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Flood Disaster Protection Act of 1994
The National Flood Insurance Reform Act of 1994 is often referred to as "Flood Insurance" or simply "Flood" in the banking industry. This act requires Eastern Bank to:

  • Make a determination of whether a dwelling securing a real estate loan is located in a flood hazard area.
  • Provide notice to the applicant(s) that the dwelling is located in a flood hazard area indicating that flood insurance is required on the dwelling.
  • Require a borrower to purchase flood insurance as a condition to obtaining a loan when the property is determined to be in a flood hazard area.
  • Require a borrower to maintain flood insurance throughout the life of the loan, when applicable.

Let’s look at how the requirements of Flood Insurance apply to what you have to do.

  1. Inform the applicant about the potential flood requirement.
    If you know that your service area has the potential of being in a flood hazard area, you may want to let the applicant know that if the property is determined to be in a flood zone Eastern Bank will require the property to have flood insurance. Eastern Bank will notify the applicant directly and inform you that proof of flood insurance is required at closing.
  1. Verify that flood insurance has been obtain by the borrower.
    Determine that the flood insurance has been obtained in the amount required by Eastern Bank. This is usually the lesser amount of the outstanding principal of a first mortgage plus the new loan or the loan of the maximum insurance coverage obtainable in the program. If the borrower does not provide adequate documentation Eastern Bank cannot close the loan.

NOTE: Often, a dwelling is located in flood hazard area and the applicant has a existing mortgage, the dwelling is likely to have flood insurance coverage. However, this may not always be the case. Flood maps are always being updated and if the first mortgage is dated, the applicant may not have existing flood insurance coverage. Thus, it is a good rule of thumb to inform all applicants that Eastern Bank must make a flood determination and flood insurance will be required if in a flood hazard area.