Q: If a lender has a general policy of not originating mortgages in non-participating communities or coastal barrier regions where the NFIP is not available due to the inherent safety and soundness risk of those areas, does the lender need to rethink this policy in light of the Biggert-Waters Act and the agencies' final rule on private flood insurance? Does the final rule mean that the lender must or should lend in these areas because private flood insurance is now available?
A: The flood insurance regulations do not require that a lender originate a loan that does not meet the lender's legitimate underwriting criteria. We also note that the flood insurance purchase requirement only applies to loans secured by structures located or to be located in a special flood hazard area in which flood insurance is available under the National Flood Insurance Act of 1968, as amended. Per the statute, the flood insurance purchase requirement does not apply within non-participating communities, where NFIP insurance is not available under the act. So the lender does not need to change its policy of not originating mortgages in areas where NFIP insurance is unavailable solely because of the agencies' final rule.
This Q&A was part of the discussion in the Outlook Live – 2019 Interagency Flood Insurance Update on Private Flood Insurance Rule webinar held on 6/18/19 and focused on the new private flood insurance rules that become effective 7/1/19. Information may be found here: https://www.webcaster4.com/Webcast/Page/577/30085