On May 30, 2014 the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the National Credit Union Administration, and the Farm Credit Administration (collectively, the agencies) issued a statement regarding the new National Flood Insurance Program (NFIP) maximum limit of flood insurance coverage for non-condominium residential buildings designed for use for five or more families (classified by the NFIP as “Other Residential Buildings”). The guidance explained the agencies’ expectations and a financial institution’s responsibilities when, as a result of the increase in the maximum limit of building coverage for such properties, a financial institution determines that a building securing a designated loan is covered by flood insurance in an amount less than the amount required under federal flood insurance law.
The new coverage limits are available for new policies, policy renewals, or existing policies with change endorsements that are effective on or after June 1, 2014. The Federal Emergency Management Agency has directed insurers that issue NFIP policies to provide all Other Residential policyholders with a letter informing them prior to June 1, 2014, of the new policy limits.
If, as a result of the increase in the maximum limit of building coverage for these buildings, a lender or its servicer determines on or after June 1, 2014, that the building securing the designated loan is now covered by flood insurance in an amount less than required by federal flood insurance regulation, it should take steps to ensure that the borrower obtains sufficient coverage, including force placing insurance pursuant to federal law.
Editor’s Note: The content of the statement was no surprise. The need for this action was discussed in this blog nearly two years ago, shortly after the Biggert-Waters Act became law. The surprise was that the notice was published so late as to be pretty much irrelevant. The notice was published on May 30, 2014, Friday of a holiday weekend. The change was effective on June 1, 2014.