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U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
WASHINGTON, D. C. 20410-8000

May 22, 1990
OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING-FEDERAL HOUSING COMMISSIONER
Mortgagee Letter 90-16
       TO:  ALL APPROVED MORTGAGEES
       SUBJECT:  Flood Insurance Requirements for FHA Insured Loans
 
            Because of the recent natural disasters we have received an
       increased number of questions about HUD's requirements for flood
       insurance.  In addition, the Federal Emergency Management Agency
       (FEMA) has distributed several publications to clarify its
       procedures and requirements, including new "GUIDELINES" which were
       published in the Federal Register of July 1, 1989 at pages 29666
       through 29695, and we want to bring HUD policy into conformance
       with that of FEMA.
 
            By this Mortgagee Letter, we intend to clarify our
       instructions concerning flood insurance requirements for existing
       and proposed 1 to 4 family units as follows:
 
            1.   Flood Insurance is required for any building improvement
                 which contributes to the mortgage value of the property
                 when that improvement is in a "Special Flood Hazard
                 Area" (SFHA).  This requirement does not include
                 unimproved land.  For both existing and proposed
                 properties, it is the responsibility of the Mortgagee
                 and Mortgagor to establish the facts necessary to make
                 this determination.  When the building improvements are
                 located outside of the SFHA, flood insurance is not
                 required.  Mortgagees must comply with FEMA instructions
                 concerning a building which is in an area mapped as an
                 SFHA, but which is above the base flood elevation.  The
                 attached information provided by FEMA shows some of the
                 conditions which may arise, and whether flood insurance
                 is required.  Please note that in a number of cases, a
                 Letter of Map Amendment (LOMA) or a Letter of Map
                 Revision (LOMR) may be required.  A LOMA amends the
                 currently effective FEMA map and establishes that a
                 property is not located in an SFHA.  A LOMR is an
                 official amendment to the currently effective FEMA map
                 It is used to change information on the map.  A LOMR is
                 usually followed by a physical map revision.
 
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                                                                      2
 
      2.   When processing a new subdivision for approval, if all
           or a part of the subdivision is in an SFHA, the HUD
           office must follow the requirements under Executive
           Order 11988, and the affected building sites in the
           subdivision must be raised to be above the base flood
           elevation.  For improved areas, EO 11988 does not apply.
           The subdivision or improved area must conform to the
           local government's flood plain management ordinance.  A
           LOMR will be required for any affected building site to
           be acceptable for mortgage insurance, and no flood
           insurance is required.
 
      3.   For the acceptance of subdivisions with VA CRVs/MCRVs
           in accordance with Mortgagee Letters 89-1 and 89-9 which
           are in SFHA'S, the HUD office does not need to follow
           the EO 11988 procedure.  The subdivision must conform to
           the local government's floodplain management program.
           Individual homes must be built above the base flood
           elevation.  A LOMR will be required and no flood
           insurance is required.
 
      4.   For all proposed construction, prior to insuring a
           mortgage for a home in an SFHA, a LOMR or LOMA must be
           obtained from FEMA indicating that the building improvements
           are no longer in the SFHA.
 
      Each case binder relating to a property affected by an SFHA
should contain a copy of the LOMA, or LOMR, or the property must
have flood insurance.
 
     These criteria represent the minimum requirements of the
Department.  Lenders are free to consider requiring flood
insurance in participating communities on the basis of their own
business judgement, even if the building that is the security for
a loan is located outside of an SFHA.  HUD does not expect that
this revision will expose the Department or individuals purchasing
homes with FHA insured mortgages to any additional risk.
Mortgagees are advised, and they should advise mortgagors, that
property in any flood hazard area may be damaged by flood and that
flood insurance on properties in those areas is encouraged as low
cost protection against serious loss which is not covered by
homeowners insurance.  In flood zones which are not SFHA's (Zones
B,C, and X) a homeowner may now be able to purchase a "preferred
risk" policy.
 
                                Very sincerely yours,
 
                                C. Austin Fitts
                                Assistant Secretary for
                                  Housing-Federal Housing Commissioner