Flood risk doesn’t wait—so neither can compliance. Here are the most important regulatory considerations lenders should keep top of mind:
1. Mandatory Purchase in SFHAs: For properties in a Special Flood Hazard Area (SFHA), flood insurance is mandatory. Lenders must complete a Standard Flood Hazard Determination (SFHD) whenever a loan is made, increased, renewed, or extended.
2. Adequate Coverage Amounts: The required flood coverage must be the lowest of:
-The outstanding principal balance
-The insurable value of the structure
-The maximum coverage available through the National Flood Insurance Program (NFIP)
Contact us if you’d like to explore a different Flood determination provider.
3. Escrow Requirements: For most loans secured by residential real estate in SFHAs, lenders must escrow flood insurance premiums, ensuring payments are made on time and policies remain in force. Note that many institutions are exempt from these requirements as a “small servicer.” Contact us to discuss whether you qualify for an exemption.
4. Force-Placement Protocols: If a voluntary policy lapses or doesn’t meet requirements, lenders are required to issue notices and, if necessary, force-place coverage after 45 days. If the borrower later provides proof of coverage, the lender must refund any overlapping premiums. Lee & Mason’s lender-placed Flood workflows are optimized for compliance and exceed stated requirements.
5. Acceptance of Private Policies: Lenders must accept private flood insurance that meets the statutory definition, including provisions like NFIP policies (e.g., cancellation notice, mortgagee clause). An insurer’s potential use of a compliance aid statement is also worth noting.
6. New for 2025: Full Premium Calculations: As of April 2025, Freddie Mac requires lenders to use full-risk flood premiums, not subsidized rates, when calculating Debt-to-Income (DTI) and Housing Expense-to-Income (HTI) ratios.
Common Flood Compliance Challenges
Across the industry, Lee & Mason continues to help lenders that face recurring issues that increase both their risk and regulatory exposure:
-Incomplete or outdated flood zone determinations
-Delays in verifying borrow-purchased coverage
-Insufficient internal tracking systems
-Misunderstandings around escrow requirements
-Inconsistent timing involving lender-placed insurance and required notices
A Smarter Approach to Flood Compliance
Lee & Mason works with lenders across the country to streamline their approach to flood compliance. Our lender-placed flood insurance solutions are designed to integrate seamlessly with your existing workflows, reducing friction while enhancing protection.
Through Lee & Mason’s online platforms, clients have real-time access to their portfolio and the voluntary policy details for each collateralized structure located within a Special Flood Hazard Area (SFHA).
When lender-placed insurance is needed, our process is fast, compliant, and minimally disruptive to protect your portfolio without adding unnecessary complexity for your staff or borrowers.
Final Thought
Flood compliance isn’t seasonal—it’s essential. With increasing regulatory scrutiny and the growing complexity of risk management, now is the time to assess your flood insurance processes and ensure you have the right systems and partners in place.
