Q. 1. Do all credit unions have to comply with the flood insurance regulations?

A. Yes, all credit unions who grant real estate loans must comply with flood hazard regulations.

Q. 2. How will my credit union know if they must accept a flood insurance policy or have the option to accept the policy?

A. The credit union MUST accept a flood insurance policy that meets the definition under the rules. Thankfully, the NCUA provided credit unions with an easy way to determine if the flood insurance policy meets the definition under the rules, because it will have the “This policy meets the definition of private flood insurance contained in 42 U.S.C. 4012a(b)7 and the corresponding regulation” within the actual policy or as an endorsement.  If that disclosure language is NOT included on the insurance policy, then the credit union has the option to accept the policy IF it meets the requirements outlined under 760.3.

Q. 3. Is flood insurance required in all types of flood zones?

A. No. Flood insurance is only mandatory for dwellings that are located in a high risk flood hazard areas. Flood zones are designated as follows:

For additional information on flood zones visit FEMA.

Q. 4. Can a credit union require flood insurance if a members home is located in a moderate or low risk flood zone, even if it is not mandatory?

A. Yes. If a member’s property is not in a high-risk area, but instead in a moderate-to-low risk area, a credit union can require flood hazard insurance even if federal law does not require it. It is also recommended because, historically, about one-in-four flood claims come from these moderate-to-low risk areas.

Q. 5. What amount of flood insurance coverage is required?

A. The amount of flood insurance coverage required by the Flood Disaster Protection Act of 1973, as amended by the National Flood Insurance Reform Act of 1994, is the lesser of the following:

• The maximum amount of National Flood Insurance Protection (NIFP) coverage available for the particular property type, or
• The outstanding principal balance of loans, or
• The insurable value of the structure.

Q. 6. If we approve a member for a home equity loan do we have to worry about flood insurance?

A. Yes. If a member is required to carry flood insurance for the outstanding principal balance of his/her loans, the home equity loan balance must be considered to determine the amount insurance coverage that is sufficient to meet the federal requirements. When determining if a member has enough flood insurance coverage all of the members loans should be added together and compared to any flood insurance coverage the member has. If the flood insurance coverage is less than the total of loans outstanding the credit union must require the member to increase the amount of his/her flood insurance coverage.

Q. 7. Are there exemptions from mandatory flood coverage?

A. Yes. There are two exemptions from mandatory flood insurance coverage:

• State owned property covered under a state self-insurance policy is exempt, and
• Flood hazard insurance is not required if the original principal balance of the loan is less than $5,000 and the original repayment term is one year or less.

Q. 8. If a member’s property is reclassified into a flood hazard zone by FEMA does the member have to obtain flood insurance coverage?

A. Yes. When FEMA determines that a members property is located in high risk flood zone area, whether that determination is made before loan consummation or during the term of the loan, the credit union must require that the member obtain flood hazard insurance.

Q. 9. If a member cancels his/her flood insurance coverage after the loan closes, do we have to force-place flood insurance coverage for the member?

A. Yes. Flood insurance coverage is mandatory for members whose homes are in high-risk flood zone areas.

Q. 10. What is the regulatory requirement for the force placement of flood hazard insurance?

A. The regulation requires the credit union to force-place flood insurance, if all of the following circumstances occur:

• The credit union determines at any time during the life of the loan that the property securing the loan is located in an SFHA;
• Flood insurance under the Act is available for improved property securing the loan;
• The credit union determines that flood insurance coverage is inadequate or does not exist; and
• After required notice, the member fails to purchase the appropriate amount of coverage.

The credit union is required to send notice to the member upon making a determination that the improved real estate collateral’s insurance coverage has expired or is less than the amount required for that particular property; such as upon receipt of the notice of cancellation or expiration from the insurance provider. The notice to the member must also state that if the member does not obtain the insurance within the 45-day period, the credit union will purchase
the insurance on behalf of the member and may charge the member for the cost of premiums and fees to obtain the coverage. If adequate insurance is not obtained by the member within the 45-day notice period, then the credit union must purchase insurance on the member’s behalf.

Q. 11. If we secure a property as an abundance-of-caution loan do we still have to follow the flood insurance regulations?

A. Yes, if a credit union makes a loan on a personal guarantee, abundance-of-caution, or by a third party guarantee and the security is improved real estate in a high risk flood zone area, the making of the loan is considered a designated loan and flood insurance regulations would apply and flood insurance would be required.