I just received a flood determination that shows the property as being in zone A but it then says 'Federal flood insurance is not available because community is not participating in the NFIP'. My CEO's reaction was that we can't do the loan, but I've heard conflicting opinions. Can we do the loan or will we be out of compliance? Do private insurers even offer flood insurance?

See page 19 of the Mandatory Guidelines.

You can do the loan you just most likely won't be able to sell it on the secondary market.

The GSEs will not purchase loans with property located in a SFHA in a non-participating community.

PS. You still have to follow all notification requirements.

At a prior employer, the risk of doing such a loan required approval of the loan committee. I imagine if insurance was available through a private insurer it would be quite expensive.

Thanks to you both for the info.

We have a similar situation in the fact we were notified the property is located in a flood zone due to flood map changes. We notified the borrower of the need to purchase flood insurance but missed the designation that the community doesn't participate. The borrower wants a letter from the bank saying they do not need flood insurance. Any suggestions on what the letter should say?

The subject property in located in a SFHA however the community the property is located in does not participate in the NFIP therefore the bank will not require flood insurance at this time.

In the future should the community becomes a participating community in the NFIP then it will be mandatory for you to purchase flood insurance a that time..................................

Thank you, I appreciate your time.