500-Year Floodplain Requirements Are Here — Is Your Tracking Ready?

Significant changes from Fannie Mae and Freddie Mac could impact your loan servicing process — especially your insurance tracking requirements.

Both Fannie Mae and Freddie Mac now require that certain properties located in the 500-year floodplain carry flood insurance. Fannie Mae’s Multifamily Selling and Servicing Guide and Freddie Mac’s Multi-Family Seller/Servicer Guide, have updated their insurance guidance for properties located in Tier 1 named storm counties. Lenders must ensure that owners of multi-family properties within Tier 1 counties:

• Have separate named storm insurance if the Special Peril Coverage of Loss Form excludes any type of wind-related catastrophic event.
• Maintain flood insurance for any buildings in a 500-year flood zone if their named storm policy does not cover flooding from a storm surge. The required coverage amount must be at least equal to the maximum building coverage available under the NFIP for that property type, or the building’s full replacement cost if it is less than the NFIP maximum. If the replacement cost exceeds NFIP limits, excess flood coverage may be needed to meet lender requirements.
• Purchase Business Income (BI) or Rental Value (RV) coverage when flood insurance is required. For flood-related BI/RV coverage, the deductible may not exceed 15 days if expressed in time, or $100,000 if expressed as a dollar amount.

The Lender Impact:

These new rules introduce additional layers of insurance tracking complexity:

• Expanded monitoring to include 500-year floodplain designations for Tier 1 counties when the borrowers named storm policy excludes storm surge coverage.
• Verification of named storm coverage and exclusions that may trigger a flood insurance requirement.
• Compliance risk if coverage lapses or required policies are never obtained.
• Borrower communication to explain potential new coverage requirements.

Failure to track these requirements accurately can result in loan non-compliance, repurchase risk, and borrower dissatisfaction.

How AFR Helps Lenders Stay Ahead

AFR has decades of experience helping lenders stay compliant and avoid costly surprises. We offer:

1. Comprehensive Insurance Tracking
   
   • Real-time monitoring of flood zone changes and policy expirations.
   • Automated alerts for missing or insufficient coverage.
   • Detailed reporting to help your servicing team act quickly and stay compliant.
2. Lender-Placed Insurance Solutions
   
   • Immediate coverage placement when borrower policies lapse or fail to meet requirements.
   • Flexible terms to protect your collateral until borrower-provided coverage is in place.
   • Competitive rates and customizable options to meet investor guidelines.
3. Expert Compliance Support
   
   • Up-to-date guidance on Fannie Mae, Freddie Mac, and FEMA requirements.
   • Hands-on assistance with borrower communication and coverage verification.
   • Access to AFR’s compliance resource library and regulatory updates.

Bottom line:

These new guidelines mean more properties, more coverage types, and more tracking requirements for lenders. With AFR’s tracking and lender-placed insurance programs, you can ensure compliance, protect your collateral, and reduce administrative burden — all while keeping your borrowers informed and covered.

Contact AFR today to discuss how we can help you navigate these changes and streamline your insurance tracking process.