B7-3-06, Flood Insurance Requirements for All Property Types (02/07/2024)

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.

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 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.

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
  •  the terms and amount of coverage are at least equal to that provided under an NFIP policy based on a review of the full policy issued by a private insurer, and
  • the insurer meets Fannie Mae's rating requirements as specified in Property Insurer Rating Requirements in  B7-3-01, General Property Insurance Requirements for All Property TypesB7-3-01, General Property Insurance Requirements for All Property Types.

 A Policy Declaration page is acceptable evidence of flood insurance.

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 RequirementsB7-3-05, 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 RequirementsB7-3-08, Mortgagee Clause, Named Insured, and Notice of Cancellation Requirements for mortgagee clause and named insured requirements.

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.

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 RequirementsB7-3-08, Mortgagee Clause, Named Insured, and Notice of Cancellation Requirements for additional information.

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

The following table describes the special feature code requirements applicable to flood insurance. See  C1-2-02, Loan Data and Documentation Delivery RequirementsC1-2-02, Loan Data and Documentation Delivery Requirements for detailed loan delivery requirements.

The NFIP may lapse due to a shutdown of the federal government or if Congress does not renew the NFIP's authorization to issue new policies, increase coverage on existing policies, or issue renewal policies.

For the duration of such a lapse, a lender may sell a loan to Fannie Mae where flood insurance is otherwise required without an active flood insurance policy provided the requirements below are met.

During the lapse, lenders must have a process in place to identify properties securing loans sold to us without proper evidence of active flood insurance on the conditions that the borrower must provide acceptable evidence of:

• a completed application for NFIP flood insurance and proof of the premium payment or the final settlement statement reflecting payment of the initial premium, or 
• the assignment of an existing NFIP flood insurance policy from the property seller to the purchaser.

The following table provides additional requirements that lenders and servicers must follow during the lapse.

Refinance loans secured by properties where flood insurance is required typically already have acceptable flood insurance coverage in place at the time of closing. Specific requirements for refinance loans are listed below.

When delivering loans affected by a lapse of the NFIP, lenders must follow the Delivery Requirements described above and provide all applicable loan delivery data elements as if a required flood insurance policy was in place.

The lender and servicer remain obligated for all selling representations and warranties and servicing obligations concerning the existence of a standard policy issued under the NFIP or an equivalent private flood insurance policy.

Note: Fannie Mae accepts flood insurance policies from private insurers as listed in Acceptable Flood Insurance Policies, but such private flood insurance policy coverage is not a required alternative in the event of a lapse of NFIP coverage.