About the Mandatory Purchase of
Flood Insurance Requirement

National Flood Insurance Program (NFIP):  Since 1978, the Louisville Metro area has participated in the NFIP.  The NFIP makes federally backed flood insurance available for all buildings, whether they are in a floodplain or not.  Flood insurance covers direct losses caused by surface flooding, including a river flowing over its banks, a lake, or local drainage problems.

The NFIP insures buildings, including mobile homes, with two types of coverage: structural and contents.  Structural coverage is for the walls, floors, insulation, furnace, and other items permanently attached to the structure.  Contents coverage may be purchased separately provided the contents are in an insurable building.  Go to http://www.fema.gov/business/nfip for more info on the NFIP.

Mandatory Purchase Requirement:The Flood-Disaster Protection Act of 1973 and the National Flood Insurance Reform Act of 1994 made the purchase of flood insurance mandatory for federally backed mortgages on buildings located in a Special Flood Hazard Area (SFHA).  The requirement also applies to all forms of federal or federally related financial assistance for buildings located in a SFHA and affects mortgages, loans and grants for the purchase, construction, repair, or improvement of any publicly or privately owned building in the SFHA.

The rule applies to secured mortgage loan from such financial institutions as commercial lenders, savings and loans association, savings banks, and credit unions that are regulated, supervised, or insured by Federal agencies such as the Federal Deposit Insurance Corporation (FDIC) and the office of Thrift Supervision.  It also applies to all mortgage loans purchased by Fannie Mae or Freddie Mac in the secondary mortgage market. 

Federal financial assistance programs affected by the laws include loans and grants from agencies such as the Dept. of Veterans Affairs, Farmers Home Administration, Federal Housing Administration (FHA), Small Business Administration (SBA), and FEMA.

How it Works:  Before a person can receive a mortgage, loan or other financial assistance, Federal agencies and lenders are required to complete a Standard Flood Hazard Determination (SFHD) form whenever they make, increase, extend or renew a mortgage, home equity, home improvement, commercial, or farm credit loan to determine if the building or manufactured (mobile) home is in a SFHA.  The SFHA is the base (100-year) floodplain mapped on a Flood Insurance Rate Map (FIRM).  The SFHA is shown as one or more zones that begin with the letter “A”.  Copies of the FIRM are available for review at the Louisville & Jefferson County Metropolitan Sewer District (MSD).  MSD also can make an online Floodplain Determination for a structure in Jefferson County.  Go to: www.lojic.org/flood/user/default.htm and type in an address.

If the building is in a SFHA, the Federal agency or lender is required by law to require the recipient to purchase a flood insurance policy on the building.  Federal regulations require purchase of structural insurance coverage equal to the amount of the loan or the maximum amount available from the NFIP, whichever is less.  The maximum amount available for a single-family house is $250,000.  Government sponsored enterprises, such as Freddie Mac and Fannie Mae, have stricter requirements.

The mandatory purchase requirement does not affect loans or financial assistance for items that are not covered by a flood insurance policy, such as vehicles, business expenses, landscaping, and vacant lots.  It does not affect loans for buildings that are not in the SFHA, even though a portion of the lot may be floodprone.  While not mandated by law, a lender may require a flood insurance policy, as a condition of a loan, for a property in any zone on a FIRM.

If a person feels that a SHFD form incorrectly places the property in the SFHA, he or she may request a Letter of Determination Review from FEMA.  This must be submitted within 45 days of the determination.  More information can be found at: http://www.fema.gov/plan/prevent/fhm/fq_genhm.shtm.

Community Rating System (CRS):  Louisville Metro participates in the FEMA’s CRS program, which rewards communities that implement floodplain management activities.  Louisville is currently rated a Class 5, meaning all residents and businesses located in a floodplain receive a 25% discount on flood insurance premiums.  Learn more about the CRS program at: http://www.msdlouky.org/programs/crssite/.  For more Information on Flood Insurance or to find a local flood insurance agent, visit FloodSmart.gov.

Flood Insurance Numbers for Service