On May 30, 2014, the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (FRS), the National Credit Union Administration (NCUA), and the Farm Credit Administration (FCA), collectively the Agencies, issued an interagency statement regarding the new National Flood Insurance Program (NFIP) maximum limit of flood insurance coverage for "other residential buildings." Section 100204 of the Biggert-Waters Flood Insurance Reform Act of 2012 raised the maximum for this type structure from $250,000 to $500,000 per building effective June 1, 2014, and the interagency statement attempts to give guidance on its implementation from the perspective of the Agencies' supervised lenders and servicers.
The Flood Insurance manual issued by the Federal Emergency Management Agency (FEMA) defines "other residential buildings" as a type of building occupancy that includes apartment buildings as well as hotels, motels, tourist homes, and rooming houses that have more than 4 units where the normal occupancy of a guest is 6 months or more. These buildings are permitted incidental occupancies. The total area of incidental occupancy is limited to less than 25 percent of the total floor area within the building. Other examples of "other residential buildings" include dormitories and assisted living facilities.
With regards to existing loan portfolios, the Agencies in their letter state, if the financial institution or their servicer is aware that because of the increase in the maximum limit of NFIP flood insurance coverage for "other residential buildings" securing designated loans results in the current borrower provided flood insurance amount being less than is required as of June 1, 2014 by federal flood insurance regulations, servicers should take steps to ensure that the borrower obtains sufficient coverage, up to and including force placing flood insurance pursuant to federal law.
The amount of flood insurance required for improved real estate located in a Special Flood Hazard Area is the lesser of:
- The outstanding principal balance of the loan(s);
- The maximum limit available for the particular type of structure; or
- The insurable value of the structure.
For additional information and to view the entire interagency statement, please click on this link:
Other Residential Buildings Coverage Increase Interagency Statement Bulletin.