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B7-3-06, Flood Insurance Requirements for All Property Types (12/14/2022)

Introduction

This topic contains information on Fannie Mae’s flood insurance requirements, including:


Determining if a Property Requires Flood Insurance

The lender and servicer must ensure that the subject property is adequately protected by flood insurance when required. Flood insurance coverage is required when a loan is secured by a property located in

  • a Special Flood Hazard Area (SFHA), or

  • a Coastal Barrier Resources System (CBRS) or Otherwise Protected Area (OPA). 

The lender and servicer must determine whether the property is located in an SFHA, a CBRS, or an OPA by using the FEMA Standard Flood Hazard Determination form. All flood zones beginning with the letter "A" or "V" are considered SFHAs.

Note: If the subject property is located within a CBRS or an OPA, flood insurance is required regardless of whether the property is located in an SFHA.

Flood insurance is not required on a principal or residential detached structure securing the loan if the lender or servicer obtains a letter from FEMA stating that its maps have been amended and the structure is no longer in an SFHA.


Determining if Flood Insurance is Required on Specific Structures

The following table describes how to evaluate a property to determine if flood insurance is required. For these requirements, the "principal structure" is the primary residential structure on the subject property.

If... Then flood insurance is...
any part of the principal structure is located within an SFHA required.
the principal structure is not located within an SFHA, but a residential detached structure affixed to the land that serves as part of the security for the loan is located within the SFHA required for the residential detached structure.
the principal structure is not located within an SFHA, but a non-residential detached structure affixed to the land that serves as part of the security for the loan is located within the SFHA not required on either structure.
the principal structure is not located within an SFHA, but a detached structure affixed to the land that does not serve as part of the security for the loan is located within the SFHA not required on either structure.

 


Community Eligibility

If the lender or servicer determines that a principal or residential detached structure is located in an SFHA, but the community does not participate in the National Flood Insurance Program (NFIP), the loan is not eligible for purchase by Fannie Mae. 

If the property is in a non-participating community and a CBRS or an OPA, it is only eligible for purchase by Fannie Mae if it is not located in an SFHA.

Loans secured by properties in the Emergency Program of the NFIP are eligible for purchase by Fannie Mae with coverage equivalent to the NFIP maximum that is available.


Acceptable Flood Insurance Policies

The flood insurance policy must be one of the following:

  • a standard policy issued under the NFIP; or
  • a policy issued by a private insurer, provided

 A Policy Declaration page is acceptable evidence of flood insurance.


Requirements for One-to Four-Unit Properties

The minimum amount of flood insurance required for first mortgages must be equal to the lesser of

  • 100% of the replacement cost value of the improvements,
  • the maximum coverage amount available from NFIP, or
  • the unpaid principal balance (UPB) of the loan (or loan amount at the time of origination).

See Insurance Requirements for Renovation and Energy Improvement Loans in  B7-3-05, Additional Insurance Requirements  for additional information.

See Mortgagee Clause for Property and Flood Insurance and Named Insured for Property and Flood Insurance in  B7-3-08, Mortgagee Clause, Named Insured, and Notice of Cancellation Requirements for mortgagee clause and named insured requirements.


Requirements for Project Developments

When a loan is secured by a unit in an attached condo or co-op project and flood insurance is required as described in Determining if a Property Requires Flood Insurance, the lender and servicer must verify that the HOA or co-op corporation maintains a master flood insurance policy with premiums paid as a common expense, unless otherwise indicated in the table below.

The following table provides additional requirements based on the project type.

Project Type Coverage Requirements
Condo

The lender and servicer must verify that the HOA maintains a Residential Condominium Building Associated Policy (RCBAP) or equivalent private flood insurance coverage for a condo building consisting of attached units located within an SFHA. The only building that must be verified is the subject unit's building. Fannie Mae does not require evidence of a master flood insurance policy, provided the unit owner maintains an individual flood dwelling policy that meets the coverage requirements of this Guide for the following loans or project types:

  • high LTV refinance loans,
  • units in a two- to four-unit project, and
  • detached condo properties.

The master flood insurance policy maintained by the HOA must cover the subject unit's

  • entire building; and
  • all of the common elements and property, including machinery and equipment that are part of the building.

The coverage amount for the building must be at least equal to the lesser of

  • 80% of the replacement cost value(1), or
  • the maximum coverage amount available from NFIP per unit(2).

(1)If the master flood insurance policy meets the minimum coverage requirement of 80% of the replacement cost value, but the per unit coverage amount does not meet the requirement for loans secured by one- to four-unit properties, as described above, the unit owner must maintain a supplemental policy for the difference.

(2)If the commercial space of an attached condo is over 25%, coverage provided by the General Property Form (or equivalent coverage) is insufficient. A private flood insurance policy, or a private flood insurance policy in conjunction with a General Property Form policy (or equivalent coverage) must be maintained by the HOA to equate to coverage requirements for projects eligible for an RCBAP.

The contents coverage must equal the lesser of

  • 100% of the replacement cost value of all contents owned in common by the association members, or
  • the maximum coverage amount available from NFIP.
Co-op

The lender and servicer must verify that the co-op corporation maintains a General Property Form policy or equivalent private flood insurance coverage for a co-op building that is located within an SFHA.

The master flood insurance policy maintained by the co-op corporation must cover the subject unit's

  • entire building, and
  • all of the common elements and property, including machinery and equipment that are part of the building.

The coverage amount for the building must be at least equal to the lesser of

  • 100% of the replacement cost value, or
  • the maximum coverage available from NFIP.
PUD

The lender and servicer must verify that each attached or detached individual PUD unit maintains a Dwelling Form policy or equivalent private flood insurance policy on the subject property.

See Requirements for One- to Four-Unit Properties above for the required amount of coverage.

See Mortgagee Clause for Property and Flood Insurance and Named Insured for Property and Flood Insurance in  B7-3-08, Mortgagee Clause, Named Insured, and Notice of Cancellation Requirements for additional information.


Deductible Requirements

The following table describes the maximum deductible allowed by Fannie Mae for an NFIP or a private flood insurance policy.

Property Type Deductible Requirement
One- to four-unit properties The deductible must not exceed the maximum deductible amount currently offered by NFIP for one- to four-unit properties insured under an NFIP Dwelling Form.
Condo projects The deductible must not exceed the maximum deductible amount currently offered by NFIP for condo projects insured by an RCBAP. This deductible requirement applies to all condo projects, regardless of the percentage of commercial space.
Co-op projects The deductible must not exceed the maximum deductible amount currently offered by NFIP for co-op projects insured under an NFIP General Property Form.
PUDs The deductible on individual attached or detached PUD units must not exceed the maximum deductible amount currently offered by NFIP for one- to four-unit properties insured under an NFIP Dwelling Form.

 


Delivery Requirements

The following table describes the special feature code requirements applicable to flood insurance.

Structure Location and Status of Flood Insurance Coverage Special Feature Code
  • Some part of a principal and/or residential detached structure is located within an SFHA, and

  • Flood insurance coverage is in place on the principal and/or residential detached structure.

SFC 170 Flood Insurance — Special Flood Hazard Area
  • No part of a principal or residential detached structure is located within an SFHA, but

  • Flood insurance coverage is in place on the principal and/or residential detached structure.

SFC 175 Flood Insurance — Not a Special Flood Hazard Area
  • No part of a principal or residential detached structure is located within an SFHA, and

  • No flood insurance coverage is in place on the principal or residential detached structure.

Note: In addition to these criteria, this special feature code also applies if there is a non-residential detached structure affixed to the land for which any part is in an SFHA.

SFC 180 No Flood Insurance — Not a Special Flood Hazard Area


Recent Related Announcements

The table below provides references to the Announcements that have been issued that are related to this topic.

Announcements Issue Date
Announcement SEL-2022-10 December 14, 2022
Announcement SEL-2021-11 December 15, 2021
Announcement SEL-2019-07 August 07, 2019
Announcement SEL-2018-09 December 04, 2018

 

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