Max limit increase for other residential structures

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    My bank has been looking for clarification on this subject for some time. In the post on Jack’s blog from yesterday, 3/19/14, “Flood Insurance-Changes to Maximum Coverage Limits”, it says that the new coverage limits are available for new business, renewals, or change endorsements that are effective on or after 6/1/14. It then goes on to say that creditors must identify all borrowers with other residential policies that will have inadequate coverage after the effective date of the change. This is also the way it is worded in the NFIP Summary of Program Changes.
    These 2 sentences seem to contradict each other. Does the $500k requirement apply to MIRE loans only or to existing loans that are not being increased, renewed or extended by the 6/1/14 date?


    The first sentence you referenced addresses when the new insurance limits become effective, while the second is referring to what a creditor must do. My understanding is that the new maximum coverage limits will be available for “Other Residential” properties for new business, renewals or change endorsements on 6-1-14. In other words, the new insurance limits will be available for “other residential” property as of 6-1-14.

    We hope to have additional guidance or updated inter-agency flood regulations that addresses exactly what is required of creditors, but in the meantime creditors should be looking at their list of “other residential” properties in a flood zone to determine if additional flood coverage is needed based on the flood insurance calculation (shown below) and considering the new maximum coverage limits. When further guidance is provided creditors will be prepared to begin the force-place process if necessary. Jack’s blog gives a good example of this.

    Flood Insurance Calculation:
    The amount of insurance must be at least equal to the lesser of :
    1) the outstanding principal balance of the designated loan;
    2) the maximum limit of coverage available for the particular type of property under the Act; or
    3) the overall value of the property securing the designated loan minus the value of the land on which the property is located. (Replacement Cost Value)

    Blog Referenced:

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