I know that we have to require flood insurance in an amount "at least" equal to the outstanding balance of the loan, the value of the structure, or the max amount of insurance available. But, since that says at least, can we require more than the lesser amount requirement. For example, a loan has a balance of $50,000, but the value of the structure is $150,000. Under the law, I know the minimum amount we have to require would be the $50,000, but can we require the actual value of the structure, $150,000?

Sure you can and it is probably a wise thing to do from a safety and soundness perspective. You would most likely never make a loan that was not fully insured for fire, but banks do it all the time with flood insurance which makes absolutely no sense. The chances of a building in a SFHA flooding is like XX (can't remember the exact figure, but it is larger than your would imagine) times the chances of the building burning down. I just had a chat with a bank president last year regarding the exposure the bank had to uninsured flood losses. They had a lot of multi-million dollar loans on commercial properties that all only had $500,000 in coverage. Their exposure exceeded their capital and most were on the coastal region. I have not been back to see how they made out after Hurricane Ike.

WOW! That's scary! Anyhow, thanks for the quick reply. I was hoping that was the case, because it didn't make sense to me either to not fully insure the structure, for the customer's protection. It seemed like the wording "at least" was flexible enough to allow that practice.

I read in the Mandatory Purchase guidelines that there was a 26% chance of a property being flooded (that is in a flood zone)over the life of a 30-year mortgage. And it seems like I heard at a seminar that chances of a fire over the same 30 year period were something like 2%.

From the FEMA Frequently Asked Questions.



I explain this to lenders and borrowers to know avail. They still think it is more important to require adequate fire/hazard and skimp on flood.

MarkB

we require the same on flood as we do on hazard