Q: Is flood insurance required for each building when the real estate security contains more than one building located in an SFHA in a participating community? If so, how much coverage is required?
A: Yes. The lender must determine the amount of insurance required on each building and add these individual amounts together. The total amount of required flood insurance is the lesser of:
• The outstanding principal balance of the loan(s) or
• The maximum amount of insurance available under the NFIP, which is the lesser of:
o The maximum limit available for the type of structures or
o The “insurable value” of the structures.
The amount of total required flood insurance can be allocated among the secured buildings in varying amounts, but all buildings in an SFHA must have some coverage.
Example: Lender makes a loan in the principal amount of $150,000 secured by five nonresidential buildings, only three of which are located in SFHAs within participating communities.
• Outstanding loan principal is $150,000
• Maximum amount of insurance available under the NFIP
o Maximum limit available for the type of structure is $500,000 per building (nonresidential buildings); or
o Insurable value (for each nonresidential building for which insurance is required, which is $100,000, or $300,000 total)
Amount of insurance required for the three buildings is $150,000. This amount of required flood insurance could be allocated among the three buildings in varying amounts, so long as each is covered by flood insurance.
– This Q&A was included in the “Interagency Questions and Answers Regarding Flood Insurance.” For ease of collection, this has been obtained from the FDIC’s Compliance Examination Manual – April 2016, which may be found here: https://fdic.gov/regulations/compliance/manual/5/V-6.1.pdf