339.3 Requirement to purchase flood insurance where available.

The amount of insurance must be at least equal to the lesser of the outstanding principal balance of the designated loan or the maximum limit of coverage available for the particular type of property under the Act. Flood insurance coverage under the Act is limited to the building or mobile home and any personal property that secures a loan and not the land itself.

So how do we direct our lending personnel to properly calculate the amount of flood insurance required?

Some time ago the general rule stated "take the total appraisal value minus the land value and that gives you the total value of the improvements".

Then, a couple of years ago, that changed to "take the amount of the replacement cost from the current hazard policy".

Does the final rule put us back to where we were originally?

Some time ago the general rule stated "take the total appraisal value minus the land value and that gives you the total value of the improvements.

That has never been the rule, although some banks thought it was. Market value has never been part of the consideration. All the final rule states, if you read the preamble, is that land value is not insurable.

Agreed. You must have read someone's "layman" terms interpretation, but that has never been the regulation or law.

I swear I want to think it was in the old yellow handbook (not official, but FEMA's old guide) and probably misinterpreted if I had to guess.

Is there a list of FAQs to the final rule?

If you want to read a discussion as to how they came to the final rule, I suggest reading the preamble. That is the closest thing you are going to find.

I've always thought there was a 3rd option to determine the maximum amount of required flood insurance to include the Replacement Cost Value of the building.

Did that go away with the June 16, 2015 Joint Final Rule? https://www.fdic.gov/news/board/2015/2015-06-16_notice_sum_c_fr.pdf

There is either Actual Cost Value or Replacement Cost Value depending on the type of structure and occupancy.

A third option???

Sorry Randy. Maybe I'm confusing things by not starting a new thread. Previously, I thought we were required to determine the amount of insurance required by taking the lesser of:
1. the loan amount
2. max amount of coverage under the NFIP, or
3. the replacement cost value.

The final rule issued June 16, 2015 only mentions "the lesser of the outstanding principal balance of the designated loan or the maximum limit of coverage available for the particular type of property under the Act." That makes me think the replacement cost value option is now gone. We now only use 1 and 2 to determine amount required insurance effective Oct 1, 2015.

maximum limit of coverage available for the particular type of property under the Act.

That refers to either the maximum payout (ACV or RCV) or the maximum amount they can get.

They are not suggesting you get a borrower to buy $250,000 of insurance on a building worth $40,000 just because your loan is for $300,000 because the house sits on 40 acres.

Randy's right that they combine 2 of "lesser of 3" items into 1 with the statement "maximum limit of coverage available . . . " But there's other things to consider when determining the insurable value. The FAQs make it clear that you can use demolition cost and functional building cost, when it comes to non-residential buildings.