Am I dreaming or did I once hear that if the value of the building is less than the deductable for flood insurance, you didn't have to insure the building? I cannot find this in the book so am assuming I am crazy. Too much holiday shopping on the brain today!

IMHO you have been doing too much shopping. It doesn't matter what the value is, except to determine the amount of the coverage.

Are you thinking of #2 below?

Exemptions
The flood insurance requirement does not apply with respect to:

1. Any State-owned property covered under a policy of self-insurance satisfactory to the Director of FEMA; or
2. Property securing any loan with an original principal balance of $5,000 or less and a repayment term of one year or less. For the purpose of this exemption, "original" balance is the face amount of the current promissory note even though it may be a refinance of another loan that did not qualify for this exemption.

That's what I thought. I started to question myself after telling a lender he needed flood insurance on a $1500 shed he financed on some bare ground. When he asked me what the standard deductable was I told him $1000 & had to agree it was unfortunate we had to require the coverage. I told him to bulldoze it! Now, back to my shopping....

Just to make sure you understand my response...
There is a 2 fold part to #2, it must be under $5M and it must have a repayment term of < 1 year.

Isn't flood fun?

OK, so what if a loan was originally for more than $5,000, but has been paid down to under $5,000 now, with less than a year left to the maturity date. Can coverage be dropped?

Thanks guys! I suspected the same. I appreciate the help!

In searching for something else - in order to converse nicely with my examiners about - I ran across the following on page 40, which is worded different than page 29.

(2) Small Loan
Section 4012a(c)(2) provides an exemption from the mandatory purchase requirements for any loan made with an original outstanding principal balance of $5,000 or less, and with a repayment term of 1 year or less. The dual criteria must be met in order for this exemption to apply. There is no exemption for home equity or second mortgage loans unless they meet these exceptions.

I just wanted to throw this out, because it does appear as long as the term is 1 year or less you are compliant.