Scenario:

1 loan two commercial properties. Both valued at $400,000. The total loan amount is $500,000. Both in a SFHA. I was just told by our loan operations department that they need to put................... $800,000 in coverge on the loan ($400,000 per property). When did this change? I don't see this in the FEMA guide.

It didn't - your loan operations department is incorrect - unless that is your bank's requirement. Per the flood regulations a bank is not required to have insurance in excess of the loan amount.

From the March/2008 - Revised Interagency Questions and Answers Regarding Flood Insurance

#11. Is flood insurance required for each building when the real estate security contains more than one building located in an SFHA in a participating community? If so, how much coverage is required?

Answer: Yes. The lender must determine the amount of insurance required on each building and add these individual amounts together. The total amount of required flood insurance is the lesser of:
** the outstanding principal balance of the loan(s) or
** the maximum amount of insurance available under the NFIP, which is the lesser of:
** the maximum limit available for the type of structures or
** the ‘‘insurable value’’ of the structures (see Question 7).
The amount of total required flood insurance can be allocated among the secured buildings in varying amounts, but all buildings in an SFHA must have some coverage.

Example: Lender makes a loan in the principal amount of $150,000 secured by five nonresidential buildings, only three of which are located in SFHAs within participating communities.

** Outstanding loan principal is $150,000
** Maximum amount of insurance available under the NFIP
** Maximum limit available for the type of structure is $500,000 per building (non-residential buildings); or
** Insurable value (for each non-residential building for which insurance is required, which is $100,000, or $300,000 total)

Amount of insurance required for the three buildings is $150,000. This amount of required flood insurance could be allocated among the three buildings in varying amounts, so long as each is covered by flood insurance.