We have had this loan on our books since 1999. With a new FEMA map it is now in a flood area. What is the protocol now? This is a new one for me.

You are under no actual obligation unless you take new action on that loan or collateral. Personally, I would want the borrower to know this and hope they would either have or obtain insurance for their own protection, given the high percentage of risk from floods.

They are now aware the property is in a flood zone and they must obtain flood insurance. A Map change is not a tripwire requiring you to review your portfolio for loans secured by property that now may be located in a SFHA, but once you become aware the property is in a SFHA then you must start the procedures to obtain flood insurance. See the tripwire flow chart on page 54 of the Mandatory Purchase of Flood Insurance Guidelines.

And from 339.7:

§ 339.7 Forced placement of flood insurance.

If a bank, or a servicer acting on behalf of the bank, determines, at any time during the term of a designated loan, that the building or mobile home and any personal property securing the designated loan is not covered by flood insurance or is covered by flood insurance in an amount less than the amount required under § 339.3, then the bank or its servicer shall notify the borrower that the borrower should obtain flood insurance, . . . .

Thanks for that correction, Dan. That should have clicked with me, knowing we notify if our vendor notifies us of a change midstream in a loan's life! ARGH!

Related question...if you purchase a loan that was originally made by a non-federally-related lender (like an individual)and the loan is in a FZ, does the same rule apply?

IMO yes. The purchase of a loan is not a tripwire (see page 53 of the MPFIGs) that requires the mandatory purchase requirements, but again once you learn that you have a loan located in a SFHA (a tripwire) you are required to obtain flood insurance.

BTW, as a clarification, a map change my not require us to monitor our portfolio for properties that may now be located in a SFHA under the regulation, but if we service loans for Fannie or Freddie then they do require that monitoring and we will have to make the determinations based on the map change. Hopefully our LOL monitoring with our vendor will take care of this for us, but we are the responsible party to see that it is done.