We are looking at making a 2nd lien loan on a home located in a SFHA. The 1st mortgage is at another institution that has not required flood insurance. According to FAQ 36, a bank must ensure sufficient flood coverage is in place for a prior lien and include the subordinate lien because the policy would pay the 1st mortgage holder first. Is that only for an NFIP policy? If the borrower obtains a private flood insurance policy, and only our bank is name as loss payee, would the unnamed mortgage holder still get paid first, or would we? Assuming this is allowed?

Yes, they would get paid first.