Flood Insurance Compliance

Since Congress passed the National Flood Insurance Act in 1968, federally backed mortgage lenders have been required to conduct oversight ensuring that home buyers in special flood hazard areas purchase flood insurance. Mortgage lenders work with three federal agencies to enforce mandated flood insurance purchase, the Federal Emergency Management Agency, National Flood Insurance Program and Federal Deposit Insurance Corporation.

Federal Emergency Management Agency

• The Federal Emergency Management Agency conducts flood hazard analysis for the U.S. and maps the results on Flood Insurance Rate Maps, or FIRMs. These maps illustrate the flood hazard probabilities for an area, represented by flood zones. A property may fall within a low-to-moderate, high- or coastal high-risk zone.

National Flood Insurance Program

• The National Flood Insurance Program uses the flood zones as a leading criteria of setting flood insurance premiums. Communities may choose to participate in the NFIP so residents can purchase flood insurance at reduced rates and the community will qualify for federal flood mitigation grants. Participation requires the community to pass and enforce local flood control ordinances meeting or exceeding FEMA minimums requirements and requires homeowners and buyers with a federally backed mortgage to purchase flood insurance if their home lies withing a high- or coastal high-risk flood zone.

Federal Deposit Insurance Corporation

• The Federal Deposit Insurance Corporation provides flood insurance compliance guidance to mortgage lenders it insures. Congress created the FDIC to help maintain the nation's financial stability by insuring deposits, conduct oversight of financial institutions to ensure consumer protection and manage receiverships.

Mortgage Lenders

• Federally insured mortgage lenders must ensure homeowners they make loans to purchase flood insurance if their home lies within a high- or coastal high-risk flood zone. The lenders must show due diligence by checking the FIRM for the area to determine what flood zone applies. The home buyer may raise the elevation of the home by means of fill or prove its natural elevation to or above the FEMA-required base flood elevation and apply for a Letter of Map Amendment from FEMA. If granted, the LOMA absolves the homeowner from the federal requirement of flood insurance purchase but, the mortgage lender may still require its purchase.

FDIC Checklist

• The FDIC provides financial institutions with a checklist to help internal compliance personnel cover all flood insurance compliance topics during their regular reviews. The topics of coverage include coverage, property determination and related determination fees, notice, insurance, escrow and forced placement requirements and submitting notice to the FEMA director.