flood Hazard 

Area (SFHA). 

- The area has been identified by the Federal Emergency Management Agency 

(FEMA) as an SFHA using the Flood Insurance Rate Map (FIRM) or the Flood 

Hazard Boundary Map (FHBM) for the community number________________. 

FIRMs are prepared by FEMA in cooperation with the applicable community to 

identify high flood risk and low-to-moderate flood risk areas. The SFHA in which 

your building or mobile home is or will be located has at least a one percent 

chance of a flood equal to or exceeding the base flood elevation (a 100-year 

flood) in any given year. During the life of a 30-year mortgage loan, the risk of 

flooding in an SFHA is 26 percent. 

- Federal law allows a lender and borrower jointly to request the Administrator of 

FEMA to review the determination of whether the property securing the loan is 

located in an SFHA. If you would like to make such a request, please contact us 

for further information. Borrowers may also call a FEMA mapping specialist at 

(877) 336-2627 to discuss their concerns. 

• The community in which the property securing the loan is located does not 

participate in the National Flood Insurance Program (NFIP). Federal flood insurance 

is not available. However, private flood insurance may be available on a limited 

basis in the SFHAs of non-participating communities. Federal financial assistance 

including disaster assistance grants or loans and flood mitigation grants are not 

available in SFHAs of non-participating communities. For example, if the nonparticipating community has been identified for at least one year as containing an 

SFHA, properties located in the community will not be eligible for Federal disaster 

relief assistance in the event of a federally declared flood disaster. 

• Conventional loans, loans that are not Federally backed can be made on buildings in 

SFHAs of non-participating communities, if authorized by the regulatory authority 

of the lending institution. However, government guaranteed or insured loans (e.g., 

SBA, VA, and FHA loans) are not permitted to be made in non-participating 

communities, if secured by structures in SFHAs. 

A non-participating community can join the NFIP—contact your local chief executive official 

for additional information. 

Notice received by _________________________________ Date _________________ 
Appendix 4. Notice Requirements 4-8 

Federal Emergency Management Agency 

Washington, DC 20472 

 

NOTIFICATION OF CHANGE OF SERVICER 

 

The National Flood Insurance Reform Act (NFIRA) requires federally regulated lending 

institutions and Federal agency lenders to report changes of Servicer. Section 1364 of the 

National Flood Insurance Act of 1968, as amended by Section 527 of NFIRA, provides in 

paragraph (b)(1) that: 

 

“Each Federal entity . . . shall by regulation require lending institutions, in connection 

with the making, increasing, extending, renewing, selling, or transferring any loan 

described in subsection (a)(1), to notify the Director (or the designee of the Director) in 

writing during the term of the loan of the servicer of the loan. Such institutions shall also 

notify the Director (or such designee) of any changes in the servicer of the loan, not later 

than 60 days after the effective date of such change.” 

 

The Federal Emergency Management Agency is requesting that all notices be sent to the Write 

Your Own company (insurance carrier issuing flood policy) or agent of record to endorse the 

flood policy to change the mortgagee or servicer. 

 

In order to expedite the processing, please submit the following information to the insurance 

company: 

• Borrower’s Full Name 

• Flood Insurance Policy Number 

• Property Address (including city/state) 

• Name of Bank or Servicer Reporting the Change 

• Name/Telephone Number of Contact Person 

• Name and Address of New Mortgagee or Servicer 

• Name and Address of New Contact Person 
 5-1 Appendix 5. Flood Insurance Resources 

FLOOD INSURANCE RESOURCES 

Federal Emergency Management Agency & National Flood Insurance Program 

Coastal Barrier Resources System (CBRS) 

Areas – Map Panel List 

http://www.fema.gov/business/nfip/cbrs/cbrs.shtm

Community Status Book http://www.fema.gov/fema/csb.shtm

FEMA Regional Office List http://www.fema.gov/about/contact/regions.shtm

Flood Insurance Manual http://www.fema.gov/business/nfip/manual.shtm

Flood Map Modernization Program, FEMA http://www.fema.gov/plan/prevent/fhm/mm_main.shtm

Flood Map Orders (FEMA Map Service 

Center) 

http://msc.fema.gov

Flood Map Technical Questions femamapspecialists@mapmodteam.com

Flood Zone Determination Companies List http://www.fema.gov/business/nfip/fzone1.shtm

General Information about Flood Risk, 

Insurance Coverage, Insurance Rates 

http://www.floodsmart.gov

Information Resource Library, Multimedia http://www.fema.gov/library

Lender Information & Publications http://www.fema.gov/business/nfip/infol.shtm

Letters of Map Change (LOMC) Information http://www.fema.gov/hazard/map/lomc.shtm

Mortgage Portfolio Protection Program 

(MPPP) – Participating WYO Companies List 

http://www.fema.gov/nfipInsurance/mppp.jsp

NFIP Bureau & Statistical Agent http://bsa.nfipstat.com

NFIP Direct Servicing Agent http://www.nfipservices.com

NFIP Regional Office List http://www.fema.gov/business/nfip/nfip_regions.shtm

Standard Flood Hazard Determination 

Form (SFHDF) 

http://www.fema.gov/business/nfip/sfhdform.shtm

Standard Flood Insurance Policy (SFIP) http://www.fema.gov/business/nfip/sfip.shtm

Top Ten Facts Every Lender Needs to 

Know about the NFIP

http://www.fema.gov/library/viewRecord.do?id=1408

Training Opportunities for Lenders http://www.fema.gov/business/nfip/trainlen.shtm

Watermark newsletter & 

e-Watermark online updates 

http://www.fema.gov/business/nfip/wm.shtm

http://watermark.nfipstat.com/index.htm

Write Your Own (WYO) Companies List http://www.fema.gov/nfipInsurance/companies.jsp
Appendix 5. Flood Insurance Resources 5-2 

Federal Entities for Lending Regulation 

Board of Governors of 

the Federal Reserve System (FRS) 

http://www.federalreserve.gov 

202-785-6054 

Farm Credit Administration (FCA) http://www.fca.gov/FCA-HomePage.htm 

703-883-4020 

Federal Deposit Insurance Corporation 

(FDIC) – Bankers Page 

http://www.fdic.gov/quicklinks/bankers.html

202-898-3912 

National Credit Union Association (NCUA) http://www.ncua.gov 

703-518-6300 

Office of the Comptroller of 

the Currency (OCC) 

http://www.occ.treas.gov 

202-874-4858 

Office of Thrift Supervision (OTS) http://www.ots.treas.gov 

202-906-6288 

Government-Sponsored Enterprises (GSEs) for Housing 

Federal Home Loan Mortgage 

Corporation (Freddie Mac) 

http://www.freddiemac.com 

http://www.allregs.com/fhlmc 

703-903-2000 

Federal National Mortgage 

Association (Fannie Mae) 

http://www.fanniemae.com 

http://www.efanniemae.com 

202-752-7000 
 6-1 Appendix 6. 30-Day Waiting Period

30-DAY WAITING PERIOD 

A. Start of Waiting Period 

For flood insurance under the National Flood Insurance Program (NFIP), there is a standard 

30-day waiting period before new applications and endorsements to increase coverage 

become effective. 

1. If the application or endorsement form and the premium payment are received at the NFIP 

within 10 days from the date of application or endorsement request, or if mailed by 

certified mail within 4 days from the date of application or endorsement request, then the 

waiting period will be calculated from the application or endorsement date. Use the 

application date or endorsement date plus 9 days to determine if the application or 

endorsement and premium payment were received within 10 days. When sent by certified 

mail, use the application date or endorsement date plus 3 days to determine if the 

application or endorsement and premium payment were mailed within 4 days. 

2. If the application or endorsement form and the premium payment are received at the NFIP 

after 10 days from the date of application or endorsement request, or are not mailed by 

certified mail within 4 days from the date of application or endorsement request, then the 

waiting period will be calculated from the date the NFIP receives the application or 

endorsement. 

As used in A.1 and A.2 above, the term “certified mail” extends to not only the U.S. Postal 

Service but also certain third-party delivery services. Acceptable third-party delivery services 

include Federal Express (FedEx), United Parcel Service (UPS), and courier services and the 

like that provide proof of mailing. Third-party delivery is acceptable if the delivery service 

provides documentation of the actual mailing date and delivery date to the NFIP insurer. Bear 

in mind that third-party delivery services deliver to street addresses but cannot deliver to U.S. 

Postal Service post office boxes. 

B. Effective Date 

1. New Policy (other than 2, 3, or 4 below)—The effective date of a new policy will be 

12:01 a.m., local time, on the 30th calendar day after the application date and the 

presentment of premium. (Example: a policy applied for on May 3 will become effective 

12:01 a.m., local time, on June 2.) The effective date of coverage is subject to the waiting 

period rule listed under A.1 or A.2 above. 

2. New Policy (in connection with making, increasing, extending, or renewing a loan, 

whether conventional or otherwise)—Flood insurance, which is initially purchased in 

connection with the making, increasing, extending, or renewal of a loan, shall be effective 

at the time of loan closing, provided that the policy is applied for and the presentment of 

premium is made at or prior to the loan closing. (Example: presentment of premium and 

application date—April 3, refinancing—April 3 at 3:00 p.m., policy effective date—April 

3 at 3:00 p.m.) This rule applies to all buildings regardless of flood zone. The waiting 

period rule listed under A.1 or A.2 above does not apply. 
Appendix 6. 30-Day Waiting Period 6-2

3. New Policy (in connection with lender requirement)—The 30-day waiting period does not 

apply when flood insurance is required as a result of a lender determining that a loan on a 

building in a Special Flood Hazard Area (SFHA) that does not have flood insurance 

coverage should be protected by flood insurance. The coverage is effective upon the 

completion of an application and the presentment of payment of premium. (Example: 

presentment of premium and application date—April 3, policy effective date—April 3.) 

 The waiting period rule listed under A.1 or A.2 must be used. 

4. New Policy (when the initial purchase of flood insurance is in connection with the 

revision or updating of a Flood Hazard Boundary Map or Flood Insurance Rate Map)—

During the 13-month period beginning on the effective date of the map revision, the 

effective date of a new policy shall be 12:01 a.m., local time, following the day after the 

application date and the presentment of premium. This rule only applies where the Flood 

Hazard Boundary Map (FHBM) or Flood Insurance Rate Map (FIRM) is revised to show 

the building to be in a Special Flood Hazard Area (SFHA) when it had not been in an 

SFHA. (Example: FIRM revised—January 1, 2005, policy applied for and presentment of 

premium—August 3, 2005, policy effective date—August 4, 2005.) The waiting period 

rule listed under A.1 or A.2 above must be used. This rule applies to all property owners 

including condominium associations. 

5. New Policy (in connection with the purchase of an RCBAP)—When a condominium 

association is purchasing a Residential Condominium Building Association Policy 

(RCBAP), the 30-day waiting period does not apply if the condominium association is 

required to obtain flood insurance as part of the security for a loan under the name of the 

condominium association. The coverage is effective upon completion of an application 

and presentment of premium. The waiting period rule listed under A.1 or A.2 above does 

not apply. 

Otherwise, the 30-day waiting period applies, and the waiting period rule listed under A.1 

or A.2 above must be used. 

6. New Policy (submit-for-rate application)—With three exceptions (described below), the 

effective date of a new policy will be 12:01 a.m., local time, on the 30th calendar day after 

the presentment of premium. 

The three exceptions are as follows. 

First, there is no waiting period if the initial purchase of flood insurance on a submit-forrate application is in connection with making, increasing, extending, or renewing a loan, 

provided that the policy is applied for and the presentment of premium is made at or prior 

to the loan closing. The waiting period rule listed under A.1 or A.2 above does not apply. 

Second, the 30-day waiting period does not apply when flood insurance is required as a 

result of a lender determining that a loan which does not have flood insurance coverage 

should be protected by flood insurance, because the building securing a loan is located in 

an SFHA. The coverage is effective upon the completion of an application and the 

presentment of payment of premium. This exemption from the 30-day waiting period 

applies only to loans in SFHAs, i.e., those loans for which the statute requires flood 

insurance. The waiting period rule listed under A.1 or A.2 above must be applied. 
 6-3 Appendix 6. 30-Day Waiting Period

Third, during the 13-month period beginning on the effective date of a map revision, the 

effective date of a new policy shall be 12:01 a.m., local time, following the day after the 

date the increased amount of coverage is applied for and the presentment of additional 

premium is made. This rule applies only on an initial purchase of flood insurance where 

the Flood Hazard Boundary Map (FHBM) or Flood Insurance Rate Map (FIRM) is 

revised to show the building to be in an SFHA when it had not been in an SFHA. The 

waiting period rule listed under A.1 or A.2 must be applied. 

7. New Policy (rewrite Standard to PRP)—The 30-day waiting period does not apply when 

an insured decides to rewrite the existing policy at the time of renewal from Standard to a 

Preferred Risk Policy (PRP), provided that the selected PRP coverage limit amount is no 

higher than the next highest PRP amount above that which was carried on the Standard 

policy using the highest of building and contents coverage. In those cases where the 

Standard policy has only one kind of coverage, either building or contents only, the 30-day 

waiting period applies. 

 In addition, if the structure is no longer eligible under the PRP or the insured decides to 

rewrite the existing PRP at renewal time to a Standard policy, the 30-day waiting 

period does not apply provided the coverage limit amount is no more than the previous 

PRP coverage amount or the next higher PRP amount above that. 

8. New Policy (contents only)—Unless the contents are part of the security for a loan, the 

30-day waiting period applies to the purchase of contents-only coverage. 

9. New Policy (documentation required)—The insurer may rely on an agent’s representation 

on the application that the loan exception applies unless there is a loss during the first 30 

days of the policy period. In that case, the insurer must obtain documentation of the loan 

transaction, such as settlement papers, before adjusting the loss. 

10. Community’s Initial Entry (or conversion from Emergency to Regular Program)—

Process according to rules 1 through 9 above and 11 below. 

11. Endorsements—With two exceptions (described below), the effective date for a new 

coverage or an increase in limits on a policy in force shall be 12:01 a.m., local time, on 

the 30th calendar day following the date of endorsement and the presentment of additional 

premium, or on such later date set by the insured to conform with the reason for the 

change. The waiting period rule listed under A.1 or A.2 above must be used. 

The two exceptions are as follows. 

First, during the 13-month period beginning on the effective date of a map revision, the 

effective date of an endorsement of an existing policy shall be 12:01 a.m., local time, 

following the day after the application date and the presentment of premium. This rule 

applies only where the FHBM or FIRM is revised to show the building to be in an SFHA 

when it had not been in an SFHA. The waiting period rule listed under A.1 or A.2 above 

does not apply. 

Second, the 30-day waiting period does not apply when the additional amount of flood 

insurance is required in connection with the making, increasing, extending, or renewing of 

a loan, such as a second mortgage, home equity loan, or refinancing. The increased 
Appendix 6. 30-Day Waiting Period 6-4

amount of flood coverage shall be effective at the time of loan closing, provided that the 

increased amount of coverage is applied for and the presentment of additional premium is 

made at or prior to the loan closing. The waiting period rule listed under A.1 or A.2 above 

does not apply. 

The insurer may rely on an agent’s representation on the endorsement that the loan 

exception applies unless there is a loss during the first 30 days after the endorsement 

effective date. In that case, the insurer must obtain documentation of the loan transaction, 

such as settlement papers, before adjusting the loss. 

12. Renewals (inflation increase option)—The 30-day waiting period does not apply when an 

additional amount of insurance is requested at renewal time that is no more than the 

amount of increase recommended by the insurer on the renewal bill to keep pace with 

inflation. If a revised renewal offer is generated at least 30 days before renewal with 

coverage more than the inflation increase option, the new limits will apply at policy 

renewal. 

In either situation, the increased amount of coverage will be effective at 12:01 a.m. on the 

date of policy renewal provided the premium for the increased coverage is received before 

the expiration of the grace period. 

13. Renewals (higher PRP limits)—The waiting period does not apply to a renewal offer to 

the insured for the next higher limits available under the PRP. 

14. Renewals (deductible reduction)—The 30-day waiting period does not apply to a 

reduction of the deductible effective as of the renewal date. 

Adapted from the May 1, 2007, revision of the NFIP Flood Insurance Manual, General Rules 

section, pages GR 8-10. 
 7-1 Appendix 7. MPPP Guidelines

MPPP GUIDELINES AND REQUIREMENTS 

Federal Emergency Management Agency 

Federal Insurance Administration 

Appendix A 

Mortgage Portfolio Protection Program 

Guidelines and Requirements 

Background

The Mortgage Portfolio Protection Program (MPPP) was introduced on January 1, 1991, as an 

additional tool, provided by the Federal Insurance Administration (FIA), to assist the mortgage 

lending and servicing industries, in response to their requests, in bringing their mortgage 

portfolios into compliance with the flood insurance requirements of the Flood Disaster Protection 

Act of 1973. 

The MPPP is not intended to act as a substitute for the need for mortgagees to review all 

mortgage loan applications at the time of loan origination and comply with flood insurance 

requirements as appropriate. 

It is expected that the proper implementation of the various requirements of this MPPP will result 

in mortgagors, following their notification of the need for flood insurance, to either show 

evidence of such a policy or contact their local insurance agent or appropriate Write Your Own 

(WYO) company to purchase the necessary coverage. It is also intended that flood insurance 

policies be written under the MPPP only as a last resort, and only on mortgages whose 

mortgagors have failed to respond to the various notifications required by this MPPP. 

The following represents the criteria and requirements that must be followed by all parties 

engaged in the sale of flood insurance under the National Flood Insurance Program’s Mortgage 

Portfolio Protection Program: 

Requirements for Participating in the MPPP

1. General 

 a. All mortgagors notified, in conjunction with this Program, of their need to purchase 

flood insurance must be encouraged to obtain a Standard Flood Insurance Policy (SFIP) 

from their local agent. 

 b. When a mortgagee or a mortgage servicing company discovers, at any time following 

loan origination, that one or more of the loans in its portfolio are determined to be 

located in a Special Flood Hazard Area (SFHA), and that there is no evidence of flood 

insurance on such property(ies), then the MPPP may be used by such lender/servicer to 

obtain (force place) the required flood insurance coverage. The MPPP process can be 

accomplished with limited underwriting information and with special flat flood 

insurance rates. 
Appendix 7. MPPP Guidelines 7-2

c. In the event of a loss, the policy will have to be reformed if the wrong rate has been 

applied for the zone in which the property is located. Also, the amount of coverage may 

have to be changed if the building occupancy does not support that amount. 

d. It will be the WYO company’s responsibility to notify the mortgagor of all coverage 

limitations at the inception of coverage and to impose those limitations that are 

applicable at the time of loss adjustment. 

2. WYO Arrangement Article III—Fees 

With the implementation of the MPPP, there is no change in the method of WYO company 

allowance from that which is provided in the Financial Assistance/Subsidy Arrangement for 

all flood insurance written. 

3. Use of WYO Company Fees for Lenders/Servicers or Others 

a. No portion of the allowance that a WYO company retains under the WYO Financial 

Assistance/Subsidy Arrangement for the MPPP may be used to pay, reimburse or 

otherwise remunerate a lending institution, mortgage servicing company, or other 

similar type of company that the WYO company may work with to assist in its flood 

insurance compliance efforts. 

b. The only exception to this is a situation where the lender/servicer may be actually due a 

commission on any flood insurance policies written on any portion of the institution’s 

portfolio because it was written through a licensed property insurance agent on their 

staff or through a licensed insurance agency owned by the institution or servicing 

company. 

4. Notification 

a. WYO Company/Mortgagee—Any WYO company participating in the MPPP must 

notify the lender or servicer, for which it is providing the MPPP capability, of the 

requirements of the MPPP. The WYO company must obtain signed evidence from each 

such lender or servicer indicating their receipt of this information, and keep a copy in its 

files. An example of such evidence of receipt follows as Addendum 5. 

b. Mortgagee to Mortgagor—In order to participate in the MPPP, the lender (or its 

authorized representative, which will typically be the WYO company providing the 

coverage through the MPPP) must notify the borrower of the following, at a minimum: 

 (1) The requirements of the Flood Disaster Protection Act of 1973, 

 (2) The flood zone location of the borrower’s property, 

 (3) The requirement for flood insurance, 

 (4) The fact that the lender has no evidence of the borrower’s having flood insurance, 

(5) The amount of coverage being required and its cost under the MPPP, and 
 7-3 Appendix 7. MPPP Guidelines

 (6) The options of the borrower for obtaining conventionally underwritten flood 

insurance coverage and the potential cost benefits of doing so. 

 A more detailed discussion of the notification requirements is made a part of this 

program document in both Section 15 and as Addendums 1 and 2. 

5. Eligibility 

 a. Type of Use—The MPPP will be allowed only in conjunction with mortgage portfolio 

reviews and the servicing of those portfolios by lenders and mortgage servicing 

companies. The MPPP is not allowed to be used in conjunction with any form of loan 

origination. 

 b. Type of Property—The standard NFIP rules apply, and all types of property eligible for 

coverage under the NFIP will be eligible for coverage under the MPPP. 

6. Source of Offering 

 The force placement capability will be offered by the WYO companies only and not by the 

NFIP Servicing Agent. 

7. Dual Interest 

 The policy will be written covering the interest of both the mortgagee and the mortgagor. 

The name of the mortgagor must be included on the Application Form. It is not, however, 

necessary to include the mortgagee as a named insured because the Mortgage Clause 

(Article VII.Q of the Dwelling Form and the General Property Form) affords building 

coverage to any mortgagee named as mortgagee on the Flood Insurance Application. If 

contents coverage for the mortgagee is desired, the mortgagee should be included as a 

named insured. 

8. Term of Policy 

 NFIP policies written under the MPPP will be for a term of 1 year (subject to the renewal 

notification process). 

9. Coverage Offered 

 Both building and contents coverage will be available under the MPPP. The coverage limits 

available under the Regular Program will be $250,000 for building coverage and $100,000 

for contents. If the WYO company wishes to provide higher limits that are available to other 

occupancy types such as other residential or non-residential, it may do so only if it can 

indicate that occupancy type as appropriate. If the mortgaged property is in an Emergency 

Program Community, then the coverage limits available will be $35,000 for building 

coverage and $10,000 for contents. Again, if the higher limits are desired for other types of 

property, then the building occupancy type must be provided at the inception of the policy or 

when that information may become available, but it must be prior to any loss. 

10. Policy Form 
Appendix 7. MPPP Guidelines 7-4

 The current SFIP Dwelling Form and General Property Form will be used, depending upon 

the type of structure insured. In the absence of building occupancy information, the 

Dwelling Form should be used. 

11. Waiting Period 

 The NFIP rules for the waiting period and effective dates apply to the MPPP. 

12. Premium Payment 

 The current rules applicable to the NFIP will apply. The lender or servicer (or payor) has the 

option to follow its usual business practices regarding premium payment, so long as the 

NFIP rules are followed. 

13. Underwriting-—Application 

 a. The MPPP will require less underwriting data than is normally required under the 

standard NFIP rules and regulations. The MPPP data requirements for rating, 

processing and reporting are, at a minimum: 

(1) Name and mailing address of insured (mortgagor; also see Dual Interest), 

 (2) Address of insured (mortgaged) property, 

 (3) Community name, number, map panel number and suffix, and program type 

(Emergency or Regular), 

(4) Occupancy type (so statutory coverage limits are not exceeded. This data may be 

difficult to obtain. Also see Coverage Offered.), 

 (5) NFIP flood zone where property is located (lender must determine, in order to 

decide whether the mandatory purchase requirement applies), 

 (6) Amount of coverage, 

 (7) Name and address of mortgagee, 

 (8) Mortgage loan number, 

 (9) Policy number. 

b. No elevation certificates are required as there is no elevation rating. 

 c. For more detailed information regarding reporting requirements, see the WYO 

Transaction Record Reporting and Processing (TRRP) Plan. 
 7-5 Appendix 7. MPPP Guidelines

14. Rates 

See the MPPP rate table below. 

MORTGAGE PORTFOLIO PROTECTION PROGRAM RATE AND 

INCREASED COST OF COMPLIANCE (ICC) TABLE1,2,3

Zone 

MPPP Rates per 

$100 of Building 

Coverage 

MPPP Rates per 

$100 of Contents 

Coverage 

ICC Premium 

for Full $30,000 

Coverage4,5

Emergency Program 

Community 

$2.77 $2.92 N/A 

A Zones – All building & 

occupancy types, except in 

Zones A99, AR, AR Dual 

$2.77/$1.39 $2.92/$1.39 $75.00 

V Zones – All building & 

occupancy types 

$4.31/$4.31 $4.05/$4.05 $75.00 

Zones A99, AR, AR Dual $0.74/$0.44 $0.98/$0.39 $6.00 

1

Before calculating the premium, refer to page MPPP 1 of the current NFIP Flood Insurance Manual

 at http://www.fema.gov/business/nfip/manual.shtm for possible changes to these rates. 

2

When calculating the premium, add the $35.00 Federal Policy Fee and, if applicable, the $50.00 Community 

Probation Surcharge. 

3

MPPP policies are not eligible for NFIP Community Rating System premium discounts. 

4

ICC coverage does not apply to contents-only policies or to individually owned condominium units insured 

under the Dwelling Form or General Property Form. 

5

ICC premium is not eligible for the deductible discount. First calculate the deductible discount, then add in the 

ICC premium. 

15. Policy Declaration Page Notification Requirements 

 In addition to the routine information, such as amounts of coverage, deductibles and 

premiums, that a WYO company may place on the policy declarations page issued to 

each insured under the NFIP, the following messages are required: 

 a. This policy is being provided for you as it is required by Federal law as has been 

mentioned in the previous notices sent to you on this issue. Since your mortgage 

company has not received proof of flood insurance coverage on your property in 

response to those notices, we provide this policy at their request. 

b. The rates charged for this policy may be considerably higher than those that may be 

available to you if you contact your local insurance agent (or the WYO company 

at . . . .). 

c. The amounts of insurance coverage provided in this policy may not be sufficient to 

protect your full equity in the property in the event of a loss. 
Appendix 7. MPPP Guidelines 7-6

 d. You may contact your local insurance agent (or WYO company at . . . .) to replace 

this policy with a conventionally underwritten Standard Flood Insurance Policy, at 

any time, and typically at a significant savings in premium. 

 The WYO company may add other messages to the declarations page and make minor 

editorial modifications to the language of these messages if it believes any are necessary 

to conform to the style or practices of that WYO company, but any such additional 

messages or modifications may not change the meaning or intent of the above messages. 

 Since the amount of underwriting data obtained at the time of policy inception will 

typically be limited, the extent of any coverage limitations (such as, when replacement 

coverage is not available or coverage is limited because the building has a basement or is 

considered an elevated building with an enclosure) will be difficult to determine. It is, 

therefore, the responsibility of the WYO company to notify the mortgagor/insured of all 

coverage limitations at the inception of coverage and impose any that are applicable at 

the time of the loss adjustment. 

16. Policy Reformation—Policy Correction 

 Article VII.G of the Dwelling Form and the General Property Form will apply as 

appropriate. 

 Examples of circumstances under which reformation or correction might be needed 

would be: 

 a. Policy Reformation—The wrong flat rate was applied for the zone in which the 

property was actually located. 

 b. Policy Correction—The amount of coverage exceeds the amount available under the 

NFIP for the type of building occupancy that represents the building insured. In such 

cases, the amount of coverage would have to be adjusted to the amount available and 

any appropriate premium adjustments made. 

17. Coverage Basis—Actual Cash Value or Replacement Cost 

 There are no changes from the standard practices of the NFIP for these provisions. The 

coverage basis will depend on the type of occupancy of the building covered and the 

amount of coverage carried. 

18. Deductible

 A $500 Deductible is applicable for policies written under the MPPP. 

19. Federal Policy Fee

 There is no change from the standard practice. The Federal Policy Fee in effect at the 

time the MPPP policy is written must be used. 

20. Renewability
 7-7 Appendix 7. MPPP Guidelines

 The MPPP policy is a 1-year policy. Any renewal of that policy can occur only following 

the full notification process spelled out in Addendum 2 that must take place between the 

lender (or its authorized representative) and the insured/mortgagor, when the 

insured/mortgagor has failed to provide evidence of obtaining a substitute flood 

insurance policy. 

21. Cancellations

 The NFIP Flood Insurance Manual rules for cancellation/nullification are to be followed, 

when applicable. 

22. Endorsement 

An MPPP policy may not be endorsed to convert it directly to a conventionally 

underwritten SFIP. Rather, a new policy application, with a new policy number, must be 

completed according to the underwriting requirements of the SFIP, as contained in the 

NFIP Flood Insurance Manual. The MPPP policy may be endorsed to assign it under 

rules of the NFIP. It may also be endorsed for other reasons such as increasing coverage. 

23. Assignment to a Third Party

 Current NFIP rules remain unchanged; therefore, an MPPP policy may be assigned to 

another mortgagor or mortgagee. Any such assignment must be through an endorsement, 

however. 

24. Article XIII—Restrictions Other Flood Insurance

Article XIII of the Arrangement is also applicable to the MPPP and, as such, does not 

allow a company to sell other flood insurance that may be in competition with NFIP 

coverage. This restriction, however, applies solely to policies providing flood insurance. 

It also does not apply to insurance policies provided by a WYO company in which flood 

is only one of several perils provided, or when the flood insurance coverage amounts are 

in excess of the statutory limits provided under the NFIP, or when the coverage itself is 

of such a nature that it is unavailable under the NFIP, such as blanket portfolio coverage. 
Appendix 7. MPPP Guidelines 7-8

Mortgage Portfolio Protection Program (MPPP) Guidelines and Requirements 

Addendum 1 

Initial Portfolio Review Mortgagor Notification Process

Once it has been determined by the lender/servicer or its representative that flood insurance is 

needed on mortgages in the lender’s portfolio, and there is no evidence of flood insurance, and it 

decides to use FIA’s MPPP to assist in bringing the lender’s portfolio into compliance with flood 

insurance requirements, then the following notification process must be used. 

This process will consist of three initial notification letters. Each letter will contain certain 

messages, at a minimum, in the body of the letter. The lender/servicer (or their authorized 

representative) may add their own messages, make minor editorial modifications to the messages 

to conform to the style and practice of the WYO company or lender and structure the letter to 

their liking, but they may not alter the meaning or intent of the messages listed here for any of the 

letters. 

Each letter will contain mandatory messages on one or more of the following items: (1) The 

requirements of the Flood Disaster Protection Act of 1973; (2) reminding the insured of the 

previous letters sent that resulted in the current flood insurance policy; (3) the high premiums on 

the current policy; (4) potentially inadequate coverage limits; (5) coverage limitations; and (6) the 

options available to the insured. 

First Initial Notification Letter

The first letter is to be issued after the review of the lender’s portfolio reveals the need for the 

flood insurance coverage and the absence of it. This letter must contain, at a minimum, the 

following messages: 

1. “The Flood Disaster Protection Act of 1973, a Federal law, requires that flood insurance be 

purchased and maintained on mortgage loans for buildings (and their contents, if 

appropriate) for the life of the loan for buildings located in a Special Flood Hazard Area 

(SFHA) shown on a map published by FEMA. This applies to such loans from lending 

institutions that are under the jurisdiction of a Federal regulatory agency or 

instrumentality.” 

2. “We have determined that your property (building), on which we hold the mortgage loan, is 

located in an SFHA and, therefore, you are required by law to have a policy of flood 

insurance on that property.” 

• This letter must then include language advising the mortgagor that in the event they 

wish to challenge the zone determination, they should provide written factual evidence 

supporting their challenge obtained from a community official or registered engineer, 

architect, or surveyor, stating the specifics of the location of the building and the reason 

for their challenge. The letter must include reference to the appeal process required in 

Section 524 of the National Flood Insurance Reform Act of 1994, and to the regulations 

promulgated to establish the procedures and process for such review. 
 7-9 Appendix 7. MPPP Guidelines 

• The lender/servicer is reminded that since the Act places the responsibility of 

determining the flood zone location of each mortgaged property on the lender/servicer, 

he cannot discharge that responsibility by simply obtaining some form of selfcertification from the mortgagor. If the lender wishes to change its original 

determination on the location of the mortgagor’s property based upon information 

submitted by the mortgagor, the lender/servicer must convince itself, after reviewing 

that submission, that its original determination was in error and make any such change 

based on that review. He should not simply accept unsubstantiated allegations, from 

whatever source, as to the building’s flood zone location. The ultimate responsibility for 

making such determinations under the statute rests with the mortgagee, not the 

mortgagor. 

3. “There is no evidence in your mortgage loan file of your having a flood insurance policy on 

your property. In case this information is in error, please contact us at . . . .” 

4. “If you do not have a flood insurance policy on this property, you may wish to contact your 

local insurance agent (or WYO company at . . . .).” 

5. “If you do not respond within 45 days of this letter, either providing evidence of a flood 

insurance policy in effect on this property, or requesting that we provide you with such 

coverage, the necessary flood insurance coverage will be provided for you. In that event, 

since certain insurance underwriting information about your property that is necessary to 

determine the appropriate flood insurance rate for your policy would not have been obtained, 

due to your not responding, the Federal government’s Mortgage Portfolio Protection 

Program’s flood insurance rates will have to be used. These rates may be considerably 

higher than those that could be obtained for you if you respond to this notice.” 

This letter, or an attachment, must also include such other information as: (1) the name of the 

lender/servicer, (2) the mortgage loan number, (3) the address of the property in question, (4) the 

flood zone in which the property has been determined to be located, (5) the amount of flood 

insurance being required, and (6) coverage limitations. 

Second Initial Notification Letter

This letter will be sent 30 days following the first initial notification letter, if no response has 

been received from the mortgagor. It will contain, at a minimum, the following messages: 

1. “About a month ago you were notified that Federal law requires all mortgages, such as 

yours, on properties determined to be located in a Special Flood Hazard Area, to be covered 

by a policy of flood insurance.” 

2. “That letter mentioned that if you did not respond positively within 45 days from that letter, 

it would be necessary to obtain a policy of flood insurance for you.” 

3. “This is to remind you that since you have not responded to the earlier notice as yet, and if 

you do not respond within the next 15 days (or the actual expiration date), flood insurance, 

as mentioned previously, will be obtained on your property, on your behalf.” 

4. “In the event that you do not respond and the coverage must be obtained as mentioned, the 

cost of that coverage may be significantly higher than the premium that you could obtain if 

you were to contact your local insurance agent (or WYO company at . . . .).” 
Appendix 7. MPPP Guidelines 7-10

Third and Final Initial Notification Letter

This letter must be sent to the mortgagor accompanying the flood insurance policy declarations 

page. 

This letter must be sent as soon after the end of the 45-day notification period as possible, if no 

positive response has been received to the two previous notification letters. It must contain the 

following messages, at a minimum: 

1. “This letter is to inform you that a policy of flood insurance has been obtained on your 

behalf, to cover the mortgage on your property, as required by the Flood Disaster Protection 

Act of 1973.” 

2. “You have been notified on two previous occasions explaining the circumstances 

surrounding your need to have flood insurance coverage and explaining your options, but to 

date no response has been received.” 

3. “Attached is the flood insurance policy purchased on your behalf and its accompanying 

declarations page that explains: the amount of coverage purchased on your behalf, its cost, 

some limitations to that coverage, and the options you may still wish to exercise to obtain 

similar coverage, but typically at a significantly lower cost.” 

4. “If you purchase another flood insurance policy and notify us, or contact us to request that 

we purchase a substitute policy under the NFIP for you, we will cancel this policy and issue 

you a refund for the unearned portion of the premium, if we deem that the other policy is 

acceptable to satisfy the requirements.” 
 7-11 Appendix 7. MPPP Guidelines

Mortgage Portfolio Protection Program (MPPP) Guidelines and Requirements 

Addendum 2 

MPPP Renewal/Expiration Mortgagor Notification Process

When an MPPP policy has been purchased and the expiration date of that policy is approaching 

the end of its 1-year term, and the insured has not requested or produced a substitute policy of 

flood insurance, the following notification process will be followed. 

This process will consist of a total of three (or, at the lender’s option, two) renewal MPPP letters. 

Each letter will contain certain required messages within the body of the letter. The 

lender/servicer (or their authorized representative) may add their own messages, make minor 

editorial modifications to the messages to conform to the style and practice of the WYO company 

or lender, and structure the letter to their liking, but they may not alter the meaning or intent of 

the messages listed here for any of the letters. 

Each letter will contain mandatory messages on one or more of the following items: (1) 

reminding the insured of the previous letters sent that resulted in the current flood insurance 

policy that is about to expire; (2) the requirements of the Flood Disaster Protection Act of 1973; 

(3) the high premiums on the current policy; (4) potentially inadequate coverage limits; (5) 

coverage limitations; and (6) the options available to the insured. 

First MPPP Renewal/Expiration Notification Letter

The first MPPP Renewal/Expiration Notification Letter will be sent to the insured/mortgagor at 

least 45 days prior to the renewal/expiration of the MPPP policy. It will, at a minimum, contain 

the following messages: 

1. “This letter is to notify you that the flood insurance policy that was required to be purchased 

on your property about a year ago is about to expire.” 

2. “When you were originally notified of the need for this coverage, it was explained that the 

Flood Disaster Protection Act of 1973, a Federal law, requires that flood insurance be 

purchased and maintained for the life of the loan, on mortgage loans for buildings (and their 

contents, if appropriate) located in a Special Flood Hazard Area shown on a map produced 

by the Federal Emergency Management Agency.” 

3. “The premium on the flood insurance policy currently in effect and written on your behalf, 

and due to expire, may be considerably higher than would be the case if you had responded 

to the suggestions contained in the previous notices sent you, recommending that you 

contact your local insurance agent (or the WYO company at . . . .), which you may still do, 

to obtain a conventionally underwritten Standard Flood Insurance Policy.” 

4. “As has been mentioned in previous notices, you may wish to replace this policy with a 

conventionally underwritten Standard Flood Insurance Policy now, and benefit from rates 

that potentially are significantly lower than the rates being used with this policy.” 

5. “Failure to respond to this notice within 45 days (or by [date]) will result in this policy being 

renewed, and at rates that are most likely to be much higher than are otherwise available.” 
Appendix 7. MPPP Guidelines 7-12

Second MPPP Renewal/Expiration Notification Letter 

The requirement for the second MPPP Renewal/Expiration Notification Letter is optional on the 

part of the participating WYO company. If such a company decides not to issue the second of the 

three notices (letters), then the third MPPP Renewal/Expiration Notification Letter required in the 

March 1, 1991, Federal Register will serve as the second and final notice required. The language 

of such a letter may be modified, if needed, to reflect the fact that only two such letters were sent. 

Third and Final MPPP Renewal/Expiration Notification Letter

The third and final notice will be sent out as part of the renewed MPPP policy. The notice 

containing the following required messages may be sent as a cover letter or an attachment to the 

policy declarations page and policy itself, or the required messages may be included on the 

declarations page that accompanies the renewal policy. It must contain the following messages: 

1. “Since you have not responded to our previous notices that your flood insurance policy, 

which is required by Federal law, was about to expire, we have renewed that policy for the 

next year.” 

2. “As has been previously explained, the Flood Disaster Protection Act of 1973, a Federal law, 

requires that flood insurance be purchased and maintained on mortgage loans for buildings 

(and their contents, if appropriate) for the life of the loan, for property located in a Special 

Flood Hazard Area shown on a map produced by the Federal Emergency Management 

Agency.” 

3. “The premium on this flood insurance policy just renewed may be considerably higher than 

would be the case if you had contacted your local insurance agent (or WYO company 

at . . . .), which you may still do, to obtain a conventionally underwritten Standard Flood 

Insurance Policy.” 

4. “If you purchase another flood insurance policy and notify us, or contact us to request that 

we purchase a substitute policy under the NFIP for you, we will cancel this policy and issue 

you a refund for the unearned portion of the premium, if we deem that the other policy is 

acceptable to satisfy the requirements.” 
 7-13 Appendix 7. MPPP Guidelines

Mortgage Portfolio Protection Program (MPPP) Guidelines and Requirements 

Addendum 3 

Questions and Answers: Portfolio Review Considerations 

1. What is the MPPP? 

 The MPPP is a tool for providing flood insurance coverage to properties which are part of a 

lending institution’s mortgage portfolio when such properties have been determined to be in 

a Special Flood Hazard Area and therefore subject to the flood insurance purchase 

requirement mandated by Federal law. 

2. What is the first step in using the MPPP? 

 The MPPP is intended to be utilized only when the lender (or its representative) has 

reviewed its portfolio and determined which of the loans are on buildings located in a 

Special Flood Hazard Area (SFHA), and, therefore, in need of flood insurance. 

3. What source of information should the MPPP participant, or their authorized 

representative, be using in reviewing a loan portfolio, to determine flood zone location 

of the properties in question? 

 The flood insurance maps published by the Federal Emergency Management Agency 

(FEMA), augmented by other official documentation available from local officials or other 

sources, as may be deemed necessary, should be used. 

 The Flood Disaster Protection Act of 1973, which imposes the flood insurance requirement, 

makes specific reference to “areas identified by the Secretary (since changed to Director [of 

FEMA]) as an area having special flood hazards.” The National Flood Insurance Act of 1968, as 

amended, charged FEMA with the responsibility of identifying areas which have special 

flood hazards. Therefore, the official source of information that serves as the basis for 

identifying such areas is the maps published by FEMA. 

4. What if a source of information other than the FEMA maps is used as the basis for 

determining the flood zone location of properties? 

 The lender may be risking erroneous determinations, thereby potentially placing the lender 

in a position of a liability exposure, bad customer relations and/or problems with its Federal 

regulatory agency or worse. 

5. Does it mean that, if the system used to make these flood zone determinations is not 

based on the FEMA maps, the system should not be used? 

 Due to the potential for problems as mentioned above, the lender must be careful as to the 

basis behind the system it uses to make these flood zone determinations. Also, since the 

lender must keep evidence of the determination in every mortgage file, if that evidence 

doesn’t reflect the map panel used to make the determination, the lender may have difficulty 

proving to its Federal regulatory agency, or in court if the need arose, that the lender is 

complying with the law. 
Appendix 7. MPPP Guidelines 7-14

6. What flood zone determination information should the lenders keep in each 

mortgagor’s file to indicate evidence of compliance? 

 Pursuant to Section 528 of the National Flood Insurance Reform Act of 1994, FEMA 

developed a Standard Flood Hazard Determination Form (SFHDF) for use by lenders when 

determining, in the case of a loan secured by improved real estate or a mobile home, whether 

the building or mobile home is located in a special flood hazard area. The SFHDF contains a 

section for recording flood zone determination information. All lenders subject to the 

Reform Act will have to place a copy of the SFHDF in each mortgagor’s file to indicate 

evidence of compliance. 

7. What version of the flood map should be used in conjunction with the MPPP portfolio 

review? 

 The FEMA map in effect at the time of the portfolio review is the map that must be used. 

The provisions of the Flood Disaster Protection Act of 1973 as amended by the Reform Act: 

(1) require the lender to notify the borrower that the borrower should obtain flood insurance, 

at the borrower’s expense, if, at any time during the term of the loan, the lender determines 

the improved real estate or mobile home securing the loan is located in an area identified by 

FEMA as an area having special flood hazards and in which flood insurance is available but 

the property is not covered by flood insurance; and (2) require the lender to purchase 

coverage on behalf of the borrower if the borrower fails to purchase such flood insurance 

within 45 days after notification by the lender. 

8. Doesn’t the fact that the MPPP was designed to assist lenders/servicers in bringing 

their portfolios into compliance with flood insurance requirements mean that they will 

be dealing with loans that can range from being very new to being many years old, and 

that the maps that may have been in effect at the time of the loan origination might not 

be readily available now? 

 Yes. However, this does not present a problem since, as mentioned in question 7 above, 

compliance with the Reform Act requires use of the map in effect at the time of the review 

rather than the map in effect at the time of the loan origination. 

 

9. Once the lender/servicer’s portfolio has been reviewed and determinations have been 

made as to which properties need flood insurance, is there anything critical that the 

lender (or its representative) should consider before beginning the process of mailing 

the initial notices to their mortgagors? 

 The lender should consider how the mailing will be handled and the results of that mailing. 

There is a strong likelihood that, once the mailings begin, a certain percentage of the 

mortgagor recipients of those notices will challenge the notices. Some of those challenges 

will be directed, in one way or another, to the lender/servicer, regardless of any instructions 

in the notices. The lender should therefore determine at the outset whether it wants the 

notices to be sent all at once, or sent in batches. The larger the volume, the more 

consideration to the batch approach that should be given. 

 Also, the lender needs to consider how it wants the review of its portfolio carried out. If the 

results of the review are provided to the lender all at the same time and the lender decides to 

send the notices to the mortgagors in batches, it may be exposing itself to additional liability. 
 7-15 Appendix 7. MPPP Guidelines

This could occur since the lender was aware of all the mortgages in its portfolio that needed 

flood insurance, but acted on only a certain number at a time. The lender, therefore, needs to 

consider having the portfolio review carried out in such a fashion that the results of each 

portion of that review are made available to the lender as soon as they are available from the 

party conducting the review, and are acted upon as soon as possible thereafter. 
Appendix 7. MPPP Guidelines 7-16

Mortgage Portfolio Protection Program (MPPP) Guidelines and Requirements 

Addendum 4 

Questions and Answers: Other Considerations 

1. What is the MPPP and what is it designed to do? 

 The MPPP is a tool made available to the lending and mortgage servicing industries that 

provides them with the capability to write flood insurance policies quicker and easier that 

will assist them with their efforts to bring their portfolios into compliance with flood 

insurance requirements. 

2. Is the MPPP available to lenders for all their loans? 

 No. It may be used in only conjunction with loan portfolios. It may not be used as a 

compliance vehicle for loan originations. 

3. Is the MPPP mandatory for lenders/servicers? 

 No. It is voluntary, but lenders/servicers that believe their loan portfolios may not be in 

compliance with flood insurance requirements are strongly encouraged to use it if they 

believe it could be helpful. 

4. What are the benefits of the MPPP? 

 The specific benefits will vary with the category of participant as follows. 

For lenders/servicers: 

• Portfolio compliance with flood insurance requirements. 

• Reduction or elimination of certain potential liability. 

• Protection of equity (lender/servicer, borrower). 

For WYO companies: 

• Increased policy sales and fees. 

• Increased lender/servicer client base. 

For insurance agents: 

• Increased policy sales and commissions. 

5. Is it possible for WYO companies and insurance agents to benefit from the MPPP even 

if they don’t directly participate in it? 

 Yes. Property insurance (fire and auto) is already being sold by insurance agents to many of 

these same borrowers because lenders require it in conjunction with home mortgages and 

auto loans. As a result, many agents already have established business relationships with 

their local lenders. These agents could alert these lenders to the availability of the MPPP and 

advise them as to how to proceed even if the agent was not going to directly participate. 
 7-17 Appendix 7. MPPP Guidelines

 At the same time the agent could offer to assist the lender with determining the flood zone 

location of the addresses of all new mortgage loan applications for that lender and ask, in 

return, for the opportunity to write all the flood insurance policies on those properties that 

are determined to need it. The notices that will be sent to the borrowers will generate 

inquiries and sales. 

6. How will flood policies actually be sold under the MPPP? 

 Policies will be written through the insurance companies participating in the Write Your 

Own (WYO) Program. 

7. Will all the insurance companies participating in the WYO Program be writing policies 

under the MPPP? 

 Any WYO company may write policies under the MPPP, but only those that traditionally 

have dealt with the lending industry participate in this Program. Any such company that 

does wish to participate must agree in writing to comply with the requirements of the MPPP. 

8. Does FIA maintain and publish a list of the WYO companies that participate in the 

MPPP? 

 Yes. Such a list has been developed and is modified and republished as needed. 

9. What is the first thing a lender/servicer should do if it wishes to utilize the MPPP? 

 The lender must review its loan portfolio and determine which of the properties are located 

in Special Flood Hazard Areas (SFHA). 

10. When a lender/servicer decides to utilize the MPPP, must they use the MPPP to service 

their portfolio all at the same time? 

 No. Lenders/servicers should carefully analyze the pros and cons of phasing in their portfolio 

compliance effort. (See Addendum 3, question 9.) 

11. Is use of the MPPP limited to only those properties located in SFHAs? 

 Yes. 

12. What will happen if a policy is written through the MPPP, but the property is not 

located in an SFHA? 

 If no loss has occurred at the time the situation is discovered but the mortgagee wants the 

borrower to have flood insurance even though the property is not in an SFHA, the situation 

can be corrected by cancelling the MPPP policy and rewriting the coverage under a 

conventional Standard Flood Insurance Policy (SFIP) with a refund of any premium 

overpayment. If such a situation is discovered after a flood loss has occurred, the claim will 

be honored. However, the MPPP policy would have to be cancelled and the coverage 

rewritten under a conventional SFIP with a refund of any premium overpayment. The loss 

should then be reported under the new policy number. Under both scenarios, the effective 

date of the conventional SFIP would be the same as that of the cancelled MPPP policy. 
Appendix 7. MPPP Guidelines 7-18

13. What differences are there between a flood policy sold under the traditional flood 

insurance program and one under the MPPP? 

 The actual policy and coverage are the same, but there are differences primarily in the areas 

of: 

• rates, 

• a letter notification process to the borrowers, 

• the underwriting information necessary. 

14. What are the rate differences? 

 The rates under the MPPP are, on the average, several times those used under the traditional 

flood insurance program. 

15. Why are the MPPP rates so high? 

 Because the borrower did not respond to the notices sent, key information necessary to 

underwrite the risk is not available. Therefore, it is necessary to assume that those properties 

have a very high risk and the rates charged reflect that risk. 

16. Does the borrower have any option in avoiding the MPPP policy with its higher cost? 

 Yes. The borrower can simply contact a local insurance agent, obtain a conventionally 

underwritten flood insurance policy, and present it to the lender/servicer. 

17. If a borrower pays off the mortgage loan, can the MPPP then be cancelled? 

 Yes, but any refund due the borrower will be paid on a pro-rata basis. 

18. If the borrower or lender/servicer sells or assigns the mortgage to another borrower or 

lender/servicer, can the MPPP policy be assigned? 

 Yes. The Standard Flood Insurance Policy language allows for the assignment of all NFIP 

policies. Any such assignment of an NFIP policy must be done by way of an endorsement. 

19. Must a WYO company participating in the MPPP maintain copies of all its MPPP 

documents? 

 The companies are responsible for the data on each Application Form, in keeping with its 

normal practices. Although some of the data beyond that required does not have to be 

reported, the companies are still responsible for it. The WYO companies may use their 

normal business practices in determining which form they will use to retain data, forms, or 

other required information. 

20. Who initiates the notification letter process required by the MPPP? 
 7-19 Appendix 7. MPPP Guidelines

 Lenders/servicers differ on how their force-placed hazard insurance notices are sent to their 

borrowers. Some lenders insist on sending such notices directly. Others let the insurance 

company, with whom the force-placed policies are written, send out the notices. Since the 

MPPP is a part of the NFIP, then any policies written through the MPPP must comply with 

all NFIP requirements, regardless of the entity that actually sends the notices. 

21. Must the lender or WYO company maintain copies of the notification letters? 

 The WYO company is responsible for assuring that the letters are sent regardless of whether 

the company or the lender actually sends them. The WYO company must maintain evidence 

that the letters are being sent. It will be the WYO company’s decision as to the form the 

evidence takes, such as paper copies, microfiche, computer images, or a record of addresses 

of the mortgagors to whom the letters were sent with an indication as to the date when those 

mortgagors were notified. 

22. What does a WYO company do if all of the information that FIA requires on the 

declarations page won’t fit on that page? 

 The company may wish to include some of that information on the declarations page and 

some on an “endorsement.” In such a case, it should indicate an endorsement number on the 

declarations page. 

23. Does a policy declarations page have to be issued each time an MPPP policy is 

renewed? 

 Yes, and it must accompany the final renewal notification letter. 

24. When an MPPP is renewed, can the same policy number that was assigned to the 

original MPPP policy be used? 

 Yes. 

25. Will the rating credits that will be available in a community participating in the 

Community Rating System (CRS) apply to a policy written under the MPPP? 

 No. 

26. The MPPP requirements call for the full map panel number and date to be obtained. 

What does the WYO company do with that information since the NFIP Application 

Form in use today doesn’t contain enough space to even capture all this information? 

 

 The WYO companies have never been required to use NFIP forms in the WYO program, but 

have been free to develop their own forms. They are, however, responsible for all required 

data, some of which must be reported and some of which isn’t, but must be kept in the 

company files. The data requirements for the MPPP follow the same conditions. The full 

map panel number for that panel used to determine flood zone location and rate the policy is 

the one that must be captured and maintained. The majority of the maps FEMA has 

published for many years have the 10-digit number, suffix, and date for each panel. Some of 

the maps still in use have only the 6-digit community number and date. The 6-digit 

community number cannot be used when the 10-digit number exists. 
Appendix 7. MPPP Guidelines 7-20

27. Is contents coverage under the MPPP optional? 

 Yes. The lender must decide whether or not it will require contents coverage as part of the 

MPPP policy. 

28. What is meant by the term “coverage limitations” that is mentioned in the MPPP 

materials? 

 “Coverage limitations” primarily means Actual Cash Value coverage instead of 

Replacement Cost coverage, when appropriate. It could also apply, however, to the situation 

where only an amount to cover the loan balance is purchased which may be insufficient to 

cover the full insurable value of the property. The WYO company will have to determine 

what limitations may apply depending on the decisions of the lender/servicer as to how it 

wants to use the MPPP and the amount of underwriting information obtained. 

29. The notification process contains standards for the letters being mailed and the MPPP 

policy being written such as 45, 30, and 15 days. Must these standards be strictly 

adhered to? 

 There are a number of standards similar to this in the NFIP. Some limited flexibility has been 

built into the actual implementation process through the underwriting review process that 

FIA uses with the companies. 

30. May WYO companies, under the requirements of the MPPP, use any portion of the 

MPPP fee they retain for any purpose other than as a commission to an insurance 

agent or agency for their writing the policy, such as for flood zone determinations or 

the tracking of loans? 

 No. 
 7-21 Appendix 7. MPPP Guidelines

Mortgage Portfolio Protection Program (MPPP) Guidelines and Requirements 

Addendum 5 

Receipt for Materials

The Federal Insurance Administration (FIA) has published a package of materials for 

implementation of the National Flood Insurance Program’s Mortgage Portfolio Protection 

Program (MPPP) by WYO companies and lending institutions and/or mortgage servicing or 

similar companies. The implementation package contains the following: 

• Cover letter from the FIA Administrator 

• Guidelines and Requirements 

• Addendum 1, Initial Portfolio Review Mortgagor Notification Process 

• Addendum 2, MPPP Renewal/Expiration Mortgagor Notification Process 

• Addendum 3, Questions and Answers: Portfolio Considerations 

• Addendum 4, Questions and Answers: Other Considerations 

• Addendum 5, Receipt for Materials (this document) 

• Addendum 6, Agreement to Adhere to the Guidelines and Requirements 

Any WYO company that offers the MPPP to a lender/servicer must provide this Receipt and the 

following Agreement (Addendum 6), together with the complete implementation package 

referenced above, to the lender/service. To participate in the MPPP as a means of bringing its 

portfolio into compliance with flood insurance requirements, the lender/servicer must sign this 

Receipt and the following Agreement as evidence of having received the implementation package 

and agreeing to comply with the guidelines and requirements contained therein. 

This Addendum is to acknowledge that the package of implementation materials for the National 

Flood Insurance Program’s Mortgage Portfolio Protection Program (MPPP) has been provided 

and received on the date(s) indicated. 

_______________________________ 

Name of WYO company’s 

representative providing package 

_______________________________ 

Name of WYO company represented 

_______________________________ 

Date package provided 

_______________________________ 

Name of lender/mortgage servicer’s 

representative receiving package 

_______________________________ 

Name of lender/mortgage servicer 

represented 

_______________________________ 

Date package received 

WYO companies are required to keep a copy of this Receipt and the following Agreement in 

their files for each lender/mortgage servicer to which they provide services under the Mortgage 

Portfolio Protection Program. Lenders/mortgage servicers may wish to do the same. 
Appendix 7. MPPP Guidelines 7-22

Mortgage Portfolio Protection Program (MPPP) Guidelines and Requirements 

Addendum 6 

Agreement to Adhere to the Guidelines and Requirements of 

the Mortgage Portfolio Protection Program, 2006-2007 

In conjunction with acceptance of the offer by the Federal Insurance Administration (FIA) to 

enter into a Financial Assistance/Subsidy Arrangement, Write Your Own companies may 

optionally elect to participate in the Mortgage Portfolio Protection Program (MPPP) of the 

National Flood Insurance Program. To participate in the MPPP, the Write Your Own company 

must agree to adhere to all Guidelines and Requirements contained in the implementation 

package published by FIA. This Addendum is to indicate and provide evidence of the company’s 

acceptance of these terms. 

Please complete the section below for the individual in your organization designated as the 

contact person for MPPP services and questions. 

A separate form must be submitted for each company. 

MPPP Contact Name __________________________________________________ 

 Address ________________________________________________ 

 Telephone Number _______________________________________ 

In witness whereof, the parties hereto have accepted this Agreement on this ____ day 

of _____________________, 2006. 

Group/ParentCompany _________________________________________________ 

Writing Company ________________________________ NAIC Number _________ 

By __________________________________________________________________ 

Print Name___________________________________________________________ 

Title ________________________________________________________________ 

The United States of America 

 U.S. Department of Homeland Security 

 Federal Emergency Management Agency 

Acknowledged ________________________________ 

Administrator 

Federal Insurance Administration 
 GLS 1 Glossary

GLOSSARY 

This list of terms and definitions includes many of the significant concepts that are central to 

the operation of the National Flood Insurance Program (NFIP), which is administered by the 

Federal Emergency Management Agency (FEMA). In a few instances, standard mortgage 

lending industry terms have been added. 

Act. The National Flood Insurance Act of 

1968 and any amendments to it. 

Actual Cash Value (ACV). The cost to 

replace an insured item of property at the 

time of loss, less the value of its physical 

depreciation. 

Administrator. The Administrator (formerly known as Director) of the Federal 

Emergency Management Agency. 

Agent. One who solicits, negotiates, or 

effects contracts of insurance on behalf of an 

insurer, including a Write Your Own 

insurer. An agent who produces “direct” 

business is deemed the agent of the insured, 

not of the Federal Government. 

Application. The statement made and 

signed by the prospective policyholder or 

the agent in applying for an NFIP flood 

insurance policy. The application gives 

information used to determine the eligibility 

of the risk, the kind of policy to be issued, 

and the correct premium payment. The 

application is part of the flood insurance 

policy. For a policy to be issued, the correct 

premium payment must accompany the 

application. 

Assignment. The transfer by a policyholder 

of his/her legal right or interest in a policy 

contract to a third party. In the NFIP, written 

assignment of a policy is permissible upon 

transfer of title, without the consent of 

FEMA, except in the case where a 

residential (household) contents-only policy 

is involved or the policy was issued to cover 

a building in the course of construction. 

Base Flood. A flood having a 1-percent 

chance of being equaled or exceeded in any 

given year. 

Base Flood Elevation (BFE). The elevation 

shown on the Flood Insurance Rate Map for 

Zones AE, AH, A1-A30, AR, AR/A, 

AR/AE, AR/A1-A30, AR/AH, AR/AO, 

V1-V30, and VE that indicates the water 

surface elevation resulting from a flood that 

has a 1-percent chance of equaling or 

exceeding that level in any given year. 

Binder or Certificate of Insurance. A 

temporary agreement between company, 

producer, and insured that the policy is in 

effect. Binders and certificates of insurance 

are not permitted under the NFIP. 

Blanket Insurance. A single amount of 

insurance applying to more than one 

building and/or its contents. Blanket 

coverage is not permitted under the NFIP. 

Building (Eligible Building). 

• A structure with two or more outside 

rigid walls and a fully secured roof, that 

is affixed to a permanent site; or 

• A manufactured home (a “manufactured 

home,” also known as a mobile home, is 

a structure built on a permanent chassis, 

transported to its site in one or more 

sections, and affixed to a permanent 

foundation); or 

• A travel trailer without wheels, built on 

a chassis and affixed to a permanent 

foundation, that is regulated under the 

community’s floodplain management 

and building ordinances or laws. 

“Building” does not mean a gas or liquid 

storage tank or a recreational vehicle, park 
Glossary GLS 2

trailer, or other similar vehicle, except as 

described above. 

Building in the Course of Construction. A 

walled and roofed building that is 

principally above ground and affixed to a 

permanent site. It does not include building 

materials or supplies intended for use in 

construction, alteration, or repair unless 

such materials or supplies are within an 

enclosed building on the premises. 

Cancellation. The ending of the insurance 

coverage provided by a policy before the 

expiration date. 

Chattel Mortgage. A mortgage on personal 

property; the creation of a lien as security on 

chattel that, for purposes of the NFIP, 

includes contents items as well as a mobile 

home. 

Civil Money Penalties. Administrative 

sanctions that lenders incur if they do not 

comply with the 1994 National Flood 

Insurance Reform Act. An institution can 

incur up to $100,000 per year in penalties. 

Coastal Barrier. A naturally occurring 

island, sandbar, or other strip of land, 

including coastal mainland, that protects the 

coast from severe wave wash. 

Coastal Barrier Improvement Act (CBIA) 

of 1990. This Federal law greatly expanded 

the identified land in the Coastal Barrier 

Resources System established pursuant to 

the Coastal Barrier Resources Act of 1982. 

Coastal Barrier Resources Act (CBRA) of 

1982. For the purposes of the NFIP, this 

Federal law designated certain portions of 

the Gulf and East Coasts as undeveloped 

coastal barriers. These areas are shown on 

appropriate flood insurance map panels and 

have certain coverage restrictions. 

Coastal Barrier Resources System 

(CBRS). Communities, coastal barriers, and 

other protected areas identified by the 

Department of the Interior legislation 

defined above. 

Coastal High Hazard Areas. Special Flood 

Hazard Areas along the coasts that have 

additional flooding hazards due to wind and 

wave action. These areas are identified on 

Flood Insurance Rate Maps as Zones V, 

V1-V30, and VE. 

Code of Federal Regulations (CFR). The 

codification of the general and permanent 

rules initially published in the Federal 

Register by the executive departments and 

agencies of the Federal Government. 

Coinsurance. A penalty imposed on the loss 

payment unless the amount of insurance 

carried on the damaged building is at least 

80 percent of its replacement cost or the 

maximum amount of insurance available for 

that building under the NFIP, whichever is 

less. Coinsurance applies only to building 

coverage under the Residential Condominium Building Association Policy.

Community. A political entity that has the 

authority to adopt and enforce floodplain 

ordinances for the area under its jurisdiction. 

Community Number. A 6-digit designation 

identifying each NFIP community. The first 

two numbers are the state code. The next 

four are the FEMA-assigned community 

number. An alphabetical suffix is added to a 

community number to identify revisions in 

the Flood Insurance Rate Map for that 

community. 

Community Rating System (CRS). A 

program developed by FEMA to provide 

incentives for those communities in the 

Regular Program that have gone beyond the 
 GLS 3 Glossary

minimum floodplain management requirements to develop extra measures to provide 

protection from flooding. 

Compendium of Flood Map Changes. A 

document published every 6 months by the 

Administrator of FEMA that includes 

separately in their entirety all changes and 

revisions to Flood Insurance Rate Map 

panels and all Letters of Map Amendment 

and Letters of Map Revision for which 

notice was published in the Federal Register

or otherwise provided during the preceding 

6 months. The Administrator makes these 

compendia available, free of charge, to 

Federal entities for lending regulation, 

Federal agency lenders, and States and 

communities participating in the NFIP, and 

at cost to all other parties. 

Condominium. That form of ownership of 

real property in which each unit owner has 

an undivided interest in common elements. 

Condominium Association. The entity 

made up of the unit owners responsible for 

the maintenance and operation of: 

• Common elements owned in undivided 

shares by unit owners;

• Other real property in which the unit 

owners have use rights;

where membership in the entity is a required 

condition of unit ownership. 

Conforming Loan. A mortgage loan that 

meets all the requirements (size, type, and 

age) to be eligible for purchase or 

securitization by a Government-Sponsored 

Enterprise for Housing. 

Conventional Loan (Financing). A real 

estate mortgage extended by a lender where 

the loan is not insured or guaranteed by a 

government agency such as the Federal 

Housing Administration, Department of 

Veterans Affairs, or Farmers Home 

Administration. 

Cooperative. That form of ownership of 

real property in which each unit owner holds 

an interest in a building by contract or share, 

but owns no title to the building. The NFIP 

does not issue a Dwelling Form policy to 

unit owners in a cooperative. 

Cooperative Association. The cooperative 

corporation, which because it owns the land 

and improvements, has the insurable interest 

in the building and is eligible to obtain NFIP 

flood insurance coverage under the General 

Property Form. 

Declarations Page. A computer-generated 

summary of information provided by the 

prospective policyholder in the application 

for flood insurance. The Declarations Page 

also describes the term of the policy and the 

limits of coverage and displays the premium 

and the insurer’s name. The Declarations 

Page is a part of the flood insurance policy. 

Deductible. The portion of an insured loss 

to be borne by the insured before the insured 

is entitled to recovery from the insurer. The 

NFIP applies the deductible separately to the 

building and contents portion of a loss 

covered by the Standard Flood Insurance 

Policy. In the NFIP Regular Program, the 

standard deductible is $500 except for PreFIRM risks in Special Flood Hazard Areas, 

which have a $1,000 standard deductible. 

Other deductible amounts are available, and 

special deductibles apply to the expense of 

contents and manufactured (mobile) home 

removal. In the Emergency Program, the 

standard deductible is $1,000 for all risks. 

(Refer to the Rating and Condominiums 

sections of the NFIP Flood Insurance Manual for more information about deductibles.) 

Deductible Buyback. The option whereby, 

for an additional premium, policyholders 

who wish to reduce their deductibles from 

the standard deductibles of $1,000 per 

building loss and per contents loss for PreFIRM risks in Special Flood Hazard Areas 

may purchase separate $500 deductibles for 

building and contents coverages. 
Glossary GLS 4

Depreciation. A decline in value of a 

building or other real estate improvement, 

resulting from age, physical wear, or 

functional obsolescence. 

Designated Loan. A loan secured by a 

building or manufactured (mobile) home 

located or to be located in a Special Flood 

Hazard Area, where flood insurance is 

available under the 1968 Act. 

Determination Review. An appeal process 

performed by FEMA to resolve disputes 

posed by borrowers and lenders/servicers 

concerning properties found to be in Special 

Flood Hazard Areas. A fee is charged, and 

the request must be signed jointly by the 

lender or servicer and borrower. Elevation 

data is not considered. The requester 

receives a Letter of Determination Review 

stating whether the structure was found to be 

inside or outside an SFHA. 

Director. The Administrator of the Federal 

Emergency Management Agency. 

Dwelling Form. See Standard Flood Insurance Policy—Dwelling Form. 

Elevated Building. A building that has no 

basement and that has its lowest elevated 

floor raised above ground level by 

foundation walls, shear walls, posts, piers, 

pilings, or columns. Solid perimeter foundation walls are not an acceptable means of 

elevating buildings in V and VE Zones. 

Elevation Certificate. A certified statement 

that verifies a building’s elevation and 

certain other construction characteristics 

needed to rate the building for flood 

insurance under the NFIP. The information 

required and the risks subject to these 

requirements are described in the Special 

Certifications section of the NFIP Flood 

Insurance Manual. 

Emergency Program. The initial phase of a 

community’s participation in the NFIP. 

During this phase, only limited amounts of 

insurance are available under the Act. 

Escrow Requirement. A mandate placed on 

federally regulated lending institutions by 

the National Flood Insurance Reform Act of 

1994 to escrow for flood insurance 

premiums under specified circumstances. 

Evidence of Insurance. Copies of the Flood 

Insurance Application, premium payment, 

and Declarations Page that, when submitted 

to the lender, constitute proof of flood 

insurance purchase. The NFIP does not 

recognize binders or certificates of 

insurance. 

Expense Constant. A flat fee formerly 

charged on each new and renewal policy, 

the Expense Constant was eliminated 

effective May 1, 2003, and no longer affects 

the premium calculation for new and 

renewal business. However, the Expense 

Constant may affect the calculation of 

refunds going back prior to May 1, 2003, for 

policy cancellations and endorsements. 

Farm Credit Administration (FCA). The 

Federal agency responsible for regulating 

and examining the institutions that make up 

the Farm Credit System, authorized by the 

Farm Credit Act of 1971. 

 

Federal Agency Lenders. The Small 

Business Administration, the Federal 

Housing Administration, the agencies within 

the U.S. Department of Agriculture—Rural 

Develop-ment, and the Department of 

Veterans Affairs, all of which are subject to 

the mandatory purchase requirement in the 

1994 Reform Act. These agencies were 

covered by the 1973 Act purchase 

requirements. 

Federal Deposit Insurance Corporation 

(FDIC). The Federal agency that regulates 
 GLS 5 Glossary

State-chartered and insured “nonmember 

banks” and savings banks that are not part of 

the Federal Reserve System. 

Federal Emergency Management Agency 

(FEMA). The Federal agency under which 

the NFIP is administered. In March 2003, 

FEMA became part of the newly created 

U.S. Department of Homeland Security. 

Federal Home Loan Mortgage Corporation (Freddie Mac). A privately owned, 

federally chartered agency that purchases 

loans (usually for residential, one- to fourfamily unit dwellings) from lenders as part 

of the secondary market for home 

mortgages. See also Government-Sponsored 

Enterprises for Housing. 

Federal Insurance Administrator. FEMA’s 

Assistant Administrator for Mitigation, who 

also is charged with implementing and 

overseeing the NFIP. 

Federal National Mortgage Association 

(Fannie Mae). A privately owned, federally 

chartered agency that, like Freddie Mac, 

purchases loans (usually for residential, oneto four-family unit dwellings) from lenders 

as part of the secondary market for home 

mortgages. Together, Fannie Mae and 

Freddie Mac are the primary investors in the 

secondary market. See also GovernmentSponsored Enterprises for Housing. 

Federal Policy Fee. A flat charge that the 

policyholder must pay on each new or 

renewal policy to defray certain administrative expenses incurred in carrying out the 

NFIP.

Federal Register. The document published 

daily by the U.S. Government that presents 

regulations and legal notices issued by 

Federal agencies, including proposed and 

final Base Flood Elevation determinations. 

Federally Regulated Lending Institutions. 

Any banks, savings and loan associations, 

credit unions, farm credit banks, Federal 

land bank associations, production credit 

associations, or similar institutions subject 

to the supervision of a Federal entity for 

lending regulation, such as the Office of the 

Comptroller of the Currency, the Office of 

Thrift Supervision, the Federal Reserve 

System, the Federal Deposit Insurance 

Corporation, the Farm Credit Administration, and the National Credit Union 

Administration. 

FHBM. See Flood Hazard Boundary Map. 

Financial Assistance/Subsidy Arrangement. 

The arrangement between an insurance 

company and FEMA to initiate, and 

annually renew, the company’s participation 

in the Write Your Own Program. It 

stipulates the duties of the company and the 

government. 

FIRM. See Flood Insurance Rate Map. 

500-Year Flood. A flood that has a 0.2-percent 

chance of being equaled or exceeded in any 

year. Areas subject to the 500-year flood 

have a moderate to low risk of flooding. 

These areas include flood Zones B, C, and X, 

where one- to four-unit buildings are 

eligible for the Preferred Risk Policy. A 

500-year flood would be deeper than a 100-

year flood and would cover a greater area. 

Flood. 

• A general and temporary condition of 

partial or complete inundation of two or 

more acres of normally dry land area or 

of two or more properties (at least one of 

which is the policyholder’s property) 

from: 

 – Overflow of inland or tidal waters; 

– Unusual and rapid accumulation or 

runoff of surface waters from any 

source; or 

– Mudflow; or 

• Collapse or subsidence of land along the 

shore of a lake or similar body of water 

as a result of erosion or undermining 
Glossary GLS 6

caused by waves or currents of water 

exceeding anticipated cyclical levels that 

result in a flood as defined above. 

Flood Hazard Boundary Map (FHBM). 

The official map of a community issued by 

FEMA, where the boundaries of the flood, 

mudflow, and related erosion areas having 

special hazards have been designated. 

Flood Insurance Manual. The NFIP’s 

official manual that describes the Program 

for property/casualty agents who sell 

federally backed flood insurance or wish to 

qualify to do so. The manual explains 

Program rules and regulations; policy 

provisions and coverage limits; risk rating 

methods; and procedures for completing and 

submitting forms to place, change, or cancel 

flood insurance coverage. 

Flood Insurance Rate Map (FIRM). The 

official map of a community on which 

FEMA has delineated both the Special 

Flood Hazard Areas and the risk premium 

zones applicable to the community. NFIP 

Regular Program communities have FIRMs. 

Flood Map Status Information Service. A 

subscription service through which the 

FEMA Map Service Center sells 

information about community status, map 

effective dates, etc., on CD-ROM. 

Flood Zone. One of the lettered geographical areas shown on FEMA Flood Hazard 

Boundary Maps and Flood Insurance Rate 

Maps to indicate risk, severity, or type of 

flooding. 

• Zones that begin with the letters A and 

V are areas of high flood risk, or Special 

Flood Hazard Areas, where the purchase 

of flood insurance as a condition for 

granting a designated loan is required.

• Zones B, C, D, and X are areas of low to 

moderate flood risk, where the purchase 

of flood insurance as a condition for granting a designated loan is not required but 

should be encouraged by lenders. 

Historically, about one-quarter of all NFIP 

claims have originated in these areas. 

See also Special Flood Hazard Area. 

Flood Zone Determination Vendor. An 

organization that makes flood zone 

determinations on individual properties and 

monitors map changes. See also Third-Party 

Flood Zone Determination Companies. 

Floodplain. Any land area susceptible to 

being inundated by flood waters from any 

source. 

Floodplain Management. The operation of 

an overall program of corrective and 

preventive measures for reducing flood 

damage, including but not limited to, 

emergency preparedness plans, flood control 

works, and floodplain use regulations. 

Floodproofing. Any combination of structural and nonstructural additions, changes, 

or adjustments to structures, which reduce or 

eliminate risk of flood damage to real estate 

or improved real property, water and 

sanitation facilities, or structures with their 

contents. 

Floodproofing Certificate. An NFIP form 

that, in certain circumstances, may be 

submitted as an alternative to elevating 

buildings to or above the Base Flood 

Elevation. 

General Property Form. See Standard 

Flood Insurance Policy—General Property 

Form. 

Government-Sponsored Enterprises 

(GSEs) for Housing. The privately owned 

corpo-rations that are federally chartered to 

support residential housing by providing a 

secondary market for mortgages. These 

include: 

• The Federal Home Loan Mortgage 

Corporation (FHLMC), “Freddie Mac” 

• The Federal National Mortgage Association (FNMA), “Fannie Mae.” 
 GLS 7 Glossary

Grandfathering. An exemption based on 

circumstances previously existing. Under 

the NFIP, buildings located in Emergency 

Program communities and Pre-FIRM 

buildings in the Regular Program are 

eligible for subsidized flood insurance rates. 

Post-FIRM buildings in the Regular 

Program built in compliance with the 

floodplain management regulations in effect 

at the start of construction will continue to 

have favorable rate treatment even though 

higher Base Flood Elevations or more 

restrictive, greater risk zone designations 

result from Flood Insurance Rate Map 

revisions. 

GSEs. See Government-Sponsored Enterprises for Housing. 

Improved Real Estate. Property on which a 

building is located. Under the NFIP, this 

means a walled and roofed building or a 

building in the course of construction that 

qualifies for insurance coverage. 

Increased Cost of Compliance (ICC) 

Coverage. Coverage under the Standard 

Flood Insurance Policy for expenses that a 

property owner must incur, above and 

beyond the cost to repair the physical 

damage the building actually sustained from 

a flooding event, to comply with mitigation 

requirements of State or local floodplain 

management ordinances or laws. Acceptable 

mitigation measures are elevation, floodproofing, relocation, demolition, or any 

combination thereof. 

Letter of Determination Review (LODR). 

FEMA’s ruling on the determination made 

by a lender or third party that a borrower’s 

building is in a Special Flood Hazard Area 

(SFHA). A LODR deals only with the 

location of a building relative to the SFHA 

boundary shown on the Flood Insurance 

Rate Map. 

Letter of Map Amendment (LOMA). An 

amendment to the currently effective FEMA 

map which establishes that a property is not 

located in a Special Flood Hazard Area. A 

LOMA is issued only by FEMA. 

Letter of Map Change (LOMC). Any of 

several FEMA-issued letters that effect a 

change to a Flood Insurance Rate Map or to 

the flood zone and rating status of an 

insured building. LOMCs include the Letter 

of Map Amendment, the Letter of Map 

Revision, and the Letter of Map Revision 

Based on Fill. 

Letter of Map Change Subscription 

Service. A service through which the FEMA 

Map Service Center sells regular updates of 

all LOMAs and LOMRs. 

Letter of Map Revision (LOMR). An 

official amendment to the currently effective 

FEMA map. It is issued by FEMA and 

changes flood zones, delineations, and 

elevations. 

Letter of Map Revision Based on Fill 

(LOMR-F). An official amendment to the 

currently effective FEMA map. It is issued 

by FEMA and provides FEMA’s determination concerning whether a building has 

been elevated on fill above the Base Flood 

Elevation and excluded from the Special 

Flood Hazard Area. 

Loan Portfolio. A collection of loans held 

for servicing or investment. 

LODR. See Letter of Determination Review. 

LOMA. See Letter of Map Amendment. 

LOMR. See Letter of Map Revision. 

LOMR-F. See Letter of Map Revision 

Based on Fill. 

Mandatory Purchase. A provision of the 

Flood Disaster Protection Act of 1973, 

whereby individuals, businesses, and others 

buying, building, or improving property 

located or to be located in identified areas of 
Glossary GLS 8

special flood hazards within NFIP 

participating communities are required to 

purchase flood insurance as a prerequisite 

for receiving any type of direct or indirect 

Federal financial assistance (e.g., any loan, 

grant, guaranty, insurance, payment, 

subsidy, or disaster assistance) when the 

building or personal property is the subject 

of or security for such assistance. 

Manufactured (Mobile) Home. A structure 

built on a permanent chassis, transported to 

its site in one or more sections, and affixed 

to a permanent foundation. “Manufactured 

(mobile) home” does not include recreational vehicles. 

Map Amendment. A change to an effective 

FEMA map that results in the exclusion 

from the Special Flood Hazard Area (SFHA) 

of an individual structure or a legally 

described parcel of land that has been 

inadvertently included in the SFHA (i.e., no 

alterations of topography have occurred 

since the date of the first FEMA map that 

showed the structure or parcel to be within 

the SFHA). 

Map Panel Number. Four-digit number 

followed by a letter suffix assigned by 

FEMA on a flood map. The first four digits 

represent the map panel, and the letter suffix 

represents the number of times the map 

panel has been revised. 

Map Revision. A change in the Flood 

Hazard Boundary Map or Flood Insurance 

Rate Map for a community which reflects 

revised zone, base flood, or other 

information. 

Map Zone. See Flood Zone. 

Mobile Home. See Manufactured (Mobile) 

Home.

Mortgage Portfolio Protection Program 

(MPPP). A program designed to help 

lending institutions maintain compliance 

with the Flood Disaster Protection Act of 

1973, as amended. Policies written under the 

MPPP can be placed only through a Write 

Your Own Company. 

National Credit Union Administration 

(NCUA). The Federal agency that regulates 

federally insured credit unions. 

National Flood Insurance Program 

(NFIP). The program of flood insurance 

coverage and floodplain management 

administered under the Act and applicable 

Federal regulations promulgated in Title 44 

of the Code of Federal Regulations, 

Subchapter B.

NFIP Bureau and Statistical Agent. A 

corporation, partnership, association, or any 

other organized entity that contracts with 

FEMA to be the focal point of support 

operations for the NFIP. 

NFIP Servicing Agent. A corporation, 

partnership, association, or any other 

organized entity that contracts with FEMA 

to service insurance policies as direct 

business. 

Non-Participating Community. A community in which the sale of flood insurance 

under the NFIP is not authorized because the 

community chooses not to participate in the 

Program. 

Non-Residential Buildings. A category of 

buildings, insurable by the NFIP under the 

General Property Form, that includes, but is 

not limited to: small business concerns; 

churches; schools; farm buildings (including 

grain bins and silos); poolhouses; clubhouses; 

recreational buildings; mercantile structures; 

agricultural and industrial structures; 

warehouses; hotels and motels with normal 

room rentals for less than 6 months’ 

duration; and nursing homes. See also Other 

Residential Buildings. 
 GLS 9 Glossary

Office of the Comptroller of the Currency 

(OCC). The organization within the 

Department of the Treasury that regulates 

national banks. 

Office of Thrift Supervision (OTS). The 

organization with the Department of the 

Treasury that regulates Federal and state 

savings associations, savings banks, their 

wholly-owned subsidiaries, and savings and 

loan holding companies. 

100-Year Flood. A flood that has a 1-percent 

or greater chance of being equaled or exceeded in any given year. Any flood zone 

that begins with the letter A or V is subject 

to the 100-year flood. These high-risk zones 

are also known as Special Flood Hazard 

Areas (SFHAs). Over the life of a 30-year 

mortgage, there is a 26-percent chance that a 

building in an SFHA will experience such a 

flood.

Other Residential Buildings. A category of 

buildings, insurable by the NFIP under the 

General Property Form, that includes, but is 

not limited to: hotels and motels where the 

normal occupancy of a guest is 6 months or 

more; tourist homes and rooming houses 

that have more than four roomers; and 

residential buildings (excluding hotels and 

motels with normal room rentals for less 

than 6 months’ duration) containing more 

than four dwelling units. See also NonResidential Buildings. 

Participating Community. A community 

for which FEMA has authorized the sale of 

flood insurance under the NFIP. 

Physical Map Revision (PMR). An official 

republication of an NFIP map to show 

changes to floodplain and/or floodway 

boundary delineations, Base Flood Elevations, and planimetric features. 

Policy. The entire written contract between 

the insured and the insurer. It includes: 

• The printed policy form; 

• The application and Declarations Page; 

• Any endorsement(s) that may be issued; 

and 

• Any renewal certificate indicating that 

coverage has been instituted for a new 

policy and new policy term.

Only one dwelling, specifically described by 

the prospective policyholder in the 

application, may be insured under a policy.

Post-FIRM Building. A building for which 

construction or substantial improvement 

occurred after December 31, 1974, or on or 

after the effective date of an initial Flood 

Insurance Rate Map (FIRM), whichever is 

later. 

Preferred Risk Policy (PRP). A policy that 

offers fixed combinations of building/ 

contents coverage or contents-only coverage 

at modest, fixed premiums. The PRP is 

available for property located in B, C, and X 

Zones in Regular Program communities that 

meets eligibility requirements based on the 

property’s flood loss history. 

Pre-FIRM Building. A building for which 

construction or substantial improvement 

occurred on or before December 31, 1974, 

or before the effective date of an initial 

Flood Insurance Rate Map (FIRM).

Probation. A FEMA-imposed change in a 

community’s status resulting from violations 

and deficiencies in the administration and 

enforcement of NFIP local floodplain 

management regulations. 

Probation Surcharge (Premium). A flat 

charge that the policyholder must pay on 

each new or renewal policy issued covering 

property in a community that the NFIP has 

placed on probation under the provisions of 

44 CFR 59.24. 
Glossary GLS 10

Real Estate Settlement Procedures Act 

(RESPA) of 1974. A Federal law that 

prescribes rules concerning payment and 

disclosure of settlement service charges. 

Under implementing Regulation Z, the 

Department of Housing and Urban 

Development included as a “settlement 

service” the provision of services involving 

hazard, flood, or other casualty insurance. 

Recreational Vehicle. A vehicle that is (1) 

built on a single chassis, (2) 400 square feet 

or less when measured at the largest 

horizontal projections, (3) designed to be 

self-propelled or permanently towable by a 

light-duty truck, and (4) designed primarily 

not for use as a permanent dwelling but as 

temporary living quarters for recreational, 

camping, travel, or seasonal use including, 

but not limited to, travel trailers, trailers on 

wheels, park trailers, and other similar 

vehicles. 

Regular Program. The final phase of a 

community’s participation in the NFIP. In 

this phase, a Flood Insurance Rate Map is in 

effect and full limits of coverage are 

available under the Act. 

Regular Program Community. A community wherein a Flood Insurance Rate Map 

is in effect and full limits of coverage are 

available under the Act. 

Regulatory Floodway. The channel of a 

river or other watercourse and the adjacent 

land areas that must be reserved in order to 

discharge the base flood without cumulatively increasing the water surface 

elevation more than a designated height. 

Remapping. Scheduled revisions of 

community flood maps to take into 

consideration natural changes within the 

floodplain and regulatory floodways and to 

allow for changes as a result of land use and 

development, land contour changes, and 

new information gained from advanced 

technology. Every 6 months, FEMA 

publishes the results of its remapping efforts 

in a compendium of flood map changes in 

the Federal Register. 

Repetitive Loss Structure. An NFIP-insured 

structure that has had at least two paid flood 

losses of more than $1,000 each in any 

10-year period since 1978. 

Replacement Cost Value (RCV). The cost 

to replace property with the same kind of 

material and construction without deduction 

for depreciation. 

Residential Condominium Building. A 

building, owned and administered as a 

condominium, containing one or more 

family units and in which at least 75 percent 

of the floor area is residential.

Residential Condominium Building Association Policy (RCBAP). See Standard 

Flood Insurance Policy—Residential Condominium Building Association Policy 

(RCBAP). 

Residential Improved Real Estate. 

Improved real estate for which the 

improvement is a residential building. 

Section 1316. A section of the National 

Flood Insurance Act of 1968, as amended, 

which states that no new flood insurance 

coverage shall be provided for any property 

FEMA finds has been declared by a duly 

constituted State or local zoning authority or 

other authorized public body to be in 

violation of State or local laws, regulations, 

or ordinances that are intended to discourage 

or otherwise restrict land development or 

occupancy in flood-prone areas. 

Servicer. The entity responsible for 

receiving scheduled, periodic payments 

from a borrower under the terms of a loan, 

including principal, interest, and any other 

payments as may be required under the 

terms of the loan. The servicer may also be 

the lender. 
 GLS 11 Glossary

SFHA. See Special Flood Hazard Area. 

Small Loan. Any loan having an original 

principal balance of $5,000 or less and a 

repayment term of 1 year or less and, thus, 

exempt from Federal requirements for the 

mandatory purchase of flood insurance. 

Special Flood Hazard Area (SFHA). An 

area having special flood, mudflow, or 

flood-related erosion hazards, and shown on 

a Flood Hazard Boundary Map or Flood 

Insurance Rate Map as Zone A, AO, 

A1-A30, AE, A99, AH, AR, AR/A, AR/AE, 

AR/AH, AR/AO, AR/A1-A30, V1-V30, 

VE, or V. For the purpose of determining 

Community Rating System premium 

discounts, all AR and A99 zones are treated 

as non-SFHAs. 

Stafford Act. A Federal law that precludes 

further disaster relief benefits on property 

where the owners have not obtained and 

maintained the required flood insurance 

coverage after receiving Federal assistance 

for repairs to property damaged by initial 

flooding. 

Standard Flood Hazard Determination 

Form (SFHDF). FEMA Form 81-93, which 

is to be used in either printed, computerized, 

or electronic form by all companies 

performing flood zone determinations,. A 

completed SFHDF is required in most loan 

files and is the primary “product” of flood 

zone determination companies. 

Standard Flood Insurance Policy—

Dwelling Form. Policy issued to insure a 

building and/or residential contents on a singlefamily or a two- to four-family dwelling. 

Standard Flood Insurance Policy—

General Property Form. Policy issued to 

insure a building and/or contents on other 

residential or non-residential buildings. See 

also Other Residential Buildings and NonResidential Buildings. 

Standard Flood Insurance Policy—

Residential Condominium Building Association Policy (RCBAP). Policy issued to 

insure a residential condominium building 

and all units within the building, provided 

that the building is located in a Regular 

Program community and at least 75 percent 

of the total floor area is residential. 

State-Owned Property. Property that does 

not require flood insurance if it is covered 

under a State policy of self-insurance 

satisfactory to the Administrator of FEMA. 

Structure. See Building. 

Suspension. FEMA’s removal of an NFIP 

participating community from the Program 

because the community has not enacted 

and/or enforced the proper floodplain 

management regulations required for 

participation. 

Table Funding. Typically, a loan transaction where the party providing the funding 

ordinarily reviews and approves the credit 

standing of the borrower and issues a 

commitment to the broker to purchase the 

loan at the time the loan is originated. 

Tentative Rates. Unpublished NFIP rates 

used to issue policies for applications that 

fail to provide valid actuarial rating 

information. 

Third-Party Flood Zone Determination 

Companies. Vendors that, for a fee, 

determine the flood zone classification of a 

property. If a lender/servicer uses one of 

these companies for flood zone 

determinations, the results must be guaranteed 

for accuracy. See also Flood Zone 

Determination Vendor. 

Timeshares. Property interests that 

generally fall into one of two categories, 

either (1) fee or real estate ownership, or (2) 

non-fee interest, such as the right to use. A 

timeshare building organized on a fee 

simple basis is eligible for the Residential 

Condo-minium Building Association Policy. 
Glossary GLS 12

A timeshare not organized on a fee simple 

basis can obtain the General Property Form. 

Different policy coverages apply according 

to property interest. 

Tripwire. An action that alerts lenders and 

servicers to comply with flood insurance 

purchase requirements in the case of the 

making, increasing, extending, or renewing 

of a loan, or the transfer of a loan to a 

Government-Sponsored Enterprise for 

Housing. 

Waiting Period. The time between the date 

of application and the policy effective date. 

Write Your Own (WYO) Program. A 

cooperative undertaking of the insurance 

industry and FEMA begun in October 1983. 

The WYO Program operates within the 

context of the NFIP and involves private 

insurance carriers that issue and service 

NFIP policies under their own names. 

WYO Vendor. An organization employed 

by certain Write Your Own (WYO) carriers 

to conduct support operations to procure, 

produce, and handle NFIP claims on behalf 

of the insurer. 

Zone. See Flood Zone. 
 IND 1 Index

INDEX 

A 

“Abundance of caution”............................ 23 

Acquisition of lending institution by another 

................................................................ 36 

Act.......................................................GLS 1 

Actual cash value (ACV) ........28, 47, GLS 1 

Administrator of FEMA......................GLS 1 

Agent...................................................GLS 1 

Agricultural lending .................................. 30 

Application..........................................GLS 1 

Assignment of policy ....................39, GLS 1 

B 

Base flood .....................................10, GLS 1 

Base Flood Elevation (BFE) .....9, 13, GLS 1 

Binder/certificate of insurance prohibited .... 

 ..........................................................GLS 1 

Blanket insurance prohibited ..............GLS 1 

Broker, mortgage .................................56-57 

Building, eligible............................. GLS 1-2 

in the course of construction .........30-31, 

 GLS 2 

in violation of State or local laws....... 22, 

 GLS 10 

ineligible.........................................20-22 

location...........................................11-12 

Post-FIRM...............................29, GLS 9 

Pre-FIRM ................................29, GLS 9 

Bureau and Statistical Agent, NFIP ..8, GLS 8 

C 

Calculating insurance coverage ...........27-28 

Cancellation of policy .........................GLS 2 

Chattel mortgage ...........................31, GLS 2 

Civil liability ............................................. 60 

Civil money penalties.............. 59-60, GLS 2 

Coastal barrier.....................................GLS 2 

Coastal Barrier Improvement Act (CBIA) 

of 1990 ................................. 21-22, GLS 2 

Coastal Barrier Resources Act (CBRA) 

of 1982 ................................. 21-22, GLS 2 

Coastal Barrier Resources System (CBRS) .. 

 .............................................. 21-22, GLS 2 

CBRS Areas and Otherwise Protected Areas 

(OPAs) ..............................................21-22 

Coastal high hazard areas....................GLS 2 

Code of Federal Regulations (CFR)...GLS 2 

Coinsurance, Residential Condominium 

Build-ing Association Policy (RCBAP)47-48, 

 GLS 2 

Commercial loan........................................40 

Community .................................2, 9, GLS 2 

Community floodplain management ordinances........................................................9 

Community, NFIP non-participating .. 19-22, 

 GLS 8 

Community, NFIP participating............. 9-19 

Community number ............................GLS 2 

Community Rating System (CRS)..............9, 

 GLS 2-3 

Community Status Book .............................10 

Community-initiated map revision ............18 

Compendium of flood map changes, FEMA ... 

 ....................................................19, GLS 3 

Condominium ..........................45-50, GLS 3 

Condominium association.......30, 45, GLS 3 

Conforming loan .................................GLS 3 

Contents (personal property) coverage.......... 

 .................................................... 31-32, 49 

Conventional loan (in non-participating 

community)...............19-20, 22, 55, GLS 3 

Cooperative...................................50, GLS 3 

Cooperative association ................50, GLS 3 

Coverage availability ............................. 9-22 

Coverage obtained in conjunction with a loan 

........................................................... 38-39 

Covered loan ..............................................25 

D 

Declarations page................................GLS 3 

Deductible.........................25, 29, 51, GLS 3 

Deductible buyback ............................GLS 3 

Department of Agriculture (USDA) ..........26 

Department of Veterans Affairs (VA) .......26 

Depreciation..................................28, GLS 4 

Designated loan............................4-5, GLS 4 

Determination of flood zone... See Flood zone 

 determination 

Direct Program, NFIP ..................................8 

Direct Program Servicing Agent, NFIP.......8 

Director ...............................................GLS 4
Index IND 2 

Disaster assistance, Federal ...... 7, 20, 34-35, 

 App. 4 

Duplication of NFIP policies prohibited....47 

Dwelling Form .............. See Standard Flood 

 Insurance Policy—Dwelling Form 

E

Effective date of NFIP coverage................38 

Elevated building ................................GLS 4 

Elevation Certificate ................30-31, GLS 4 

Eligible building ..............................GLS 1-2 

Eligible community......................................2 

Emergency Program......................10, GLS 4 

Escrowing of flood insurance premiums 

(requirements and exclusions) ... 31, 39-40, 

 GLS 4 

Evidence/proof of insurance coverage......26, 

 33, 46-47, GLS 4 

Examinations, regulatory ..................... 58-59 

Exemptions from mandatory purchase 

require-ment ................................ 33, 42-43 

Expense Constant................................GLS 4 

Expiration/Renewal Notice.......... 36, App. 4 

F

Fannie Mae ............ 25-26, 51, 53-55, GLS 5 

Farm Credit Administration (FCA) ..........24, 

 GLS 4 

Federal agency lenders..............4, 26, GLS 4 

Federal Deposit Insurance Corporation 

(FDIC) 

....................................24, App. 2, GLS 4-5 

Federal disaster assistance ........ 7, 20, 34-35, 

 App.4 

Federal Emergency Management Agency 

(FEMA)....................................1, 8, GLS 5 

 FEMA Map Assistance Center ............18 

 FEMA Map Service Center ........... 18-19 

Federal Financial Institutions Examination 

Council (FFIEC) .....................................24 

Federal Home Loan Mortgage Corporation 

(FHLMC) .........................See Freddie Mac 

Federal Housing Administration (FHA) ....26 

Federal Insurance Administrator ........GLS 5 

Federal lending regulatory agencies ..........24 

Federal National Mortgage Association 

(FNMA) ............................See Fannie Mae 

Federal Policy Fee ..............................GLS 5 

Federal Register .................................GLS 5 

Federal Reserve System (FRS), Board of 

Governors of ...........................................24 

Federally regulated lenders/lending institutions.......................................23-25, GLS 5 

Fees, FEMA map-change related ....14, 15, 55 

Fees, lender’s flood zone determination ........ 

 ......................................................... 13-14 

FFIEC ...... See Federal Financial Institutions 

 Examination Council 

FHA .... See Federal Housing Administration 

FHBM...... See Flood Hazard Boundary Map 

Finance charge..................................... 13-14 

Financial Assistance/Subsidy Arrangement, 

Write Your Own (WYO) ................. GLS 5 

FIRM.............See Flood Insurance Rate Map 

500-year flood..................................... GLS 5 

Flood................................................... GLS 5 

Flood Disaster Protection Act of 1973 .... 2-3 

Flood Hazard Boundary Map (FHBM) ....10, 

 GLS 6 

Flood hazard mitigation...............................2 

Flood Insurance Manual .................... GLS 6 

Flood Insurance Rate Map (FIRM) ............2, 

 9-13, GLS 6 

Flood insurance resources for lenders .. App. 5 

Flood map .......................................... 2, 9-13 

Flood Map Modernization (“Map Mod”)..11 

Flood Map Status Information Service.....GLS 6 

Flood zone ..................... 9-13, 36-38, GLS 6 

Flood zone determination ......... 11-14, 37-38 

 Contested determination ......................38 

 Discrepancies in determination .....12, 14 

 FEMA review of determination.... 11-17, 

 38, GLS 4 

 Grandfathering of flood map zone .... 12-13, 

 GLS 7 

Lender determination fee............... 13-14 

Lender responsibilities........ 11-12, 37-38 

 Location of building ...................... 11-12 

 Previous determination, use of ...12, 37-38 

Third-party determination 

company/vendor (and guarantee of 

accuracy).................................... 11-12, 

 37, 55, GLS 6, GLS 11 

Floodplain........................................... GLS 6 

Floodplain management.............. 2, 9, GLS 6 

Floodproofing ................................. 9, GLS 6 

Floodproofing Certificate ................... GLS 6 

Force placement................................... 40-42 

Freddie Mac........... 25-26, 51, 53-55, GLS 5 
 IND 3 Index

G 

General Property Form... See Standard Flood 

 Insurance Policy—General Property Form 

Government-Sponsored Enterprises (GSEs) 

for Housing ........ 25-26, 51, 53-55, GLS 6 

Grandfathering of flood map zone ......12-13, 

 GLS 6-7 

GSEs..................See Government-Sponsored 

 Enterprises (GSEs) for Housing 

Guarantee of third-party flood zone determiner ...........................................11-12, 37 

H

High-value land with low-value building ..... 

 ...........................................................29-30 

Home equity mortgage.........................32-33 

Homeowners association......................50-51 

HUD Good Faith Estimate........................ 14 

HUD-1 Settlement Statement.................... 14 

I 

Improved real estate ................... 1-2, GLS 7 

Improved real property................................ 2 

Increased Cost of Compliance (ICC) coverage 

.............................................. 28-29, GLS 7 

Ineligible building................................20-22 

Initial purchase provision.....................38-39 

Insurance coverage available under NFIP........ 

 ....................................................26-29, 47 

Insurance coverage, calculation of.......27-28 

Insurance coverage required by law......... 27, 

 32, 46 

Insurance to full value recommended ...... 46, 

 47, 48 

Inventory ................................................... 32 

L 

Land loan not insurable............................. 29 

Land not insurable..................................... 27 

Legal references ................................. App. 1 

Lender flood insurance resources ...... App. 5 

Lender regulations, FDIC .................. App. 2 

Lender responsibilities .............................5-7 

Lending agency regulations ........................ 4 

Lending entities subject to mandatory purchase requirements................................3-4 

Lending subsidiaries and syndicates......... 24 

Letter of Determination Review (LODR)...... 

 ...............................................14-17, GLS 7 

 FEMA’s response to requests ..............16 

 Supporting materials for requests ........16 

Letter of Map Amendment (LOMA) ........17, 

 GLS 7 

Letter of Map Change (LOMC).......... 14-19, 

 GLS 7 

Letter of Map Change Subscription Service.... 

 ..........................................................GLS 7 

Letter of Map Revision (LOMR)........ 17-18, 

 GLS 7 

Letter of Map Revision Based on Fill 

(LOMR-F).............................17-18, GLS 7 

Levees .................................................. 10-11 

Lien/lienholder, primary and secondary ........ 

 ................................................32-33, 37-38 

Life-of-loan insurance coverage ..................5 

(Life-of-loan) map monitoring service .....12, 

 13-14, 55, GLS 6 

Limits of coverage, NFIP......... 26, 28-29, 47 

Line of credit..............................................33 

Loan activity as mandatory purchase tripwire ................................................. 4-5, 53 

Loan closing/origination...........................5,6 

Loan portfolio .....................................GLS 7 

Review of....................................... 55-56 

Safety and soundness of.......................56 

Loan servicer.............. 35-36, 57, GLS 10-11 

Loan transfer or purchase ....................53, 55 

Location of building............................. 11-12 

LODR...See Letter of Determination Review 

LOMA..........See Letter of Map Amendment 

LOMC................. See Letter of Map Change 

LOMR............... See Letter of Map Revision 

LOMR-F ........... See Letter of Map Revision 

 Based on Fill 

Loss assessment ............................. 48, 49-50 

Loss settlement .............................. 28-29, 48 

Loss settlement formula, Residential Condominium Building Association Policy......48 

Low-value building on high-value land. 29-30 

M 

Mandatory purchase requirements.......... 2-7, 

 App. 1, GLS 7-8 

Manufactured (mobile) home ........... 1-2, 31, 

 GLS 8 

Map amendment..................................GLS 8 

Map Assistance Center, FEMA .................18 
Index IND 4 

Map availability ................................... 18-19 

Map change subscription service...............19 

Map changes, compendium of ...................19 

Map monitoring service...12, 13-14, 55, GLS 6 

Map panel number ..............................GLS 8 

Map revision .................................18, GLS 8 

Map Service Center, FEMA .........19, App. 5 

Map zone............................... See Flood zone 

Merger of lending institutions....................36 

Mitigation of flood hazards..........................2 

Mobile home ......See Manufactured (mobile) 

 home 

Mortgage broker .................................. 46-47 

Mortgage Portfolio Protection Program 

(MPPP).......................... 42, App. 7, GLS 8 

Mortgage/mortgagee, first and second........... 

 ................................................32-33, 37-38 

N 

National Credit Union Administration 

(NCUA)......................................24, GLS 8 

National Flood Insurance Act of 1968.... 1-2, 

 App. 1 

National Flood Insurance Program (NFIP).... 

 .....................1, 7-8, App. 1, App. 5, GLS 8 

NFIP Bureau and Statistical Agent...8, GLS 8 

NFIP Direct Program ...................................8 

NFIP non-participating community .... 19-22, 

 GLS 8 

NFIP participating community....9-19, GLS 9 

NFIP Servicing Agent.....................8, GLS 8 

NFIP Write Your Own (WYO) Program.....8 

National Flood Insurance Reform Act of 

1994............................................3-7, 23-26 

 Designated loan.................................. 4-5 

 Lender responsibilities....................... 5-7 

 Lending entities subject to ......3-4, 23-26 

Loan servicer responsibilities ..............57 

New construction ................................. 30-31 

Noncompliance penalties..................... 59-60 

Non-participating community............. 19-22, 

 GLS 8 

Non-residential building .....................GLS 8 

Notification requirements... 20, 34-36, App. 4 

 Expiration/Renewal Notice.....36, App. 4 

 Notice of Special Flood Hazard and 

 Availability of Federal Disaster Relief 

 Assistance ...................... 34-35, App. 4 

 Notification of Change of Servicer.... 35-36, 

 App. 4 

O 

Office of the Comptroller of the Currency 

(OCC) ........................................ 24, GLS 9 

Office of Thrift Supervision (OTS)...........24, 

 GLS 9 

100-year flood..................................... GLS 9 

Other Residential Building ................. GLS 9 

Otherwise Protected Areas (OPAs) and 

Coastal Barrier Resources System (CBRS) 

Areas ................................................ 21-22 

P 

Participating community............9-19, GLS 9 

Pattern . . . of violations....................... 59-60 

Penalties, regulatory ............................ 59-60 

Personal property (contents) coverage............. 

 .................................................... 31-32, 49 

Physical map revision......................... GLS 9 

Policy .................................................. GLS 9 

Portfolio review, loan .......................... 55-56 

Post-FIRM building...................... 29, GLS 9 

Preferred Risk Policy (PRP) ... 18, 29, GLS 9 

Pre-FIRM building ....................... 29, GLS 9 

Previous determination, use of ............ 37-38 

Private flood insurance .................. 42, 57-58 

 FEMA criteria for evaluation of ..........58 

Probation, NFIP community........... 9, GLS 9 

Probation surcharge (premium) ...... 9, GLS 9 

Proof/evidence of insurance coverage......26, 

 33, 46-47, GLS 4 

Property sold or transferred ................. 35-36 

R 

RCBAP ......... See Residential Condominium 

 Building Association Policy 

Real Estate Settlement Procedures Act 

(RESPA) of 1974............... 31, 39, GLS 10 

RESPA Notice of Transfer of Servicing 

form.........................................................35 

Recreational vehicle ................... 31, GLS 10 

Regular Program......................... 10, GLS 10 

Regulated lenders/lending institutions.. 23-25, 

 GLS 5 

Regulation Z ..........................13-14, GLS 10 

Regulatory agencies, Federal lending........24 

Regulatory examinations ..................... 58-59 

Regulatory floodway .................. 18, GLS 10 

Regulatory penalties ............................ 59-60 

Remapping.................................. 55, GLS 10 

Repetitive Loss Structure.................. GLS 10 
 IND 5 Index

Replacement cost value (RCV).......... 27-28, 

 47-48, 49-50, GLS 10 

Residential Condominium Building...GLS 10 

Residential Condominium Building 

Association Policy (RCBAP)See Standard Flood 

 Insurance Policy—Residential Condominium 

Building Association Policy (RCBAP) 

Residential Improved Real Estate.....GLS 10 

Resources for lenders, flood insurance ......... 

 ......................................................... App. 5 

RESPA ............... See Real Estate Settlement 

 Procedures Act 

Restricted coverage areas.....................21-22 

S 

Safety and soundness of loan portfolio..... 56 

Sale or transfer of loan.........................35-36 

Second mortgage..................................32-33 

Secondary market................................ 25, 51 

Section 1316 properties not insurable...... 22, 

 GLS 10 

Service corporations.................................. 24 

Servicer, loan ........................ 57, GLS 10-11 

Servicing Agent, NFIP....................8, GLS 8 

SFHA........... See Special Flood Hazard Area 

SFHDF ...............See Standard Flood Hazard 

 Determination Form 

Small Business Administration (SBA) ..... 26 

Small loan exemption............33, 43, GLS 11 

Special Flood Hazard Area (SFHA) .......2-3, 

 9-13, 36-38, 53-56, GLS 11 

Stafford Disaster Relief and Emergency 

Assis-tance Act, Robert T. .......20, GLS 11 

Standard Flood Hazard Determination Form 

(SFHDF).................36-38, App. 3, GLS 11 

Standard Flood Insurance Policy .............. 42 

 Dwelling Form .... 28, 45, 48-50, GLS 11 

 General Property Form..... 28, 45, 50, 51, 

 GLS 11 

 Residential Condominium Building Asso- 

 ciation Policy (RCBAP).......28, 45-48, 

 GLS 11 

State-owned property exemption..42, GLS 11 

Structure....................................See Building 

Subscription service, map change..............19 

Subsidiaries of federally regulated lenders/ 

lending institutions..................................24 

Surcharge, probation, NFIP community .....9, 

 GLS 9 

Suspension, NFIP community ......9, GLS 11 

T 

Table funding.........................56-57, GLS 11 

Tentative rates, NFIP ........................GLS 11 

Timeshare building ................50, GLS 11-12 

Transfer or purchase of loan .... 35-36, 53, 55 

Travel trailer ..............................................31 

Tripwires for mandatory purchase.......... 4-5, 

 53-56, GLS 12 

Truth in Lending Act ........................... 13-14 

U 

Underinsured building ............. 32, 48, 49-50 

Underwriting restrictions ..................... 20-21 

Unit owner’s building coverage, condominium .............................................. 48-49 

Unit owner’s personal property coverage, 

condominium ..........................................49 

V 

Valuation of condominium building..........47 

Violations, pattern . . . of ..................... 59-60 

W 

Waiting period for NFIP coverage, 30-day ... 

 ..........................38-39, 45, App. 6, GLS 12 

 Effective date of coverage ......38, App. 6 

 Exception for assignment of policy .....39 

 Exception for initial purchase........ 38-39 

 45-day purchase deadline.....................41 

Wholesale mortgage lending................ 56-57 

Write Your Own (WYO) Company/Program.. 

 .................................................7-8, GLS 12 

WYO vendor.....................................GLS 12 

Z 

Zone ...................................... See Flood zone